Holding

The definition of "related person" in the Central Excise and Salt Act is constitutionally valid and does not encompass Atul Products Ltd. or Crescent Dyes & Chemicals Ltd.; therefore the demand for differential duty is quashed, but the direction to pay bank‑guarantee costs is set aside.

Summary

The Union of India challenged a demand for differential excise duty on dyes manufactured by ATIC Industries Ltd., arguing that the definition of "related person" in the Central Excise and Salt Act, 1944 was unconstitutional and that ATIC's wholesale buyers, Atul Products Ltd. and Crescent Dyes & Chemicals Ltd., were "related persons" whose selling price should determine assessable value. The Supreme Court held that the definition is within Parliament's legislative competence and, on a proper reading, applies only to relatives or distributors who are relatives under the Companies Act, 1956; consequently the two buyers are not "related persons" and the demand for differential duty was rightly quashed. However, the Court set aside the High Court's order directing the Revenue to pay the costs of the bank guarantee furnished by the assessee. The appeal was dismissed, with the Revenue ordered to pay the costs of the appeal.

Issues considered

The constitutional validity of clause (c) of sub‑section (4) of section 4 of the Central Excise and Salt Act, 1944 as amended by Central Act 22 of 1973.
Whether Atul Products Ltd. and Crescent Dyes & Chemicals Ltd. qualify as "related persons" of the assessee under that definition for the purpose of computing assessable value.
Whether the High Court was correct in directing the Revenue to pay the costs incurred by the assessee in furnishing a bank guarantee.

Legislation cited

Central Act 22 of 1973s. amendment to Central Excise and Salt Act, 1944
Central Excise and Salt Act, 1944s. section 4, s. sub‑section (4) clause (c)
Companies Act, 1956s. definition of relative
Constitution of Indias. Article 132, s. Article 133, s. Article 246, s. Article 256

Subjects

related personcentral excisedifferential dutyconstitutional validitylegislative competencebank guaranteeassessment valueshareholdingprincipal to principalhigh court directiontax law

Judgment

,

UNION OF INDIA AND OTHERS

B v.
ATIC INDUSTRIES LIMITED

• . . Jwte
.
[P.N. BHAGWATI,
22, 1984
R.S. PATHAK AND

!\MARENJ?RA NATH SEN, JJ.J

Central Excise. and Salt Act, 1944-Clause (c) of sub-section (4) of
section 4 as i( stood after its amendment·by sec. 2 of the Central Act 22 of 1973~ >--
ConsitUtationaJ validity of. ·
D
Central Excise and Salt Act, ·1944-The words "related person" occurriflC
· in claitse (c) of sub·Section (4) of sec. 4 as it stood after it~ amendment by sec.
2 of the Central A.ct 22 of 1973-Dejinitton and applicability of.
'
Bank Guarntee-Whether the High Court was right in directing the costs
of/urilishing bank guarantee to be paid by the Revenue to (he assessee in cases
E wh.ere the demand for duty is quashed a~ unjustified. •

The reSpondent-assessee, a limited company, was engaged in the
business of manufacturing dyes. Its 50 per cent share capital was held by Atul •
products Ltd. and the remaining 50 per cent by Imperial Chemical Industries
Ltd. London wHich also had a subsidiary company fully owned by it,"called
,. ~mperial Chemical Industries (India) Pvt. Ltd. The Impenal Chemical Industries
(India) pvt. Ltd, ceased to be a subsidiary company wholly owned_ by the
Imperial Chemical Industries Ltd. London on 13th March 1978, since 60 per
cent of the share capital of Imperial Cheniical Industries (India) Pvt. Ltd, was
offered to the pub.lie in pursuance of the policy of the Government of India
requiring ihat not more !ha~ 40o/o- of the share Capital of an ltdian co~pany ·
should be held by a for~ign sharehplder. ConSequent up<in this dilutiQn e·
G forcii&'n Shareholding, the name of Imperial Chemical Industries (lnQJa) Pvt. Ltd,
was changed to Crescent Dyes and Chemicals Ltd.

