Holding

The assessable value for excise duty is the wholesale price charged by the manufacturer to the buyer, and Bush India Ltd. is not a "related person" within the meaning of the Act, so the High Court's decision stands.

Summary

Playworld Electronics Pvt. Ltd. manufactured wireless sets, tape recorders and tape players that were unbranded in its price list but were sold exclusively under the "Bush" brand to Bush India Ltd. and its authorised dealers. The Revenue issued a Show‑Cause Notice alleging that Bush India was a "related person" and that the price charged by Playworld to Bush India could not be taken as the assessable value for central excise duty. The Delhi High Court held that the market value for excise purposes was the price charged to Bush India and quashed the notice. On appeal, the Supreme Court examined the definition of "related person" under Section 4(4)(c) of the Central Excises and Salt Act, 1944 and the principle that the assessable value is the wholesale price charged by the manufacturer to the buyer, unless the buyer is a related person. The Court found that Bush India was not a related person within the statutory meaning and that the High Court was correct to accept the price charged as the assessable value. Consequently, the appeal was dismissed and the Show‑Cause and Demand Notices remained quashed.

Issues considered

Whether Bush India Ltd. qualifies as a "related person" of Playworld Electronics under Section 4(4)(c) of the Central Excises and Salt Act, 1944.
Whether the assessable value for central excise duty should be the price charged by the assessee to Bush India or the market price at which Bush India subsequently sold the goods.
Whether the High Court erred in quashing the Show‑Cause and Demand Notices on the basis of the above issues.
Whether the transaction constitutes a colourable device for tax evasion warranting lifting of the corporate veil.

Legislation cited

Central Excise Rules, 1944s. Rule 9B
Central Excises and Salt Act, 1944s. 4(1)(a), s. 4(4)(c)

Subjects

central exciseassessable valuerelated persontax evasioncorporate veilcolourable devicetax planningwholesale pricebrand name

Judgment

UNION OF INDIA & ORS.
A
_v.
PLAYWORLD ELECTRONICS PVT. LTD. & ANR.

MAY 2, 1989

[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.] B

Central Excises and Salt Act, 1944: Sections 4(1)(a), 4(4)(c)/
Central Excise Rules, 1944: Rule 9B.

Assessee-Manufacturing wireless receiving sets, tape recorders,
tape players under brand name 'Bush'-Sel/ing products exclusively to C
the Company (Bush India Ltd.) and its authorised wholesale dealers-
price charged-Whether represents correct assessable value for excise
duty. ·

• Company Law-Tax evasion or perpetration of a fraud-Duty of
Court to lift corporate veil. D

Taxation-Tax planning within the framework of law is legiti-
-l. _mate-Colourable devices cannot be part of tax planning.
Words and phrases: 'Related person'-Meaningof.
E
The respondent company was engaged in the manufacture of
wireless receiving sets, tape recorders, tape players. These products
were assessable under Tariff Items 33A and 37AA of the Central Excise
Tariff. In the classification list and price lists tiled by the respondent-
assessee company these goods were shown as unbranded goods. Subse-
quently it was found that the respondent-assessee company was manu- F
factoring their products in the brand name of "Bush" and were selling
the same exclusively to M/s Bush India Ltd. or its authorised wholesale
'• dealers only. The appellants-Revenue alleged that there was wilful
suppression of facts by the respondent company with intention to evade
excise duty because this fact was not mentioned by the company in the
price list or classification list, tiled. G

~+· A sliow Cause Notice was issued requiring the respondent com-
,':'.i pany to show cause as to why, (i) M/s Bush India Limited should not be
'' treated as .a 'related person' and a favoured buyer of the respondent
company for the purpose of determination of wholesale cash price, (ii)
the_ concessional rate of duty under notification No. 358/77-CE should H
1023
1024 SUPREME COURT REPORTS [1989] 2 S.C.R.

not be denied to the respondent and, (iii) the differential duty in respect
A
of the goods cleared should not be recovered.

