TaxTMI 
TaxTMI 
2010 (8) TMI 316
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..... flavours. On receipt of the information that they are evading central excise duty by undervaluation by routing their sales through some dummy companies floated by them, the central excise officers visited their factory premises at Phillaur and business premises at 1146, Sector 44, Chandigarh on 31-8-1994 and resumed certain records considered necessary for investigation. 1.2 During initial enquiry, it appeared that entire sales of BIBs and aerated waters were through M/s. Punjab Kool Drinks, Phillaur (hereinafter referred to as PKD), M/s. Chandigarh Kool Drinks, Chandigarh (hereinafter referred to as CKD) and M/s. Ranjitgarh Sales Pvt. Ltd., Chandigarh (hereinafter referred to as RSPL), and there is huge difference between the prices at which DKDBL were selling the aerated waters & BIBs to PKD, CKD and RSPL and on which duty was being paid by DKDBL and the price at which PKD, CKD and RSPL were selling the goods to dealers. Investigation by the Department revealed the following facts : (i) Proprietor of PKD was one Shri Hari Singh while the proprietor of CKD was Shri Partap Singh, son of Shri Hari Singh. Subsequently after death of Shri Hari Singh, his....
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....tion & clearance register being maintained by DKDBL showed the areas where PKD, CKD and RSPL had despatched aerated water which indicated that DKDBL had full control over the selling activities of PKD, CKD and RSPL and it is the DKDBL which was selling the goods shown to have been sold to PKD, CKD and RSPL, directly to the customers. (x) Scrutiny of books of accounts of DKDBL, PKD, CKD and RSPL revealed that there was transfer of funds between DKDBL and PKD/ CKD/ RSPL. Bank account of DKDBL showed amounts deposited by PKD in the bank account of DKDBL on account of "fund transfer". There are a number of entries in the books of both PKD/ CKD/RSPL on one hand and DKDBL and on the other hand, showing huge amounts transferred from PKD/CKD/RSPL to DKDBL. (xi) Sale of aerated water and soda by DKDBL to PKD during 4/94 to 12/94 period was Rs. 12,58,23,266/- but the amount received from PKD during this period was Rs. 13,74,551,365/-. (xii) There was no written agreement between DKDBL and PKD/CKD/RSPL. 1.3 Inquiry was made with Shri Avtar Singh, proprietor of PKD and Director of RSPL; Shri Partap Singh, Proprietor of CKD and a Direct....
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.... of DKDBL of aerated waters and BIBs were through the dummy units CKD and PKD. Total duty demanded under these four SCNs was Rs. 8,37,92,536/-. 1.4.2 In respect of clearances of DKDBL to RSPL, SCNs dated 4-6-99, 16-7-99, 20-10-99, 31-1-01, 19-6-01, 3-4-02 and 18-3-03 were issued to DKDBL and RSPL for the periods from November, 98 to March, 99; April, 97 to October, 98, April, 99 to September, 99; January, 2000 to June, 2000; July, 2000 to January, 2001, March, 2001 to November, 2001 and December, 2001 to October, 2002 respectively for - (a) demand of allegedly short paid duty amounting to Rs. 31,48,604/-, Rs. 1,31,54,616/-, Rs. 34,12,923/-, Rs. 51,70,725/- and Rs. 8,43,317/- and Rs. 69,39,386/- and Rs. 45,09,195/- respectively in respect of clearances of BIBs from DKDBL alongwith interest on the duty under Section 11AB of the Excise Act; (b) imposition of penalty on DKDBL under Section 11AC of the Excise Act, and (c) imposition of penalty on S/Shri Avtar Singh, Partap Singh, Directors of DKDBL; Kewal Dhillon, Chairman, DKDBL; Sajjan Singh and B.S.Ghuman, Directors of DKDBL and Deepak Rai Walia,....
