Shaw Wallace and Detergents India Limited are "related persons" is made out by their holding/subsidiary relationship. However, from this, it does not follow that there is any arrangement of tax avoidance or tax evasion on the facts of this case. This being the case, proviso (iii) to Section 4(1)(a) would not be applicable. Further, it would also not be applicable for the reason that there is no predominance of sales by Detergents India Limited to Shaw Wallace. As has been pointed out above, only 10% of its manufacturing capacity has been sold to Shaw Wallace, 90% being sold to Hindustan Lever Limited. For this reason also, proviso (iii) does not get attracted. This being the case, on facts here Section 4(1)(a) and not proviso (iii) is attracted inasmuch as on facts the presumption of a transaction not being at arm's length has been rebutted. Revenue's comparison of price paid by Hindustan Lever to DIL with price paid by Shaw Wallace to DIL is unwarranted as the products sold and processing charges are wholly different. The basis of the Commissioner's orders thus goes. Further, the single most relevant fact, namely, that Shaw Wallace paid for the same/similar goods to unrelated suppliers at a price lower than the price paid by Shaw Wallace to DIL, has not been adverted to at all by the Commissioner.

                                                                  REPORTABLE




                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOS.9049-9051 OF 2003




      COMMISSIONER OF CENTRAL EXCISE,
      HYDERABAD                                 ...APPELLANT


                                   VERSUS
      M/S. DETERGENTS INDIA LTD. & ANR.       ...RESPONDENTS
                                    WITH
                     CIVIL APPEAL NOS.4645-4646 OF 2004
                     CIVIL APPEAL NOS.6166-6168 OF 2004
                        CIVIL APPEAL NO.7495 OF 2004



                              J U D G M E N T

      R.F. Nariman, J.




      1.    These four sets of appeals relate to the correct construction of
      Section 4(1)(a) proviso (iii)  and  Section  4(4)(c)  of  the  Central
      Excise and Salt Act as they stood  prior  to  the  2000  amendment  of
      Section 4.  In short,  these  appeals  deal  with  the  definition  of
      "related person" and the price at which valuation is to take place  if
      sales are made to "related persons" in the course of wholesale trade.

      2.       It is important to note that  the  assessee,  M/s  Detergents
      India Limited, is the same in all the  appeals,  which  arise  out  of
      different show cause notices for  periods  ranging  from  1.3.1992  to
      September 1997.  Detergents India Limited later changed  its  name  to
      Henkel Marketing India Limited.

      3.    The facts of Civil Appeal Nos.9049-9051 of 2003 are as  follows:



            A show cause notice dated 8.12.1995  was  issued  demanding  an
      amount of Rs.3,21,450/- for the period 20.7.1995  to  30.7.1995.   The
      demand made under this notice was dropped vide order  dated  11.3.1997
      by the Deputy Commissioner, Hyderabad.  An appeal against  this  order
      was dismissed by the Commissioner (Appeals), Hyderabad,  by  an  order
      dated 5.1.2000.  The appeal filed before CEGAT was also  dismissed  by
      the impugned judgment dated 22.4.2003.

      4.    By a separate show cause notice dated 26.3.1997 for  the  period
      1.3.1992 to 31.3.1995, the Commissioner by an  order  dated  31.8.1999
      confirmed a demand of  Rs.1,12,42,499/-  and  also  confiscated  land,
      building, plant and machinery, and further ordered redemption of   the
      same in lieu of confiscation on payment of a  fine  of  Rs.5,00,000/-.
      Penalties of Rs.5,00,000/- each were imposed on the assessee,  namely,
      DIL and on its holding  company  Shaw  Wallace  Company  Limited.   An
      appeal was filed against the order dated 31.8.1999 by the assessee and
      by its holding company Shaw Wallace.  Three judgments  were  delivered
      by CEGAT in the aforesaid appeals.  The learned Technical Member on  a
      consideration of the facts came to the conclusion that  during  search
      operations goods from the subsidiary company  were  cleared  from  the
      factory premises to the depot of Shaw Wallace at a much lower price as
      compared to the price at which these goods were sold by  the  assessee
      in the market to wholesale purchaser Hindustan Lever and another.  The
      Technical  Member,  therefore,  remanded  the  matter  for  a   proper
      adjudication on facts.  The Legal Member, on the other hand, found  in
      favour of the assessee finding that the issue in the  present  appeals
      was covered by the judgment of Union of India v. Atic,  (1984)  3  SCC
      575 and Raliwolf Limited v. Union of India, 59 ELT 220 Bombay  (1992).
      In view of the difference of opinion between the members,  the  points
      of difference were placed before a third Member, who then  decided  in
      favour of the assessee in the following terms:

           "6.   Having thoroughly compared the facts of the  present  case
           with that of the above case, I am of the view that the ratio  of
           the Apex Court's  decision  can  squarely  be  followed  in  the
           instant case.  Accordingly, it has to be held that the price  at
           which the goods were sold by DIL to SWCL should be the basis for
           determination of the assessable value of the goods, and not  the
           price charged by the latter to their dealers.   SWCL  cannot  be
           said  to  be  "related"  to  DIL  within  the  meaning  of  this
           expression  as used in  Section  4(1)(a)  as  no  "mutuality  of
           interest" between the two companies has been established in this
           case.  None of the "commonalities" suggested by the Ld.  SDR  in
           his bid to set up a "relation" between the two companies  would,
           individually or collectively, amount to "mutuality of  interest"
           expounded by the Apex Court.  The decisions  cited  by  him  are
           easily distinguishable.  On the other hand, the decisions  cited
           by the counsel are largely supportive of the assessee's stand in
           this case.  I do not think it necessary to elaborate this aspect
           as a detailed discussion has already been made in this behalf by
           Ld. Member (J).  I am in full agreement with him on the issue.

           7.    As DIL and SWCL have already been found not to be "related
           persons", it cannot be said that the former suppressed (in their
           price lists filed with the department) any "relationship" before
           the department with an intent to evade  payment  of  duty.   The
           fact is that there was no mutuality of interest between DIL  and
           SWCL and hence  they  were  not  "related  persons"  within  the
           meaning of Section 4(1)(a) of the Act.  The fact alleged by  the
           department in the show cause notice did not exist at all  to  be
           suppressed by the notice.  Therefore,  the  extended  period  of
           limitation was not invocable in this case.   I  agree  with  Ld.
           Member (J) on this score also.

