TaxTMI 
TaxTMI 
2013 (5) TMI 322
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....to as M/s BIL) had been sold to M/s BIL at an mutually agreed price as per agreement dated 10th December, 1999. They had been registered with the Central Excise Department and discharged excise duty on the price at which the manufactured goods were sold to M/s BIL. 2.1 Their factory was audited by the Central Excise department during April, 2002 to May, 2002. Later, on 19.4.2004, searches were conducted at various premises of the appellant. On completion of investigation, a show-cause-cum-demand notice was issued on 16.3.2005 invoking extended period of limitation alleging short payment of Central Excise duty of Rs. 3,87,58,852/- for the period from January, 2000 to July, 2004 on account of under valuation of manufactured goods sold to M/s BIL. Thereafter, another show-cause notice was issued on 29th August, 2005, on the same ground, alleging short payment of duty of Rs. 1,15,05,702/-for the period August, 2004 to May, 2005. These Notices were adjudicated by the Ld. Commissioner vide Order no. 03/Commissioner/Kol-VII/ADJN/2006-07 dated 31.7.2006 confirming the total duty mentioned as above and imposed penalty of Rs. 5,00,29,570/- on the Appellant. 2.2 Thereafter, five periodi....
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....red by them, which resulted in Memorandum of Understanding (MOU) between M/s HMPL and M/s BIL in June 1999. When the project for manufacture cakes materialized, M/s HMPL proceeded further to execute the said project and the name of the company was changed from M/s HMPL to M/s BIL. 3.2 The ld. Sr. Advocate submitted that the appellants and M/s BIL are separate legal entities and have separate existence, having distinct identity in the eyes of law and also in fact. M/s BIL is a Public Limited, whose shares are listed and the Appellant are a private Limited company having two Directors, namely, Mr. Shyam Modi & Mr Vikash Aggarwal. From the list of shareholders of the Appellant Company as mentioned in the Annexure to the written submission, it could be seen that there is no shareholding of M/s BIL in the appellant company, nor the appellant company has got any shareholding in M/s BIL. Also, neither any of the Directors nor employees are common in both the Companies. 3.3 The ld. Sr. Advocate further submitted that by an agreement executed between the appellants and M/s BIL on 10.12.1999, on purely commercial terms, the appellant was obliged to manufacture Britania branded cakes as....
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....ve in their interests and trading activities and having absolutely no dependence on each other in any respect whatsoever either as agent or related person etc. (j)The SELLER shall ensure quality of Goods required by the BUYER. (m)All information of whatever nature supplied or furnished by the BUYER to the SELLER, shall be held strictly confidential and shall not be used or disclosed by the SELLER at any time to anyone either during the tenure of this Agreement or at any time thereafter under any circumstances save and except for the purpose of and to the extent necessary to enable the SELLER to perform its obligations under this Agreement and to satisfy any statutory requirements. The SELLER further assures that it shall not make use of specifications etc. furnished by the BUYER for the benefit of other parties or for itself. (n)The SELLER shall be responsible for compliance of all the provisions of the Prevention of Food Adulteration Act, 1954. Essential Commodities Act, 1955, Standards of Weights and Measures Act.1976 and the rules made there under, the standards and requirements of the Bureau of Indian Standards and such other enactments including Commercial Taxes, Labo....
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....pointed M/s BIL as their sole selling agent and had direct or indirect interest in the business of selling of cakes supplied by them to M/s BIL. The Ld. Commissioner failed to appreciate that like the Appellant, M/s BIL had been purchasing goods from other manufactures/job workers on similar term and conditions. 3.6 The ld. Sr. Advocate responding to the allegation that they had received Loan of Rs. 50.00 Lakhs from M/s BIL prior to the agreement dt. 10.12.1999, submitted that the entire dealing was on pure commercial terms. He has submitted that even though the SIDBI in principle had sanctioned a loan of Rs. 140.00 lakhs, due to delay in its disbursement, the appellant approached M/s BIL for an accommodation loan of Rs. 50.00 lakhs for short period and on the understanding that the said loan would be repaid as soon as the appellant received full amount of loan from SIDBI, M/s BIL had agreed and advanced the said amount on 22.07.99. The said amount was repaid to M/s BIL on 15.09.99. 3.7 Further, rebutting the allegation that the appellants had received the said loan at a nominal rate of interest, the ld. Sr. Advocate submitted that initially the interest rate fixed by SIDBI w....