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....tify the duty as per directions in the appellate order. Against this order of Commissioner (Appeals), the Department has filed appeal No. E/1509/2006-EX before the Tribunal challenging the deductions on account of - (i) freight expenses (upto 28-2-03), (ii) PMX machine rental charges and (iii) Salary and wages towards distribution. 1.5.1 The SCNs dated 16-7-99 together with the SCNs dated 4-6-99, 29-10-99, 31-1-01, 19-6-01, 3-4-02 and 18-3-03 were adjudicated by Commissioner of Central Excise, Jalandhar vide order-in-original No. 130-136/CE/JAL/03 dated 17-12-03. The Commissioner, while holding that RSPL was a dummy unit floated by DKDBL and price to charged by RSPL from its customers would be the assessable value, also accepted the DKDBL's contention that the duty demanded in the seven SCNs are based on the price list price for BIBs, while assessable value has to be determined by deducting from that price, the sales tax, octroi & central excise duty, cash and quantity discounts, freight and cartage from the premises of RSPL and "salary and wages" towards distribution of BIBs. After permitting these deductions and treating the price difference between DKDBL's price to RSPL and R....
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....he Commissioner, on this basis, dropped the duty demand of Rs. 7,98,27,729/- in respect of sales by DKDBL of aerated water through PKD and DKD, treating the DKDBL's price to PKD and CKD as the correct assessable value, even though he held that PKD and DKD are dummy companies floated by DKDBL and just extended arms of DKDBL. The fact that there is huge difference between the price at which DKDBL sold aerated waters to PKD and CKD and the price at which PKD and CKD sold the same aerated water to their customers was not discussed at all while giving a finding that the sale to "independent buyers" were genuine. As regards the sale of BIBs, the assessable value was determined by permitting deduction of - (a) cash and quantity discount, (b) outward freight from the premises of CKD & PKD, (c) sale tax/octroi and (d) salary & wages towards distribution, from the CKD PKD's price to their customers. The Commissioner did not allow the deduction of PMX machine rental and repair/maintenance charges. However, he treated the price difference between PKD/CKD's price and DKDBL's price to PKD/CKD as the cum duty value and allowed the abatement of central excise duty. On this basis, out of total duty....
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....o. E/1280-1286/04-NB(A) is set aside and the matters stand remitted to the Tribunal for decision in accordance with law on the following questions, namely, (i) limitation (extended period of limitation) and (ii) whether PKD and CKD are the marketing companies of the respondent assessee or whether they are "Dummy Companies" as alleged by the Department. In this connection, we may add that depending on the answer to Question No. (ii) the Tribunal will have to decide on the point of differential duty. The Tribunal has also to decide as to whether the rental charges for vending machine are deductible from the price and to what extent. Accordingly, Civil Appeals stand allowed with no order as to costs. We request the Tribunal to expeditiously hear and dispose of the appeals, preferably with nine months." 1.9 In accordance with the above directions, the Appeal No. E/3931/03-NB(A) and Appeal No. E/1280-1286/04-NB(A) have been taken up for decision de novo alongwith the linked Departmental Appeals No. E/1509/08-EX (Br) and No. 5530/04-NB(A) pending before the Tribunal. 2. Heard both the sides. 2.1  Shri....
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....e Commissioner in paras 6, 8, 9 & 10 of the Order-in-Original No. 78-81/CE/JAL/2003 dated 18-9-03 and in paras 7, 8, 9, 11, 12, 13,14, 15 & 16 of Order-in-Original No. 130-136/CE/JAL/2003 dated 17-12-03, PKD, CKD and RSPL do not have independent existence but are extension of DKDBL. (2) PKD, CKD and RSPL do not have any permanent office and all the business of PKD, CKD and RSPL is being handled in the office of DKDBL. The proprietor of PKD & CKD and present Directors of RSPL - Shri Hari Singh, his sons Shri Avtar Singh and Partap Singh are uneducated persons engaged in agriculture having no knowledge and experience of manufacture of aerated waters/BIBs. While the proprietor of PKD and CKD had investment of only Rs. 20,000/- each, the two Directors of RSPL Shri Avtar Singh and Partap Singh had investment of Rs. 75,000/- each from which it is impossible to generate turnover running into crores. (3) While PKD, GKD and RSPL were taking cash security even upto Rs. 1,00,000/- depending upon the volume of business from their dealers, no security whatever had been taken by DKDBL from PKD, CKD and RSPL while there were no written arguments (sic) (agreements) between DKDBL an....
