ivil Appeal No 859NM of 1988
From the Judgment and Order dated 1211987 in the High Court of Delhi at New Delhi in CW No 355 of 1985
A Subba Rao P Parmeshwaran and Mrs Sushma Suri for the Petitioners
M Chandrasekharan NM Popli and VJ Francis for the Respondent
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This is an appeal by special 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  1026 33A and 37AA of the Central Excise Tariff and it had filed classification 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 investigation it was alleged to have come to the notice of the Department that the respond ent company was engaged in the manufacture Of wireless receiving sets and tape recorders in the brand name of Bush
From the documents filed by the respondent accord ing 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 the same exclusively to Ms 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 intention to evade payment of central excise duty
Certain enquiries were made and to safeguard the interest of revenue the respondent was re quested time and again to observe the provisions of rule 9B of the Central Excise Rules 1944 and execute B 13 surety bond
However it is stated that respondent evaded the execution of the said bond 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 Ms 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 and as to why the concessional rate of duty under notification No 35877 CE should 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
Respond ent company thereafter 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 notifica tion
The High Court by the order dated 12th January 1987 held that the value of the goods manufactured by the re spondent company was the price charged by it from Ms Bush India Ltd and not the market value at which Ms 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 CW 19785
It is therefore necessary to refer to the said decision of the High Court
The said decision challenged 1027 the notice dated 31st December 1984 and a demand notice of the same 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 manufacturing those it sells those to Ms 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 Limited could be taken into account and the price at which Ms Bush India Ltd further sold those goods in the market was not the price which 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 44c 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 vs Bombay Tyre International  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 prem ises the High Court quashed the said Show Cause Notices and the demand notice
The 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 con tended before us that the High Court was in error in not realising that in the facts and the circumstances of this case it was an arranged affair and really Ms 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
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 applicable
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 in India
Section 41a of the Act provides 4
1 Where under this Act the duty of excise is chargeable on any excisable goods with reference to value such value shall subject to the other provisions of this sec tion be deemed to be a the normal price thereof that is to 1028 say the price at which such goods are ordi narily sold by the 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 consideration for the sale Provided that i where in accordance with the normal practice of the wholesale trade in such goods such goods are sold by the asses see at different prices to different classes of buyers not being related persons each such price 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 41a of the Act enjoins that where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade 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 per sons or where such goods are not sold to 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 asso ciated with the assessee that they have interest directly or indirectly in the business of each other and includes a holding company a subsidiary company a relative and a distributor of the assessee and any sub distributor of such distributor
The Explanation to Section 44c further provides that in this clause holding company subsidiary company and relative have the same meanings as in the  1 of 1956
It is in this context that the validity or otherwise of the High Court s view has to be judged
In Union of India vs Bombay Tyre International supra this Court had to examine this question
This Court examined the scheme of Section 41a before the Amendment Act 1973 and also the position after the amendment
It was contended in that case before this Court that the definition of the expression related person was 1029 arbitrary and it included within its ambit a distributor of the assessee
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 section 44c provides that the expression relative has the same meaning as in the 
The definition of related person as being a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and includes a holding company a subsidiary company    shows a sufficiently restricted basis for employing the legal fic tion
This Court reiterated that it is well settled that in a suitable case the court could lift the corporate veil where the companies share the relationship of a holding company and a subsidiary 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 excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of remov al as defined in sub section 4b 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 4c 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
vs Atic Industries Ltd  This Court referred to the decision of Bombay Tyre International supra and also referred to the first part of the definition of related person in clause c of section 44 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 to be a related person had an inter est direct or indirect in the business of the assessee
