1. This is an appeal against the order of Collector of Central Excise (Appeals), Madras. Brief facts of the case are that the appellants manufactured goods falling under T.I. 63 and availed of the benefit of concessional assessment based on the invoice price in terms of Notification 120/75. For convenience of reference, the said notification is reproduced below: "In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), cleared from the factory of manufacture, on sale, from so much of the duty of excise leviable thereon as in excess of the duty calculated on the basis of the invoice price (excluding duty and local taxes, if any, included in such price) charged by the manufacture for the sale of such goods : (i) the manufacturer files with the Superintendent of Central Excise having jurisdiction a written declaration to the effect that he opts to avail of the said exemption; (ii) the manufacturer avails of the said exemption uniformly in respect of all goods, sold by him, which fall under the Item aforesaid; (iii) the manufacturer certifies that the price referred to in the invoice represents the price actually charged by him for the relevant sale and that the price is the sole consideration for the sale; (iv) the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods; (v) no part of the proceeds of the subsequent sale, or disposal of such goods accrues either directly or indirectly to or for the benefit of the manufacturer or any person associated in business with him.
Provided further that a manufacturer shall be entitled to withdraw his option referred to in clause (i) of the preceding proviso after giving to the Superintendent of Central Excise having jurisdiction a prior notice in writing of at least 7 days and where the manufacturer has withdrawn his option he shall, unless otherwise directed by the Central Board of Excise and Customs, be precluded from availing of the aforesaid exemption during the remaining period of the relevant financial year." 2. The appellants were found to be selling the goods to their holding company M/s. Eicon Engineering Co. Ltd., Vallabh Vidyanagar, Gujarat, who, in turn, utilised the goods for manufacture of items machinery required by the individual customers or supplied these as such to them.
The goods cleared by the appellants were found to have been invoiced at higher price by their holding company to their ultimate customers. By a show cause notice dated 28.4.83, the Superintendent of Central Excise called upon the appellants to show cause as to why the benefit of Notification No. 120/75, dated 30.4.75 should not be withdrawn and why the appellants should not be required to file regular price lists as required under Rule 173C of Central Excise Rules inasmuch as the appellants did not fulfil the requirements of proviso (iv) of the said notification referred to above.
3. The appellants sent a reply to this show cause notice vide their letter dated 27.6.83 addressed to the Assistant Collector (Central Excise) to whom they were asked to show cause. They stated that the show cause notice did not set out the grounds as to how proviso (iv) was not satisfied by them. However, in the show cause notice, they set out the modalities of their transactions with a holding company as under: "We respectfully state that M/s. Eicon (Madras) Ltd., Madras is an independent company incorporated under the Companies Act,1956 so is M/s. Eicon Engineering Co. Ltd., Vallabh Vidyanagar, Gujarat. M/s.
Eicon Engineering Co. Ltd., Vallabh Vidyanagar, Gujarat has entered into a contract with their cus-_ tomers for supply of certain equipments in the manner and at the rate mentioned in the contract entered into by them with their customers. The price mentioned in the contract for supply of such goods does not involve only the cost of material, cost of over heads and the profit but also includes various other expenses involved in designing, engineering, etc.
constituting pre-manufacturing expenses connected only with the services rendered in the regard by M/s. Eicon Engineering Co. Ltd., Vallabh Vidyanagar, Gujarat. Since the said expenses of designing, engineering, etc. incurred before embarking on the process of manufacture over the raw materials supplied to M/s. Eicon (Madras) Ltd., Madras, they are not reflected and do not constitute part of value of the goods manufactured and delivered to the customer by M/s. Eicon (Madras) Ltd., Madras. We say, therefore, that the prices shown in the invoices of M/s. Eicon Engineering Co. Ltd., Vallabh Vidyanagar, Gujarat has nothing to do with the prices raised by M/s.
Eicon (Madras) Ltd., Madras in their invoiced and therefore, the Central Excise duty paid on the basis of such invoices by M/s. Eicon (Madras) Ltd., Madras is correct in all respects and does not conflict with the provisions of proviso IV of the notification." 4. They sent further reply vide their letter dated 9.7.85. In this, they admitted that they were wholly owned subsidiary of Eicon Engg. Co.