Instead of executing the surety bond the respondent-assessee com-
pany filed a writ. petition in the High Court praying for quashing of the
Show Cause Notice and for a mandamus to allow it to clear the goods on
B the basis of the price at which the goods were sold by it to Bush India
).. .
Limited allowing the benefit of the relevant notification.
)
The High Court following its earlier decision held that for the
purpose of payment of excise duty the market value of the goods of the ~.

respondent-assessee company was the price charged by it from M/s
Bush India Ltd., and not the market value at which price M/s Bush
c India Ltd. sold the goods. It further held that there was no misdeclara-
tion of the value by the assessee company, and it accordingly quashed the
Show Cause Notice and the Demand Notice for recovery.
.
In this appeal by the Revenue it was contended that in the facts
D and circumstances of the case the High Court committed an error in not
realising that M/s Bush India Ltd. was a related person and as such the
price charged by the respondent company from M/s Bush India could
not represent the correct assessable value for the purpose of excise duty.
l

,
,
Dismissing the appeal, r
E
HELD: 1. Tax planning may be legitimate provided it is within
the framework of the law. But colourable devices cannot be part of tax
planning and it is wrong to encourage or entertain the belief that it is .J-
honourable to avoid the payment of tax by dubious methods. It is the
obligation of every citizen to pay the taxes honestly without resorting to .......
F subterfuges. In order to create the atmosphere of tax compliance, taxes
must be reasonably collected and when collected, should be utilised in
'
proper expenditure and not wasted. It is too much to expect the legisla- /
tore to intervene and take care of every device and scheme to avoid "
taxation and it is up to the court sometimes to take stock to determine '
:.t,_.
the nature of the new sophisticated legal devices to avoid tax and to
G expos~ the devices for what they really are and to refuse to give judicial ¥. t
benediction. [1034A-B, D]
't~ -

2. One must find out the true nature of the transaction. Even ··-~i·,:
f-
though the corporatiop might be a legal pe.rsonality distinct from its
members, the court is entitled to lift the mask of corporate entity if the
H conception is used for tax evasion, or to circumvent tax obligation
perpetrate a fraud. [1034E, 1033G]
U.0.1. v. PLAYWORLD ELECTRONICS [MUKHARJJ, J.J 1025

3. It is unsafe to make bad laws out of hard facts and one should
avoid subverting the rule of law. In the instant case, facts have not been
found with such an approach by the lower authorities, and the High
Court had no alternative on the facts as found hut to quash the Show
Cause and Demand Notices. It appears that the brand name "Bush"
was affixed to the goods produced by the respondent. For the purpose of
excise duty, the market value of such goods was the price charged from B
.../ ··.M/s Bush India Ltd. and not the market value at which price M/s Bush
~India sold the same. ll034E, 1033C, E)

-- Juggi Lal Kamlapatv. Commissioner of Income-tax, U.P., [1969)
l SCR 988; Mc Dow~ll and Co. Ltd. v. Commercial Tax Officer, [1985)
154 ITR 148; Commissioner of Wealth Tax v. Arvind Narottam, [1988) C
4 SCC 114; Sherdeley v. Sherdeley, [1987) 2 All E.R. 54 and Greenberg
v. /RC. [1971) 47 TC 240 (HL) referred to.

Union of India v.-Bombay Tyre International, [1984) 1 SCR 347;
Union of India & Ors., v. Atic Industries Ltd., [1984) 3 SCR 930;
Union of India & Ors. v. Cibatul Limited, [1985) Supp. 3 SCR 95; Joint D
Secret01y to the Government of India & Ors. v. Food Specialities Ltd.,
[1985] Supp. 3 SCR 165 and Mis Sidhosons & Ors. v. Union of India &
-I Ors, [1987] 1 sec 25 relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No.
859(NM) of 1988. E

From the Judgment and Order dated 12.1.1987 in the High Court
of Delhi at New Delhi in C.W. No. 355 of 1985.

A. Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri for the
Petitioners. F

'"'- M. Chandrasekharan, N.M. Popli and V.J. Francis for the
' Respondent.

The Judgment of the Court was delivered by
G
SABY ASA CHI MUKHARJI, J. This is an appeal by special
.i leave from the judgment and order of .the High Court of Delhi dated
!
12th January, 1988.

The respondent company manufactured wireless receiving sets,
tape recorders, tape players which were assessable under Tariff Items H
1026 SUPREME COURT REPORTS [1989] 2 S.C.R.

