CALCUTTA CHROMOTYPE LTD. versus COLLECTOR OF CENTRAL EXCISE, CALCUTTA

Citation: [1998] 2 S.C.R. 570 · Decided: 31-03-1998 · Supreme Court of India · Bench: SUJATA V. MANOHAR, D.P. WADHWA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
CALCUTTA CHROMOTYPE LTD. 
v. 
COLLECTOR OF CENTRAL EXCISE, CALCUTTA 
MARCH 31, 1998 
B 
[MRS. SUJATA V. MANOHARAND D.P. WADHWA, JJ.] 
Central Excises and Salt Act, 1944-Section 4(1) (a), proviso (iii) and 
Section 4(4)(c)-Two different companies held by same family-Proper 
C valuation of excisable goods-"Related person "-Meaning of-Held, 
Manufacturer and buyer should not be related persons and that price of the 
goods should be the sole consideration for sale. 
Corporate /aw-Lifting of corporate veil-Held, no bar to as certain 
relationship of manufacturer and buyer-Also as certain any direct or indirect 
D interest between them-However, no broad principle can be laid down. 
Words and Phrases-"Related Person "-Meaning of in the context of 
Central Excises and Salt Act, I 944-Section 4. 
The Appellant company manufactures playing cards, and sells the 
E entire stock to their sole distributors. The Assistant Collector, Central 
Excise levied duty at the price at which the playing cards were sold by the 
appellant company to its sole distributor, as the sole distributor was "related 
person" within the meaning of Section 4(4)(c) of the Central Excises and 
Salt Act. Collector of Appeal~ confirmed the order of the Assistant Collector 
F 
holding that the sole distributor was a related person of the appellant. The 
appellant filed a revision application before the Appellant Tribunal which 
upheld the order of the Collector of Appeals as there was identity of interest 
between the appellant-manufacturer and the sole distributor and held, that 
the Assistant Collector had not considered the break-up of the shares of 
each member of the family. Therefore, the matter was remanded to the 
G Assistant Collector to consider the break-up and if satisfied of the test of 
identity then to confirm the order. 
... 
In appeal to this Court it was contended on behalf of the appellant that 
'"'-, 
to be a related persons, they must have direct or indirect interest in the 
H business of the assessee and in the instant case both the companies are 
570 
A 
CALCUTTA CHROMOTYPE LTD. v. C.C.E. 
571 
independent and deal with each other at arms length; that the joint holding A 
of shares by the same family was a weak test to determine identity of 
interest; that there has bee.n no allegation, finding or evidence to show that 
the two companies were not independent or one was giving favourable 
treatment to the other; and that the department in the subsequent years, did 
not consider the sole distributor as a related person. 
Allowing the appeal, the Court 
B 
HELD : 1. When the same family is holding the shares of the 
manufacturing company and the buyer, then in order to valuate the excise, 
identity of interest of each other needs to be as certained, which can be done C 
by the lifting of the corporate veil by the Court or the Statutory Authority. 
(575-F) 
2.1. Under Section 4(1) of the Central Excises and Salt Act, 1944, the 
value of excisable goods shall not be the normal price, which is the price at 
which goods are ordinarily sold by the assessee to a buyer, if the buyer is D 
a "related person" and price is not the sole consideration for sale. 
(584-D-EJ 
2.2. Section 4 of the Act :novides for valuation of excisable goods for 
purposes of charging of duty of excise. ·Negatively put, it will not, therefore, 
be the normal price for the purpose of valuation, if the buyer is a related E 
person and the price is not the sole consideration for sale. [576-H; 578-F! 
3. The principle that a company under the Companies Act, 1956 is a 
separate identity and therefore, where the manufacturer and the buyer are 
two separate companies, they cannot, than anything more, be 'related persons' 
within the meaning of clause (c) of Sub-Section (4) of Section 4 of the Act, F 
is not of universal application. There is no bar on the authorities to lift the 
veil ofa company, whether a manufacturer or a buyer to see that it was not 
wearing that mask of not beir.g treated as related person when, infact both 
the manufacturer and the buyer are the same persons. (581-D) 
4. It is not only that both the manufacturer and the buyer, are associated G 
with each other for which corporate veil may bt lifted to see who is behind 
.. )-., 
it but also that they should have interest, directly or indirectly, in the 
business of each other. But once it is foum:I that the persons behind the 
manufacturer and the buyer are same, it is apparent that the buyer is 
assoc
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