Facts

M/s Haldyn Glass works (“Respondent”) is manufacturer and supplier of glass bottles. M/s Haldyn supplies these goods to following parties 1) M/s. ‘J’ Foundation, (2) M/s. ‘J’ Traders  (3) M/s. Janata  Glass  Works  (4) M/s. Travin  Trading & Investment Pvt. Ltd. M/s. Haldyn is the joint venture of two groups known as Shetty group and Mehta group who were having shareholding of 52 per cent and  48 per cent respectively in M/s. Haldyn. The aforesaid four firms/companies to which the goods were supplied by M/s. Haldin are the firms of Mehta group and Shetty group respectively. The investigation revealed that goods were supplied by M/s Haldyn to these firms at much lesser price than the price which was charged from the other buyers. On this basis, the Revenue took the position that the   M/s. Haldyn and the aforesaid four purchasers of the goods are related persons  with mutual interest in each other and there was price manipulations as well. Show cause notice was issued proposing to revise the declared assessable value     in case of the supplies made to these concerns by M/s. Haldyn. In the second round of litigation, the CESTAT held that there was no mutuality of interest and, therefore, supplier on the one hand and the purchaser on the other hand were not related persons. Hence, appeal by Revenue beforeSupreme Court.

Issue

Where the two companies/firms etc., belong to the same group then the test of mutuality is established and satisfied?

View

The court followed the judgment of Collector of Central Excise, Ahmedabad

1. ITEC (P) Ltd., Bombay [(2002) 7 SCC 473] and held that where the two companies/firms etc., belong to the same group then the test of mutuality is established and satisfied. In a sense, the Court has torn the corporate veil thereby pointing out that such family concerns would be beneficiaries in the affairs of each other. Insofar as the price manipulation is concerned, i.e., sale of the goods  by M/s. Haldyn to the aforesaid purchasers at a depressed price, the same has been established on record on the basis of plethora of evidence tendered by the Revenue. Hence, ingredients of price manipulations also stand satisfied.

Held

CESTAT was not right in holding that there was no mutuality of interest and, therefore, supplier on the one hand and the purchaser on the other hand were     not related persons. If two entities/persons belong to the same group, they have interest in the business of each other and test of mutuality is satisfied. (CA No. 659-663 and CA No of 2006 dt. 13-8-2015) 

Editorial: Section 15(5) of the CGST Act provides for the definition of ‘related person’. It does not define related person as one who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other as defined under section 4(4)(c) of the Central Excise Act. Hence, according  to me, the ratio of said judgment would not be applicable to the supplies made under GST regime.

“Increase of material comforts, it may be generally laid down, does not in any way whatsoever conduce to moral growth.”

– Mahatma Gandhi