Customs, Excise and Gold Tribunal - Delhi
Alembic Glass Industries Ltd. vs Collector Of C. Excise on 17 August, 1994
Equivalent citations: 1994ECR64(TRI.-DELHI), 1994(73)ELT579(TRI-DEL)
ORDER G.A. Brahma Deva, Member (J)
1. The appellants are engaged in the manufacture of glasswares including hollow wares and press wares, chargeable to duty of excise under Tariff Item 23 A of the Central Excises and Salt Act, 1944, at the relevant time covered under this appeal. The largest buyer of its hollow wares was the Alembic Chemical Works Co. Ltd. which was using the same for their own packing requirements. M/s. Alembic Chemical Works Co. Ltd. is engaged in the manufacture of pharmaceutical drugs and medicines, for which it consumed hollow wares (containers). Based upon the Annual Report for the years 1979 and 1980 it was found that the Chairman and the three directors were common in both these companies. M/s. Alembic Chemical Works Co. Ltd., held 37,428 Equity Shares of Rs. 100/- each representing 14% of the total paid-up and subscribed share capital of the appellant Company and similarly the appellant Company has also acquired 34,152 Equity Shares of Rs. 100/- each, representing 9% of the paid-up and subscribed capital of M/s. Alembic Chemical Works Co. Ltd. Accordingly to the Department both the companies have mutuality interest in the business of each other since there were common Chairman and the three Directors. It was charged that the appellants' Company made upward revision of price in respect of other buyers on account of increase in prices of raw materials etc. but did not do so in respect of the goods supplied to Alembic Chemical Works Co. Ltd. for about 2 years. Further they did not file separate price list for different customers. Accordingly two show cause notices were issued dated 6-8-1983 and 29-3-1982 covering period from 6-7-1979 to 15-1-1982 alleging suppression of information and demanding the total amount of Rs. 35,95,197.76 for the period dated 6-9-1979 to 15-1-1982 and to impose the penalty. Two show cause notices were duly answered by the appellants by giving detailed reply denying the charges and liability to pay duty amount. After considering the reply to the show cause notice and submissions made during the course of personal hearing, the Collector confirmed the duty amount payable by the appellants based upon the charges in the respective show cause notices and imposed the penalties of Rs. 8 lakhs and Rs. 2 lakh in the proceedings arising from the two show cause notices respectively. This order was challenged by the appellants before the High Court of Gujarat and the petition was dismissed by the Gujarat High Court in Special C.A. No. 1423 of 1987. Aggrieved by the order passed by the Gujarat High Court, the appellants have preferred in Civil Appeal No. 1154 of 1992 before the Supreme Court and the Honljle Supreme Court by its judgment and order dated 9-2-1994 directed the appellants to file an appeal before the Tribunal and directed the Tribunal to dispose of the appeal in accordance with law without raising objection on account of limitation if appeal was filed within 4 weeks. Accordingly the appeal was filed before the Tribunal.
2. We have heard Sh. KB. Trivedi, learned Advocate and Shri Dushyant Dave, learned Advocate for the appellants and the Department was duly represented by Smt. C.G. Lal, learned SDR for the Revenue.
3. It was contended on behalf of the appellants that to hold the company as a related person under Section 4(4)(c) it must be a holding company or subsidiary as defined under the Companies Act, 1956. M/s. Alembic Chemical Works Co. Ltd. is neither a holding company nor subsidiary company and it cannot be said that it is a holding company or subsidiary company merely on the ground that they are holding some shares in the business in each other and having one or two common Directors. It was submitted that M/s. Alembic Chemical Works Co. Ltd., have been in existence since 1907 whereas the appellant company has come into existence in 1944. The levy of Central Excise duty was introduced on the item in question for the first time in 1961 and Section 4 was amended in 1975. Both the companies had commercial transactions even prior to the introduction of levy of excise duty. The appellant company has been selling the part of its goods approximately 15% to M/s. Alembic Chemical Works Co. Ltd. on principal to principal basis in the course of wholesole trade. M/s. Alembic Chemical Works Co. Ltd. is neither a sole distributor nor substantial production is sold in the course of wholesale trade to or through M/s. Alembic Chemical Works Co. Ltd. It is not even the case of the Department that either the appellant company has so arranged or that it is generally not selling the goods except to or through M/s. Alembic Chemical Works Co. Ltd. Further legislature has itself recognised in Proviso 1 to Section 4 of the Act that there can be different prices to different classes of buyers and each such price will be deemed to be normal price. Therefore the prices at which the goods are sold to M/s. Alembic Chemical Works Co. Ltd. must be deemed to be the normal price and the same should be accepted for the purpose of valuation. On the issue of concept of related person, they referred to the observations made by the Supreme Court in paras 44 and 46 in the case of Union of India and Ors. v. Bomaby Tyre International Ltd., reported in 1983 (14) E.L.T. 1896 (SC) and also relied upon the following decisions :-