Ltd., V.V. Nagar, Gujarat but pleaded that the transactions are on principal to principal basis based purely on commercial considerations and elaborated on the nature of the goods manufactured by them and the status of the purchases made by their holding company. They stated as under in this regard: "We request you to note that the goods manufactured by us are not ordinary consumer goods. Because of the nature of the goods which we have so far produced, it is not possible to make any arrangement with anybody to sell goods either to or through him. Ours is a specialised activity or manufacturing engineering goods strictly in accordance with the specifications given by the customers." "Eicon Engineering Co. Ltd., Vallabh Vidyanagar are consuming the goods bought from us and are not reselling as such, and therefore, the proposal made in the show cause notice that the price at which Eicon Engineering Co. Ltd., Vallabh Vidyanagar sold the goods should be the price for the purpose of assessment is not workable.".
5. However, before the adjudication in respect of the said show cause notice was completed, another show cause notice dated 28.3.85 was issued. In the second show cause notice, it was alleged that the appellants sold almost all their goods to their holding company and that they were despatching the goods to the ultimate customers of the holding company directly from the factory while the invoices were raised in the name of the holding company. It was alleged in the show cause notice that the invoice raised by the holding company, in spite of being asked for, had not been supplied to the Central Excise Authorities. In this show cause notice, it was cited that the appellants, vide their letter dated 2.1.84, had also expressed their inability to obtain these documents as it was beyond their control to get the same. It has been, further, alleged that the appellants being a subsidiary of the holding company who purchased the goods, had mutual, financial and business interest between two of them and that the value as declared in the invoices, could not be the basis of assessment and the same had to be arrived at under main provisions of the Section 4.
It has also been stated in the show cause notice that "all the assessments from 1.1.82 till the date of issue of show cause notice were made provisional by suitably indicating in the assessment memorandum that the assessments are finalised without prejudice to raising a demand at a later date in terms of show cause notice issued by the office O.C. No. 513/83 dated 28.4.83". Based on some of the invoices issued by the holding company, a demand was also raised under this show cause notice and the working sheets were also attached. The department, in this show cause notice, further, reserved the right to raise the demand for differential amount of duty on the basis of the difference, between the value of the goods as invoiced by the appellants and the value of the same goods as invoiced by their holding company to the ultimate customers and that a supplementary show cause notice would be issued in this regard. A demand of Rs. 4,54,834.99 was raised and Section 11A proviso (i) was invoked for raising the demand beyond six months' period read with the provisions of 9(2) of the Central Excise Rules.
6. The Assistant Collector, after taking into account the submissions made in reply to the second show cause notice and the earlier show cause notice, vide his order dated 18.8.86, dropped the proceedings.