The assessee at all material times sold the large hulk of dyes rnanufac~
tured by it in wholesale to Atul Products Ltd. and Imperial Chemical Illdus~
tries (India) Pvt. Limited which subsequently ·came to be known as Crescent
H Dyes and chemicals Ltd. at a uniform price applicable alike to both these
wholesale buyers and these wholesale· _buyers sold these dyes to dealers and
consumers ·at a higller price which inter. alia. included the expenses incurred by
UNION v. ATIC INDUSTRIES 931

them as also their profit. The traCsactions between the assessee on the one A
hand and Atul Products Ltd. and Crescent Dyes and Chemicals Limited on the
other were as principal to principal and the wholesale price charged by the
assessee to Atul Products Ltd and Crescent Dyes and. Chemicals Ltd. was the
sole consideration for the sale and no ex:tra-crimmercial considerations entered
in the det~rmination of such price.

B
The aSsessee went on clearing the dyes manufactlired by it after payment
of excise duty as per the price 1ist submitted by it on the basis of the wholesale
price charged to Atul Products Ltd. and Crescent Dyes and Chemicals Ltd.
as the same was approved by the Asst. Collector on 29th October, 1975.
The Superintendent Of Central Excise, however, is~ued a notice to the assessee
on 31st July: 1976 calling upon the assessee to show cause why the earlier
decision approving the price list should not b"° reviewed and.the differential c
duty worked out on the basis of selling price charged by Atul Products Ltd.
and Cresceat Dyes & Cheinicals Ltd. should not be recovered w.e.f. 1st
October 1975 on the ground . that the assessee on the one hand and Atul
Product~ Ltd. ~-nd Crescent Dyes and Chernicals Ltd. on the other 'vere·
"related pe~sons" and the assessable value .of *'he dyes manufactured by the
assessee was therefore liable to be calculated on the basjs of the price at
which Atul Products L1d. and Crescent Dyes and Chemicals- Ltd. sold the
D
Dyes to the dealers and the consumers. The assessee in its reply dated 31st
. August 1976 pointed out that the assessee on the one hand and Atul Products
""' Ltd. and Crescent Dyes and Chemicals Ltd. on the other Were not "related
persons" within the meaning of the definition of that term contained in clause
(c) of sub·section (4) of section 4 of the amended Central Excise and Salt Act
1944. The Asstt. Collector was however not satisfied with the explanation
E
offered by the assessee and viewed, his earlier order of approval of the price
list and confirmed the demand Of differentia 1 duty which came to an aggregate
amount of Rs 1, 17, 77, 737,65 with retrospective effect from 1st October, 1975·
and directed th<:> asscssee to file a fresh price list on the basis of the selling price
cllarged by Atul Products Ltd. and Crescent Dyes and Chemicals Ltd.

F
The assessee thereupon fl.l~d a \vrit p ctition in the High Court of
Gujarat challenging the validity of the demand made by the Asstt.
Collector on two grounds namely, (i) that the concept of "related .per-
. son" occuring in , clause (c) of sub-section (4) of section 4 of the
amended Central Excise and Salt Act, 1944. was outside the legislative
competence Of Parliament under Art. 226 read with Efltry 84 in the Union
List and was therefore u.nconstitutional and void ; & (ii) that the G
assessee .on the one hand· and A tu l Products Ltd. and Crescent Dyes &
Chemicals Ltd. on the other were not ''related persons" and the whole-
s~le cash price charged by the assessee to · .A tul Products Ltd. and Cres-·
cept Dyes and Chemicals Ltd., and not the price at which the latter sold
the dyes to the deal~rs or the consumers represented the true measure of
the value of the ~yes ·for the purpose of Chargeabiiity to excise duty. The II
High Court ~llowed the writ petition dn these two grounds and also gave
direction 'to the Revenue for paying the costs incurred by, the assesse:e in
932 SUPREME COURT REPORTS [1984] 3 S.C.Ii..,
•.
A cJnneCtion with the· bank ·guarantee furnished by it. Hence the apJ,eal
to this Court by certificate granted under Art. 132 and 133 (1) of the Consti-
tution.