1. Cosmos (India) Rubber Works Pvt. Ltd. and Anr. v. Union of India and Ors. -1988 (36) E.L.T. 102 (Bom.)
2. Jay Engineering Works Ltd. and Anr. v. Union of India and Ors. -1981 (8) E.L.T. 284 (Del.)
3. Collector of Central Excise, Madras v. T.I. Millers Ltd., Madras and Ors. -1988 (35) E.L.T. 8 (SC)
4. Union of India and Ors. v. Atic Industries Ltd. -1984 (17) E.L.T. 323 (SC)
4. It was argued that even assuming that M/s. Alembic Chemical Works Co. Ltd. was related person even then the price is to be determined as contemplated under Section 4 read with Valuation Rules particularly with reference to Rule 6 of the Valuation Rules since the goods sold to Alembic Chemical Works Co. Ltd. was not re-sold but it was captively consumed. In such a case the valuation is to be determined under Rule 6(b) of the Valuation Rules but instead of resorting to Valuation Rules, the Collector erred in determining the value based upon the increase in the cost of raw materials. The comparable price is very much available on record since there were other buyers in addition to M/s. Alembic Chemical Works Co. Ltd. in respect of the same commodities. The price charged to them in respect of the very item was in fact lower than the price charged to the Alembic Chemical Works Co. Ltd. It is not correct to say that the appellants did not revise the price in respect of hollow wares supplied to M/s. Alembic Chemical Works Co. Ltd. while revising in respect of others. The prices in respect of the goods supplied to Alembic Chemical Works Co. Ltd. were also revised on four occasions i.e. on 1-4-1979, 1-7-1979, 6-9-1979 and 16-8-1981. Since 85% of the goods were sold to independent buyers and such price was available on ex-factory basis that price is to be the basis of value under Section 4 of the Act, relying upon the decision in the case of Indian Oxygen Ltd. v. Collector of Central Excise - 1988 (36) E.L.T. 723 (SC). It was also argued that the price once declared and approved by the Department the same could not be reopened without recourse to appeal procedure as provided under Section 35 (c) of the Act. Referring to the decision, in the case of Union of India and Ors. v. Madhumilan Syntex Pvt. Ltd. - 1988 (35) E.L.T. 349 (SC), it was submitted that there was not even proposal for reopening of price list approved in the show cause notice and in the absence of such proposal an action initiated by the Adjudicating Authority is not sustainable. Further it was also contended that the demand was also barred by time since the larger period could not be invoked because of the fact that the price of the goods sold to M/s. Alembic Chemical Works Co. Ltd. were declared and duly approved and the activity of both the companies was within the knowledge of the Department. Not only both the companies fell within the jurisdiction of the same Collectorate and Range Office but the Central Excise Office is also situated within the premises of M/s. Alembic Chemical Works Co. Ltd. On time barring issue they relied upon the decisions in the case of Collector of C. Excise v. Chemphar Drugs & Liniments 1989 (40) E.L.T. 276 (SC) and Padmini Products v. Collector of Central Excise 1989 (43) E.L.T. 195 (SC) in support of their contention. Further it was submitted that there was no case for imposition of penalty in the absence of clandestine removal and in the absence of mens rea.