The Assistant Collector, while dropping the proceedings, has held as under: "Merely because the assessee is a subsidiary company, it does not mean that they become automatically related persons as per Section 4(4) (c) unless it is proved that their transactions are influenced and their is a flow back of money. Further as in the case of Atic Industries Ltd., wherein the Supreme Court has clearly held that the mutuality of interest direct or indirect of both should be confirmed before they could be treated as related person. The assessee also stressed the same very clearly and applying this ratio, the assesse cannot be treated as related person. Merely, some common directors are also there in the assessee's company cannot also make them related person as it has been rightly pointed out that both are distinct legal entities and registered under Companies Act and the shareholders' responsibilities are limited and the shareholders are different with the companies. The money also cannot be transferred from one to another because both are distinct legal entities. If they borrow on interest payment it is as per the commercial practice and this also cannot make them related persons. There are many decisions in this regard like Bombay Tyres International Ltd. case, Moped India case, Mahindra and Mahendra v. U.O.I., Amar Dass & Chemicals and Ors. case, S.M. Chemicals and Anr. case and the CEGAT decisions like Bengal Paper Mills v. Collector of Central Excise, Mafatlal Fine Spinning and Manufacturing Co. and the Collector of Central Excise, Philips India Ltd. and Ors., Allahabad High Court, Hind Lamps - which all point out to the same aspect as pointed out by the assessee. Since the transactions seems to be genuine and no extra consideration is involved, the price at which the assessee sells the goods to the customer is the correct price as per Section 4(4)(c) of Central Excises and Salt Act, 1944. As both cannot be treated as related persons, the price of the assessee can be accepted." "The allegation of the department that they have contravened rule 9(2) read with Section 11A is also not proved. There is no question of suppression of facts or mis-statement and there is no clandestine removal. Therefore, Rule 9(2) read with Section 11A is not applicable. The Department is very much aware of their activities and they have been inspecting the factory also now and then and it cannot be stated that they have been clandestinely removing. They have not put up any evidence for such removal. Whatever the goods manufactured by the asses-see have been cleared only on payment of duty and under valid documents and hence, invoking Rule 9(2) read with Section 11A proviso 1, is not correct." "As it has been proved that no extra commercial consideration is involved or the price is unduly influenced, the assessee cannot be denied the benefit of Notification 120/75. The demand issued under Section 11A invoking the extended period is not correct and valid as stated above." 7. The Collector, against the order of the Assistant Collector, file an appeal before the Collector of Central Excise (Appeals) in terms of 35E of the Central Excises and Salt Act and following grounds of appeal were agitated: "It is not disputed that M/s. Eicon Engineering Company Ltd., Vallabh Vidyanagar, Gujarat are the holding company of M/s. Eicon (Madras) Ltd. and the latter a subsidiary of the former. In the fact of it the ascertain by M/s. Eicon (Madras) Ltd. that their transaction with their holding company were on principal to principal basis and that there was no commercial consideration other than price, does not appear to be correct. In view of Section 4 of Company's Act which stipulates that the holding company actually controls the composition of the Board of Directors of the subsidiary company and exercise more than half of the voting power of the subsidiary company, financial interest other than normal commercial consideration could reasonably be presumed." "Even otherwise by its very nature and in terms of Section 4(4)(c) of the Central Excises and Salt Act a holding company and subsidiary company come within the meaning of related persons. In terms of Section 4(l)(a) of the Central Excise Act "the duty of Excis&is chargeable on any excisable goods with reference to value such value shall...be deemed to be the normal price thereof.... where the buyer is not a related person and the price is the sole consideration of sale. In terms of proviso (iii) to Section 4(l)(a) where the assessee so arranges that the goods are not generally sold by him in course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in course of the whole sale trade." It would be seen that the value to be adopted in this case the price at which it is ordinarily sold by their holding company namely M/s. Eicon Engineering Co., Vallabh Vidhya Nagar, Gujarat." "In accordance with Notification No.l20/75-C.E., dated 30.4.1975 "goods falling under Item No. 68 cleared from the factory of manufacturer for sale, are exempt from so much of the duty leviable thereon as in excess of the duty calculated on the basis of invoice value." Provision (iv) to the above notification states that the aforesaid exemption shall be admissible only if "the invoice price is not influenced by commercial, financial or other relationship whether by contract or otherwise between the manufacturers and buyer". Since M/s. Eicon (Madras) Ltd. are related persons of M/s.