Allowing the appeal in par~,· !he Court.

B HELD : (1) On a proper interpretation of the definition of "related
person" in sub·sec'tion (4) (c) of sec. 4, the words "relative and a ·distri-
butor of the assessee" do not refer to any distributor but they are li.rnited
only to a_ diStributor who is a relat_ive ·of, the ·asses·see within the meaning
of thi! Companies Act, 1956. The definition of •irelated person" is not
und_uly wide and does ~a( suffei' from any constitutional infirmity. It is
within the legislative compe,ence of Parliament. The decision of the
c · High Court holding that "the concept of related person occurring in
arnend~d section 4 is ultra vires the. legislative corn petence of Parliament
under Article 256 read \vith Entry 84 in the Union List and striking
down clause (c) 'or sub-section (4) of sec. 4 as also. the ex.Pression "the
buyer -is P_ot a- related perSon ~nd'' in clause '(a) of sub-section (1) of sec.
~and proviso (lii) to that clause mllst cc·nsequently be set aside and it must
:be -held that these provisioi:ts are .constitutionally valid. [937 E-H]
.D
Union of Iµdia v. Bombay. Tyres International Ltd. [1984] I SCC
467 applied,
/
High Court judgment in Special: Civil Appln. No. 119.of 1976 decided on 20 ·
21F ebruary 1979 reversed.
E
(2) , The first part-of the definition of "related person" in clause ( c) of
sub-section (4) of sec. 4 defines 'related persbn' to mean "a t:erson who is so
assoicated with the assessee that they have.interest directly or indirectly in the
business of each other" It is not enough that the .asses.see has an .interest, direct
or iodi'rect _ in, the business of the person a11eged to, be a related
person nor is it ertough that the person allehged to be a related pesson
F ~as an. inte:est, direct or indirect in the business of the assessee.
To attract the applicability of the first part .of the definitiorl, the
assessee and· the person alleged to be a· related 11erson must b3.ve interest,
direct of indirect in the bu_siness of each other. Each of them must ba('e a
diiect or indirect interest in the business of the other. The quality '·and
degree of interest which .each -has in the business of the other m'ay be
G di°lferent ; the interest of one in the business of the other may be direct
while the interest of the latter in th~ business of the former may be indirect.
That would nOt make .any difference ·so long as each has got some interest,
direct Of indirect in the business of the other. (93~ G-H; 939 A-BJ

(3) (i) Jn the present case Atul Products J.,td. has undoubtedly
interest in the business of the assessee Since it holds 50% of the share c'!pital
H of the assessee and has interest as shareholder in the business carried on by the
a.sessec. B_ut, it connot be said that tfte assessee, a Ltd. company, has any
interest, d,irect or indirect in the business carried on by one of its shareholders,

•
•
IJNION v. ATIC INDUSTRIES. 933
>
namely Atul , Products Ltd., even though the share-holding of such A.
shareholder may be 50 per cent. Secondly, Atul Products Ltd. is a wholtsale
buyer of the dyes manufactured by the assessee but even then, since the
transactions between them are .as principal to principal~ it is difficult to
appreciate howl:he assessee could be said by virtue of that Circumstan_ce to have
any interest, direct or indirect, in the business of Atul Products Ltd. The ·
assessee is· not ·concerned whether Atul Products Ltd. sells or does not sell B
the dyes purchased by it from the asscssee nor is it concerned whether Atul
Products Ltd. sells such dy<s at a profit or at a loss. [939 C-F]

(ii) Perhaps- the position in regard to Crescent Dyes and Chemicclls
Ltd. is much stronger than that in regard to Atul Pro!=lucts Ltd. Crescent
Dyes and Chernjpals Ltd. is not even a shareholder of the assessee and it c
has therefore no interest direct or indirect in the business of' the assessee.
Equally, the assessee has .no interest, direct or indirect in the business of
Crescent Dyes . and Chemicals · Ltd., ·Which i:; just a ,wh0Iesalc dealer
purchasing dyes from the asscssee in wholesale on principal to principal basi&.
[939 G-H]