           8.    In the result, the appeals filed by DIL and SWCL  have  to
           be allowed and the Revenue's appeal to be rejected."




      It is this impugned judgment that has  merely  been  followed  in  the
      other appeals.

      5.    The facts further show that Detergents India Limited, now Henkel
      Marketing India Limited, was at the relevant time a subsidiary of Shaw
      Wallace and Company Limited. Both were public limited companies.  Shaw
      Wallace's subsidiary companies held 57% of the paid up  share  capital
      of  Detergents  India  Limited,  making  Detergents  India  Limited  a
      subsidiary of Shaw Wallace as understood by the definition of "holding
      company" and "subsidiary company"  contained  in  the  Companies  Act,
      1956.  90% of the manufacturing capacity of Detergents  India  Limited
      was to manufacture various products for Hindustan Lever Limited  which
      were then branded  with  Hindustan  Lever  names  in  small  packs.  A
      processing charge was paid by Hindustan Lever  Limited  for  this  job
      work, and it is clear that  different  processing  charges  were  paid
      depending upon the size of the product and the  product  itself.   The
      excess 10% capacity which was not mopped up  by  Hindustan  Lever  was
      sold  to  Shaw  Wallace,   its   holding   Company.    Various   other
      manufacturers/sellers also sold the same and similar products to  Shaw
      Wallace and Company.  A large number of these manufacturers  were  not
      subsidiary companies of  Shaw  Wallace  and  indeed  had  no  business
      relationship with Shaw Wallace other than the sale of these  products.
      It was pleaded as a fact that the  price  paid  by  Shaw  Wallace  and
      Company for the purchase of the same/similar products from  the  other
      firms/companies was less than  the  price  paid  to  Detergents  India
      Limited.  This can be found as a  fact  in  the  Commissioner's  order
      dated 7.11.2000 in Civil Appeal Nos.6166-6168 of  2004  in  which  the
      following fact was pleaded before the learned Commissioner:-

           "SWC procures only a part of its requirement from DIL and  there
           are various other  independent  manufacturers  like  M/s  Deepti
           Chemicals,  Kanpur,  M/s  Geeta  Chemicals,  Unnao,   M/s   Kari
           Detergents, Muzaffarnagar, M/s Standard Surfactants, Kanpur, M/s
           Jaina  detergents,  Kanpur,  M/s   Sara   Soaps,   Kanpur,   M/s
           Venkteshwar Detergents (P) Limited,  Hyderabad  and  M/s  Varuna
           Detergents, Kanpur.  There is no allegation that  any  of  these
           companies are related to SWC.  In fact,  the  price  charged  by
           these independent manufacturers to SWC is lower than  the  price
           charged by DIL.  As held in 1989 (43)  ELT  401  (Bom)  in  Dawn
           Apparels Limited, the price charged by the subsidiary company to
           the holding company is not rejectable merely on  the  ground  of
           such relationship of subsidiary and principal in the absence  of
           any evidence of low price having been charged or any  favourable
           treatment accorded.  In the present case, the Department has not
           produced any material to show that their price to SWC is not the
           normal price."



       6.   It  was  also  pleaded  that  processing  charges  of  different
      products were different.  This is to be found in the very  show  cause
      notice dated 26.3.1997 with which we are concerned as follows:-

           "3.6  File bearing Nos. 45 and 71 seized  from  the  factory  at
           Kodur on 16.5.1995 were shown to him and he was asked to explain
           in detail about the audit reports of M/s. SWC available in  that
           file.  He explained that he had seen the internal  audit  report
           of M/s. SWC dated 2.4.1993 from page No.37 to 58 in  file  No.45
           and added that M/s. SWC were periodically conducting audit (M/s.
           SWC being the holding company) of the functioning of  M/s.  DIL,
           Kodur which was  its  subsidiary  to  control  and  monitor  the
           activities of its subsidiaries.  When enquired  he  stated  that
           the processing charges paid by M/s. HLL to M/s. DIL is  Rs.1,200
           per MT upto 1994 and  later  M/s.  HLL  reduced  the  processing
           charges to Rs.1125 per MT: that for the goods supplied  to  M/s.
           SWC, M/s. DIL used to file  the  price  list  with  the  Central
           Excise Department after mutually agreeing with M/s.  SWC  taking
           into account the raw material landed  cost  and  the  processing
           charges; that every month M/s. DIL were sending landed  cost  of
           raw material and packing material monthwise to  M/s.  SWC;  that
           the processing charges was mutually agreed to be Rs.800  per  MT
           during 1992 and 1993 and it  was  Rs.900  per  MT  during  1994,
           Rs.950 per MT during  1995,  Rs.1125  per  MT  during  1996  for
           detergent cakes; that the processing charges for Hand Mix  Check
           Powder to M/s SWC was Rs.400 per MT,  Rs.1850  for  Spray  dried
           powder during 1992 to 1996; that the processing charges  charged
           to M/s. HLL  for  spray  dried  sunlight  detergent  powder  was
           Rs.2,100 per MT; that  the  processing  charges  for  both  Chek
           detergent powder and sunlight detergent powder are similar; that
           the packing style for  Sunlight  detergent  powder  varies  from
           packing of Chek detergent  powder,  the  difference  being  Chek
           Powder was packed in bulk quantities more and  in  the  case  of
           Sunlight powder the entire packing was in 500 Gms. Only; that in
           respect of detergent cakes made for M/s. SWC and M/s.  HLL,  the
           processing is similar  and  the  size  of  the  cake  was  given
           according to the requirement; that  however,  in  the  agreement
           with M/s. HLL for processing on job  work  basis  there  was  no
           mention about the size of the detergent cake or powder."




      It is on these facts that the present appeals have to be decided.

