ivil Appeal No 2858 of 1977
From the Judgment and Order dated 1612
1976 of the Allahabad High Court in Civil Miscellaneous Writ No 179 of 1976
A Subba Rao P Parmeshwaran and Mrs Sushma Suri for the Appellants
HN Salve Ravinder Narain KC Dua PK Ram and DN Misra for the Respondents
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 Allahabad dated 16th December 1976
875 The question in this case was the valuation of goods for the purpose of levy of excise duty under the Central Excises  Salt Act 1944 hereinafter referred to as the Act 
The respondent company had submitted its price list in Form IV to the Superintendent Central Excise containingthe price at which five companies to which it sold its entire output hereinafter referred to as the Customer Companies sold those products
The customer companies thereafter sold their products
The respondent challenged the direction of the Superintendent and had contended that for the purpose of levy of excise duty the value of its products should be the prices at which it sold those products to the customer companies and not the prices at which these in turn sold those products to wholesale dealers or others
The respond ent company was registered under the Indian Companies Act 19 13
At the relevant time there were five shareholders of the company namely Bajaj Electricals Ltd Bombay Cromp ton Parkinson Ltd London NV Philips Eindhoven Hol land General Electricals Co Ltd London and Mazda Lamp Co Ltd Licencester England
Except Ms Bajaj Electricals Ltd the aforesaid four companies are referred to as the foreign companies
The said Bajaj Electricals held 180000 shares in the respondent company
It is called A  share holder
The four foreign companies together held 180000 shares
These are called B  share holders
The respondent company was engaged in manufacture of electric lamps fluo rescent lamps and miniature lamps
It sold its entire output of the products exclusively to the following customer compa nies a Bajaj Electricals Ltd b Philips India Ltd c Crompton Greaves Ltd d General Electric Co of India Ltd e Mazda Lamps Co Ltd On the lamps manufactured by the respondent company it put the brand names of trade marks like Philips Osram Mazda Crompton and Bajaj of the respective Customer Compa nies according to their directions
The Customer companies in turn sold these lamps under their names at prices higher than the prices charged by the respondent company
Excise duty on electric lamps and fluorescent lamps was levied for the first time in the year 1965
At first excise duty on lamps was a specific duty
Later excise duty on them was changed from specific to ad valorem duty
After such change there was a controversy between the respondent company and the central excise authorities as to whether the prices charged by the respondent com 876 pany to its customer companies for its products or the prices charged by the customer companies when they sold them to wholesale dealers and others should be the basis for determination of the value for levy of excise duty
Being aggrieved by the insistance of the Central Excise authori ties that the latter prices should be the value for levy of excise duty the respondent company approached the High Court of Allahabad by Civil Misc
Writ No 2 189 of 1973
The High Court by its order dated 14th May 1974 allowed the writ petition and held that the prices at which the respondent company sold its products to the customer compa nies should be the value for levy of excise duty and not the price at which the customer companies sold these to wholesale dealers and others
The Central Excise authori ties however had taken the view that the aforesaid deci sion of the High Court which was rendered on the basis of the old section 4 as it stood before it was amended by the Amendment Act of 1973 did not apply to the levy of excise duty subsequent to the Amendment Act coming into force on 1st October 1973
On the other hand the contention on behalf of the respondent company was that the aforesaid amendment of the Act had not altered the legal position so far as the respondent company was concerned and that the decision of the High Court would be binding
It appears that the Central Excise Authorities were wrong in view of the observations of this Court in Union of India vs Bombay Tyre International Ltd   where this Court observed that it was not the intention of the Parliament while enacting the new section to create a scheme materially different from that embodied in the superseded section 4
The object and purpose remained the same and so did the central principle of the scheme
The new scheme was merely more comprehensive and the language employed more precise and definite
As in the old section 4 the terms in which the value was defined remained the price charged by the assessee in the course of wholesale trade for delivery at the time and place of removal
See the observations at pages 377 and 378 of the said Report
The High Court referred to the decision of this Court in AK Roy vs Voltas Ltd  and also in Union of India vs Atic Industries Ltd  The real question that arose in this case is whether the five customer companies can be regarded as related persons  as defined in section 44c
The definition of that con sists of two parts
The first part refers to a person who is so associated with the assessee that each has interest directly or indirectly in the business of the other and the second part of that definition refers to a holding company a subsidiary company a relative and a distributor of the assessee and any sub 877 distributor of such distributor
The High Court held that in order for the respondent company to come within the first part of the definition the respondent company and the customer companies must have interest directly or indirect ly in the business of each other
Such of the customer companies which held shares in the respondent company could be said according to the High Court to have interest in the business of the respondent company
But only one of the customers companies namely Bajaj Electricals Ltd Bombay held shares in the respondent company
The remaining four customer companies did not hold any shares in the respondent company