D
(iii) The first pa~t of the definition of related persons inclause
(c) of Sub-section (4) of section 4 of the amended Act is therefore clearly
not satisfif;d both in. relations to Atul Products Ltd. as also in relation to
Crescent Dyes and Chemicals Ltd. and neither of them can be said to be
a "related person" vis-a-vis the assesseee within '·the 1neaning of the
definition of that term in clause. (c) of sub·section (4) ··of sec. 4 of _the·
amended Act. Therefore, the assessable value of the dyes: manufactured E
by the assessee cannot be determined with reference to the. selling price
charged b)'. Atul Products Lid. and Crescent Dyes and Chemicals Ltd.
to their \)ruchase~s but must be determined on the basis of the wholesale
cash price charged by. the ass0sset;' to Atul Products Ltd. and Crescent
Dyes and Chemicals Ltcl. The demand made by the Asstt. Collector for
differential duty mu;:;t therefore be held to be i;ightly quashed by the High F
Court. [940 D-F]

(4) Th~ High Court was not right in giving direction to the
Revenue to pay costs inCurred by thS assessee in conneCtion with the bank.
guarantee furnished by the assessee. The bank guarantee was required to
be furnished by the assessee as a condition of"grant of' interim !tay of G
enforcement of the demand for differential duty and if it is u.ltimately found
i:hat the demand for differential duty was not justified, 'the bank guarantee
would certainly have to be discharged. But, it is difficult to see how the
costs of furnishing the bank guarantee could be directed to be paid by the
Revenue to the as.sessee. This direction of the High Court which directs
the revenue to pay to the assessee the costs in conn'ection with the bank H
guarantee furnished by "it in pursuance of the.interim order of the High Court
is set aside. [940 H; 941 A-BJ
'
934 SUPREME COURT REPORTS (1984] 3 s.c.!l..
A·
CIVIL APPELLATE JURISDICTION; Civil Appeal No. 3.260 df 1979

From the Judgment and Order dated the 22/23rd day of
February, 1972 of the Grjarat High Court in Sp!. Civil Appln. No.
52/77. .
B
R.N. Poddar for the Appellants.

• N.A. Palkhivala, Atul Setalved, F.H.J. Talyar Khan,
Ravindar Narain, Kamal Mehta, A. Manjra, T,M. Ansari and Miss
Rainu Walia for the Respondc;nts ..
c
The Judgment of of the Court was delivered by

BHAGWATI, J. This appeal by certificate granted under
· Articles 132 and 133 (I) of the Constitution raises a short question
D relating to the applicability of the definition of "related person"
contained in clause (c) of sub-section (4) of section 4 of the Central
Exeise and Salt Act, I 944 as it stood after its amendment by
section 2 of Ceniral Act 22 ·Of 1973 which came into force with
effect from !st O_ctober, 1975. The facts giving rise to t4is appeal
are few and may be briefly stated as follows :
E •
The assessee is a limited company engaged in.the business of
manufacturing dyes and it has its factory situate in Atul near Bulsar
in the State of Gujarat. The share capital of the a·ssessee is held
by two limited companies ; Atul products Limited holds 50 per
cent of the share capital while the remaining 50 pe~ cent of the
F share capital is held by Imperial Chemical Industries Limited,
London. The assessee at all material tin'les sold the large bulk of
dyes manufactured by it in wholesale to Atul products . Limited and
Imperial Chemical Industries (India) Private Limited at a uniform
price applic.able alike to both these wholesale buye~s and these
G wliolesale buyers in their turn sold the dyes purchased by them
from the assessee to dealers as well as consumers. Now, until 13th
March 1978, Imperial Chemical Industries (India) Private Limited
was a subsidiary company wholly owned by Imperial _Chemical
Industries Limited, London. But, in pursuance of the policy of the .
Government of India requiring that not more than 40 per cent of
H the share capital o,f an Indian company should be held by a foreign
share-holder, 60 p~r cent of the share capital of Imperi~l Chemical .
Industries (India) Priv'ate Limited was offered to the upblic, with
UNiON v. Alic INDUSTRIES (Bhagwati, J.) 935