33A and 37AA of the Central Excise Tariff and it had filed classifica- ~
A
tion list and price lists in respect of the said goods. On verification of
the said lists, it was found that goods were unbranded and on investi-
gation it was alleged to have come to the notice of the Department that
the respondent company was engaged in the manufacture of wireless
receiving sets and tape recorders in the brand name of "Bush'". From
B the documents filed by the respondent, according to the appellants, it
was revealed that the respondent manufactured their entire products'- >----
in the brand name of "Bush" from the very beginning and were selling J
the same exclusively to M/s Bush India Limited or its authorised
wholesale dealers only. This fact was nowhere mentioned by the
respondent in its price list or its classification lists and this, according
to the appellants, amounted to wilful suppression of facts with the
c intention to evade payment of central excise duty. Certain enquiries
~
were made and to safeguard the interest of revenue the respondent
was requested time and again to observe the provisions of rule 9B of
the Central Excise Rules, 1944 and execute B-13 surety bond. How-
ever, it is stated that respondent evaded the execution of the said bond
D which was, according to the appellants, done deliberately. Thereafter,
on 4th January, 1985, a Show Cause Notice was issued for the period
1st April, 1983 to 30th November, 1984 requiring the respondent to
show cause as to why Mis Bush India Limited should not be treated as t-
a related person and a favoured buyer of the respondent company for -- ~
the purpose of determination of wholesale cash price and as to why
E the concessional rate of duty under notification No. 358n7-CE should Ill
not be denied to the respondent and as to why the differential duty
in respect of the goods cleared during the period should not be
recovered. While the adjudication on the basis of the Show Cause
Notice was pending, the respondent company was again requested to
execute the surety bond in July, 1984. Respondent company thereafter
>-
F filed a writ petition in the High Court of Delhi under Article 226 of the
Constitution praying for quashing of the Show Cause Notice and the
communication dated 11th July, 1984 and for mandamus to allow it to ,_.- /
clear the goods on the basis of the price at which the goods were sold
by it allowing the benefit of the relevant notification. The High Court
by the order dated 12th January, 1987 held that the value of the goods
G manufactured by the respondent company was the price charged by it y/
from M/s Bush India Ltd. and not the market value at which M/s Bush
India Ltd. sold the goods to its wholesalers. In the premises, it was
held that there was no misdeclaration of the value and the Show Cause
Notices were quashed. In passing the impugned order, the High Court
followed its decision in C.W. 197/85. It is, therefore, necessary to refer
H to the said decision of the High Court. The said dedsi<ln challenged
U.0.l. v. PLAYWORLD ELECTRONICS [MUKI:JARJI, J.I 1027

j. the notice dated 31st December, 1984 and a demand notice of the same
A
date. It was contended on behalf of the petitioner in that case, who is
the respondent in the instant appeal that the said respondent merely
manufacture the aforesaid items for Bush India and after manufactur-
ing those, ·it sells those to Mis Bush India Ltd. It was contended that
for the purpose of finding out the price for payment of excise duty,
only the price which was charged by the respondent from Bush India B
-~ l'.imited could be taken into account and the price at which Mis Bush
· (India Ltd. further sold those goods in the market was not the price
l.)Vhich was to be taken for the excise duty. It was contended that Bush

- India Ltd. was not a related person of the respondent within the
meaning of Section 4( 4)( c) of the Central Excises & Salt Act, 1944
(hereinafter referred to as 'the Act') and reliance was placed on the
decision of this Court in Union of India v. Bombay Tyre International, C
[1984] 1SCR347. On the merits of the case, reliance was also placed
on certain decisions of this Court as well as the decision of the Delhi
High Court. The High Court found that the case of the respondent was
directly covered by all these decisions. In the premises, the High Court
quashed the said Show Cause Notices and the demand notice. The D
question, therefore, is whether the High Court was right in the view it
took.

Unfortunately, in the instant case, apart from the facts recorded
hereinbefore, there is no other fact. Learned Counsel appearing for
the revenue, Shri A. Subba Rao contended before us that the High E
Court was in error in not realising that in the facts and the circum-
stances of this case, it was an arranged affair and really Mis Bush India
Ltd. was a related person and as such the price charged from it could
not represent the correct assessable value for the purpose of excise
duty.
F
As noted hereinbefore, the events in this case happened from
.._. 1985 onwards. In the premises, the amended provisions of Section 4 of
'·--the Act, as amended by the Amendment Act of 1973, would be appli-
.• cable. Section 3 of the said Act enjoins that there shall be levied and
collected in such manner as might be prescribed duties of excise on all
excisable goods other than salt which are produced and manufactured G
v in India. Section 4(1)(a) of the Act provides:
"4. (1) Where under this Act, the duty of excise is charge-
able on any excisable goods with reference to value, such
value shall, subject to the other provisious of this section,
be deemed to be-(a) the normal price thereof, that is to H
1028 SUPREME COURT REPORTS [1989) 2 S.C.R.

