UNION OF INDIA Vs. ATIC INDUSTRIES LIMITED

JUDGEMENT

(1.) This appeal by certificate granted under Arts. 132 and 133 (1) of the Constitution raises a short question relating to the applicability of the definition of "related person" contained in clause (c) of sub-section (4) of S. 4 of the Central Excises and Salt Act, 1944 as it stood after its amendment by S. 2 of Central Act 22 of 1973 which came into force with effect from 1st October, 1975. The facts giving rise to this appeal are few and may be briefly stated as follows:

(2.) 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 assessee is held by two limited companies:Atul Products Limited holds 50 per cent of the share capital while the remaining 50 per cent of the share capital is held by Imperial Chemical Industries Limited, London. The assessee at all material times 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 applicable alike to both these wholesale buyers and these wholesale 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' the share capital of an Indian company should be held by a foreign shareholder, 60 per cent of the share capital of Imperial Chemical Industries (India) Private Limited was offered to the public, with the result that since 13th March, 1978 only 40 per cent of the share capital of Imperial Chemical Industries (India) Private Limited was held by Imperial Chemical Industries Limited, London and 60 per, cent came to be held by Indian citizens and Imperial Chemical Industries (India) Private Limited ceased to be a subsidiary company wholly owned by the Imperial Chemical Industries Limited London. Consequent upon this dilution of foreign share holding, the name of Imperial Chemical Industries (India) Private, Limited was changed to Crescent Dyes and Chemicals Limited. Atul Products Limited and Crescent Dyes and Chemicals Limited continued to be the wholesale dealers of the dyes manufactured by the assessee throughout the relevant period with which we are concerned in this appeal. It was common ground between the parties that the transactions between the assessee on the one hand and Atul, Products Limited 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 Limited and Crescent, Dyes and Chemicals Limited was the sole consideration for the sale and no extra-commercial considerations entered in the determination 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.

(3.) On 15th Sept., 1975 the assessee submitted, a price list showing 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 Superintendant of Central Excise demanded certain information from the assessee with a view to satisfying himself as regards the correctness of the price list, submitted by the assessee and the requisite information was furnished by the assessee by its letter dated 23rd Sept., 1975. Thereafter correspondence ensued between the assessee on the one hand and the Superintendent of Central Excise an the other and ultimately on 29th Oct., 1975, the Assistant Collector of Central Excise approved the price list submitted by the assessee. The assessee thereafter went on clearing the dyes manufactured by it after payment of excise duty on the basis of the price list submitted by the assessee and approved by the Assistant Collector. Then again some further correspondence took place between the assessee and the Central Excise Authorities by which certain information demanded by the Central Excise Authorities wag supplied by the assessee. The Superintendent of Central Excise, however, issued a notice to the assessee on 31st July, 1976 calling upon the assessee to show cause why the earlier decision of the Assistant Collector approving the price list should not be reviewed on the ground that the assessee on the one hand and Atul 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 Crescent Dyes and Chemicals Limited sold the dyes to the dealers and the consumers. The assessee was required to show cause why the differential duty worked out on the basis of the selling price charged by Atul Products Limited and Crescent Dyes and Chemicals Limited should not be recovered from the assessee with effect from 1st Oct., 1975. The assessee in its reply dated 31st August, 1976 raised several contentions in answer to the show cause notice and pointed out inter alia that the assessee on the one hand and Atul Products Limited and Crescent Dyes and Chemicals Limited on the other were not "related persons" within the meaning of the definition of that term contained in sub-clause (e) of sub-section (4) of S. 4 of the amended Central Excises and Salt Act, 1944. The Assistant Collector was, however, not satisfied with the explanation offered by the assessee and he ultimately by an order dated 10th Dec., 1976 reviewed his earlier order of approval of the price list and confirmed the demand of differential duty with retrospective effect from 1st Oct., 1975 and directed the assessee to file a fresh price list on the basis of the selling price charged by Atul Products Limited and Crescent Dyes and Chemicals Limited. The demand for differential duty computed by the Superintendent of Central Excise for the period from 1st Oct., 1975 to 31st Dec., 1976 came to an aggregate amount of Rs. 1,17,77,737.65. The assessee 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 preferred an appeal before the Appellate Collector. The Appellate Collector rejected the appeal of the assessee without examining the merits of the grounds raised by the assessee since he 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 his considering the self-same grounds.