A
.the result that since 13th March, 1978 ouly 40 per cent of the share
capital of Imperial Chemical Industries (India) Private Limited
was held by Imperial Chemical Industries Limited, Londqn and
60 per cent came to be held by Indian citizens and. Imperial Chemi-
cal Industries <India) Private Limited ceased to be a subsidiary
'company wholly owned by the Imperial Chemical Industries B
Limited, London. Consequent upon this dilution of f~reign share
holding, the name of Imperial Chemkal Industries (India) Private
Limited was changed to Crescent Dyes and Chemicals Limited. Atul
Products Limited and Crescent Dyes ati.d Chemicals . Limited
contjnued'to he the wholesale dealers of the dyes·manufactured by
the assessee throughout the relevant period with which we are c
concerned in this appeal. It was common ground between the parties
that the transactions between the assessee on the one hand and Atul
Products Umited. and Crescent Dyes and Chemicals Limited o.n
the other were as principal to principal and the wholesale price
charged by the assessee to. Atul Products Limited and Crescent
Dyes and Chemicals Limited was the sole consideration for the D
· sale and no extra·commerciai considerations entered in the deterima-
tion of such price. Atul Products Limited and Crescent Dyes and
Chemicals Limited, of course, sold the dyes purchased by them
from the assessee at a higher price which inter alia included the
.expenses incurred by them as also their profit.
E'

. On 15th Sept;:mber, 1975 the assessee submitted a price list
s)lowing the assessable value of the dyes manufactured by it on
the basis of the wholesale price charged by it to Atul Products
Limited and Crescent Dyes and Chemicals Limited. The Superin·
·tendent of Central Excise demanded certain information from the F
assessee with a view to satisfying himself as regardi the correctness
of the price list submitted by the assessee and the requisite in·
_,.• formation was furnished by the assessee by its letter >dated 23rd
September, 1975. Thereafter correspondence ensued between the
assessee on the one hand alld the Superinteudent of Central Excise
on the other and ultimately on 29th October, 1975 the Assistant G
Collector of Central Excise approved the price list submitted by
the assessee. The assessee thereafter went on clearing the dyes
manufacthred by it after payment of excise duty OJ} the· basis of the
price list submitted by the· assessee and appr.oved by the Assistant
Collector. Then again some further correspondence took place H
between the assessee an.d the Central Excise Authorities by which
c;erta,in information d~manded by the Central Excise Authoritie~
936 SUPREME COURT REPORTS (1984] 3 S.C.R.
A
was supplied by the assessee. Tl:ie Superintendent of Central
Excise, however, issued a no' ice to the asscc.see an 3bt July, 1976 ·
calling upon the· '!lssessee to show eause why the .earlier descision
of the Assistant C~llector approving the price list should not be
reviewed on the ground that the assessee on ·the one hand and
Autal Products Limited and Crescent Dyes and Chemicals Limited
·on the other were '.'related persons" and the assessable value of the
dyes manufactured by the assessee was, therefore, liable to be
calculated on the basis of the price at which Atul Products Limited
and Cre.scent Dyes and Chemicals Limited sold th~ dyes to the
' dealers and the 7onsunters. The assessee was required to show
c cause why the differential duty worke<I out on the basis of the
selling price charged by Atul Products Limited and Crescent Dyes '
and Chemicals Lhrited should not be recovered from the assessee
with .effect from ·!st October, 1975. The assessee in its reply dated
31st August 1976 raised several contentions in answer to the show
D cause notice and pointed out inter alia that the assessee·on the one
band and Atul Products Limited and Crescent Dyes and Chemicals
Limited on the other were noi "related persons" within the
meaning of ·the definition of that ·term contained i'n sub-clause
(c) of sub-secfon (4) of section 4 of the amended Central Excise
'and Sait Act, 1944 .. The Assistant Collector was, however, not
E satisfied with the explanation offered by the assesee and be
ultimately by an order dated !Otb December, 1976 reviewed his
earlier.order of approval of the price list and confirmed the demand
differentjal duty with retrospectlve effect from !st October, 1975.
and directed the assessee to file a fresh price list on the basis of the
selling price charged oy Atul Products Limited and ere.scent Dyes
F and Chemicals Limited. The demand for differential duty computed
by the Superintendent of Central Excise for the period from !st Octo-
ber, 1975 to 31st December, 1976 came to an .aggregate amount of _
Rs. 1, 17)7,737,65. The asses see thereupon filed a writ petition in the
High Court of Gujarat challenging the validity of the demand made
by the Assistant Collector and in the meanwhile also perferred
G
an appeal before the Appellate Collector. The Appellate Collector
rejected the appeal of the assessee withol)t ex?mining ihe merits
of the grounds raised by the assessee since be took the view that all
these grounds would be decided in the writ petition pending before
the High Court and no useful purpose would be served by bis
H consideri'nll the self-same 'grounds.
•

