1991 (2) TMI 222 - AT - Central Excise

Tribunal Decision: Time Limit for Notice, Related Persons under CESA

The Tribunal ruled that the Department could not exclude the period from 2-5-1979 onwards while computing the six-month time limit for the Show Cause ... Demand - Limitation Issues Involved:1. Limitation of the Show Cause Notice.2. Whether Babul Agencies was a 'related person' to Babul Products under Section 4(4)(c) of the Central Excises and Salt Act (CESA), 1944.Issue-wise Detailed Analysis:1. Limitation of the Show Cause Notice:The respondents raised a preliminary objection that the Show Cause Notice dated 2-5-1988 was barred by limitation since it demanded duty for a period beyond six months from the date of service. They argued that the Gujarat High Court had never stayed the service of notice to the respondents; therefore, the Department should have issued a Show Cause Notice earlier. The explanation to sub-section 1 of Section 11A states, 'Where the service of notice is stayed by an order of the court the period of such stay shall be excluded in computing the period of six months or five years as the case may be.'The Department contended that the interim order of the Gujarat High Court dated 2-5-1979, which restrained the levy and collection of differential duty, precluded them from issuing any notice, and thus the explanation to Section 11A(1) would apply.The Tribunal examined the exact interim order, which provided interim relief on the condition that the petitioners furnish a bank guarantee for the differential duty. This order was modified on 8-5-1983, allowing the petitioners to pay the differential duty under protest instead of providing a bank guarantee. The Tribunal concluded that the stay order was against the recovery or collection of duty and did not bar the issue of a Show Cause Notice. Citing the Supreme Court's judgment in the case of Gokak Patel Volkart Limited v. Collector of Central Excise, Belgaum, it was held that the restraint order did not prevent the service of the Show Cause Notice.Accordingly, the Tribunal ruled that the Department could not exclude the period from 2-5-1979 onwards while computing the six-month time limit for the Show Cause Notice dated 2-5-1988. Hence, the demand for duty was barred by limitation, and the cross-objection of the respondent was allowed. The Tribunal did not find it necessary to address the alternate argument regarding the explanation not being available before the amendment of Section 11A.2. Whether Babul Agencies was a 'related person' to Babul Products under Section 4(4)(c) of CESA, 1944:The Tribunal examined whether Babul Agencies was a 'related person' to Babul Products within the meaning of Section 4(4)(c), which defines a related person as one who is so associated with the assessee that they have an interest directly or indirectly in the business of each other.The Department argued that mutuality of interest was established by the inter-relationship among the partners of the two firms and certain terms of their agreement. The Tribunal compared the present case with the Tribunal's decision in M/s. Prabhat Zarda Factory Ltd. v. Collector of Central Excise, Patna, where two firms were held to be related persons based on their agreement and financial involvement.However, the Tribunal found distinguishing features between the agreements in the two cases. In the present case, Babul Agencies purchased goods from Babul Products on a principal-to-principal basis, and the primary liability for advertisement was with Babul Products. The Tribunal noted that there was no financial involvement beyond an interest-free deposit of Rs. 41,000, and the transactions were at arm's length with no mutuality of business interest.Based on the totality of circumstances, the Tribunal concluded that Babul Products and Babul Agencies could not be considered related persons under Section 4(4)(c) of CESA, 1944. The Tribunal upheld the findings of the lower authorities, which determined that the price at which goods were sold was the sole consideration for the sale and that the transactions were on a principal-to-principal basis.Conclusion:The appeal was dismissed, and the impugned order was upheld. The cross-objection regarding the limitation of the Show Cause Notice was allowed, and the demand for duty was deemed barred by limitation.