Eicon Engg. Co., Vallabh Vidhyanagar, Gujarat, it is to be held that provision No. (iv) of Notification No. 120/75-C.E., dated 30.4.75 is not satisfied and hence M/s. Eicon (Madras) Ltd. are not eligible for availing the benefits of the said notification." "It is prayed that the Honourable Collector (Appeals) may pass necessary order to set aside the order passed by the Assistant Collector and confirm the differential duty demanded for the period 28.10.82 to 28.3.85 as a notice dated 28.4.83 was already issued to the assessee and to withdraw the benefit of Notification No.120/75 and render Justices." 8. In their written submission before the Collector (Appeals), the appellants, after setting out the parameters of Section 4, have stated as under: "To sum up, we wish to state that we are although a subsidiary company of M/s. Eicon Engg. Co. Ltd., Vallabh Vidyanagar, we do not have any financial or other interest except for the commercial transactions which are purely on principal to principal basis, in the business of M/s. Eicon Engg. Co. Ltd., Vallabh Vidyanagar and thus are not satisfying both the conditions of the concept of related person as stipulated infection 4(4) (c) of the Central Excises and Salt Act, 1944 and hence cannot be treated as a related person in terms of Section 4(4)(c) of the said Act." 9. The Collector (Appeals), after giving the appellants a personal hearing, allowed the department's appeal in the following terms : "It is seen from the facts of the application that orders secured by the holding company of the respondents in Gujarat and the goods are supplied by respondents, either to the holding company or to their customers direct. This fact is not disputed. The relationship of holding company and subsidiary is also not disputed. Respondents state that under Section 4 of the Act, holding company is not a related person, unless it is established that they have interest, directly or indirectly in the business of each other. This contention is not supported by the language of Section 4(4)(c) of the Act when transaction is between a holding company and a subsidiary company, there will be a legal presumption of interest in each others business, that is why the relevant words are "and includes a holding company, a subsidiary company" etc. Thus when it is admitted that the respondents are subsidiary of the Gujarat company, they are related persons and as respondents do not have sales to independent buyers, the price of the related company, shall be the price for determining the assessable value. The order of the Assistant Collector is thus set aside and the application is allowed." 10. It is against the above findings of the Collector (Appeals) that the appellants are in appeal before us.
11. The learned Advocate, for the appellants, pleaded that the appellants manufactured tailor-made products primarily material handling equipment and they were manufactured as per orders of their holding company and that they despatched the goods either to the holding company or to the ultimate customers on whose behalf the holding company executed the orders.
12. He stated that the appellants were availing the benefit of Notification 120/75 and the same was sought to be denied by the issue of the show cause notice dated 20.4.83 (received by them on 3.5.83). He pleaded that in terms of this show cause notice, no duty demand was raised and what was sought to be done was to deny the benefit of Notification 120/75. He pointed out that white the issue raised in this show cause notice was pending, another show cause notice dated 20.3.85 was issued by the Central Excise Authorities again seeking to deny them the benefit of Notification 120/75 and a demand was also raised in terms of this show cause notice. He pleaded that it was alleged in the show cause notice that the appellants had not produced the invoice which the holding company raised in respect of the goods supplied by the appellants on the ultimate customers and for that reason the appellants were alleged to have resorted to suppression of fact. He pleaded that such an allegation was not borne out by any evidence on record. In this connection, he pointed out that the order of the Assistant Collector, under which the proceedings were dropped in respect of the two show cause notices in para 15, it has been clearly held that proviso to Section 11A under which demand could be raised beyond six month was not applicable. He pleaded that the department had filed an appeal before the Collector (Appeals) against the order of the Assistant Collector and no plea was made before the Collector (Appeals) against this finding of the Assistant Collector and that this finding of the Assistant Collector had not been upset by the Collector (Appeals). In this connection, he also drew our attention to the grounds taken by the department before the Collector (Appeals). He pointed out that there was no plea in these grounds that the findings of fact, as recorded by the Assistant Collector, were in anyway wrong.
He pleaded that inasmuch as the department had not made any grievance before the Collector (Appeals) in regard to the finding of the Assistant Collector on the point of suppression, the same could not be now raised in the appeal before us and the findings of the Assistant Collector should be taken to have become final in this regard.
13. He pleaded that the relevant period for raising the demand was only six months and the same should reckon from the date of receipt of the second show cause notice by them as it was only in terms of second show cause notice that the duty short levied was demanded.