      7.    Learned counsel on behalf of the Revenue argued that  there  can
      be no doubt, in view of a number of factors, that Shaw Wallace and DIL
      are related persons within the meaning of Section 4(4)(c) of  the  Act
      and stated that some of these factors are that advertisement  expenses
      of DIL brands had been borne by  the  holding  Company  Shaw  Wallace;
      processing charges paid by Shaw Wallace to DIL is less than processing
      charges paid to Hindustan Lever; employees of  Shaw  Wallace  and  its
      subsidiaries were freely transferred  from  one  company  to  another;
      depots of Shaw Wallace and DIL were in the same  premises;  DIL  sends
      monthly newsletters to Shaw Wallace  showing  production,  despatches,
      purpose,  technical  problems,  quality  problems,  details  of  power
      consumption etc. - and Shaw Wallace fixes the price of  DIL  products;
      and unsecured loans of approximately Rs.55 lakhs were  given  by  Shaw
      Wallace to its subsidiary DIL.  It is  argued  that  all  these  facts
      would show that Shaw Wallace and DIL were related persons and that the
      price paid by Shaw Wallace to DIL was a  depressed  price  and  would,
      therefore fall within proviso (iii) of Section  4(1)(a)  as  it  stood
      prior to 2000.  Learned counsel for the Revenue also argued  that  the
      moment  there  is  a  holding/subsidiary  company  relationship,   the
      definition of "related person" under Section  4(4)(c)  gets  attracted
      and proviso (iii) to  Section  4(1)(a)  in  turn  gets  attracted  and
      therefore it is the price at which Shaw Wallace and Company sells  the
      self same goods to its customers that is the price that is to be taken
      into account on the facts of the present case.

      8.    Shri Lakshmikumaran, learned  counsel  for  the  appellants  has
      argued that even though Shaw  Wallace  and  DIL  may  be  holding  and
      subsidiary companies, yet on a true construction  of  Section  4(4)(c)
      they are not related persons within  the  meaning  of  the  definition
      clause.  Further, he argued that on a  true  construction  of  proviso
      (iii) to Section 4(1)(a), it is necessary that the assessee must first
      enter into an arrangement with the related person,  which  arrangement
      leads to a price being charged which is lower than the  normal  price.
      Further, the proviso only gets  attracted  when  such  arrangement  is
      predominantly a sale to or through a  related  person.   According  to
      him, on the facts of the present case, there is no arrangement between
      Shaw Wallace and DIL which has led to any  depression  in  the  normal
      price at which such goods are sold.   Also,  since  only  10%  of  the
      production of  DIL  is  sold  to  Shaw  Wallace,  the  goods  are  not
      "generally" sold to Shaw Wallace.

      9.    To appreciate the aforesaid controversy, it is necessary to  set
      out Section 4 as it existed before its amendment in 1973.   Section  4
      then read:

           "4. Determination of value for  the  purposes  of  duty.- Where,
           under this Act, any article is chargeable with duty  at  a  rate
           dependent on the value of  the  article,  such  value  shall  be
           deemed to be-
           (a) the wholesale cash price for which an article  of  the  like
           kind and quality is sold or is capable of being sold at the time
           of the removal of the article  chargeable  with  duty  from  the
           factory or any other premises of manufacture or  production  for
           delivery at the place of manufacture  or  production,  or  if  a
           wholesale market does not exist for such article at such  place,
           at the nearest place where such market exists, or
           (b) where such price is not ascertainable, the price at which an
           article of the like kind and quality is sold or  is  capable  of
           being sold by the manufacturer or producer, or his agent, at the
           time of the removal of the article  chargeable  with  duty  from
           such factory or other premises for  delivery  at  the  place  of
           manufacture or production, or if such article is not sold or  is
           not capable of being sold at such  place,  at  any  other  place
           nearest thereto.
           Explanation.-In determining the price of any article under  this
           section, no abatement or deduction shall be  allowed  except  in
           respect of trade discount and the amount of duty payable at  the
           time of the removal of the article chargeable with duty from the
           factory or other premises aforesaid."


           The period involved in the present appeals being 1992  to  1997,
      we would have to advert to Section 4 as it stood after  the  Amendment
      Act of 1973 but before the Amendment Act of 2000.  Section 4 reads  as
      follows:-

           "4. Valuation of excisable goods for  purposes  of  charging  of
           duty of excise.-(1) Where under this Act, the duty of excise  is
           chargeable on any excisable goods with reference to value,  such
           value shall, subject to the other provisions of this section, be
           deemed to be-
           (a) the normal price thereof, that is to say, the price at which
           such goods are ordinarily sold by the assessee to a buyer in the
           course of wholesale trade for delivery at the time and place  of
           removal, where the buyer is not a related person and  the  price
           is the sole consideration for the sale:
           Provided that-
           (i) where,  in  accordance  with  the  normal  practice  of  the
           wholesale trade in such  goods,  such  goods  are  sold  by  the
           assessee at different prices to different classes of buyers (not
           being related persons) each such price  shall,  subject  to  the
           existence of the other circumstances specified in clause (a), be
           deemed to be the normal price of such goods in relation to  each
           such class of buyers;
           (ii) where such goods are sold by the assessee in the course  of
           wholesale trade for delivery at the time and place of removal at
           a price fixed under any law for the time being in force or at  a
           price, being the  maximum,  fixed  under  any  such  law,  then,
           notwithstanding anything  contained  in  clause  (iii)  of  this
           proviso, the price or the maximum price, as the case may be,  so
           fixed, shall, in relation to the goods so sold, be deemed to  be
           the normal price thereof;
           (iii)where the assessee so arranges that the goods are generally
           not sold by him in the 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 the course of wholesale trade at the time of  removal,
           to dealers (not being related persons) or where such  goods  are
           not sold to such dealers, to dealers (being related persons) who
           sell such goods in retail;
           (b) where the normal price of such goods  is  not  ascertainable
           for the reason that such goods are not sold  or  for  any  other
           reason, the nearest ascertainable equivalent thereof  determined
           in such manner as may be prescribed.
           (2) Where, in relation to any excisable goods the price  thereof
           for delivery at the place of removal is not known and the  value
           thereof is determined with reference to the price  for  delivery
           at a place  other  than  the  place  of  removal,  the  cost  of
           transportation from  the  place  of  removal  to  the  place  of
           delivery shall be excluded from such price.
           (3) The provisions of this section shall not apply in respect of
           any excisable goods for which a  tariff  value  has  been  fixed
           under sub-section (2) of Section 3.
           (4) For the purposes of this section,-
           (a) 'assessee' means the person who is liable to pay the duty of
           excise under this Act and includes his agent;
           (b) 'place of removal' means-
           (i) a factory or any other place or premises  of  production  or
           manufacture of the excisable goods; or
           (ii) a warehouse or any other  place  or  premises  wherein  the
           excisable goods have been  permitted  to  be  deposited  without
           payment of duty,
           from where such goods are removed;
           (c) '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;
           (d) 'value' in relation to any excisable goods,-
           (i) where the goods are delivered at the time of  removal  in  a
           packed condition, includes the cost of such packing  except  the
           cost of the  packing  which  is  of  a  durable  nature  and  is
           returnable by the buyer to the assessee.
           Explanation.-In this sub-clause  "packing"  means  the  wrapper,
           container, bobbin, pirn, spool, reel or warp beam or  any  other
           thing in which or on which  the  excisable  goods  are  wrapped,
           contained or wound;
           (ii) does not include the amount of the duty  of  excise,  sales
           tax and other taxes, if any, payable on such goods and,  subject
           to such rules as may be made, the trade discount (such  discount
           not being refundable  on  any  account  whatsoever)  allowed  in
           accordance with the normal practice of the  wholesale  trade  at
           the time of removal in respect of such goods sold or  contracted
           for sale;
           (e)  'wholesale  trade'  means  sales  to  dealers,   industrial
           consumers. Government, local authorities and other  buyers,  who
           or which purchase their requirements otherwise than in retail."