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....ble in the assessable value. (9) The rental and repair & maintenance for PMX machine installed by DKDBL at the premises of buyers of BIBs from PKD, CKD and RSPL is includible in the assessable value of BIBs. The judgement of Hon'ble Supreme Court in case of M/s. Pepsico India Holdings (supra) is not applicable to this case as while in the case of M/s. Pepsico India Holdings, the vending machines had been installed by the holding company, but the marketing charge were payable to the marketing company, not to the holding company, as in the instant case. It is apparent that the BIBs are of no use if the same is not dispensed through the vending machine. Thus, the vending machine is relatable to the marketing of the product and the money which is spent for installation, maintenance and repairs has to form part of the assessable value of BIBs, as the machines are owned by the manufacturing company - DKDBL and are necessary for the marketing of the product. 3. We have carefully considered the submissions from both the sides and perused the records. The Appellant-DKDBL manufacture aerated waters of various flavours sold under brand names - Lehar Pepsi, Miranda, Teem, soda ....
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....tted abatement of central excise duty from the same. While the Commissioner's order disallowing the deduction of PMX machine rental and repair/maintenance charges has been challenged by the Appellant-DKDBL in Appeal No. E/3931/03-NB(A) and E/1280-1286/04-NB(A), the Commissioner's order allowing deduction of "wages & salary towards distribution has been challenged by the Department in Appeal No. E/5530/04-NB(A). The points which as per direction of Hon'ble Supreme Court in its order dated 3/2/07 have to be decided in Appeal No. E/3931/03-NB(A) and E/1280-1286/04-NB(A) filed by DKDBL are as under : (1) Whether PKD, CKD & RSPL are genuine and independent marketing companies, marketing the aerated waters and BIBs manufactured by DKDBL or they are just dummy units floated by DKDBL to depress their assessable value and if the PKD, CKD and RSPL are dummy units, whether DKDBL's price to PKD, CKD and RSPL is to be taken as the assessable value or the price at which PKD, CKD and RSPL sell the BIBs to independent buyers is to be adopted the basis for determining the assessable value? (2) Whether deduction of rental on PMX machine & charges for maintenance/repair of these machi....
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....ity to run marketing company, as while investment of Shri Hari Singh/Shri Avtar Singh and Shri Partap Singh in PKD and CKD respectively is Rs. 20,000/- each, the investment of these persons in RSPL is Rs. 75,000/- each. There is no explanation as to why the firms/companies like PKD, CKD & RSPL with capital of Rs. 20,000/- and Rs. 1.5 lakh respectively, owned/controlled by agriculturists without any education and without any experience of marketing of soft drinks have been given by DKDBL the business of marketing of aerated waters/BIBs manufactured by them worth crores of rupees and that too without any formal written agreement and without taking any security from them. Other than the statements of Hari Singh, Shri Partap Singh and Shri Avtar Singh that they were signing cheques and other documents for PKD, CKD and RSPL, there is no evidence indicating that these persons were in control of PKD, CKD and RSPL and were running the business of these marketing firms/company. In fact the following evidence on record indicates to contrary - (1) Shri Partap Singh in his statement dated 7-9-98 has stated that as per his knowledge all the work of RSPL was being look....
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....umerous instances by DKDBL of payments of salary etc. to the employees of PKD and vice versa. Even the leave of the employees of PKD & CKD was being sanctioned by the office of DKDBL. No satisfactory explanation has been given for this. (9) There are a number of entries in the books of both PKD and DKDBL which show that huge amounts have been transferred from PKD to DKDBL without mentioning the nature and reasons of such fund transfer. Apart from this, there are many entries in the books of accounts of DKDBL, which show the amount deposited by PKD in the books of account of DKDBL on account of "Fund transfer". No satisfactory explanation has been given for this fund transfer. 4.1.1 It is unconceivable that a manufacturer of aerated waters and concentrate syrups, whose marketing requires considerable expense and financial investment, would hand over the same to firm/company owned/controlled by uneducated persons without any financial capacity and without any experience of marketing of such products and that too, without any formal legally binding agreements and without taking any security from them. From the above facts, it is clear that it is the ....