UNiON v. ATIIC INDUSTRIES (Bhagwati, J.) 937

The assessee urged several grounds in support or the writ A
petition before the. High. Court but it is not ~ecessary to refer to
them in detail, because the High Court ultimately <;lecided the writ
• . petition in favom of the assessee only on two grounds and it will,
therefore, be enough if we ·refer to those two.grounds alone and
consider whether the decision of the High Court is correct in B
so for as it decided those two grounds in favour of the assessee. The
first ground was that the concept of "related person" occurring in
clause (cl of sub-section (4) of section 4 of the amended Central
Excise and Salt Act, 1944 was outside the legislative compe•ence
of Parliament under Article 246 read with Entry 84 in the Union
List and was, therefore, unconstitutional and' void. This .ground c
found favour with the High Court in view of the earlier \lecision
~.
given by the same Bench on 20/21 February, 1979 in Special Civil
Appjication No. 1.19 of 1976. But, this decision of the High
Court striking down clause (c). of sub-section (4) of section 4 of the
amended Act cannot stand in view of the decision of the Court in
Union of India v. Bombay Tyres International Limited(') where an D
Identical challenge to the consiitutional validity of the definition of
the term "related person" was negatived by this Court. The defini-
tion of the term "related- person'' was read down and it was held
by this Court that "On a proper interpretation of the definition
of "related person" in s.ub-section (4) (c) of section 4 the words
• E
"ralative and a distributor of the asssesee" do not refer to any
distributor but they ate limited only to a distributor who is. a
selative of the ·assessee within· the meaning of the Companies Act,
1956. So read, the definition of"related person" .is. not unduly
wide and does not suffer from any constitntional infirmity. It is
within the legislative·· competence of Parlia~ent. The decision
of the High Court holding that "the concept of. related person F
occurring in amende<j section 4 is v/tra vires the legislative
competence of P.arliament under Ariicle · 246. read with Entry 84 in
the Union List" and striking down clause (c) of sub-section (4) of
section 4 as also the expression "the buyer is not a related person ·
and"· in clause (a) of sub-section (I) of section 4 and proviso , .G
(iii) to that clause must consequently be set aside and it must be
held that these provisions are constitutionally valid.

• The second ground on which the· assessee assailed the validity
of the demand made by the Assistant Collector for difrerential duty
H
{I) [1984) I S.C.C. 467,
938 SUPREME COURT' RH ORTS [19841 3 s.c.R.