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.... appellant in the normal course of business, revealed existence of mutual interest in the business of each other, the Ld. Advocate submitted that these letters were interpreted by the authorities in an incorrect manner alleging that the appellants and M/s BIL are related persons. Explaining the substance and purpose of these letters, the Ld. Advocate submitted that the letter dated 11.02.2000 of Creative Concepts, was in relation to the repairing of packing machines received by them on bailment from M/s BIL; the letter dated 20.02.2001 written by the Director of the appellant to M/s BIL regarding loss of cake slabs due to problem of wrapping machine and seeking compensation from M/s BIL was to appraise M/s BIL about the said loss and the compensation was never granted to them by M/s BIL ; the letter dated 16.07.2001, seeking approval from M/s BIL for appointment of engineers, clerks etc., was written with an intention to keep the buyer M/s BIL informed about the financial burden that would be incurred by them towards such extra appointment; the letter dated 29.11.2000 relates to sales tax deferred payment benefits available to the appellants, it was misinterpreted by the department....
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....working environment as desired by M/s BIL and the same were essential for fixing the price of the goods from time to time. It is his submission that these documents, on the contrary, were justified their stand that these transactions between the appellants and M/s BIL were always between two independent parties. Further, he has submitted that pursuant to such correspondences, whenever they have received any additional consideration from M/s BIL, they discharged the differential duty, and it was within the knowledge of the Department. 3.13 The ld. Advocate further submitted that there is nothing on record and also it is a fact that none of these correspondences had actually been approved by M/s BIL nor they had addressed any replies to the appellants letter showing that these letters had no impact on the transaction nor from these letters, it could be said that there was mutuality of interest in the business of each other. He has submitted that the implication of all these letters involve a total expenditure of Rs. 4.5 lakhs and negligible in comparison to their gross sales turnover. Besides, all these correspondences were in the initial days of the operation of the company i.e.....
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....the Departmental Authorities visited their factory and issued spot memos on 18.04.2002, 19.04.2002 and 06.05.2002, seeking information regarding receipt of advances and relationship. In response to the spot memos, the appellants submitted a detailed reply on 09.06.2002, wherein the appellants had furnished all the relevant information sought by the Department. Thus, the Department had full knowledge of the activities undertaken by the appellants and hence, the allegation of suppression, mis-declaration of facts etc. in order to invoke longer period of limitation is not sustainable. In support, he has relied upon the decisions of the Honble Supreme Court in Commr. of Central Excise, Tamil Nadu Vs. Southern Structurals Ltd. : 2008 (229) ELT 487 (SC) and Larsen & Toubro Ltd. Vs. Commr. of Central Excise, Pune II : 2007 (211) ELT 513 (SC). 3.17 Further he has submitted that they have declared all the relevant information as required under Rule 173C (3A) in the prescribed proforma and against Item III Clause) (iii), the appellants answered the information in positive. Hence, the demand is barred by limitation. 3.18 The ld. Sr. Advocate further submitted that the mutuality of inte....