To attract the applicability of the first part of the defini tion 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 business 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 inter est 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 Ms Atic Industries Ltd since it held 50 of 1030 the share capital of that assessee and had interest as shareholder in the business carried on by the assessee
But this Court was of the view that 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 sharehold ers namely Atul Products Ltd even though the sharehold ing of such shareholder might be 50
Secondly it was noted that Atul Products Ltd was a wholesale buyer of the dyes manufactured by the assessee but even then since the trans actions 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 direct or indirect in the business of Atul Products Ltd The asses see it was observed was not concerned whether Atul Products sold or did not sell the dyes purchased by it from the assessee nor was it concerned whether Atul Products Ltd sold such dyes at a profit or at a loss
In those circum stances 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 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 term 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 determined with reference to the selling price charged by Atul Products 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 Atul Products and Imperial Chemical Industries India Pvt Ltd which subsequently came to be known as Crescent Dyes  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 higher price which inter alia included the expenses incurred by them as also their profit
It was noted that the transac tions between the assessee on the one hand and Atul Products Ltd and Crescent Dyes and Chemicals Ltd 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 was the sole consideration for the sale and no extra commercial consideration entered in the deter mination of such price
For appreciating how the wholesale price could be the basis of the determination of the assess able value a reference may be made to the decision of this Court in Union of India  Ors
vs Cibatul Limited 1985 Supp
3 SCR 95
In 1031 that case the respondent Cibatul Ltd entered into two agreements 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 accord ance 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 released for sale to the buyer
The products were to bear certain trademarks being the property of the foreign company Ciba Geigy of Basle
Tripartite agreements were also executed between the buyer the seller and the foreign company recognising the buyer as the regis tered or licensed user of the trade marks authorising the seller to affix the trade marks on the products manufactured as an agent for 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 show ing the wholesale prices of different classes of goods sold by it during the period May 1972 to May 1975
The declara tion included the wholesale prices of the different resins manufactured under the two aforesaid agreements
The Assist ant 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 respondent and accepted the plea that the wholesale price disclosed by the seller was the proper basis for determining the excise duty
The Appellate orders were however revised by the Central Govt
under sub section 2 of section 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 ofthe buyer and that under the agreements the seller was required 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 Constitution
The High Court held that the goods were manufactured by the seller as its own goods and there fore 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 right in concluding that the wholesale price of the goods manufactured by the seller was the wholesale price at which it sold those goods to the buyer and it was 1032 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 and it was only on approval by him that the product was released for sale by the seller to the buyer
It was apparent that the seller could 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 specifications or standard stipulated by the buyer
All goods not approved by the buyer could not bear those trade marks and were disposed of by the sellers without the advan tage of those trade marks
This question was again examined by this Court in Joint Secretary tothe Govt
of India  Ors
vs Food Specialities Ltd 1985 Supp
3 SCR 165
There the respondent used to manufacture certain goods for sale in India by Ms 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
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 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 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 section Dismissing the appeal it was held that the value of Nestle s trade marks could not be added to the wholesale price charged by the 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 respond ent were goods manufactured by it with the trade marks affixed to them and it was the wholesale cash price of goods that must determine the value for the purpose of assessment of excise duty
It 1033 was immaterial that the trade marks belonged to Nestle section What was material was that Nestle s had authorised the respondent to affix the trade marks on the goods manufac tured by it and it was the goods with the trade marks af fixed to them that were sold by the respondent to Nestle section 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 agreements would be the value of the goods for the purpose of excise 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 re spondent
In Ms Sidhosons and Others vs Union of India and others 1987 1 SCC 25 it 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 ie 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 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 Ms Bush India Ltd and not the market value at which price Ms Bush India Ltd sold to its whole sellers for the purpose of payment of excise duty