5. It was contended on behalf of the Revenue that very fact that they are holding shares in each other and having common Chairman and three Directors which clearly indicates their mutuality of interest to hold M/s. Alembic Chemical Works Co. Ltd. is a related person as envisaged under Section 4(4)(c) of the Act. She also relied upon the observations made by the Supreme Court in the case of Union of India and Ors. v. Bombay Tyre International Ltd. (supra) in support of her contention and submitted that interest in the business of each other refers to be financial or managerial interest and she referred to the following decisions :-
1. Mohanlal Maganlal Bhavsar (deceased) through Lrs. and Ors. v. Union of India and Ors. -1986 (23) E.L.T. 3 (SC)
2. Straw Products Ltd. and Ors. v. Union of India and Ors. - 1987 (30) E.L.T. 275 (Del.)
3. Prabhat Zarda Factory Ltd., Muzaffarpur v. Collector of Central Excise, Patna -1988 (34) E.L.T. 239 (Tribunal)
6. It was submitted that there was steep rise in the prices of raw materials during the period in question and there was upward revision of prices in respect of the goods supplied to other small buyers but did not do so in the case of Alembic Chemical Works Co. Ltd. Thus it clearly shows that M/s. Alembic Chemical Works Ltd. was not only a related person but also favoured buyer since price charged to them was not normal one. She pointed out that the appellants did not rise the prices in respect of the goods supplied to M/s. Alembic Chemical Works Co. Ltd. during the period under dispute except in respect of only one item i.e. 160z RD Amber Bottles under serial number I in Exhibit I. She submitted that since the price list was pre-deter-mined on the basis of contract entered into, the appellants were required to file price list in Part II and not in Part I. The Price Lists were not filed a Part II in respect of supplies made to M/s. Alembic Chemical Works Co. Ltd. and thus they contravened the provisions of Rule 173-C and also suppressed the facts. They have not produced any contract of sale at material time. It was submitted that although the raw material was same in respect of hollow wares supplied to other buyers but since the size and shape of the finished items supplied to others are of different nature it cannot be said that they are identical items and in the absence of comparable goods the Department had no other alternative but to go by cost data while determining the assessable value in respect of the goods supplied to M/s. Alembic Chemical Works Co. Ltd. She submitted that there was total non-cooperation from the assessee at every stage and they did not furnish the particulars to enable the Department to arrive at the proper value inspite of summons being issued. She submitted that there was not wholesale price at factory gate and since the foods were captively consumed by M/s. Alembic Chemical Works Co. Ltd. whom the goods were supplied and since the prices were not ascertainable under Section 4(1)(a) the value would have to be arrived under Rule 6 of the Valulation Rules. Rule 6(b)(ii) permits to determine the value based upon the cost of the manufacture including profit and this was exactly done by the Adjudicating Authority in this case. In support of her contention that the value can be determined based upon the cost of manufacture she relied upon the following decisions :-
1. Food Specialities Ltd. v. Appellate Collector, Central Excise & Customs, New Delhi and Ors. -1988 (33) E.L.T. 331 (P & H)
2. Window Glass Ltd. v. Collector of Central Excise, Calcutta - 1989 (39) E.L.T. 641 (Tribunal)
3. Collector of Central Excise v. United Glass, Bangalore - 1989 (40) E.L.T. 488 (Tribunal)
4. Collector of Central Excise, Bangalore v. Baggaram Enterprises, Bangalore-1986 (25) E.L.T. 356 (Tribunal) Relying upon the decisions in the case of Indian Tobacco Co. Ltd. v. Union of India and Ors. 1988 (34) E.L.T. 473 (Cal.) and in the case of Elson Machines Pvt. Ltd. v. Collector of Central Excise -1988 (38) E.L.T. 571 (SC), it was submitted that the show cause notices cannot be held illegal on the ground that Section 11A of the Act could not be applied for the recovery of excise duty wherein the assessment has been completed and the Excise Authorities were not estopped from taking a view different than in the approved classification or price list and such short-levy can be recovered subject to limitation prescribed under Section 11A of the Act. As regards wilful suppression, she said that it is a clear case of wilful suppression since the appellants have withheld the information regarding interest in the business of M/s. Alembic Chemical Works Co. Ltd. and they have neither filed price list nor produced contract of sale. Furthermore they did not disclose the correspondence as regards the contract and did not furnish cost data inspite of summons being issued. Hence the Department was justified in invoking the larger period and imposing the penalty. On the issue of time barring as well as imposition of penalty, she cited number of decisions including R.S. Nagori & Sons v. Collector of Central Excise 1989 (39) E.L.T. 303 (Tribunal) and Nizam Sugar Factory Ltd. v. Collector of Central Excise and Ors. 1987 (27) E.L.T. 40 (A.P.)
