2010 (2) TMI 836 - AT - Central Excise

Tribunal: SSIL & SVIL not related under Sec 4(4)(C) - Duty demand, penalties, interest time-barred.

The Tribunal held that SSIL and SVIL were not related persons under Section 4(4)(C) of the Central Excise Act, 1944, as common management and transactions ... Related party - demand of duty, penalty and demand of interest on the duty - The question of related persons as is sought to be applied in these cases, is now squarely settled by the Hon’ble Supreme Court in the case of Alembic Glass Industries Ltd., (2002 - TMI - 46252 - SUPREME COURT OF INDIA), the Hon’ble Supreme Court in that case has considered the very same provisions of Section 4 of Central Excise Act, 1944 and it was also considered whether the concept of related persons can be invoked if the Chairman and three directors were on the Board of both the companies, company under the Companies Act, 1956 is a separate entity and, therefore where the manufacturer and the buyer are two separate companies, they cannot be 'related persons' within the meaning of clause (c) of sub-section (4) of Section 4 of the Act is not the universal application, order confirming the demands on the appellant set aside, consequently penalties imposed on the appellants set aside - decided in favor of assessee on the ground of limitation also. Issues Involved:1. Whether SSIL and SVIL are related persons under Section 4(4)(C) of the Central Excise Act, 1944.2. Whether the demand for duty, penalties, and interest is time-barred.Issue-Wise Detailed Analysis:1. Related Persons under Section 4(4)(C) of the Central Excise Act, 1944:The primary contention of the revenue was that SSIL and SVIL are related persons due to common management and inter-company transactions at lower prices. The adjudicating authority and the Commissioner (Appeals) concluded that the presence of a common Chairman and Directors, along with shared staff, indicated a related person relationship, leading to the confirmation of the duty demand, penalties, and interest.However, the appellants argued that both SSIL and SVIL are public limited companies with a widely dispersed shareholding pattern. They emphasized that the revenue failed to demonstrate mutuality of interest between the two companies. The appellants relied on several judicial precedents, including Alembic Glass Industries Ltd. v. CCE &C, which established that common directors or shareholders do not necessarily imply mutual interest or a related person relationship.The Tribunal analyzed the shareholding patterns and found significant differences between the two companies. The presence of nominee directors in SVIL and the lack of such directors in SSIL further supported the appellants' argument. The Tribunal concluded that the mere fact that Mr. G. Eshwara Rao was the Chairman of both companies and that SSIL procured steel from SVIL at a nominal profit margin did not establish a related person relationship. The Tribunal relied on the Supreme Court's decision in Alembic Glass Industries Ltd., which clarified that common directors or shareholders do not automatically create a related person relationship.2. Limitation of Demand for Duty, Penalties, and Interest:The appellants contended that the demand for the period 3-12-1998 to 30-6-2000, raised through a show cause notice issued on 17-11-2003, was time-barred. They argued that they had been regularly filing RT 12 returns, and the authorities were aware of their transactions. The Tribunal found merit in this argument, noting that the revenue was aware of the clearances made by SSIL and did not raise any objections or seek clarifications within the stipulated time frame.The Tribunal concluded that the show cause notice issued on 17-11-2003 was indeed time-barred, as the authorities had sufficient knowledge of the transactions during the relevant period. Consequently, the demand for duty, penalties, and interest was not sustainable.Conclusion:The Tribunal set aside the impugned order, concluding that SSIL and SVIL were not related persons under the provisions of Section 4(4)(C) of the Central Excise Act, 1944. Additionally, the demand for duty, penalties, and interest was found to be time-barred. The appeals were allowed with consequential relief, if any.(Pronounced in the open court on 8-2-2010)