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....uyers claimed to be "independent buyers" at the same price, the DKDBL's price to PKD &. CKD does not become the correct assessable value, as there is neither any investigation nor any finding on this point as to whether so-called sales to "independent buyers" were genuine or whether such sales had been artificially created; (c) it is inconceivable that a manufacturer will sell his goods to customers at a price 50% lower than the price at which he can sell his goods to others; and (d) and even if the "independent buyers" are genuine, they may constitute a separate class of buyers whose price could not be adopted as assessable value in respect of sale to other buyers, but there is absolutely no discussion in the Commissioner's order on this point. Therefore, Commissioner's order accepting the DKDBL's price to PKD & CKD as the correct assessable value, and dropping the duty demand of Rs. 7,98,27,724/-, even though not challenged by the Department, is not correct and the same cannot be the basis for accepting DKDBL's price to PKD, CKD and RSPL in respect of BIBs as the correct assessable value. 5. Whether deduction of (i) rental on PMX machines installed by D....
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....that salary & wages of the staff of CKD, PKD & RSPL engaged in marketing and distribution of the goods is includible in the assessable value of the goods and the Commissioner's order permitting these deductions is not correct. 5.3 Coming to the question as to whether the PMX machines rental and their maintenance and repair expenses are includible in the assessable value of BIBs, we find that PMX machines have been installed by DKDBL at the retailer's premises and it has been pleaded that PMX machines rental and their maintenance and repair expenses are included in the price charged by PKD, CKD & RSPL from their customers. 5.3.1 What is manufactured and cleared by DKDBL is post mix concentrate syrup for aerated waters being sold under brand name, Lehar Pepsi, Miranda, Teem, etc. The syrup is a mixture of soft drink concentrate and sugar chargeable to duty under Heading 21.08 of the Central Excise Tariff. It is sold in 20 litres packing in a special type of container called Bag in Box (BIB). The soft drink syrup in BIBs can be used only with post mix Dispensing Machines (PMX machines), in which the concentrate syrup is diluted, carbonated and a measured quantity of th....
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....sonable profit margin of the machine owner renting the machine. 6. Whether extended limitation period under proviso to Section 11A(1) of the Central Excise Act, 1944 is available to the Department for the recovery of short paid duty. 6.1  Since as discussed in paras 4.1 & 4.2 above, PKD, CKD & RSPL are nothing but dummy entities created by DKDBL to depress their assessable value for evading central excise duty and since the facts regarding real nature of transaction of DKDBL with PKD, CKD & RSPL came to the knowledge of the Department only after a departmental investigation, longer limitation period under proviso to Section 11A(1) of the Excise Act, 1944 would be available to the Department for recovery of short paid duty and for the same reason, the provisions of Section 11AB and Section AC would also be attracted. 7. Quantification of Duty demand - 7.1 For calculation of differential duty, the assessable value of the BIBs has been determined by the Commissioner by permitting the deduction of - (i) taxes (ii) cash quantity discounts, (iii) outward freight from the premises of PKD, CKD & RSPL, and (iv) salary & wages towards distribution from the price ch....
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....rise. 7.2 In view of the above discussions, for quantification of duty demand, the assessable value has to be determined by permitting from the price list price, the deductions of (a) taxes actually paid; (b) cash and quantity discounts, if any, given to customers; (c) outward freight from the premises of PKD/CKD/RSPL to their customers' premises; (d) rental and repairs & maintenance expenses of PMX machines if the same are included in the price charged. No deduction of salary & wages towards distribution is to be permitted. However, the evidence regarding the trade discounts given to the customers and their quantum, taxes paid, quantum of outward freight from the premises of PKD/CKD/RSPL to the customers' premises and rental/repair & maintenance expenses PMX machines and correctness of the PMX machine rentals has to be produced by the appellants for claiming their deduction from the sale price of PKD/CKD/RSPL. For this purpose, the matter has to be remanded to the Commissioner. 8. Appeal No. E/1509/08-EX (BR) filed by the Department. 8.1 As regards the appeal No. E/1509/08-EX(BR) filed by the Department, the period of dispute in respect of this appeal is from No....