Case: Union of India Vs. Kaira District Co operative Milk Producers Limited

Briefly stated the facts are as follows:The respondent is asociety under the GujaratSocieties Act, 1961. It is engaged inter alia, in the manufacture of milk and cocoa products and for that purpose has two units, one at Anand and the other at Mogar, both in Kaira district. The respondent receives milk, from milk producers who are all members of the respondent unit. After the product is received and some manufacturing process is undertaken by the respondent, the product is then sent to a federation known as GujaratMilk Marketing Federation Limited. That Federation is also registered under the GujaratSocieties Act, 1961.(2). The respondent submitted a price list to the superintendent of central excise, Anand. In the price list they claimed a deduction of the commission charged by the federation from the union for the purposes of marketing the products of the respondent. The commissioner rejected the price list on the ground that theand the federation were "related persons" within the meaning of section 4 (4) (c) of the Central Excise Act, 1944.(3). The respondent, thus, filed a writ petition challenging the rejection of its price list. The High Court has, by the impugned judgment, allowed the writ petition and held that the union and the federation cannot be said to be related persons. The High Court has so held on the basis of a decision of this Court in the case of Union of India and Ors. v. ATIC Industries Ltd. In this case, it has been held that in order to attract the definition of a "related person" in section 4 (4) (c), the assessee and the person alleged to be related, must have interest, direct or indirect, in the business of eachstated the facts are as follows:The respondent is ay under the Gujarats Act, 1961. It is engaged inter alia, in the manufacture of milk and cocoa products and for that purpose has two units, one at Anand and the other at Mogar, both in Kaira district. The respondent receives milk, from milk producers who are all members of the respondent unit. After the product is received and some manufacturing process is undertaken by the respondent, the product is then sent to a federation known as Gujaratk Marketing Federation Limited. That Federation is also registered under the Gujarats Act, 1961.(2). The respondent submitted a price list to the superintendent of central excise, Anand. In the price list they claimed a deduction of the commission charged by the federation from the union for the purposes of marketing the products of the respondent. The commissioner rejected the price list on the ground that theand the federation were "related persons" within the meaning of section 4 (4) (c) of the Central Excise Act, 1944.

Reasoning:
(3). The respondent, thus, filed a writ petition challenging the rejection of its price list. The High Court has, by the impugned judgment, allowed the writ petition and held that the union and the federation cannot be said to be related persons. The High Court has so held on the basis of a decision of this Court in the case of Union of India and Ors. v. ATIC Industries Ltd. In this case, it has been held that in order to attract the definition of a "related person" in section 4 (4) (c), the assessee and the person alleged to be related, must have interest, direct or indirect, in the business of eachother. It has been held that if there is a shareholder, then the shareholder may have an interest in the assessee company, but merely because some products are being sold by the assessee to the shareholder, it cannot be said that the assessee has any interest in the business of the shareholder. The ratio laid down in this case would fully cover the present case. In this case also, the union, being a member of the federation, may have an interest in the federation. However, the question would be whether the federation has any interest in the business of the union. Merely because the federation purchases milk from the union would not be sufficient for the purpose of(4). Reliance was placed on23.21, 23.15 and 5.2.18 of the federation. It was submitted under thesethe federation could decide the pricing policy of the union; fix the rate of service charges for manufacturing, processing or marketing and render financial, technical, administrative or other necessary assistance to the members and enter into corroboration agreements. It was submitted that these clauses clearly indicate that the federation could exercise control over the union. It was submitted that this was sufficient for the purposes of making the federation a related person of the union. We are unable to accept this submission. In our view, the High Court is right in holding that this is not sufficient for the purpose of making the federation a related person of the union.