Case: COMMISSIONER OF CENTRAL EXCISE, MUMBAI Vs. UNIVERSAL LUGGAGE MANUFACTURING CO. LTD

2. According to the appellant, the assessee is engaged in the manufacturing of moulded luggage falling under Chapter Sub-Heading 4201.00. The assessee floated a 100 per cent subsidiary company of its own under the name and style of M/s Aristocrat Marketing Ltd. (for short AML) and started routing the bulk of their sale to its dealers through the subsidiary company i.e. AML, thereby reducing the assessable value of its products w.e.f. 1-6-1987. Investigations revealed that the assessee had floated AML and shifted some of the advertising expenses which is to be included in the assessable value to AML with a deliberate intention of reducing the assessable value and thereby evading excise duty.  3. The Collector of Central Excise, Bombay II (for short the Collector) issued a show-cause notice to the assessee on 29-6-1990 to show cause as to why (i) the prices (after the permissible deductions) at which the goods were sold by AML to their dealers should not be taken as the assessable value for the purpose of charging Central excise duty; (ii) the differential duty should not be recovered from the assessee under Section 11-A (1) of the Central Excises and Salt Act, 1944 read with Rule 9 (2); (iii) penalty should not be imposed upon the assessee under Rule 173-Q of the Central Excise Rules, 1944; and (iv) the plant, building, land, machinery, etc. should not be confiscated under the provisions of Rule 173-O.  4. The respondent contested the notice. It was admitted that AML is a related person to the assessee. The notice was discharged by the Collector holding that there was no evasion of the excise duty by the assessee and that the assessee had cleared the excisable goods to AML at the factory gate at the same price at which it had been cleared to the dealers including the Canteen Stores Department (CSD). Since the assessee had sold the goods at the factory gate to AML on the same price at which it had been sold to other dealers and CSD, AML although a related person, was not shown any favour or that the sale made to AML was not done to evade the excise duty. The Collector in his order recorded two significant findings, which are as under:  (i) On close perusal of records, I find that the assessee had filed price lists i.e. pro forma I with effect from 1-6-1987 as stated in the show-cause notice. The assessee had cleared excisable goods to the tune of Rs 46,63,80,823.64 during the period June 1987 to May 1988, at their declared prices. During the relevant period, sales to M/s AML were Rs 29,88,30,105.00, sales to dealers were Rs 3,21,08,308.00, sales to Canteen Stores Department were Rs 13,31,39,043.49 and sales to others i.e. Export and DGS&D were Rs 23,03,367.15.  (ii) From the sales pattern of M/s ULM, it can be observed that M/s ULM had effected total sales of Rs 29,88,30,105.00 to M/s AML and to others total sales of Rs 16,75,50,718.64 (i.e. to dealers, CSD, DGS&D and Exports) during the period June 1987 to May 1988. Similarly the sales effected during the period June 1988 to March 1989 were Rs 1841.86 lakhs to M/s AML and to others were Rs 1369.39 lakhs (i.e. to dealers, CSD). All the sales had been effected at the price filed by the assessee in pro forma I. It is, thus, evident that no special consideration had been extended to M/s AML, which is a subsidiary concern of M/s ULM; further the sales effected to CSD, Exports, DGS&D are covered within the meaning of Section 4 (1)(a) as discussed hereinbefore.  5. The aforesaid findings of the Collector have been upheld by the Tribunal by observing thus:  It was, and is the stand of the respondent, and not disputed by the Department, that the price at which the goods are sold to different classes of buyers is the same price at which it sold the goods to AML.

Court's reasoning:
6. Counsel for the parties have been heard.7. It is not disputed that the sales made to the persons other than the related person, were of significant quantity viz. for the period from 1-6-1987 to March 1988 the sales to persons other than the related person were to the tune of nearly 36% and for the period from June 1988 to March 1989 the same was to the tune of nearly 43%. Thus, in our view, the price at which the goods were sold to the persons other than the related person could form the basis for determining the value of the goods for the purposes of levying duty thereon. Since the assessee had cleared the goods by way of sale in favour of a related person at the same price at which it had been sold to other buyers, we are inclined to accept the view taken by the Tribunal as well as that of the Collector.