The Supreme Court has ruled that if there is mutuality of interest between the assessee and another, whether direct or indirect, they will be labelled as "related persons" according to the definition in Section 4(4)(c) of the Central Excise Act.
As a result, the apex court allowed the appeal of the commissioner of central excise against the judgment of the Customs, Excise and Gold (Control) Appellate Tribunal (Cegat).
The court held that ITEC Ltd and International Talkie Equipment Company are related persons for excise assessment.
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The assessee, ITEC, sold projectors and other goods to International Talkie Equipment Company, enjoying certain excise benefits. The excise department later issued showcause notice to the assessee against claiming the benefits because the companies were related persons.
After an enquiry, duty and penalty were imposed on the assessee. The issue was taken to Cegat and then to the Supreme Court.
According to the definition of "related person", if a person is so associated with the assessee that both of them have interest directly or indirectly in the business of each other, they will be treated as related persons.
The definition also includes a holding company, a subsidiary company, a relative and a distributor or sub-distributor.
The equality and degree of interest which each has in the business of the other may be different. It will not make any difference so long as each has got some interest in the business of the other.
In the present case, it was found that the companies had common directors, and they were relatives of each other; they were family concerns and were beneficiaries of their ventures. The profits were shared by members of the same family.
As these findings were recorded by Cegat, it was certain that the two entities had direct interest in the business of each other and the mutuality of interest was clear.
The Supreme Court stated that the Cegat's conclusion that there was no evidence of mutuality of interest was inconsistent with these facts. Therefore, the court set aside the finding of the tribunal that they were not related persons.