A related to applicability of the definition of "rel.ated person" in clause
(c) of sub-section (4) of section 4 of the amended Act. The Assistant
Collector took th c 'icw tht tbe acselsee on the one hand and Atul
Products Limited and Crescent Dyes and Chemicals lirrited on the
other were.related persons whhhin the meanirg of the first .Part of
the definition of the term "related person" and the assessable v~lue
B of the dyes manufactured by the assessee for the purpose of· excise
duty was, therefore, liable to be determined with reference to the .
price' at which the dyes were ordinarily sold by Attul Products
Limited · and Crescent Dyes and Chemicals limited. This veiw
taken by the Assistant Collector was set aside by the High Court
G on the ground that the .assessee on the one hand and Atul Products
Limited and Crescent Dves and Chemicals limited on the other
were not "related person~·· and the wholesale cash price charged
by the assessee to Atul Products Limited and Crescent Dyes and
Chemicals .limited and not the price at which the latter sold the
dyes to the dealers· or the consumers, represented the true measure
D ·of the value of the dyes for the purpose of chargeability to excise
duty. This conclusion reached by the High Coµrt was assailed .
before us by the learned Attorney General appearing on behalf of
the Revenue. }le fairly conceded that the only part of the defi-
nition of· "relited person" in clause (c) ·of sub-section (4) o
section· 4 on which h; could rely was the first part which defines .~
E" "related person" to mean "a person who is, so associated with the
assesse~ that they have interest directly or indirectly in the business
of each other." The secoi;d part of the dejlnition which adds an
inclusive clause wrs admittedly not applicable, because neither
Atul Products Limited nor Crescent Dyes and Chemicals limited
. was a holding companyor a subsidiary company nor was either of
F them a relative of the assessee, so as to fall within the second part
of the definition. But we do not ibink that even the limited
contention urged by ~be learned Attorney General on behalf of
the Revenue based on the first pa•t of the definition can su~ceed.
What .the firi;t part of the definition requires is that the person
G
who is sought to be branded as a '"related persqn" must be a
person who is so associated with the assessee that they have
interest, directly or indirectly, in the business of each other. It is
not enough that the assesse bas an. interest, direct, or indirect in the
business of the gerson alieged to be a related person nor. is it eno11£h
that the person alleged to b.e a related person has an interest, direct
H or indirect, in the business of the assesee. It is e~sential to attract the
applicability of the first part of the definition that the .asswee
and the person alleged to be a rdated person must haw interest,
ljNION v. AllG lNDUSlRIES (Bhagwati, J.) 939
A
direct or .indirect, in the business of each other. Each of them
miist have a direct or inciirect interest in the business of the other,
The equality and degree of interest which each has. in the bussiness
of the other may be different: the interest of one in the business
of !he other may be direet, while the interest of the latter ii) the
business of the formel' may be indirect. That would not make any B
..
difference, so long as each has ·got some interest, direct or indirect,
in the business of the other. Now, in the present case, Atul. Products
· Limited ha.s undoubtedly interest· in the busine'8 ·of the assessee,
since Atul Products Limited holds 50 per .cent of the share· capital
of the .assess~e a·nd has .interest as shareholder in the biisiness
carried on by the assessee .. But it is not possible to say that the . c
assessee has any interest in the business of. Atul Products Limited.
'J;here are two points of view from which the relationship ·between
the assessee and Atul Products Limited may be considered. First,
it may be noted that Atul Products Limited is a shareholder of the '
assessee to the exterit of 50 per. cent of the share capital. · But we· :
D
fail to see how it can be said that a limited company has any
\intere!;t, direct or indirect, in. the business carried on by one of its .
shareholders, even though the shareholding of such · shareholder
may be 50 per cent. Secondly, Atul Products Limited is a whole-
sale buyer of the dyes manufactured by the assessee but even. then,

' .
·, • since the transactions between them are ·principal to principal, it is
difficult to appreciate how the assessee could be said by virtue of
th.at cricumstance to 'have any interest, direc' .Or indirect, in the.
E

business of Atul Products Limited. Atul Produets Limited buys
dyes from the assessee in wholesale on principal to ·principal basis
·and then sells such dyes in the market. The. assessee is not
concerned whether Atul Products ·Limited 'ells or does not sell the .. F
dyes purchased by i.t from th~ assess.ee nor is. it concerned whether_
Atul Pr.oducts .Limited sells such dyes at a loss. It is impossible
to contend that the ass.ess.ee has any direct or indirect interest in
th.e business of a wholesale dealer who purchases dyes· from .it on
· principalto· principal basis. The same position obtains iri regard '.
:;,_.-,