say, the price at which such goods are ordinarily sold by the ~
A
assessee to a buyer in the course. of wholesale trade for
delivery at the time and place of removal, where the buyer
is not a related person and the price is the sole considera- ·
tion for the sale:

B Proivded that-(i) where, in accordance with the normal
practice of the wholesale ·trade in such goods, such goods '·
>--
are sold by the assessee at different prices to different clas-j
ses of buyers (not being related persons) each such price

c
shall, subject to the existence of the other circumstances
specified in clause (a), be deemed to be the normal price of
such goods in relation to each class of buyers;" -
Proviso (iii) to section 4(1)(a) of the Act enjoins that:

"where the assessee so arranges that the goods are gene-
rally not sold by him in the course of wholesale trade
D except to or through a related person, the normal price of
the goods sold by the assessee to or through such related
person shall be deemed to be the price at which they are
ordinarily sold by the related person in the course of
wholesale trade at the time of removal, to dealers (not )
being related persons) or where such goods are not sold to
E such dealers, to dealers (being related persons) who sell
such goods in retail."

According to clause (c) of sub-section (4) of section 4 of the Act,
"related person" means a person who is so associated with the assessee
that they have interest, directly or indirectly, in the business of each
F other and includes a holding company, a subsidiary company, a re la- >.
tive and a distributor of the assessee, and any sub-distributor of such
distributor. The Explanation to Section 4(4)(c) further provides that in /
this clause "holding company", "subsidiary company" and "relative" ~
have the same meanings as in the Companies Act, 1956(1of1956). It is
in this context that the validity or otherwise of the High Court's view
G has to be judged.

In Union of India v. Bombay Tyre International, (supra), this
Court had to examine this question. This Court examined the scheme
of Section 4(l)(a) before the Amendment Act, 1973 and also the
position after the amendment. It was contended in that case before
H this Court that the definition of the expression "related person" was
U.0.1. v. PLAYWORLD ELECTRONICS [MUKHARJI, J.[ 1029

arbitrary and it included within its ambit a distributor of the assessee.
A
This Court however held that in the definition of "related person"
being a relative and a distributor could be legitimately read down and
its validity upheld. The definition of related person should be so read,
this court emphasised, that the words "a relative and a distributor of
the assessee" should be understood to mean a distributor who was a
relative of the assessee. The Explanation to s. 4(4)(c) provides that the B
expression "relative" has the same meaning as in the Companies Act,
',r 1956. The definition of "related person", as being "a person who is so
\, associated with the assessee that they have interest, directly or illdi-
rectly, in the business of each other and includes a holding company, a
subsidiary company ..... ", shows a sufficiently restricted basis for
employing the legal fiction. This Court reiterated that it is well-settled C
that in a suitable case the court could lift the corporate veil where the
companies share the relationship of a holding company and a sub-
sidiary company and also to pay regard to the economic realities
behind the legal facade. The true position, it was explained by the
aforesaid decision, under the said Act is-the price at which the excis-
able goods are ordinarily sold by the assessee to a buyer in the course D
of wholesale trade for delivery at the time and place of removal as
defined in sub-section (4)(b) of section 4 of the Act is the basis for
determination of excisable value provided, of course, the buyer is not
a related person within the meaning of sub-section (4)(c) of section 4
and the price is the sole consideration for the sale. This aspect was
further examined by this Court .in Union of India & Ors. v. Atic E
Industries Ltd., [1984] 3 SCR 930. This Court referred to the decision
of Bombay Tyre International (supra) and al~o referred to the first part
of the definition of "related person" in clause (c) of section 4(4) which
defines "related person" to mean "a person who is so associated with
the assessee that they have interest directly or indirectly in the business
of each other". It was not enough, it was held, that the person alleged F
to be a related person had an interest, direct or indirect in the business
of the assessee. To attract the applicability of the first part of the
definition, the assessee and, the person alleged to be a related person
must have interest direct or indirect in the business of each other. Each
of them must have a direct or indirect interest in the business of the
other. The quality and degree of interest which each has in the busi- G
'-· ness of the other may be different; the interest of one in the business of
the other may be direct while the interest of the latter in the business
of the former may be indirect. That would not make any difference so
long as each has got some interest, direct or indirect in the business of
the other. In that case, this Court found that Atul Products Ltd. has
interest in the business of M/s Atic Industries Ltd. since it held 50% of H
1030 SUPREME COURT REPORTS [1989] 2 S.C.R.

