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Sarla Fabric Priviate Limted & Others v. Union Of India & Another - WRIT TAX No. 857 of 2006  RD-AH 9345 (10 May 2006)
Hon'ble Sushil Harkauli, J.
Hon'ble Vikram Nath, J.
The argument from the petitioners' side is that where the goods are consumed either by the manufacturer or by the ''related person' to whom goods are transferred it would be a case of ''captive consumption' in which the ''cost of production' is to be calculated in accordance with CAS - 4, as per circular dated 13.2.2003. The "value" of the goods for the purpose of imposing duty this ''cost of production' in captive consumption cases is enhanced to 115% under Rule 8.
However, the learned counsel for the petitioner contends that Rule 8 applies on its own strength where consumption is by manufacturer. But where consumption is not by manufacturer but by the ''related person', the Rule 8 can only apply by virtue of proviso to Rule 9.
According to the contention of the petitioner Rule 9 cannot apply in this particular case because all of the goods have not been sold to the ''related persons' and some of the goods were sold to independent buyers as is mentioned in para 3.18 of the show cause notice.
The contention of the department appears to be that for examining whether ''all the goods' have been sold to ''related person', the phrase ''all the goods" means all the goods of ''each removal'.
Rule 9 requires an "arrangement" by the assessee to the effect that goods will be sold only to or through a ''related person'. It is obvious that such ''arrangement' must necessarily be through some agreement between the manufacturer and the ''related person'; and in the nature of things such agreement must have a time limitation and cannot be perpetual.
List this case on 4-7-2006 for further hearing after preparation by both sides on the interpretation of the words "so arranges" occurring in Rule 9. Sri Ajai Bahnot, representing the respondents may obtain instructions and may if he so desires file counter affidavit also by the next date.
Till the next date of listing fixed above, further proceedings pursuant to the show cause notice dated 29.3.2006 (Annexure-2 to this writ petition) will remain stayed.
The memo of appearance filed by Sri Ajai Bahnot, may be kept on the record.
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