DAWN APPARELS LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) THIS writ petition concerns the application of Section 4 of the Central Excises and Salt Act, 1944, as it stood prior to the amendment which came into force on 1st October, 1975.

(2.) THE petitioners are a subsidiary company of M/s. Dawn Mills Co. Ltd. They manufacture items of apparel, including brassieres, the manufacture of which they commenced in 1972. They entered into an arrangement with Dawn Mills whereunder the latter agreed to buy the entire production of brassieres manufactured by the petitioners at an ex-factory rate based on the petitioners manufacturing cost and manufacturing profits. The marketing and sales efforts in respect of these bras were put in by Dawn Mills and the prices at which they were sold were also fixed by Dawn Mills.

(3.) ON 20th July 1974 the petitioners received a notice from the Superintendent of Central excise, Bombay, under the provisions of the old Section 4. The notice stated that it was seen from the invoices that the petitioners' entire production of bras was sold to Dawn Mills and that the price that the petitioners had declared for the purposes of assessment of excise duty was the price at which the petitioners sold them to Dawn Mills. On going through the petitioners' memorandum and Articles of Association and the annual report for the year 1972-73, it had been noticed that the petitioners' sales to Dawn Mills were not purely on commercial basis. Dawn mills appeared to have special financial interests in the petitioners' business transactions. The transactions were not at arm's length. Though they appeared to be wholesale, they were not so under Section 4. The prices charged by Dawn Mills to various wholesale dealers alone could be the basis for the purposes of assessment of the duty. The petitioners were required to show cause why the prices charged by Dawn Mills should not be approved as the assessable value under section 4 instead of the price at which the petitioners had sold the bras to Dawn Mills.