Customs, Excise and Gold Tribunal - Tamil Nadu
Anabond (P) Ltd., Darien Electric (P) ... vs Cce on 30 December, 2005
Equivalent citations: 2006(110)ECC321, 2006ECR321(TRI.-CHENNAI), 2006(199)ELT273(TRI-CHENNAI)
ORDER T.K. Jayaraman, Member (T)
1. These appeals have been filed against the Order-In-Original No. 1/2002 dt. 11/02/2002, passed by the Commissioner of Central Excise, Chennai II Commissionerate.
2. The brief facts are as follows:
M/s. Darien Electric Ltd., (DEPL) is a private limited company manufacturing glues, adhesives, sealants and sealant compounds all under a brand name "Anabond". The Managing Director and Director of DEPL are S/Shri. A.V. Ramanujan and J. Vijayakumar respectively. DEPL were availing value based duty exemption under various notifications during the period from 1988 in respect of excisable goods manufactured and cleared by them. M/s. Anabond Ltd., (APL) (a Public Ltd. company from 01/07/98) also manufacturing glues, adhesives, sealants and sealant compounds all under a brand name "Anabond". The Managing Director and Director of APL are S/Shri. Vijayakumar and A.V. Ramanujam respectively. M/s. APL were also availing value based duty exemption in respect of excisable goods manufactured and cleared by them. Sixteen show cause notices were issued to the appellants. Initially the show cause notices were answerable to different officers. However, in compliance with the Board's circular dt. 9/12/97, the Commissioner of CE, Chennai II Commissionerate, took up the matter for deciding all the 16 show cause notices. There were four charges against the appellants as under:
A. Allegation to the effect that both M/s. API, & M/s. DLPL are to be construed as one and values of clearances are to be clubbed.
B. Denial of value-based duty exemption (SSI Exemption) on account of use of Brand Name "Anabond".
C. Denial of the exemption in terms of Notification No. 125/87 (Classification issue).
D. Adoption of the selling price of M/s. APL as the assessable value in respect of goods manufactured & cleared by M/s. DLPL and sold through M/s. APL ("related person issue").
The Commissioner has stated that the issues in A, B and C have already been decided in OIO 5/02 dt. 30/01/02 of the Assistant Commissioner and this has become final as no appeal has been filed. Therefore, the impugned order states that the only issue, which remains to be considered relates to the value of clearances when the goods are cleared by DLPL to APL. After going through the agreements entered between DEPL and APL, the Ld. Commissioner has come to the conclusion that the two entities have mutual interest in the business of each other and therefore, the sale price of APL should form the basis of assessment for central excise duty purposes. He confirmed a demand of differential duty of Rs. 30,64,186/- on the ground that M/s. APL is a related person of M/s. DEPL within the meaning of Section 4(4)(c) of the CE Act, 1944 and in terms of Section 11A of the Act. He imposed a penalty of Rs. 5,00,000 only on M/s. DEPL under Rule 173Q of the CE Rules, 1944. Further, he imposed a penalty of Rs. 50,000/- on M/s. APL and Rs. 25,000/- each on S/Shri. J. Vijayakumar and A.V. Ramanujam, in terms of Rule 209A. The appellants strongly challenged the findings of the adjudicating authority.
3. S/Shri. R. Raghavan and T.S. Balasubramanian, Ld. Advocates appeared for the appellants and Smt. R. Bhagya Devi, Ld. SDR for the Revenue.
4. The Ld. Advocates urge the following grounds:
The Commissioner erred in holding that DEPL and APL are related persons
1. The Commissioner failed to appreciate the scope of Section 4(4)(c) of CEA 1944.
2. The Commissioner erred in holding the relationship between the DEPL and APL is one of principal and agent.
3. It is well settled that mutuality of interest should be established before it is held that both are related under Section 4(4)(c) of CEA, 1944. The commissioner having categorically held that both DEPL and APL are independent legal entities and entitled for exemption in their own rights, any finding that they are related should be substantiated with evidence of mutuality of interest.
4. The Commissioner failed to appreciate that the transactions that have taken place between DEPL and APE clearly shows that the same on principal-to-principal basis. There are many decisions holding that merely the fact that the entire production of manufacture is sold to a particular person cannot be a reason to hold that both are related.
5. The Commissioner having accepted the fact that there are sales to persons other than APL cannot ignore the fact that the sale price to such other person and APL being the same the sale price of DEPE should be the correct value.
6. The Commissioner having accepted the sale price to M/s. Simpson and Co. Ltd. as value ought to have accepted the said price as value for removal of goods to M/s. APL also.
7. It is by now well settled that if normal price for sale of excisable goods to independent purchaser is available, then such a price shall be valid even in respect of sale to a related person.
8. The Commissioner though has listed the agreement entered between DEPL and APL in para 13.3 of the impugned order has failed to appreciate the scope of each one of these agreement and has unilaterally drawn a conclusion that existence of this agreement would prove that DEPL and APL are related persons. The Commissioner has failed to appreciate that the very existence of various agreements as between DEPL and APL only go to prove their independent status and if they are related persons and inter dependent on each other there is no case for entering into agreements.
9. Various Courts have held merely because the products are manufactured as per the specification of the buyer it cannot be said that the parties are related under Section 4(4)(c) of CEA 1944.
10. In view of the above submissions, imposition of penalties under Section 173Q is not justified and the demand of differential is also not sustainable.
11. The Commissioner erred in quantification of the demand. Even if the price at which APL sold the goods is taken for assessment, the excise duty and sales tax have to be deducted for arriving at the assessable value. If proper calculation is done, the duty demand would only be Rs. 19,30,137.66.
12. The Ld. Advocates relied on a large number of case laws on the issue.
5. The Ld. SDR reiterated the Order-In-Original.
6. We have gone through the records of the case carefully. Prior to 1987, APL was manufacturing and marketing their own products. In 1987 APL transferred the technology to DEPL. The products manufactured by DEPL using the transferred technology were marketed by both APL and DEPL. This is a case where APL has surrendered their exclusive right to market their products. This is only a mutually beneficial arrangement. This arrangement cannot make one conclude that the units have mutual interest in the business of each other. The following case laws are relevant
1. Atul Products Ltd. v. CCE, Baroda -
2. Motor Industries Co. Ltd. v. CCE Bangalore
3. CCE v. Motor Industries 1999 (111) ELT A 195 (SC)
4. Beaver Automotive Pvt. Ltd. v. CCE Bangalore, We also find that the Commissioner recognizes the fact that APL and DEPL are independent legal entities. One does not hold the shares of the other. DEPL has paid for the technology transfer supplied to APL only at negotiated price. Further, there is no evidence of financial flow back form DEPL to APL. In these circumstances, it is very difficult to establish any mutuality of interest of the units in the business of each other. We also find that DEPL has sold goods to M/s. Simpson & Co. Ltd., an independent buyer. It is not the case of the Revenue that the price at which DEPL sold the goods to APL is abnormally low. Even if two units are related, if that relationship has not influenced the price and when the price in established clearly that DEPL and APL are related. Hence, the demand of differential duty on DEPL is not sustainable. There is no justification for imposition of penalties. In these circumstances we set aside the impugned order and allow, the appeals with consequential relief.
(Order dictated and pronounced in Open Court)