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....(Tribunal); Affirmed by SC in 2002 (143) ELT A268 (SC); (xiii) Interbright Appliances (P) Ltd. Vs CCE : 2009 (240) ELT 592 (Tri.Chennai); (xiv) CCE Vs Themis Medicare Ltd.2012 (276) ELT 539 (Tri.-Bang.); xv) Sarita Steel & Industries Ltd. Vs. CCE 2011 (272) ELT 572(Tri.-Bang.); (xvi) Rad-MRO Manufacturing (P) Ltd. Vs CCE 2010 (258) ELT 235(Tri.-Bang.); (xvii)SV Sugar Mills Ltd. Vs. CCE 2009 (240) ELT 690 (Tri. Chennai); (xviii) CCE, Bom-I Vs. Indian Oil Corp Ltd.:1988 (35) ELT 652 (Tribunal); (xix) Automotive Axles Ltd. Vs CCE, Bag. 2002 (142) ELT 706 (Tri.-Bang.); (xx) CCE, Bangalore-III Vs Campco 2006(199) ELT 630 (Tri-Bang.); (xxi) TTK Healthcare Ltd. Vs. CCE, Gurtur:2007 (207) ELT 453 (Tri.-Bang.); (xxii) CCE, Bangalore Vs Electronics Calculators & Computer Co. 2008 (224) ELT 559 (Tri. Chennai) 4. Per contra, the ld. Spl. A.R, Mr. A. K. Raha, for the Revenue, has submitted that the allegations made at Para 6 of the show-cause notice was to indicate that the dealings between the appellants and M/s BIL, were that of interconnected undertaking in the sense, it reflected mutuality of interest, in each others business, which affected the transaction ....
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....lants and M/s BIL makes the buyer M/s BIL, responsible for all expenses incurred with regard to repair & maintenance of the said machines, whereas, as per Sec. 158 of the Contract Act, it is clear that for all repair, maintenance expenses, the bailer shall have to repay the bailee, the necessary expenses incurred by him for the purpose of the bailment. He has submitted that the appellant has raised debit note No.003/2000-01 dated 26.09.2000 on M/s BIL being the maintenance/repairing cost incurred on the slice machines & packing machines procured through the aforesaid bailment agreement. Thus, the stipulation in the bailment agreement had been contrary to the facts, as the necessary repairs, even though responsibility of the bailee, was debited to the account of bailer. 4.2 The Ld. A.R. further contended that the letter dated 3rd January, 2001 addressed to M/s BIL, refers to a series of decisions on the issue of pond filling & other land development activities, whereby the appellants earlier had placed note requesting necessary sanctions for capital investment. The plea of the ld. A.R. is that in the said letter, it is also mentioned for arranging sanction of Rs. 20.00 lakhs and ....
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....matical precision. Also, relying the decisions of the Tribunal in the cases of Devi Dass Garg Vs. Commissioner of Central Excise, Delhi I reported in 2010 (257) ELT 289 (Tri.-Del.) and Gulabchand Silk Mills Pvt. Ltd. Vs. Commissioner of Central Excise, Hyderabad II reported in 2005 (184) ELT 263 (Tri.-Bang.), the Ld. A.R. submitted that the Department need not prove its case by establishing each link in the circumstantial evidence and the standard of proof required in the Departmental proceeding is preponderance of probability and not to prove the case beyond reasonable doubt. 4.5 The ld. Spl. A.R has further submitted that all these facts and correspondences were unearthed after search of the Appellants premises and hence the show-cause notice dated 16.03.2005, is not barred by limitation. 5. Heard both sides and perused the records. After conclusion of hearing, both sides have been directed to file written submission summarizing their arguments. The appellants have filed the same, but the respondents did not, inspite of reminder from the Registry. 5.1 The issue involved in the present case is, determination of assessable value of the excisable goods manufactured and sol....
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....... (3)...... (4) For the purpose of this section, - (a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent; (c) related person means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation- In this clause holding company, a subsidiary company and relative have the same meanings as in the Companies Act, 1956; (d)..... (e).... 5.4 The said Section 4 has been amended w.e.f 01.07.2000 and the relevant provisions of amended Section 4, reads as under: SECTION 4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall - (a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the ....
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....esale trade, at the time and place of its removal, to a buyer, who is not a related person, and the price is the sole consideration for sale. In the present case, the allegation against the Appellant was that the sale was not to an independent buyer but to a related person (other parameters for determination of assessable value, were not in dispute), accordingly, the assessable of the goods be determined under proviso (iii) to Section 4(1)(a) of CEA,1944. 5.6 The meaning of related person referred to under the old section 4 had been defined under clause (c) of Sub-Section (4) of Section 4 of the said Act. The meaning of the related person comprised of two parts, the first part prescribed that to come under the scope of related person, one has to be so associated with the assessee that they have interest directly or indirectly in the business of each other. The second part is not relevant in the present context as there was no allegation that the Appellant and M/s BIL were holding & subsidiary company. 5.7 In the amended Section 4, effective from 01.07.2000, transaction value, instead of normal sale price, has been prescribed as the basis for determination of assessable of goo....
