LexCOMMISSIONER OF CENTRAL EXCISE, HYDERABAD versus M/S. DETERGENTS INDIA LTD. & ANR.
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[2015) 6 S.C.R. 886 A COMMISSIONER OF CENTRAL EXCISE, HYDERABAD v. MIS. DETERGENTS INDIA LTD. & ANR. B (Civil Appeal Nos. 9049-9051 of 2003) APRIL 8, 2015 [A.K. SIKRI AND R.F. NARIMAN, JJ.] Central Excise and Salt Act, 1944 - s. 4(1) (a) proviso c (iii) ands. 4(4) (c) (as they stood between the amendment Acts of 1973 and 2000)- Demand notice by Revenue - To assessee company-Alleging that the assessee a subsidiary company sold its goods to its holdinq company (related person) at a price lower than the normal price - Tribunal D held that the assessee-subsidiary company and the holding company were not related persons within meaning of s. 4(1)(a) and rejected the case of revenue- On appeal, held: Where the buyer is a related person, it merely raises a rebuttable presumption - Once this presumption is rebutted E and it is shown that despite the buyer being a related person, the price was the sole Consideration for the sale, such price would fall withins. 4(1)(a) for arriving at a 'normal price' - Proviso (iii) to s. 4(1)(a) is referable only to tainted cases - F In the facts of the case, presumption of a transaction not being at arm's length, since has been rebutted, it is s. 4(1 )(a) and not its proviso (iii) which gets attracted Words and Phrases: G 'Related person' - Meaning of, in the context of Proviso(iil) to s. 4(1 )(a) of Central Excise and Salt Act, 1944. 'Holding Company' and 'Subsidiary Company' - Meaning of. Dismissing tho appeals, the Court H HELD: 1. Proviso (iii) to s. 4(1 )(a) of Central Excise 886 • COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 887 v. M/S. DETERGENTS INDIA LTD. and Salt Act, 1944 deals with the price that is to be taken A into consideration, in case, sales are made to related persons. Three basic ingredients are necessary before proviso (iii) gets attracted. The first ingredient is that the assessee must "arrange" that goods are sold by him in a particular manner. The "arrangement" spoken of in B the proviso must be something by which the assessee and the related person "arrange" that the goods are sold at something below the normal price, so that tax is either avoided or evaded by such arrangement. The second ingredient is that such arrangement must be such that C the goods are "generally" sold by the assessee in the course of wholesale trade to or through a related person. The expression "generally" also shows that such goods must predominantly be sold by the assessee to or D through the related person - in mathematical terms, sales that are to or through a related person must consist of at least 50% of the goods that are manufactured and sold. And thirdly, such sale need not be to the related person - it can even be through the related person. The E expression "to or through a related person" again goes back to the "arrangement" and is another way of saying that such sale can be effected directly to or indirectly through such related person. It is only when all three considerations are cumulatively met that proviso (iii) can F be said to be attracted. [Para 10 and 11] [904-C-E, F-H] [905-A] 2. So far as definition of "related person" is concerned, the legislature has used a well known G technique. It first employs the expression "means" and states that persons who are associated with the assessee so that they have a direct or indirect interest in the business of each other would get covered. The definition then goes on to use the expression "and H 888 SUPREME COURT REPORTS [2015) 6 S.C.R. A includes" thereby indicating that the legislature intends to extend the definition to also include various persons that would not otherwise have so been included. These include a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub- 8 distributor of such distributor. The necessity for including holding and subsidiary companies as defined under the Companies Act, 1956 is to lift the corporate veil in order to get to the economic realities of the transaction. [Para 12] [905-8-D] c 3. Where price is the sole consideration for the sale and is not a specially low price because of extra commercial consideratiG!'I". "'v"'~ ~'Vhere a buyer is a related person, the normal price mentioned in Section D 4(1 )(a) post the 1973 amendment would apply. Read in accordance with the object of the pre-am:mdecf Section 4, it is clear that the expression "where the buyer is not a related pe
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