to Crescent Dyes and Chemicals Limited. Perhaps the position in G
regard to Crescent Dyes and Chemicals Limited· is much stronger ·
then that in regard fo Atul Products Limited. Crescent Dyes and
·Chemicals Limited is not even a shareholder of the assessee and it
hl!S, therefore, no interest dfrect or indirect in the bussiness of the
assessee. It is Imperial ·Chemical .Industries Limited, Londo!) . f f
which holds 50 rer cent qf the sh?Je capitel of the assessee and
this foreign company aim holds 40 per cent of the. share capital of
940 SUPREME COURT REPORTS [1984] 3 S.C.R.
A
.
Crescent . Chemicals and Dyes Limited. Imperial . Chemicals .· ..
Industries Limited, London would admittedly have an interest in
tl)e business of the assessee in its capacity as a shareholder, but how.
can Crescent Dyes and Chemicals Limited of which 40 ·per cent of

• the shares are held by Imperial Chemical Industries Limite<l;
• ·London which in_ its turn is a shareholder of the assessee, can not.be
' said to have any interest, direct or indirect, in' the business of the
assessye. Equally the assessee has no. interest diiect ·or indirect in
the business of Crescent Dyes and Chemicals Limited, which is just
a wholesale dealer purchasing ayes from the asses see in wholesale ' .·.
.a on principal t.o principal basis. It is · obvfous that f~r the same .
'reason's which have prevailed with tis while discussing _the case of
Atul. Products Limited, the assessce has no _direct ot indirect interest·
in the business of' Crescent Dyes and Chemicals Liniited. The first
,part of the definiiion of. related person in clause (c) of sub-section
. (4) of section 4 Of the · ame11ded Act is, ·therefore, clearly not
D satisfied both in relation to Atul Products Limited as . also in
relation to Crescet;1t - Dyes and Chemicals Limited and neither of
them can be said i:o be a "related person" vis-a-vis the assessee
·within the meaning of the definition of that term in clause (c) of
· iub-scction (4). of section 4 of the amended Act. We, therefore,
affirm the view iaken. by the High Court and hold that the assessable
value of the· dyes manufactured by tb,e assessee cannot be determined
with reference ·to the selling· price charged by . Atul · Products.
Limited and CresQ'ent Dyes and Chemicals Limited to thei~
purchasers but must be determined.on.the basis of the wholesable
ca.sh price cllarged by the assessee to Atul Products Limited and
Crescent Dyes aud Chemicals Limited. 'Th.e demand made by the . •
Assistant Collector for differential duty must, therefore, l)e held
to be rightly quashed by the High Court.. ·

But there is one small matter on which the High C~urt. has,
in our. view, erred in giving .direction and it·i.s in regard· to payment
G of de costs incurred by . the assessee in connection with the bank
guarantee furnished by it in pursuance· of the interim order made
by the· High Court. We do not think the High Court was Fight
in giving this direction. The bank. guarantee was required to be
fitrnished by the assessee as a condltlon of grant .of interim stay
of enforcement ·of the . demand. for differential duty and if it .is
a ultimately foun<;I that the 4emand for· differ~ntial duty was not \-
•
•
..
. . . . . .
UNION v. ATIC INDUSTRIES (Bhagwati,J.) 941
justified, the bank guaraniee would certainly have to be dfacharged, A
• but it is difficulty to see .how the costs of furnishing the bank ,
· guarantee could be directed to be paid by. the Revenue. to the
assessee. ·We would, therefore, set aside that part of the otder
made by the High Court which directs the Revenue to pay 'to the
~ l\ssessee ·the costs incurred in conection with the bank guarantee
furnishid by it in pursuance of the· interrn order of the High ·. B
Court.·

The appeal, therefore, fails except in"regard to the direction
•for payment of costs of the bank guarantee. The Revenue will pay
the costs of the appeal to the assessee.

S.R.
c
A]Jpeal dismissed
•

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