           The first thing  that  one  notices  on  a  reading  of  Section
      4(1)(a), as it then stood, is that a duty of excise is chargeable with
      reference to "normal price", that is to say the price  at  which  such
      goods are ordinarily sold by the assessee to a buyer in the course  of
      wholesale trade.  The price should be the sole consideration  for  the
      sale.  If the buyer is a related person, there is a presumption that a
      sale to a related person would be at a price which  is  not  the  sole
      consideration for the sale.

      10.   Proviso (iii) then deals with the price that is to be taken 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  second  ingredient  is  that
      such arrangement must be such that the goods are "generally"  sold  by
      the assessee in the course of wholesale trade to or through a  related
      person.  And thirdly, such sale need not be to the related person - it
      can even be through the related person.

      11.   We are of the view that  the  "arrangement"  spoken  of  in  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.
      Secondly, the expression "generally" also shows that such  goods  must
      predominantly be sold by the assessee to or 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. The 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 be said to be attracted.

      12.    When  we  come  to  the  definition  of  "related  person"  the
      legislature has used a well known 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  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-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.

      13.   Now to  the  case  law.   In  Union  of  India  v.  Bombay  Tyre
      International Ltd., (1984) 1 SCC 467, Section 4 as amended by the 1973
      Amendment Act was challenged before this Court.  This  Court  repelled
      the challenge.  It held that even under Section 4 prior  to  the  1973
      Amendment, the wholesale cash price would  consist  of  a  sale  by  a
      manufacturer in the course of wholesale trade to a  wholesale  dealer,
      which sale would have to be at arm's length and in the usual course of
      business.  The court held:

           "32. It will be noticed that the basic scheme for  determination
           of the price in the new Section 4 is characterised by  the  same
           dichotomy as that observable in the old Section 4.  It  was  not
           the intention of Parliament, when enacting the new Section 4  to
           create a scheme materially different from that embodied  in  the
           superseded Section 4. The object and purpose remained the  same,
           and so did the central principle at the heart of the scheme. The
           new scheme  was  merely  more  comprehensive  and  the  language
           employed more precise and definite. As in the old Section 4, the
           terms in which the value was defined remained the price  charged
           by the assessee in the course of wholesale trade for delivery at
           the time and place of removal.  Under  the  new  Section  4  the
           phrase "place of removal" was defined by Section 4(b) not merely
           as "the factory or any other place or premises of production  or
           manufacture of the excisable goods" from where  such  goods  are
           removed but was  extended  to  "a  warehouse  or  any  place  or
           premises wherein the excisable goods have been permitted  to  be
           deposited without payment of duty" and from where such goods are
           removed. The judicial construction of the provisions of the  old
           Section 4 had already declared that the  price  envisaged  under
           clauses (a) and (b) of that section was the price charged by the
           manufacturer in a transaction at arm's length.  After  referring
           to several cases, some of which have already been mentioned here
           earlier, this Court pointed out in Voltas Limited [(1973) 3  SCC
           503 : 1973 SCC (Tax) 261 : AIR  1973  SC  225  :  (1973)  2  SCR
           1089] : (SCC p. 509 para 20)
           "the 'wholesale cash price' has to be ascertained  only  on  the
           basis of transactions at arm's length. If there is a special  or
           favoured buyer to whom a specially low price is charged  because
           of  extra-commercial  considerations,  e.g.,  because  he  is  a
           relative of the manufacturer, the price charged for those  sales
           would not be the 'wholesale cash price' for levying excise under
           Section 4 (a) of the Act. A sole distributor might or might  not
           be a favoured buyer according as terms of the agreement with him
           are fair and reasonable and were arrived at on purely commercial
           basis."
              33. That  was  also  the  view   taken   in Atic   Industries
           Ltd. [(1975) 1 SCC 499 : 1975 SCC (Tax) 135 : AIR 1975 SC 960  :
           (1975) 3 SCR 563] The new Section 4 makes express  provision  in
           that behalf. Under the new Section 4 also, it  is  necessary  to
           take the price charged by  the  manufacturer  as  one  which  is
           unaffected by any concessional or  manipulative  considerations,
           and therefore the "normal price" mentioned in  the  new  Section
           4(1)(a) speaks of a price "where the buyer is  not  the  related
           person and the price is the sole consideration  for  the  sale".
           The expression "related person" has been specifically defined in
           the new Section 4(4)(c), and transactions in  which  a  "related
           person" is involved are covered by the third proviso of  Section
           4 (1)(a)."




      14.   These observations have a vital bearing on the  construction  of
      Section 4(1)(a). Section 4, before the  amendment  of  1973,  did  not
      contain the expression "where the buyer is not a  related  person  and
      the price is the sole consideration for the  sale".   The  pre-amended
      Section 4 was understood in Voltas's case by this Court to  mean  that
      the wholesale cash price can only be ascertained on the basis of arm's
      length transactions. If there is a special or favoured  buyer  like  a
      relative of the manufacturer to whom a specially low price is  charged
      because of extra commercial considerations, such price cannot  be  the
      price referred to in Section 4(1)(a).  Taking a cue from the fact that
      the post-amendment Section 4 makes no change in the law laid  down  in
      Voltas's case, as far as arm's length transactions are  concerned,  it
      is clear that where the price is the sole consideration for  the  sale
      and  is  not  a  specially  low  price  because  of  extra  commercial
      considerations, even where a buyer is a  related  person,  the  normal
      price mentioned in Section  4(1)(a)  post  the  1973  amendment  would
      apply.  Read in accordance with the object of the pre-amended  Section
      4 as explained in Voltas's case it is clear that the expression "where
      the buyer  is  not  a  related  person  and  the  price  is  the  sole
      consideration for the sale" is to be  read  conjunctively  as  meaning
      that because the buyer is a related person, the price  usually  ceases
      to be the sole consideration for  the  sale.   This  merely  raises  a
      rebuttable presumption. Once the presumption is  rebutted  and  it  is
      shown that even in the case of a buyer who is a  related  person,  the
      price is the sole consideration for the sale and is  not  a  specially
      low price because of extra commercial considerations, such price would
      fall within Section 4(1)(a) as the price of the taxable  goods  to  be
      taken into consideration for arriving at "normal  price".  Of  course,
      where the three pre-requisites for the application of proviso (iii) to
      Section 4(1)(a) all apply, an irrebuttable presumption  is  raised  so
      that it is not necessary thereafter to go to any other facts.