the share capital of that assessee and had interest as shareholder in the
A ~
business. carried on by the assessee. But this Court was of the view thal
it could not be said that the assessee, a limited company, had any
interest, direct or indirect in the business carried on by one of its
shareholders, namely, Atul Products Ltd., even though the share-
holding of such shareholder might be 50%. Secondly, it was noted that
B Atul Products Ltd. was a wholesale buyer of the dyes manufactured by
the assessee but even then, since the transactions between them were ~
as principal to principal, it was difficult to appreciate how the assessee
could be said by virtue of that circumstances to have any interest, I
-
direct or indirect, in the business of Atul Products Ltd. The assessee, it
was observed, was.not concerned whether Atul Products sold or did not
sell the dr,es purchased by it from the assessee nor was it concerned
c whether Atul Products Ltd. sold such dyes at a profit or at a loss. In
those circumstances, the first part of the definition of related persons
in clause (c) of sub-section (4) of section 4 of the amended Act was, +
therefore, clearly not satisfied both in relation to Atul Products Ltd: as
also in relation to Crescent Dves and Chemicals Ltd., a subsidiary
D company of Atic Industries Ltd., and neither of them could be said to
be a "related person" vis-a-vis the assessee within the meaning of the
definition of that tetm in clause (c) of sub-section (4) of section 4 of the
amended Act. In those circumstances, the assessable value, it was
held, of the dyes manufactured by the assessee could not be deter-
mined with reference to the selling price charged by Atul Products
)
E Ltd. and Crescent Dyes and Chemicals Ltd. to their purchasers but
must be determined on the basis of the wholesale case price charged by
the assessee to Atul Products Ltd. and Crescent Dyes and Chemicals
Ltd. In that case, the assessee at all material times sold the large bulk
of dyes manufactured by it in wholesale to i\tul Products and Imperial
Chemical Industries (India) Pvt. Ltd. which subsequently came to be
p known as Crescent Dyes & Chemicals Ltd. at a uniform price appli- ,,......
cable alike to both these wholesale buyers and these wholesale buyers
sold these dyes to dealers and consumers at a higher price which inter
alia included the expenses incurred by them as also their profit. It was .r
n.oted that the transactions between the assessee <Jll the one hand and '
Atul Products Ltd. and Crescent Dyes and Chemicals Ltd. on the
0 other were a.s principal to principal and the wholesale price charged by
the assessee to Atul Products Ltd. and Crescent Dyes and Chemicals
was the sole consideration for the sale and no extra-commercial con-
._/
""\.-
sideration entered in the determination of such price. For appreciating
h_ow the wholesale price could be the basis of the determination of the
11ssessable value, a r~ference m\ly be made to the decision of this Court
H in. l.fnion of India & Ors. v. Cibatul Limited, [1985] Supp. 3 SCR 95. In
U.0.1. v. PLAYWORLD ELECTRONICS IMUKHAIUI, l.I 103i

