COMMISSIONER, CENTRAL EXCISE, CHANDIGARH versus M/S. KWALITY ICE CREAM CO.

Citation: [2010] 14 S.C.R. 409 · Decided: 26-11-2010 · Supreme Court of India · Bench: B. SUDERSHAN REDDY · Disposal: Dismissed
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Judgment (excerpt)

[2010] 14 (ADDL.) S.C.R. 409 
COMMISSIONER, CENTRAL EXCISE, CHANDIGARH 
v. 
M/S. KWALITY ICE CREAM CO. 
(Civil Appeal Nos. 8456-8463 of 2002) 
NOVEMBER 26, 2010 
[B. SUDERSHAN REDDY AND SURINDER SINGH 
NIJJAR, JJ.] 
Central Excise Tariff Act, 1985 - s. 4(4)(c) - Valuation 
A 
B 
of excisable goods - Manufacturer-assessee entering into 
C 
sourcing agreement with a company for marketing its product 
-
Revenue holding the manufacturer-company and 
distributor-company as related persons and demanding duty 
on the basis of the price at which distributor-company selling 
the product - Demand confirmed by appellate authority -
D 
Tribunal negating the demand -
On appeal, held: The 
Manufacturer!assessee-company and the distributor-
company were not 'related persons' - Transaction between 
them was on principal to principal basis ...,. The assessable 
value cannot be computed on the basis of the price at which 
E 
the distributor-company sold the product. 
Words and Phrases - 'Related persons' - Meaning of, 
in the context of s. 4(4)(c) of Central Excise Tariff Act, 1985. 
The respondent assessee-company, manufacturer of 
F 
ice-cream, entered into a so1.Jrce agreement with a 
company for the sale of its entire product, for marketing. 
The Department issued show-cause notice demanding 
the duty, computing the assessable value of the product 
on the basis of the price at which the distributor-company 
G 
sold the product. The demand was confirmed by the 
authority concerned. The appellate authority confirmed · 
the demand holding that the manufacturing/assessee-
company and the distributor-company were related 
409 
H 
410 
SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R. 
A persons and the transaction between them was not on 
principal to principal basis. On appeal, CEGAT held that 
the manufacturer assessee-company and the distributor~ 
company were not related persons and the transaction 
between them was on principal to principal basis. 
B Therefore, the instant appeals were filed by the Revenue. 
Dismissing the appeals, the Court 
HELD: 1. The Tribunal did not commit any error in 
coming to the conclusion that the assessee and the 
C distributor-company were not 'related persons'. The 
transaction between them is of the nature of principal to 
principal and the price was the sole consideration for the 
sale of goods. Therefore, the assessable value cannot be 
computed on the basis of the price at which the 
D distributor-company sold the product from its depot. 
[Para 21] [426-F] 
2. According to clause (c) of sub-section (4) ,of 
Section 4 of Central Excise Tariff Act, 1985, 'related 
E person' means a person who is so associated with the 
assessee that they have interest, directly or indirectly, and 
includes a holding company, a subsidiary company etc. 
The Explanation to Section 4(4)(c) further provides that 
in this cla1,1se 'holding company', 'subsidiary company' 
and ' relative' have the same meanings as in the 
F Companies Act, 1956. What is of importance is certain 
interdependence and reciprocity beyond .the relationship 
of either a distributor or manufacturer so as to consider 
as to whether the parties are 'related persons'. Essentially 
the relationship between the assessee-company and the 
G distributor-company is one sided and the facts do not 
suggest that each one of. them have interest direct or 
indirect, in the business of each other. [Paras 9 and 19] 
[418-F-G; 425-F; 426-A-B] 
H 
3. The Departmental authorities, on the basis of 
.. 
COMMNR., CENTRAL EXCISE, CHANDIGARH v. 
411 
KWAUTY ICE CREAM CO. 
Clause S(i) of the Source Agreement took the view that 
A 
the terms and conditions of the agreement between the 
assessee-company and the distributor-company had 
mutuality of interests and therefore, the transactions 
between them were not on a principal to principal basis. 
The Tribunal upon meticulous analysis of the terms and 
B 
conditions of the agreement found that the price was 
being fixed on the basis of the formula agreed between 
the parties. Sub-clause (iii) of Clause 6 provides that 
pendirig commencement of production by the assessee-
com pany, it shall make necessary investments for c 
upgradation, modification or alteration in the existing 
factory/manufacturing facilities as required by the 
distributor-company subject to necessary approvals and 
pending such investments the assessee-company shall 
not be responsible for any deficiency. On assessee-
0 
company making such investment for
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