      15.   On a reading of the aforesaid judgment, it  becomes  clear  that
      the object of enacting Section 4 is that transactions at arm's  length
      between manufacturer and wholesale purchaser  which  yield  the  price
      which is the sole consideration for the sale  alone  is  contemplated.
      Any concessional or manipulative considerations  which  depress  price
      below  the  normal  price  are,  therefore,  not  to  be  taken   into
      consideration.   Judged  at  from  this  premise,  it  is  clear  that
      arrangements with related persons which yield a price below the normal
      price because of concessional or  manipulative  considerations  cannot
      ever be equated to normal price.  But at the same  time,  it  must  be
      remembered that absent concessional  or  manipulative  considerations,
      where a sale is between a manufacturer and a  related  person  in  the
      course of wholesale trade, the transaction being a  transaction  where
      it is proved by evidence that price is the sole consideration for  the
      sale, then such price must form the basis for valuation as the "normal
      price" of the goods.  A literal reading of the Section would otherwise
      lead to an absurdity.  Where it is proved that the same price is  paid
      by related persons  as  well  as  arm's  length  purchasers  (who  are
      unrelated) for the same goods, in the case of the  former  the  higher
      price paid by purchasers from the related person would be the price on
      which excise duty would be calculated which would  be  more  than  the
      "normal  price"  under  Section  4(1)(a).  Such  a   result   is   not
      contemplated by the amended Section 4(1)(a), which must  therefore  be
      read in the manner indicated above.

      16.   So far as "related persons" are  concerned,  the  Court  in  the
      Bombay Tyre International Limited case stated:

           "43. Learned  counsel  for  the  assessees  contends  that   the
           provisions regarding  related  persons  are  wholly  unnecessary
           because to counteract  evasion  or  avoidance  any  artificially
           arranged price between the manufacturer and his wholesale  buyer
           can be rejected in any case under Section 4, and we are referred
           to the observations of this Court  in Voltas  Limited [(1973)  3
           SCC 503 : 1973 SCC (Tax) 261 : AIR 1973 SC 225 :  (1973)  2  SCR
           1089] and Atic Industries Ltd. [(1975) 1  SCC  499  :  1975  SCC
           (Tax) 135 : AIR 1975 SC 960 : (1975) 3 SCR 563] It is  true,  we
           think, that the new Section 4(1) contains inherently  within  it
           the power to determine the true value of the excisable  article,
           after taking into account any concession shown to a  special  or
           favoured buyer because of  extra-commercial  considerations,  in
           order that the price be ascertained only on the basis that it is
           a transaction at arm's length. That requirement is emphasised by
           the provision in the new Section 4(1)(a) that the  price  should
           be the sole consideration for the sale. In every such  case,  it
           will be for the Revenue to determine on the evidence  before  it
           whether  the   transaction   is   one   where   extra-commercial
           considerations have entered and, if so, what should be the price
           to be taken as the  value  of  the  excisable  article  for  the
           purpose of excise duty. Nonetheless, it was open  to  Parliament
           to incorporate provisions in the section declaring that  certain
           specified categories of transactions  fall  within  the  tainted
           class, in which case an irrebuttable presumption will arise that
           transactions belonging  to  those  categories  are  transactions
           which cannot be dealt  with  under  the  usual  meaning  of  the
           expression "normal price" set forth in the new Section  4(1)(a).
           They are cases where it will not be necessary for the Revenue to
           examine the entire gamut  of  evidence  in  order  to  determine
           whether the transaction  is  one  prompted  by  extra-commercial
           considerations. It  will  be  open  to  the  Revenue,  on  being
           satisfied that the third proviso to the new Section 4(1)(a) read
           with the definition of "related person" in  Section  4(4)(c)  is
           attracted, to proceed to determine  the  "value"  in  accordance
           with the terms of the third proviso.

           44. It is urged on behalf of the assessee  that  the  provisions
           are whimsical and arbitrary, and cannot be said to be reasonably
           calculated to deal with the issue of  evasion  or  avoidance  of
           excise. It is said that the assessment on  the  manufacturer  by
           reference to the  sale  price  charged  by  his  distributor  is
           "wholly incompatible with the nature  of  excise",  and  we  are
           referred to Atic Industries Ltd. [(1975) 1 SCC 499  :  1975  SCC
           (Tax) 135 : AIR 1975 SC 960 : (1975) 3 SCR 563]  Now,  it  is  a
           well known legislative practice to enact provisions  in  certain
           limited cases where an assessee may be taxed in respect  of  the
           income or property truly belonging to another.  They  are  cases
           where the Legislature intervenes to prevent the circumvention of
           the tax obligation by taxpayers seeking to avoid or reduce their
           tax liability through modes resulting in the income or  property
           arising to another. The provisions of the law may indeed  be  so
           enacted that the actual existence of such motive may  be  wholly
           immaterial, and what has been done  by  the  assessee  may  even
           proceed from wholly bona fide intention. With the aid  of  legal
           fiction, the Legislature fastens the liability on the  assessee.
           When the Legislature employs such a device, and the liability is
           attached without qualification, it is reasonable to  infer  that
           an irrebuttable  presumption  has  been  created  by  law.  Such
           provisions  have  been  held  to  be  within   the   legislative
           competence of the Legislature and as falling within its power of
           taxation, and reference may be made  to Balaji v. ITO [AIR  1962
           SC 123 : (1962) 2 SCR 983 : (1961) 43 ITR  393]  ; Navnitlal  C.
           Javeri v. CIT [AIR 1965 SC 1375 : (1965) 1 SCR 909 :  (1965)  56
           ITR 198] and Punjab Distilling Industries Ltd. v. CIT. [AIR 1965
           SC 1862 : (1965) 3 SCR 1 : (1965) 57 ITR 1 : 35 Com Cas 541]