~ that case, the respondest:.. Cibatul Ltd. entered into two agreements A
with Ciba Geigy' of India Ltd. for manufacturing resins by the seller.
The joint manufacturing programme indicated that the resins were to
be manufactured in accordance with the restrictions and specifications
constituting the buyer's standard and supplied at prices to be agreed
upon from time to time. The buyer was entitled to test a sample of
-·~ each batch of the goods and after its approval the goods were to be B
'·( released for sale to the buyer. The products were to bear certain trade-
•, marks being the property of the foreign company-Ciba Geigy of
Basie. Tripartite agreements were also executed between the buyer,
the seller and the foreign company, recognising the buyer as the re-
gistered or licensed user of the trade-marks, authorising the seller to
affix the trade-marks on the products manufactured "as an agent for C
and on behalf of the buyer and not of his own account" and the right of
the buyer being reserved to revoke the authority given to the seller to
affix the trade-marks. The respondent in that case filed declaration for
the purposes of levy of excise under the said Act showing the whole-
sale prices of different classes of goods spld by it during tlie period
May, 1972 to May, 1975. The dedaration included the wholesale prices b
of the different resins manufactured under the two aforesaid agree-
ments. The Assistant Collector of Custom revised those prices
upwards on the basis that the wholesale price should be the price for
which the buyer sold the product in the market. According to the
Assistant Collector the buyer was the manufacturer of goods and not
the seller. The Collector of Central Excise allowed the appeals of the E
respondent and accepted the plea that the whoiesale price disclosed b)'
the seller was the proper basis fot determining the excise duty. The
Appellate orders were, however, revised by the Central Govt. under
sub-section (2) of s. 36 of the Act and the 'Orders made by the Assistant
Collector were restored. According to the Central Govt. the buyer was
the person engaged in the production of the goods and the seller
merely manufactured them on behalf of.the buyer and that under the
"-'- agreements the seller was n•quired to affix the trade-marks of the
buyer on the manufactured goods and that indicated that the goods
belonged to the buyer. There is a ring of similarity between the.facts of
that case and the facts of the instant appeal before us. The orders of
the Central Govt. were challenged under Article 226 of the Constitu" G
tion. The High Court held that the gdods were manufactured by the
seller as its own goods, and therefore, the wholesale price charged by
the seller must form the true basis for the levy of excise duty. On
appeal, this Court held that the High Court was tighi !rt concluding
that th•: wholesale price of the goods manufacliitetl by the seiler was
the wholesale price at which it sold those goods to the buyer, and it was H
1032 SUPREME COURT REPORTS [1989] 2 S.C.R.

A not the wholesale price at which the buyer sold those goods to others. -..(
The relevant provisions of the agreements and the other material on
.the record showed that the manufacturing programme was drawn up
jointly by the buyer and the seller and not merely by the buyer, and
that the buyer was obliged to purchase the manufactured product from
the seller only if it conformed to the buyer's standard. For this
purpose, the buyer was entitled to test a sample of each batch of the
)..
manufactured product anq it was only on approval by him that the -) ·
product was released for sale by the seller to the buyer. It was appa- '
rent that the seller co.uld not be said to manufacture the goods in those
facts, it was held, on behalf of the buyer. It was further found that it
was clear from the record that the trade-marks of the buyer were to be
affixed on those goods only which were found to conform to the speci-
c fications or st.andard stipulated by the buyer. All goods not approved
by the buyer could not be~r those trade-marks and were disposed of by
the sellers without the advantage of those trade-marks.

This question was again examined by this Court in Joint Secretary
D to.the Govt. of India & Ors. v. Food Specialities Ltd., [1985] Supp. 3
SCR 165. There the respondent used to manufacture certain goods for
sale in India by M/s Nestle's Products India Ltd. (for short Nestle's)
under certain trade marks in respect of which the latter was registered
as the sole registered user in India. The goods were supplied to )
Nestle's at wholesale price on rail at Moga or free on lorry at factory.
E The respondent disputed the value of the goods determined by the
excise authorities for the purpose of the levy under the said Act and
ultimately the respondent filed writ petitions in the High Court. The
High Court allowed the writ petitions holding that the value of the
trade marks could not form a component of the value of the goods for
the purpose of assessment of excise duty. In appeal to this Court, the
F appellant contended that the value of the goods sold by the respondent
to Nestle's should, for the purpose of levy of excise duty, include the
value of the trade marks under which the goods were sold in the /
r· .
market and that the value of such trade marks should be added to the
wholesale price for which the goods were sold by the respondent to
Nestle's. Dismissing the appeal, it was held that the value of Nestle's '
G trade marks could not be added to the wholesale price charged by the Y·
respondent to Nestle's for the purpose of computing the value of the
goods manufactured by the respondent in the assessment to excise
duty. In that case, it was held that what were sold and supplied by the
respondent were goods manufactured by it with the trade marks
affixed to them and it was the wholesale cash price of goods that must
H determine the value for the purpose of assessment of excise duty. It
U.0.1. v. PLAYWORLD ELECTRONICS [MUKHARJI, J.] 1033

was immaterial that the tr.ade marks belonged to Nestle's. What was
A
material was that Nestle's had authorised the respondent to affix the
trade marks on the goods manufactured by it and it was the goods with
the trade marks affixed to them that were sold by the respondent to
Nestle's. There could, therefore, be no doubt, it was held, that the
wholesale price at which the goods with the trade marks affixed to
them were sold by the respondent to Nestle's as stipulated under the B
.....agreements would be the value of the goods for the purpose of excise
I duty. That was the price at which the respondent sold the goods to
Nestle's in the course of wholesale trade.