The High Court there fore quashed the Show Cause Notice and the Demand Notice
Shri A Subba Rao on behalf of the Revenue tried to contend 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 Ms Bush India Ltd to be the basis of the assessable value
It is 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 even 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 concep tion is used for tax evasion or to circumvent tax obliga tion or to perpetrate a fraud
In this connection reference may be made to the observations of this Court in Juggi Lal Kamlapat vs Commissioner of Income tax UP In the background of the facts 1034 found we however need not get ourselves bogged with the controversy as to judicial approach to tax avoidance devices as tax pointed out in McDowell and Co Ltd vs Commercial Tax Officer  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
Colourable devices cannot be part of tax planning 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 to subterfuges
It is also true that in order to createthe atmosphere of tax compliance taxes must be reasonably collected and when collected should be utilised in proper expenditure and not wasted
See the observations in Commissioner of Wealth Tax vs Arvind Narottam   It is not necessary in the facts of this case to notice the change in the trend of judicial approach in England Sherdeley vs Sherdeley While it is true as observed by Chinnappa Reddy J in McDowell and Co Ltd vs Commercial Tax Offi cer supra too much to expect the legislature 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 deter mine 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 necessary to remember as observed by Lord Reid in Greenberg vs IRC that one must find out the true nature of the 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 been found with such an approach by the lower authori ties and the High Court had no alternative on the facts as found but to quash the Show Cause and the Demand Notices
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 reluc tance is not to be ascribed to any hesitation to accept the inference flowing from the facts found but reluctance is due to the fact that the facts were not properly found
TNA Appeal dismissed


Summary:
The appellant filed a civil suit in the High Court for specific performance of a contract to sell the suit property by the respondents to her
The High Court held the appellant liable to discharge the mortgage and directed her to deposit in Court a sum of Rs35 lakhs with interest for the pur pose
The appellant paid the amount direct to the mortgagee which the High Court refused to accept as due compliance with its decree
The appellant preferred appeals to this Court which were disposed of on 29th November 1979 with the direction that the appellant was to deposit within six months from the date of the order the entire sum of Rs315 lakhs together with interest
Purporting to comply with the aforesaid order of this Court appellant deposited a sum of Rs24282219 on 11 April 7980 and filed two Civil Misc
Petitions in the High Court for a declaration that the payment was in compliance with the order of this Court and claimed as set off of the amount of Rs59668719 paid by her earlier to the South Indian Bank which she was entitled to recover from the respondent
The time limit fixed for fulfilling the two conditions set out in this Court s order dated 29th November 1979 having fallen on 29th May 1980 and the High Court not having passed orders on the appellant s two CMP s the appel lant paid into the High Court a sum of Rs602 lakhs on 29th May 1980 by cheque purporting to comply with the first condition of this Court s order
820 The High Court dismissed the appellant s CMP and refused to grant the declaration that the appellant had complied with the order of this Court dated 29th November
1979 on the ground that the appellant was bound to comply with the Original Side Rules of the High Court which prescribed the procedure to be followed in depositing money into Court particularly Order XXXI Rules 1 to 6 which aimed at securing the deposit of the money in the Reserve Bank of India to the credit of a particular proceeding on or before the speci fied date
In the appeal to this Court on the question whether payment made by the appellant on 29th May 1980 by cheque of the amount of Rs602 lakhs together with the amount depos ited earlier on 11th May 1980 was in due compliance with this Court s order dated 29th November 1979
Allowing the Appeal and setting aside the order of the High Court this Court HELD 1
Payment by cheque is an ordinary incident of present day life whether commercial or private and unless it is specifically mentioned that payment must be in cash there is no reason why payment by cheque should not be taken to be due payment if the cheque is subsequently encashed in the ordinary course
823D E In the instant case there is nothing in the order of this Court providing that the deposit by the appellant was to be in cash
The terms of the order dated November 29 1979 are conclusive in this respect and it is the intent of that order which will determine whether payment by cheque within the period stipulated in that order was excluded as a mode in satisfaction of the terms of that order
The time for payment of governed by the order of this Court
823E F 2
Payment on the cheque being honoured and encashed relates back to the date of the receipt of the cheque and in law the date of payment is the date of delivery of the cheque
823F Commissioner of Income Tax Bombay South Bombay vs Messrs Ogale Glass Works Ltd Ogale Wadi AIR 1954 SC 429 referred to
In the instant case there is nothing to suggest that the cheque was not honoured in due course and that the Bank had at any time declined to honour it for want of funds in the ordinary cause
823G 821 3
The conditions set forth in the order of this Court dated 29th November 1979 have been complied with by the appellant substantially and she is entitled to the benefit of that order
824C D