           45. It is contended for the assessees that the definition of the
           expression "related person" is so  arbitrary  that  it  includes
           within that expression a distributor  of  the  assessee.  It  is
           urged that the provision falls outside the ambit of Entry 84  of
           List I of the Seventh Schedule to the Constitution  inasmuch  as
           it is wholly inconsistent with the levy of excise, and if it  is
           attempted to seek support for the provision from  the  residuary
           Entry 97 of List I as a non-descript tax the attempt  must  fail
           because there is no charging section in the Central Excises  and
           Salt Act empowering the levy of such non-descript  tax  nor  any
           machinery provision in the Act for collecting such  a  tax.  The
           charging provision and the machinery provisions of the  Act,  it
           is pointed out, deal exclusively with excise duty and  not  with
           any other tax. The validity of the provision is assailed also on
           the  ground  that  it  violates  Articles  14  and  19  of   the
           Constitution. The challenge made on behalf of the  assessees  is
           powerful and far-reaching. But it seems  to  us  unnecessary  to
           enter into that question  because  we  are  satisfied  that  the
           provision in the definition of "related person"  relating  to  a
           distributor can be legitimately read down and its validity  thus
           upheld. In our opinion, the definition of related person  should
           be so read that the words "a relative and a distributor  of  the
           assessee" should be understood to mean a distributor  who  is  a
           relative  of  the  assessee.  It  will  be  noticed   that   the
           Explanation provides that the expression "relative" has the same
           meaning as in the Companies Act,  1956.  As  regards  the  other
           provisions of the definition of "related  person",  that  is  to
           say, "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.  .
           .", we think that the provision shows a sufficiently  restricted
           basis for employing the legal fiction. Here again,  regard  must
           be had to the Explanation which  provides  that  the  expression
           "holding company and subsidiary" have the same  meanings  as  in
           the Companies Act, 1956. Reference in  this  connection  may  be
           made to Tata Engineering and  Locomotive  Co.  Ltd. v. State  of
           Bihar [AIR 1965 SC 40 : (1964) 6 SCR 885 : 34 Com Cas 458] where
           the principle was approved by this Court that the corporate veil
           could be lifted where the companies shared the relationship of a
           holding company and  a  subsidiary  company,  and  to Juggi  Lal
           Kamlapat v.C.I.T. [AIR 1969 SC 932 : (1969) 1 SCR 988  :  (1969)
           73 ITR 702] where this Court held that  the  veil  of  corporate
           entity could be lifted to pay regard to the  economic  realities
           behind the legal facade, for example, where the corporate entity
           was used for tax evasion or to circumvent tax obligation."




      17.   On a reading of the  aforesaid  paragraphs,  it  is  clear  that
      proviso (iii) would be referable only to tainted  transactions.   Only
      such cases would raise an irrebuttable presumption which will then  be
      governed by the said proviso. It is also interesting to note that  the
      definition of "related person" was read down by this Court to make the
      distributor covered by it to be a  relative  of  the  assessee.   When
      "holding company" and "subsidiary company" was spoken  of,  the  Court
      held again that the idea of including these  two  types  of  companies
      within the definition of related person is only so that the  corporate
      veil of such companies can be lifted so that economic realities behind
      the legal faade can be looked  at  so  that  tax  is  not  evaded  or
      avoided.

      18.   Some other decisions may be taken note of  at  this  stage.   In
      Flash Laboratories Limited v. Collector of Central Excise, New  Delhi,
      (2003) 2 SCC 86, the appellant was a subsidiary company of  M/s  Parle
      Products Limited.  M/s Parle Biscuits Limited  is  also  a  subsidiary
      company of M/s Parle Products Limited.  What was in question  in  that
      case was the relationship between two  subsidiary  companies.   It  is
      clear that the relationship between a subsidiary company  and  another
      subsidiary company would not be governed by the second part of Section
      4(4)(c).  In  order  that  the  second  part  of  Section  4(4)(c)  be
      attracted, it must be shown that the related person must either  be  a
      holding company or a subsidiary company of the assessee. In the  facts
      of that case, the related person, namely, M/s Parle  Biscuits  Limited
      was neither a holding company nor a subsidiary company of the assessee
      i.e. M/s Flash Laboratories Limited. This being the case,  this  Court
      held:

           "7. Having regard to the above decision and the plain meaning of
           the definition of "related person", it is to be noticed that the
           appellant is a  subsidiary  company  of  Messrs  Parle  Products
           Limited and Messrs Parle Biscuits Limited is also  a  subsidiary
           company  of  Messrs  Parle  Products  Limited.  Therefore,   the
           relationship between the appellant  and  Messrs  Parle  Biscuits
           Limited, though indirect,  they  have  mutual  interest  in  the
           business of each other. The facts and circumstances of the  case
           show that there is  mutuality  of  interest  between  the  three
           companies as sixty per cent of the products of the appellant are
           sold to Messrs Parle Products Limited and  the  remaining  forty
           per cent of the total product of toothpaste  is  being  sold  to
           Messrs Parle Biscuits Limited. Moreover, Messrs  Parle  Products
           Limited are incurring  the  expenses  for  sales  promotion  and
           advertisement for the sale of the appellant's  product,  namely,
           "Prudent toothpaste"."




             This  judgment,  therefore,  is  an  authority  only  for   the
      application of the first part of  Section  4(4)(c).   It  is  in  this
      context that the  Court  held  in  paragraph  5  that  there  must  be
      mutuality of interest between two persons who are both subsidiaries of
      a particular holding company.

      19.    In Commissioner of Central Excise Bombay v.  Universal  Luggage
      Manufacturing Company Limited, (2005)190 ELT 3, this Court found as  a
      matter of fact that the assessee (holding  company)  was  selling  its
      products through its wholly owned subsidiary  at  the  same  price  at
      which it was selling the same goods to other buyers at  arm's  length,
      in which the subsidiary company had no role to play.  This  being  the
      case, this Court agreed with the Tribunal  that  the  price  at  which
      sales have been effected through the subsidiary, not being a depressed
      price, would be the price that would be taken into  consideration  for
      valuation under Section 4(1)(a).