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....at the first part of the definition requires is that the person who is sought to be branded as a related person must be a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. It is not enough that the assessee has an interest direct or indirect, in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of the other. The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct, while the interest of the latter in the business of the former may be indirect. That would not make any difference, so long as each has got some interest, direct or indirect, in the business of the other. 5.11. Undisputedl....
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....and discharged their statutory obligation accordingly. 5.14. The entire gamut of allegation common in all the seven Notices, on the basis of which the Appellant and M/s BIL were charged to be related person , has been listed in each of the Notice are as below: (i) The assessee have taken loans from their sole buyer M/s BIL at a rate substantially lower than the existing market rate of interest. (ii) On various occasions the assessee have raised debit notes on M/s BIL for realization of amounts over and above the Invoice price. Such Debit notes were for repair & replacement of slicer machines, purchase of ink-roll for printing, repair & maintenance in general, replacement expenses, Xerox and other expenses, compressor installation, ozonizer pipe installation, U.V. lights & others, cost incurred on packing machines, telephone bill, trial run of cakes and other etc. (iii) M/s BIL have supplied machineries free of cost to the assessee, which have been installed in the said factory premises of the said assessee and have been utilized for production of cakes. (iv) The assessee have asked for financial and administrative approval from M/s BIL for purchase of office furnitur....
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.... dealing between seller and buyer, particularly in those cases, where the entire production had been sold to a sole buyer. Explaining the exigencies & necessity, it is clarified that the term Loan of Rs. 50 lakhs was taken due to delay in disbursement of sanctioned loan by SIDBI, the advances against future delivery, is a normal trade practice which were taken for short periods on liquidity problem and the deposits were taken as precaution to safeguard their interest against huge investment on raw materials, as the Britania branded cakes could not be sold to anyone else, except M/s BIL, as per the agreement dt.10.12.1999. All these dealings were in the initial period of operation between 2000 to 2002, and discontinued later after the company could manage its financial affairs efficiently. 5.18. Before assessing the impact of these financial dealings on the relation of the Appellant and M/s BIL, it is necessary to look at the background of the Appellant. It is not in dispute that the Appellant was earlier known as M/s Hari Mercantile Pvt. Ltd., and executed the project independently after obtaining necessary permissions from various authorities. For necessary capital, they approa....
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....goods, is a normal business practice. Similarly, the deposits collected from M/s BIL carrying interest of 8% p.a., also a normal commercial transaction, when the entire goods manufactured were meant to be sold only to M/s BIL, after affixing the brand name of M/s BIL. We find that these advances and deposits were received by the appellants in the initial days of operation i.e. in the year 2000-01 & 2001-02 and thus there is force in the argument of the ld. Sr. Advocate for the appellants that since they were new in the business of manufacturing of branded cakes, they were not fully conversant with management of inventory of finished goods and consequently flow of funds. In such situations, the possible sources for funding was banks or the sole buyer for advance payments against deliveries. We do not see any extra-commercial relations or considerations in these dealings as taking advances and deposits from buyers against future deliveries, is a normal business practice. 5.20. The next vital allegation is that the appellants under two bailment agreements had received packing & wrapping machines from M/s BIL, on which neither rent was paid nor the said machines were maintained by t....
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....no link between the sale Agreement dt.10.12.1999, and the Bailment agreement, they contended that in the Bailment letters, the said sale agreement was specifically referred and it had been mentioned that supply of such machines was a part of the said agreement. We find that there is no dispute on the supply of machines on bailment basis by M/s BIL to the appellants. The entire investment on plant & machinery for manufacturing of cakes, had been made by the Appellant on their own, as is evident from their audited Balance Sheet for the respective years. In our view, supply of packing machines, on bailment, the cost of which is around 10 lakhs and approximately 5% of the total investment in plant & machinery of the Appellant, and used only for the purpose of packing of finished goods, cannot lead to an inference that the appellant had manufactured the cakes only out of the machinery supplied by their sole buyer, M/s BIL or there is a substantial investment in plant & machinery by the buyer. The ld. Commissioner has observed in the impugned order that supply of such machine, was an additional consideration, from the buyer to the Appellant. In such circumstances, the amortized cost of s....