7. We have considered the submissions made by both sides and perused the records. In view of the submissions made by both sides the first point to be considered in this case is whether M/s. Alembic Chemical Works Co. Ltd. was a related person to the appellants as defined in Section 4(4)(c) of the Act. Relevant part of the provisions of Section 4 of the Act reads as under :-* * * * * * *
8. It was contended on behalf of the appellants to treat the company as a related person under Section 4(4)(c) of the Act it must be a holding company or subsidiary company. But according to the first part of the definition there should be a mutuality interest and the second part includes holding company or subsidiary company. Hence the mutuality of interest is decisive factor to determine the person as related person. The expression "they have interest direct or indirect in the business of each other" connotes mutuality of business interest or reciprocal interest and not one-sided interest. The degree of mutuality of interest is not material. The mutuality of business interest, which Section 4(4)(c) contemplates between the manufacturer and its buyers cannot be established by merely showing that they have business dealings between them. It must also be shown one has special interest in the promotion or development of the business of the other. The Supreme Court in the case of Union of India and Ors. v. Atic Industries Ltd. 1984 (17) E.L.T. 323 (SC) (supra) held that merely holding 50% shares by a customer in the manufacturing company does not amount to mutuality of interest. It observed that the first part of the definition of related person as given in Section 4(4)(c) of the Act requires that the person who is sought to be branded as a related person must be a person who is 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 directly or indirectly 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 any interest directly or indirectly 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. The equality and degree of interest which each has in the business of the other may be direct while the interest of the latter in business of the former may be indirect, but that would not make any difference so long as each has got some interest direct or indirect in the business of the other. In order to establish mutuality of business interest direct or indirect between manufacturer and the buyer, the manufacturer must in his own interest promote business of buyer and the buyer must in his own interest promote the business of the manufacturer. In the present case both the companies were set up by the same family and the appellant company is holding 9% of the shares of M/s. Alembic Chemical Works Co. Ltd. while M/s. Alembic Chemical Works Co. Ltd. holds 14% shares of the total shares held in the appellant company. It is dear from the fact that they have mutuality interest in the business of each other. Furthermore, the Chairman and the three Directors are common and it is implied both the companies are managed by same management. It is not a mere case where one company is holding snares in other company but both the companies are holding some shares in each other in addition to having common Chairman and the three Directors. With this factual position, we do not find any infirmity in the impugned order holding that M/s. Alembic Chemical Works Co. Ltd. was a related person under Section 4(4) (c) of the Act.
9. Next question arises for our consideration in this case is whether the price charged to M/s. Alembic Chemical Works Co. Ltd. was low and if so how value is to be determined. In view of the mutuality of interest in between two companies as stated above and taking into consideration that the appellant company made upward revision of prices in respect of the other buyers due to increase in raw materials but the same was not done in the case of Alembic Chemical Works Co. Ltd. and in the absence of agreement or contract for negotiated prices, it is clear that the prices charged to M/s. Alembic Chemical Works Co. Ltd. was not normal. But as regards the determination of the value of the goods supplied to M/s. Alembic Chemical Works Co. Ltd., we find that there is some force in the argument advanced on behalf of the appellants that the Collector should have resorted to Valuation Rules in determining the assessable value. An inference can be drawn that the increase in the price of raw materials will result in increase of finished products but that itself cannot be the basis in determining the value. The cost of raw materials is one of the factors but that is not only determinative as it was argued on behalf of the appellants. Prior to the decision of the Supreme Court in the case of Bombay Tyre International Ltd., the various High Courts in a series of cases have taken the view that since levy of excise duty is on the manufacture and production of the goods, therefore it cannot go beyond the manufacturing cost plus manufacturing profit and accordingly the assessable value under Section 4 held to be determinable only on the basis of manufacturing cost plus manufacturing profit excluding post-manufacturing and non-manufacturing expenses. However the Supreme Court has overruled such