14. In regard to the findings of the Collector that the appellants' holding company was a related person and the value of the sales made by the appellants to this related person, therefore, had to be determined in terms of Section 4(l)(a) proviso (iii) read with Section 4(4) (c) of the Central Excises and Salt Act, he pleaded that there is no finding by the Collector (Appeals) that there was any mutuality of the interest between the holding company and the subsidiary company. He pleaded that two cannot be treated as related persons unless there was mutuality of interest between the two companies. He cited the following case law in this regard : 2.1988 (36) E.L.T. 102 (Bom.) - Cosmos (India) Rubber Works Private Limited and Ors. v. Union of India and Ors. 3.1984 (17) E.L.T. 323 (S.C.) - Union of India and Ors. Etc. Etc.
v. Bombay Tyre International Ltd. Etc. Etc.Western Coalfields Ltd. v. Special Area Development Authority, Korba and Anr.
15. The learned S.D.R., for the department, pleading on the point of limitation, referred to the show cause notice dated 28.3.85 and stated that longer period for raising the demand has been specifically invoked. He pleaded that, no doubt, the Assistant Collector had clearly stated that Rule 9(2) was not applicable yet he pleaded that the demand can be raised in terms of Section 11A read with the Proviso I beyond the six months period.
16. It was pointed out to him by the Bench that the demand was sought to be raised in terms of the Proviso I to Section 11(A) and the Assistant Collector had given specific findings in respect of applicability of extended time limit and there was no specific challenge to these findings in the proceedings before the Collector (Appeals). He pleaded that the prayer before the Collector (Appeals) was for setting aside the order of the Assistant Collector and the Collector (Appeals) had upheld the duty demanded for the entire period.
To this extent, he pleaded the findings of the Assistant Collector in respect of time bar had been set aside by the Collector (Appeals). In regard to the related person, he referred to Section 4(4)(c) of the Central Excises and Salt Act and stated that the definition of related person was an inclusive one and the holding company and subsidiary company have been specifically held to be related persons. He pleaded that it was not necessary to bring home the mutuality of interest between the two, so long as the selling and buying companies have relation ship of holding and subsidiary companies. He stated that in case it was to be held that the holding and subsidiary companies could be treated as related persons only if there was mutuality of interest, then the words used in the definition under Section 4(4)(c), namely, 'and includes a holding company, etc' would become redundant. He pleaded that according to the principle of interpretation of statues, no provision should be so read as to make any portion of the same redundant. In this regard, he cited the case of C.C.E., Indore v.Giyajee [1984 (15) E.L.T. 259].
17. He also referred to the judgment of the Hon'ble Supreme Court in the case of Bombay Tyre International 1983 E.L.T. 1896 para 42 and pointed out that the Hon'ble Supreme Court had held that legislature can provide for some transactions to be considered as tainted. He pleaded that there was no need to examine the relationship between the holding and subsidiary companies and that by virtue of the definition these have to be held to be related persons. He pleaded that the Hon'ble Supreme Court in para 44 of the judgment above has clearly set out that the question of mutuality of interest is required to be examined in respect of only limited type of cases. He pleaded that in case subsidiary and holding companies, this aspect was not required to be looked into. He stated that this observation of the Hon'ble Supreme Court had been followed in the judgment in the case of Mohan Lal Maganlal Bhavsar (Deceased) through LRs and Ors. v. Union of India and Ors. [1986 (23) E.L.T. 3 (S.C.)] and referred to para 5 in this regard.
He stated in that case the sale was by a partnership company to another partnership company where the partners of the manufacturing and the buying companies were related to each other, the relationship being that of children and wives of respective members.
18. He pleaded that the appellants were working under SRP and the relationship was not made known to as was pointed out vide letter dated 26.6.82, as referred to in the record and that the appellants were not entitled to the benefit of Notification 120/75. Both the sides were asked to file the copy of this letter.
19. He pleaded that the appellants had filed the price list and stated that since they were working under SRP and they had not filed the necessary price list, they can be taken to have violated the rules with the intent to evade payment of duty and, therefore, the extended time limit for raising the demand in terms of Section 11A Proviso could be involved.
20. The Bench asked as to whether this plea was taken by the department in the proceedings before the lower authorities. He stated that the facts as shown in the show cause notice were sufficient and the specific allegation regarding non-filing of the price list need not have been spelt out and that in any case the absence of any specific mention in this regard cannot constitute a legal infirmity in the show cause notice issued in the facts of this case.