      20.   Similarly, in CCE, II, Chennai v. Beacon Neyrpic Ltd., 2006(193)
      ELT 16, this Court in a short two paragraph order held:

           "1. Assuming that the assessee was  related  to  its  subsidiary
           company i.e. M/s Best & Crompton  Ltd.  (BCL),  this  by  itself
           would not be sufficient for the purpose of invoking the  Central
           Excise (Valuation) Rules, 1975 read with Section 4(1)(a) of  the
           Central Excise Act,  1944.  The  Department  would  have  to  go
           further and show that the relationship has introduced an element
           other than purely commercial consideration in effecting the sale
           by the assessee to BCL. No such evidence has  been  produced  by
           the Revenue.

           2. In the circumstances, the appeal is dismissed."




      21.   In Commissioner Central  Excise,  New  Delhi  v.  India  Thervit
      Corporation, Ltd., (2008) 17 SCC 374, ATL a subsidiary of  ITCL,  sold
      all goods manufactured by it to ITCL.  Despite the fact that on  facts
      ATL and ITCL  may be taken to be related persons, (though  this  Court
      did not hold so), since there is no under valuation as the price  paid
      by the Railways (an arm's length purchaser) was the same as the  price
      paid by ITCL,  the price paid by the holding company to its subsidiary
      was taken to be a price on which excise duty would be calculated.

      22.   Since the Tribunal in the judgment under appeal has referred  to
      and relied upon Raliwolf v. UOI, 59 ELT 220  Bombay  (1992),  we  must
      refer to the same.  The Bombay High Court in that  judgment  construed
      Section 4(4)(c) as follows:

           "31. We are  not  inclined  to  accept  the  contention  of  the
           Department as submitted  by  Mr.  Sethna,  the  learned  counsel
           appearing for the respondents for the following reasons :-

           (a) that Section 4(4)(c) is a defining section of the expression
           "related person" and the said section must be read and  seen  in
           the context  of  third  proviso  to  Section  4(1)(a).  If  one,
           therefore, reads the entire section,  it  is  clear  that  three
           conditions are required to  be  satisfied  before  invoking  the
           third proviso :

           Firstly, there should be mutuality of interest.

           Secondly, the price charged should not be normal price  but  the
           price lower to  the  normal  price,  and  that  extra-commercial
           considerations have reduced the normal price.

           Thirdly, the alleged related person should  be  related  to  the
           assessed as defined in Section 4(4)(c) of the said  Act.  It  is
           only if the above three conditions are satisfied, then alone  it
           can be said  that  the  third  proviso  to  Section  4(1)(a)  is
           applicable.

           (b) The first part  of  the  definition  of  related  person  as
           mentioned in Section 4(4)(c) of the said Act lays  down  that  a
           person who is sought to be branded as a related person must be a
           person who is so associated with the assessed,  that  they  have
           interest directly or indirectly in the business of  each  other.
           The inclusive part of the definition is merely an  extension  of
           the first part. Both the parts must be  read  conjunctively.  If
           the argument of  the  learned  counsel  for  the  respondent  is
           accepted, then the word "and" which joins the two parts  of  the
           definition would be rendered  meaningless.  It  is  well-settled
           rule of interpretation that the Legislative mandate should be so
           read that no word used by  the  Parliament  should  be  rendered
           nugatory. Reading the section as a whole it is clear that merely
           because a company is the subsidiary  of  holding  company,  ipso
           facto, it cannot attract Section 4(4)(c).  It  must  be  further
           established that each has interest in the business of the other.
           It must be further established that the transaction in  question
           is not based on principal to principal and that extra-commercial
           considerations have lowered the normal price. It  is  only  then
           the third proviso to Section  4(1)(a)  is  attracted.  The  view
           which we have taken is also supported by  the  judgment  of  the
           Supreme Court in the case of Atic Industries (supra) as well  as
           the judgment of the Supreme Court in the  case  of  Moped  India
           Ltd. v. Collector of Central Excise reported  in1986(23)ELT8(SC)
           ."



      23.   We find it difficult to  agree  with  some  of  the  conclusions
      reached in the aforesaid paragraph. As has been stated  by  us  above,
      "means" "and includes" is a legislative device by which the "includes"
      part brings by way of extension various persons, categories, or things
      which would not otherwise have been included in the "means"  part.  If
      this is so, obviously both parts cannot be read  conjunctively.   What
      is in the "includes" part is relatable only to the subject that is  to
      be defined and takes within its  sweep  persons,  objects,  or  things
      which are not included in the first part.  We have already pointed out
      that the reason for including holding and subsidiary companies in  the
      "includes" part is  so  that  the  authorities  may  look  behind  the
      corporate veil.  To say that the holding and subsidiary companies must
      in addition have a mutual interest in the business of  each  other  is
      wholly incorrect. Further, the word "and" which joins the two parts of
      the definition is not rendered meaningless.  It is  necessary  because
      it precedes the word "includes" and brings in to the definition clause
      persons, objects, or things  that  would  not  otherwise  be  included
      within the "means" part.

      24.   The High Court  is  also  wrong  in  saying  that  its  view  is
      supported by the judgment of this Court in  Union  of  India  v.  Atic
      Industries Ltd., (1984) 3 SCC 575.  On facts, Atic's case did not deal
      with holding and subsidiary companies.  Atul Products Limited held 50%
      of the share capital of Atic Industries which would  not  enable  Atul
      products  to  be  called  the  holding  company  of  Atic  Industries.
      Further, this Court held:-

           "5. The  second  ground  on  which  the  assessee  assailed  the
           validity of the demand  made  by  the  Assistant  Collector  for
           differential duty related to the applicability of the definition
           of "related person" in clause (c) of sub-section (4) of  Section
           4 of the amended Act. The Assistant Collector took the view that
           the assessee on the one  hand  and  Atul  Products  Limited  and
           Crescent Dyes and Chemicals Limited on the  other  were  related
           persons within the meaning of the first part of  the  definition
           of the term "related person" and the  assessable  value  of  the
           dyes manufactured by the assessee for the purpose of excise duty
           was, therefore, liable to be determined with  reference  to  the
           price at which the dyes were ordinarily sold  by  Atul  Products
           Limited and Crescent Dyes and Chemicals Limited. This view taken
           by the Assistant Collector was set aside by the  High  Court  on
           the ground that the assessee on the one hand and  Atul  Products
           Limited and Crescent Dyes and Chemicals  Limited  on  the  other
           were not 'related persons' and the wholesale cash price  charged
           by the assessee to Atul Products Limited and Crescent  Dyes  and
           Chemicals Limited and not the price at which the latter sold the
           dyes to the dealers  or  the  consumers,  represented  the  true
           measure  of  the  value  of  the  dyes  for   the   purpose   of
           chargeability to excise duty. This  conclusion  reached  by  the
           High Court was assailed  before  us  by  the  learned  Attorney-
           General appearing on behalf of the Revenue. He  fairly  conceded
           that the only part of the  definition  of  "related  person"  in
           clause (c) of sub-section (4) of Section 4  on  which  he  could
           rely was the first part which defines "related person"  to  mean
           "a person who is so associated with the assessee that they  have
           interest directly or indirectly in the business of each  other".
           The second part of the definition which adds an inclusive clause
           was admittedly not applicable,  because  neither  Atul  Products
           Limited nor Crescent Dyes and Chemicals Limited  was  a  holding
           company or a  subsidiary  company  nor  was  either  of  them  a
           relative of the assessee, so as to fall within the  second  part
           of the definition."