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....d reimbursed by M/s BIL, in addition to the price of the cakes realized from sale to M/s BIL, be considered as an additional consideration and chargeable to duty under the provisions of Central Excise Valuation Rules, 2000. On the other hand, he has reasoned that flow of such additional consideration from M/s BIL to Appellant would make the transaction not on principal to principal basis, but between two related parties. We do not find merit in the later reasoning of the Ld Commissioner and persuade ourselves to accept his conclusion that such additional consideration following from M/s BIL to the appellants, would come under scope of the definition of related person. Besides, the total amount involved against all these letters/debit notes, as claimed by the Appellant and not disputed by the Revenue, was a meager amount of Rs. 4.98 lakhs in comparison to the total turnover of the appellants i.e. Rs. 4.00 to 5.00 Crores, and thus it would be incorrect to conclude that on reimbursement of such expenditure M/s BIL had exercised control over the day to management of the Appellant and that too for the entire disputed period and accordingly satisfy the definition of related person. 5.....
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....yer be such that they have interest directly or indirectly in the business of each other. Their Lordships had categorically observed that it is not enough to fall under ambit of the said provision that the interest be one sided, directly or indirectly in the business of the other, but the requirement is that both sides should have interest directly or indirectly in the business of each other to make them related person; of course, the degree of interest, need not be equal, and may be different. In other words, there should be a free flow of interest, in both the directions, concerning the business of each other, whether directly or indirectly, to designate them as related person. 5.27. Even though the learned Sr. Advocate for the Appellant has referred to a number of cases, on the issue, we find that the facts and Circumstances, in Kwality Ice Cream's case(supra), are more or less comparable to the present one. In that case, Kwality Ice Cream Co. by an agreement, sold the entire production to M/s BBLIL and it was alleged that the transaction between Kwality Ice Cream Co. and M/s BBLIL was not on principal to principal basis and M/s BBLIL was a related person of M/s Kwality Ice C....
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....e between the three units cumulatively indicates interdependence of the three units with each other as also inter-relationship, cumulatively establishes the appellants inter relationships and interdependence with each other. No such interdependence is found in the instant case. 5.28 On scrutiny of the letters addressed by the appellants to M/s BIL, on the basis of which the department alleged that M/s BIL had exercised control over the Appellant including the fixation of sale price unilaterally, we find that it is an one side affair, and not both ways. Even assuming that, the Ld. Commissioner interpreting these letters concluded that M/s BIL had interest in the business of the appellant, but we find that the Department has miserably failed to establish through cogent evidences, that the appellant had also an interest in the business of M/s BIL. The ld. Commissioner in his impugned order has held that all these letters addressed to M/s BIL for approval, indicate that M/s BIL must have unilaterally fixed the prices of sale of goods to M/s BIL and this control is being exercised by M/s BIL to keep the manufacturing expenses of the appellants low so that their own sale price can rem....
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....ent in the instant case. Besides, the said decision was rendered prior to the decision of the Hon'ble Supreme Court in Atic Industries case (supra). In Food & Healthcare Specialities case, the Hon'ble Supreme Court remanded the matter to Tribunal to examine the relationship between the assesse and Heintz and determine the assessable value on the basis, whether they are related person or otherwise. Hence, the said judgment is not relevant to the present case. 5.30 We also agree with the ld.Sr. Advocate for the appellant that the other decisions cited by the ld.Spl.A.R., namely, Gulabchand Silk Mills case, Debi Dass Garg's case, & D. Bhoormull's case (supra), relate to clandestine removal/smuggling of goods, hence, facts of these cases cannot be comparable to the facts of the present case. Accordingly, the principle of law laid down therein, cannot to be made applicable to the facts in issue. Besides, the said principle may be appropriate in circumstances referred to in the said decisions, and the department may not be required to establish the case with mathematical precision, or establish the case without providing all the links, where the case is established on circumstantial e....