21. He pleaded that this fact of non-filing of the price list was brought out in the first show cause notice and the duty demand was not raised for the differential amount as the appellants had not produced the invoice of the goods as raised by the holding company on the ultimate customers. He pleaded that the first show cause notice was a valid show cause notice and the period for demand could be reckoned with reference to that show cause notice. He stated that the second show cause notice was issued based on the invoices produced and there was a reference to the first show cause notice in it.
22. He, in this connection, stated that non-mention of amount in the first show cause notice did not render that show cause notice ineffective so far as the amount of demand was concerned and he referred the case of Hindustan Aluminium Corporation Ltd. v.Superintendent, Central Excise, Minapur and Ors. [1981 E.L.T. 642 (Del.) para 19]. He stated that since the elements of suppression were shown in the show cause notice issued, the demand could be raised for extending the period. In this regard, he cited the following case law: (i) 1986 (26) E.L.T. 611 (Tribunal) - Charan Engg. Corporation Ltd. v Collector (Central Excise), Coimbatore.H. Guru Instruments (P) Ltd., Calcutta v. Collector (Central Excise), Calcutta.Grauer & Weil (India) Ltd. Vapi v. Collector (Central Excise), Baroda.
23. He pleaded that since the appellants are working under SRP, there was no evidence on record to show that the departmental authorities were made aware that the holding company was selling the goods at a higher price. He pleaded even if the information was available, somewhere in the record, it was their duty to write to the department specifically in this regard. It is the duty of the assessee to give the relevant information. He cited the following case law:Aims Oxygen Pvt. Ltd., Baroda v. C.C.E., Baroda.AIMS Oxygen (P) Ltd., Baroda v. C.C.E., Baroda.
24. He, further, pointed out that assessment of RT 12 statements filed were kept provisional and the second show cause notice brings out this fact. He stated that so far as case law cited by the appellants was concerned in regard to the related person, the judgments cited are before the judgment of the S.C, in the case of Bombay Tyre International, referred to supra and that the other cases cited were not on the issue of related person when the sales are to a holding company or a subsidiary company. He also cited the judgment of the Hon'ble Supreme Court in the case of McDowel v. Commissioner of Sales Tax [1985 (5) ECC 259 (page 268)]. He pointed out that the appellants had resorted to device to evade taxes.
25. The learned Advocate, for the appellants, in reply, pleaded that the department had gone in appeal against the order of the original authority and they were required to set out the points to be determined by the Collector (Appeals) and stated that in the grounds of appeal before the Collector (Appeals), the department had not assailed the findings of the Assistant Collector on the point that there was no warrant for invoking the extended time period for raising the demand.
He stated that the case of Mohanlal Maganlal Bhavsar (Deceased) through LRs and Ors. v. Union of India and Ors. [1986 (23) E.L.T. 3] was not relevant to the facts of this case as in that case the Supreme Court was not examining the issue as to whether the appellants fell within the ambit of the definition of related person. He stated that mutuality of interest ought to be established in the case of the sales are to be held to be to a related person and cited the case reported in 1986 (26) E.L.T. 289 Union of India and Ors. v. Kantilal Chunilal and Ors.
26. He, further, pointed out that in the first show cause notice, there was not a whisper that the invoices were required by the department.
He, further, stated that it was not correct for the department to plead that the assessments were provisional. He also pleaded that the observations of the Hon'ble Court in the case of McDowel had been watered down in a later judgment so far as it related to tax planning.
27. We observe that the proceedings in the case started with the issue of the first show cause notice dated 20.4.83 under which the appellants were called upon to show cause as to why the benefit of assessment in terms of Notification 120/75 should not be disallowed and that they should not be called upon to file the price list. The reason given was that the appellants did not fulfil the requirements of Proviso (iv) of the Notification No. 120/75 (reproduced in the first para of this order). This Proviso, for proper appreciation of facts is reproduced below again : "the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods." 28. The issue, however, came to be examined in the context of the fact whether the appellants and the holding company were related persons or not. The Assistant Collector held that they were not related persons while the Collector (Appeals), on an application filed before him by the department reversed the findings of the Assistant Collector and held that the sales made by the appellants were to the related persons.