Similarly in the instant case, it appears that the brand name
"Bush" was affixed to the goods produced by the respondent. In Mis
Sidhosons and Others v. Union of India and others, [1987] 1SCC25, it C
was held that the excise duty was payable on the market value fetched
by the goods, in the wholesale market at the factory gate manufactured
by the manufacturers, i.e., the price charged by the manufacturers to
the buyer under the agreement: It could not be assessed on the basis of
the market value obtained by the buyers who also add to the value of D
the manufactured goods the value of their own property in the
goodwill of the 'brand name'.

In view of the facts that have emerged in this case, the High
Court came to the conclusion that the market value of the goods of the
respondent herein was the price charged from Mis Bush India Ltd. and E
not the market value at which price Mis Bush India Ltd. sold to its
whole-sellers for the purpose of payment of excise duty. The High
Court, therefore, quashed the Show Cause Notice and the Demand
Notice.

Shri A'. Subba Rao on behalf of the Revenue tried to contend F
before us that the facts of this case revealed that it was a device to
' . under-charge. The respondent herein was brought in to divide the sale
price of Mis Bush India Ltd. to be the basis of the assessable value. It
it true that the facts of this case do warrant a great deal of suspicion.
But it is not possible to hold otherwise than what has been held by the
". High Court in this case. It is true, as Shri Rao drew our attention, that G
evea though the Corporation might be a legal personality distinct from
its members, the Court is entitled to lift the mask of corporate entity if
the conception is used for tax evasion, or to circumvent tax obligation
or to rerpetrate a fraud. In this connection, reference may be made to
the oL~rvations of this Court in Juggi Lal Kamlapat v. Commissioner
of Income-tax, U.P., ·[1969] 1 SCR 988. In the background of the facts H
1034 SUPREME COURT REPORTS [1989] 2 S.C.R.
-..(
A found we, however, need not get ourselves bogged with the contro,
versy as to judicial approach to tax avoidance devices as tax pointed
out in McDowell and Co. Ltd. v. Commercial Tax Officer, [1985] 154
ITR 148, where this Court tried to discourage colourable devices. It is
true that tax planning may be legitimate provided it is within the {
framework of the law. Colorirable devices cannot be part of tax plan-
B
ning and it is wrong to encourage or entertain the belief that it is
honourable to avoid the payment of tax by dubious methods. It is the
obligation of every citizen to pay the taxes honestly without resorting ·
·r )o.

to subterfuges. It is also true that in order to create the atmosphere of
tax compliance, taxes must be reasonably collected and when collec-
ted, should be utilised in. proper expenditure and not wasted. (See the
c;: observations in Commissioner of Wealth Tax v. Arvind Narottam,
[1988] 4 SCC 113). It is not necessary, in the facts of this case to notice ~
the change in the trend of judicial approach in England: (Sherdeley v.
Sherdeley, [1987] 2 A'.ER 54). While it is true, as observed by Chin-
nappa Reddy, J. in McDowell and Co. Ltd. v. Commercial Tax Offi-
cer, (supra) too much to expect the legislature to intervene and take
0 care of every device and scheme to avoid taxation and it is up to the
court sometirnes to take stock to determine the nature of the new and
sophisticated legal devices to avoid tax and to expose the devices for
what they really are and to refuse to give judicial" benediction, it is
)

t
necessary to remember as observed by Lord Reid in Greenberg v. /RC, . .
[1971] 47 TC 240(HL) that one must find out the true nature of the
E transaction. It is unsafe to make bad laws out of hard facts and one
should avoid subverting the rule of law. Unfortunately, in the instant
case, facts have not b.een found with such an approach by the lower
authorities and the High Court had no alternative on the facts as found
but to quash the Show Cause and the Demand Notices.
.......
b
F In that view of the matter, the appeal fails and is accordingly
dismissed. But there will be no order as to costs. We dismiss this
appeal with reluctance. Our reluctance is not to be ascribed to any f iii
hesitation to accept the inference flowing from the facts found but
reluctance is due to the fact that the facts were not properly found. ~

G T.N.A. Appeal dismissed. y