UNION OF INDIA & ORS. versus PLAYWORLD ELECTRONICS PVT. LTD. & ANR.

Citation: [1989] 2 S.C.R. 1023 · Decided: 02-05-1989 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Dismissed
Cited by 1 judgment(s) · cites 3 · see the full citation network in Lexace
Open in Lexace · Ask the AI about this case
Judgment (excerpt)

UNION OF INDIA & ORS. 
_v. 
PLAYWORLD ELECTRONICS PVT. LTD. & ANR. 
MAY 2, 1989 
[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.] 
Central Excises and Salt Act, 1944: Sections 4(1)(a), 4(4)(c)/ 
Central Excise Rules, 1944: Rule 9B. 
A 
B 
Assessee-Manufacturing wireless receiving sets, tape recorders, 
tape players under brand name 'Bush'-Sel/ing products exclusively to C 
the Company (Bush India Ltd.) and its authorised wholesale dealers-
price charged-Whether represents correct assessable value for excise 
duty. 
· 
• 
Company Law-Tax evasion or perpetration of a fraud-Duty of 
Court to lift corporate veil. 
D 
Taxation-Tax planning within the framework of law is legiti-
-l. _ mate-Colourable devices cannot be part of tax planning. 
Words and phrases: 'Related person'-Meaningof. 
E 
The respondent company was engaged in the manufacture of 
wireless receiving sets, tape recorders, tape players. These products 
were assessable under Tariff Items 33A and 37 AA of the Central Excise 
Tariff. In the classification list and price lists tiled by the respondent-
assessee company these goods were shown as unbranded goods. Subse-
quently it was found that the respondent-assessee company was manu-
F 
factoring their products in the brand name of "Bush" and were selling 
the same exclusively to M/s Bush India Ltd. or its authorised wholesale 
' • dealers only. The appellants-Revenue alleged that there was wilful 
suppression of facts by the respondent company with intention to evade 
excise duty because this fact was not mentioned by the company in the 
price list or classification list, tiled. 
G 
~+· 
A sliow Cause Notice was issued requiring the respondent com-
,':'.i 
pany to show cause as to why, (i) M/s Bush India Limited should not be 
'' 
treated as .a 'related person' and a favoured buyer of the respondent 
company for the purpose of determination of wholesale cash price, (ii) 
the_ concessional rate of duty under notification No. 358/77-CE should 
H 
1023 
A 
B 
c 
D 
E 
F 
G 
H 
1024 
SUPREME COURT REPORTS 
[1989] 2 S.C.R. 
not be denied to the respondent and, (iii) the differential duty in respect 
of the goods cleared should not be recovered. 
Instead of executing the surety bond the respondent-assessee com-
pany filed a writ. petition in the High Court praying for quashing of the 
Show Cause Notice and for a mandamus to allow it to clear the goods on 
the basis of the price at which the goods were sold by it to Bush India 
Limited allowing the benefit of the relevant notification. 
The High Court following its earlier decision held that for the 
purpose of payment of excise duty the market value of the goods of the 
respondent-assessee company was the price charged by it from M/s 
Bush India Ltd., and not the market value at which price M/s Bush 
India Ltd. sold the goods. It further held that there was no misdeclara-
tion of the value by the assessee company, and it accordingly quashed the 
Show Cause Notice and the Demand Notice for recovery. 
In this appeal by the Revenue it was contended that in the facts 
and circumstances of the case the High Court committed an error in not 
realising that M/s Bush India Ltd. was a related person and as such the 
price charged by the respondent company from M/s Bush India could 
not represent the correct assessable value for the purpose of excise duty. 
Dismissing the appeal, 
HELD: 1. Tax planning may be legitimate provided it is within 
the framework of the law. But colourable devices cannot be part of tax 
planning and it is wrong to encourage or entertain the belief that it is 
honourable to avoid the payment of tax by dubious methods. It is the 
obligation of every citizen to pay the taxes honestly without resorting to 
subterfuges. In order to create the atmosphere of tax compliance, taxes 
must be reasonably collected and when collected, should be utilised in 
proper expenditure and not wasted. It is too much to expect the legisla-
tore to intervene and take care of every device and scheme to avoid 
taxation and it is up to the court sometimes to take stock to determine 
the nature of the new sophisticated legal devices to avoid tax and to 
expos~ the devices for what they really are and to refuse to give judicial 
benediction. [1034A-B, D] 
2. One must find out the true nature of the transaction. Even 
though the corporatiop might be a legal pe.rsonality distinct from its 
members, the court is entitled to lift the mask of corporate entity if the 
conception is used fo
Excerpt shown. Read the full judgment & AI analysis in Lexace.