      25.   It is clear therefore that the Bombay High Court  judgment  does
      not lay down the law correctly insofar as the correct construction  of
      Section 4(4)(c) of the Act is concerned.

      26.   Section 4(4)(c) is in two parts.  The first  part  requires  the
      department to apply a de facto test, whereas the second part  requires
      the application of a de jure test. "Relative" in  the  Companies  Act,
      1956 is defined as follows:-

           "6. Meaning of "relative".-A person shall  be  deemed  to  be  a
           relative of another if, and only if,-

           (a) they are members of a Hindu undivided family; or

           (b) they are husband and wife; or

           (c) the one is related to the other in the manner  indicated  in
           Schedule I-A."

           "Schedule I-A.

           [See Section 6(c)]

           LIST OF RELATIVES

           1. Father.

           2. Mother (including step-mother).

           3. Son (including step-son).

           4. Son's wife.

           5. Daughter (including step-daughter).

           6. Father's father.

           7. Father's mother.

           8. Mother's mother.

           9. Mother's father.

           10. Son's son.

           11. Son's son's wife.

           12. Son's daughter.

           13. Son's daughter's husband.

           14. Daughter's husband.

           15. Daughter's son

           16. Daughter's son's wife.

           17. Daughter's daughter.

           18. Daughter's daughter's husband.

           19. Brother (including step-brother).

           20. Brother's wife.

           21. Sister (including step-sister).

           22. Sister's husband."



           A reading of the definition of "relative" would  show  that  the
      relative need not be a person who is so associated with  the  assessee
      that they have mutual interest in each other's  businesses.   If  that
      were the case, the expression "relative" in the second part  would  be
      otiose inasmuch as a relative would be subsumed within "person" in the
      first part.  Thus, "relatives" would also  be  "persons"  who  are  so
      associated with the assessee that they have a mutual interest in  each
      other's businesses.  The legislature by application of a de jure  test
      has extended the meaning of "related persons" to  include  the  entire
      list of relatives per se without more as related persons.   Similarly,
      holding companies and subsidiary companies by virtue of  the  exercise
      of control  by  a  holding  company  over  a  subsidiary  company  are
      similarly included by application of a de jure test.

      27.   We have indicated that the assessee argued that the  price  paid
      by Shaw Wallace and Company for the same/similar products as was  sold
      by unrelated entities to it was even lower than the price paid by Shaw
      Wallace to Detergents India Ltd.  This being the  case,  it  is  clear
      that on facts here there is no "arrangement" between Shaw Wallace  and
      Detergents India Limited to depress a  price  which  is  otherwise  at
      arm's length.  Though  this  fact  is  pleaded  expressly  before  the
      Commissioner as pointed out above, the Commissioner's order  does  not
      contain any finding based on this fact.  On the other hand, there  are
      copious findings as to how Shaw Wallace and Detergents  India  Limited
      are related persons because of a multitude of factors pointed  out  in
      the Commissioner's order.

      28.   That Shaw Wallace and  Detergents  India  Limited  are  "related
      persons"  is  made  out  by  their  holding/subsidiary   relationship.
      However, from this, it does not follow that there is  any  arrangement
      of tax avoidance or tax evasion on the facts of this case.  This being
      the case, proviso (iii) to Section 4(1)(a) would  not  be  applicable.
      Further, it would also not be applicable for the reason that there  is
      no predominance of sales by Detergents India Limited to Shaw  Wallace.
      As has been pointed out above, only 10% of its manufacturing  capacity
      has been sold to Shaw Wallace,  90%  being  sold  to  Hindustan  Lever
      Limited.  For this reason also, proviso (iii) does not get  attracted.
      This being the case, on facts here Section  4(1)(a)  and  not  proviso
      (iii)  is  attracted  inasmuch  as  on  facts  the  presumption  of  a
      transaction not being at arm's length has  been  rebutted.   Revenue's
      comparison of price paid by Hindustan Lever to DIL with price paid  by
      Shaw Wallace to DIL is unwarranted as the products sold and processing
      charges are wholly different. The basis of the  Commissioner's  orders
      thus goes.  Further, the single most relevant fact, namely, that  Shaw
      Wallace paid for the same/similar goods to unrelated  suppliers  at  a
      price lower than the price paid by Shaw Wallace to DIL, has  not  been
      adverted to at all by the Commissioner.

      29.   Mr.  Bagaria,  learned  counsel  appearing  on  behalf  of  Shaw
      Wallace, is aggrieved by penalties levied upon  Shaw  Wallace  by  the
      orders of the Commissioner.  These penalties have been  set  aside  by
      CEGAT.  He pointed out to us that the ingredients necessary to attract
      Rule 209A were not mentioned in any show  cause  notice  against  Shaw
      Wallace and that the Commissioner's finding as a result thereof  would
      have to be held to be beyond the show cause notice.  He cited a number
      of judgments in support of this proposition. In view of  the  judgment
      delivered by us on merits, we do not think it necessary to go into the
      contention raised by Shri Bagaria. Suffice  it  to  say  that  we  are
      dismissing Revenue's appeals.  CEGAT's judgment itself set  aside  all
      penalties imposed on Shaw Wallace  as  well  as  DIL.   That  part  of
      CEGAT's judgment will remain undisturbed.

      30.   The appeals by Revenue are devoid of merit and  are  accordingly
      dismissed.  There shall be no order as to costs.



..............................J.
                                                  (A.K. Sikri)



                            ..............................J.
                                                  (R.F. Nariman)
      New Delhi,
      April 8, 2015