contention by observing that either under old Section 4 or under new Section 4 it was never intended that the value of excisable articles has to be determined in terms of manufacturing cost and manufacturing profit exclusively. It held that levy of excise is a levy on goods manufactured or produced in India but it does not mean that the value of excisable articles must be limited to the manufacturing cost plus manufacturing profit. In the instant case the normal price of the excisable goods supplied to M/s. Alembic Chemical Works Co. Ltd. is not ascertainable because of the fact that it was not re-sold by M/s. Alembic Chemical Works Co. Ltd. but captively consumed by them. Section 4(1)(b) of the Act provides that where the normal price of the excisable goods is not ascertainable for the reason that such goods are either not sold or for any other reason, the assessable value shall be determined according to the manner to be prescribed. The Central Excise Valuation Rules prescribed the manner for determination of assessable value in such cases. Rule 4 of the Valuation Rules, 1975 provides that the assessable value of any excisable goods is not determinable at the time and place of removal it will be determined on the basis of such goods sold by the assessee for delivery at any other time nearest to the time of the removal and necessary adjustment on account of difference in the date of delivery of the goods in question and such comparable goods can be made by proper officer. Rule 5 provides that if the price is not ascertainable for only reason that sale price was not sole consideration, it shall be based on sale price and on the amount of any additional consideration flowing directly or indirectly from the buyer to the assessee. Rule 6 of the Valuation Rules provides that if the value cannot be determined under the Rules 4 or 5, it will be determined in the manner laid down by that Rule. Rule 6(b) of the Valuation Rules provides that when the entire production is captively consumed the value shall be determined with reference to the comparable goods produced by the assessee or any other manufacturer.
Rule 6(b) is relevant and same is reproduced as under :-
"Rule 6. If the value of the excisable goods under assessment cannot be determined under Rule 4 or Rule 5, and -
(a) ...
(b) Where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based-
(i) On the value of the comparable goods produced or manufactured by the assessee or by any other assessee;
(ii) If the value cannot be determined under Sub-clause (1), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods;
(c)..."
10. Rule 6 provides two methods for valuation. The first method under Rule 6(b)(i) is to adopt after necessary adjustments, prices of comparable goods provided by another manufacturer. If this method is not available only then resort can be had to the other method under Rule 6(b)(ii) to work out the value on the basis of cost of manufacture of the assessee unit and thereto a reasonable margin of profit. In the instant case if the Department is of the opinion goods sold to the other buyers are not identical or comparable goods then it should resort to the method under Rule 6(b)(i) whether any comparable goods were manufactured by any other manufacturer and the price of such comparable goods should be taken as basis in determining the assessable value. Since this has not been done, we are of the view that this issue requires reconsideration. The appellants should co-operate with the Department in furnishing the particulars to arrive at the proper value. Accordingly we are remanding the matter to the concerned Collector to examine this issue afresh to arrive at the proper value as envisaged under Rule 6 of the Valuation Rules after hearing the parties on this issue.
11. We are not convinced with the arguments advanced by the appellants that proceedings initiated by the Collector amounts to review since the price list was already approved. Price list approved can be re-opened under Section 11A of the Central Excises & Salt Act in case of short-levy, non-levy or erroneous refund and it is not necessary to have price list approval set aside in appeal or revision in view of the settled position by the Supreme Court in the case of Elson Machies Pvt. Ltd. (supra) that the excise authorities are not barred from taking a view different than in the approved classification and demand can be raised subject to the limitation prescribed under Section 11A of the Act. On time barring issue, we are of the view that the visit of the officer to assessee's factory or situation of the office in premises of M/s. Alembic Chemical Works Co. Ltd. does not mean that the activity of both the companies was within the knowledge of the Department and taking into consideration of suppression of facts as it was enlightened by the Departmental Representative with reference to the facts of this case, we are of the view that the Department was justified in invoking the larger period. As regards penalty, since we are remanding the matter for re-determination of the value, penalty aspect may also be re-considered depending upon the outcome of the re-determination of the value. Thus, this appeal is disposed of in the above terms.