Now, the definition of the related person, as given in the Section 4(4)(c) of Central Excises and Salt Act, 1944, is as under: "related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor.
Explanation. - In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act,1956 (1 of 1956)." 29. We observe that the definition of related person given under Section 4(4)(c) is an inclusive definition. The question is whether the appellants' transactions have to be viewed in the light of the parameters laid under Section 4(l)(a)(iii) read with Section 4(4) (c) or in terms of Proviso (iv) of the Notification 120/75 for the purpose of acceptance of invoice value for the purpose of assessment.
30. We observe that, notwithstanding, the fact that the relationship of the appellants and their holding company may fall within the ambit of the parameters of the related person as given under heading 4(4) (c) and that the assessments subject to the provisions of any notification issued in this regard may have to be done under the main provisions, of Section 4(1) (a) Proviso (iii), fact remain that the appellants for the purpose of assessment of the goods have laid claim to the benefit of Notification 120/75 and their claim for assessment has to be examined in terms of the provisions of this notification and in case they do not satisfy the requirements of this notification, then alone the assessment has to be done in terms of the Section 4(1)(a).
31. We observe that the lower authorities have not examined the claims of the assessee in terms of provisions of this notification and have not given any findings as to in what way the appellants fail to satisfy the provisions of proviso (iv) of the said notification. All that has been said is that subsidiary and holding companies have to be held to be related persons in terms of Section 4(4)(c) and the assessment under Notification 120/75 cannot be allowed.
32. We observe that the authorities below have failed to appreciate the point that Notification 120/75 is an exemption notification and notwithstanding, the fact that the sales may be to a related person if the appellants satisfy the requirements of this notification, the benefit of the same cannot be denied to them. The proviso (iv) to the said notification, which was stated to be not satisfied as set out in the show cause notice issued, requires that the price at which the goods are invoiced should not be influenced by any commercial, financial or other relationship whether by contract or otherwise other than the relationship created by the sale of aforesaid goods. The relationship could be of any nature and if it influences the price of the goods then the invoiced price cannot form the basis of the assessable valee. In the instant case, no doubt, there is a relationship of a subsidiary and holding company between the appellants and the company which has purchased the goods from them. No findings, however, have been given as to how, by virtue of this, relationship, the price has been influenced. This would require the examination of the nature of the transaction between the two and the terms and constraints, if any, under which the appellants have been supplying the goods to their holding company. It will be relevant to examine in what way the price at which the goods were sold was so influenced so as to render it not acceptable for assessment purposes under Notification 120/75.
33. The notification, we observe, does not state that if the appellants are subsidiary of the buying company they are automatically disqualified from availing the benefit of Notification 120/75. The appellants have been pleading that their transactions with their holding company are on principal to principal basis and in the course of normal commercial relationship of a buyer and a seller and the price has not been influenced by the relationship with the holding company.
The department, therefore, will have to examine in depth the modalities of the transactions between the two of them and bring out as to whether the price has been influenced by virtue of their relationship between them. This, we find, has not been done. There are no facts before us as to the terms of the business transactions between them, nor facts regarding any contracteral obligations having a bearing on the price of the goods and whether there are any extra commercial considerations which may have influenced the price at which the appellants sold the goods.
34. In view of the above, we observe that the Collector (Appeals) mis-directed himself in examining the issue in the context of Section 4(4)(c) and Section 4(l)(a) Proviso (iii) rather than examining the matter in the light of the terms of the Notification 120/75. We, therefore, set aside the order of Collector (Appeals) and remand the matter to the Collector (Appeals) for de novo examination in the context of our observations above.
35. We observe that the Collector (Appeals) has allowed the appeal of the Revenue without going into the aspect of the time bar and particularly when findings of fact by the Assistant Collector had not been challenged in the grounds of appeal before him. He is directed to pass reasoned order in this regard also.