It was further contended before the High Court that those four customer companies were respectively associated companies of the four foreign companies and that hence those four customer companies must also be held to have interest indirectly if not directly in the business of the respond ent company
The High Court found that in the absence of material it was not possible to accede to the contention of the company
What is interest directly or indirectly  has been explained in Union of India  Ors
vs Atic Industries Ltd supra
In that case the respondent assessee a limited company was engaged in the business of manufactur ing 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 Imperial Chemical Indus tries India Pvt
Ltd The Imperial 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 Chemical Industries India Pvt Ltd was offered to the public 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
Consequent upon this dilution of for eign shareholding the name of Imperial Chemical Industries India Pvt Ltd was changed to Crescent Dyes and Chemicals Ltd The assessee in that case at all material times sold the large bulk of dyes manufactured by it in wholesale to Atul Products Ltd and Imperial Chemical Industries India Pvt Ltd which subsequently came to be known as Crescent Dyes and Chemicals at a uniform price applicable alike to both these wholesale buyers and those 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
The transactions between the assessee on the one hand and Atul Products Ltd and Crescent Dyes and Chemi cals Ltd on the other were as principal to principal and the wholesale price 878 charged by the assessee to Atul Products Ltd and Crescent Dyes and Chemicals Ltd was the sole consideration for the sale and no extracommercial considerations entered in the determination of such price
In that case this Court held that on a proper interpretation of the definition of relat ed person in sub section 4c of sec
4 the words relative and a distributor of the assessee do not refer to any distributor but these were limited only to a distributor who is a relative of the assessee within the meaning of the 
It was held that the definition of related person is not unduly wide and does not suffer from any constitutional infirmity
Reliance was also placed on the observations of this Court in Union of India  Ors
vs Bombay Tyre International Ltd supra
The first part of the definition defined related person to mean a person who is so associated with the assessee that each has interest directly or indirectly in the business of each other
It is not enough that the assessee has an interest direct or indirect in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest direct or indirect in the business of the asses see
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 must have 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
After analysing the facts this Court came to the conclusion that there was no relationship
Shri Sibal placed before us a Chart indicating the similarity of the facts of Atic Industries  case supra and the facts of the present case
In Atic Industries  case 50 per cent of share capital belonged to Atul Products Ltd and 50 per cent to the Imperial Chemicals London Ltd a foreign company
In the case of the respondent herein 50 per cent share capital belonged to the Bajaj Electricals Ltd Indian Company and 50 per cent belonged to Philips 1767 Mazda 1486 GEC 1059 and Crompton 688 all foreign companies
In case of Atic Industries the sale of goods was on principal to principal basis and to a share holding company and to another company which was initially a subsidiary of the foreign shareholding company and to which subsequently became associate company of the foreign shareholding company
In the instant case also it was on principal to principal basis and to a shareholding company Bajaj Electricals Ltd 879 and so called to associate companies of the foreign share holding companies
Goods were supplied to customers in their brand name in the case of Atic Industries as in the instant case
In Atic Industries  case there was no allegation of extra commercial consideration and in the instant case also there was no allegation of extra commercial consideration
In Atic Industries  case same prices were charged from all the customers similar is the position in the instant case
In the aforesaid view of the matter and in view of the ratio of the said decision Shri Sibal sought to urge that the High Court was right in the view it took
In our opin ion Shri Sibal is right
There is a lurking doubt that the five customer companies were the favoured customers but no investigation seems to have been carried out
The High Court while allowing the writ petition held that it was open to the Central Excise Authorities to examine whether or not the five customer companies were the favoured customers and whether the price at which the respondent company sold its products to these were the normal prices at which such goods were ordinarily sold by a manufacturer in the course of wholesale trade for delivery at the time and place of remov al
Apparently no such scrutiny was done
In that view of the matter the judgment and order of the High Court of Allahabad must be upheld and in view of the ratio of the decision in Civil Appeal No 859 this appeal must fail without order as to costs
RNJ Appeal dismissed


Summary:
The respondent company manufacturer of filters was selling the goods to its customers under brand names
It declared its assessable value on the basis of the price at which it sold the goods
Show Cause Notices requiring assessable value to he determined at the price the buyers of the respondent company sold the goods issued to the re spondent were challenged by it and quashed by the High Court
Hence this appeal by the Revenue
Dismissing the appeal this Court HELD 1
For the purposes of the excise duty the market value of the goods of the respondent company was the price charged by it and not the market value at which the buyers of the respondent company sold the goods
The High Court therefore rightly quashed the Show Cause Notices
872C The Union of India  Ors
vs Ms Playworld Electronics Pvt Ltd  Anr Civil Appeal No 859 of 1988 SC decid ed on 2nd May 1989 applied