Customs, Excise and Gold Tribunal - Mumbai
Y.N. Shah, A.K. Thirani, Koron Business ... vs Commissioner Of Central Excise on 18 March, 2004
Equivalent citations: 2004(95)ECC572, 2004(170)ELT353(TRI-MUMBAI)
ORDER Moheb Ali M., Member (T)
1. The facts are that the appellant, M/s. Koron Business Systems Ltd. manufactures plain copier machines. They sell major part of the goods through M/s. Kores (India) Ltd. The latter charge from their customers Rs. 3,000/- to Rs. 5,000/- on every machine sold towards installation and warranty charges. M/s. Kores (India) Ltd. hold equity shares in the company M/s. Koron Business Systems Ltd. There are two common Directors. The department's contention is that the two companies are related persons and the transaction between them should be rejected on that ground. The period of dispute is 3.1.1984 - 23.6.1988. The show cause notice was issued on 4.1.1989 alleging suppression of facts with an intent to evade duty. Case was adjudicated nine full years later. In fact this order could be set aside on that ground alone. However we examine the merits and the aspect of limitation in the interest of justice.
2. The Commissioner sets out the following reasons for concluding that M/s. Koron Business Systems Ltd. and M/s. Kores (India) Ltd. are related persons:
(a) M/s. M/s. Koron Business Systems Ltd. sold a major chunk of their product solely through M/s. Kores (India) Ltd. who hold a majority holding in the equity shares of M/s. Koron Business Systems Ltd.
(b) Shri S.K. Thirani and Shri A.K. Thirani are common Directors in both the companies.
(c) M/s. Kores (India) Ltd. have given an unsecured and unconditional loan of Rs. 63,25,000/- to M/s. Koron Business Systems Ltd.
(d) Evidence brought out in the show cause notice proves that M/s. Kores (India) Ltd. invariably recovered an amount of Rs. 3,000/- and Rs. 5,000/-- from all customers which proves that such payment by the customers is not optional.
3. The Supreme Court in the case of Alembic Glass Industries Ltd. v. CCE 2002 (143) ELT 244 (SC) held that the share holders of a public limited company do not, by reason only of their shareholding, have an interest in the business of the company. Equally the fact that two public limited companies have common Directors does not mean that one company has an interest in the business of the other. The Hon'ble Court further held that the above situation does not lead to the conclusion that the companies are related persons. In the present case, the two companies M/s. Koron Business Systems Ltd. and M/s. Kores (India) Ltd. are private limited companies. Even so, the ratio of this decision applies.
4. In Atic Industries case (1984 [17] ELT 323), the Supreme Court held that one company holding shaves in another does not establish mutuality of interest and therefore are not related persons. In the present case, M/s. Kores (India) Ltd., the distributor, holds shares in the company M/s. Koron Business Systems Ltd. who manufacture the photocopying machines. They are however two separate private limited companies. It also appears that major part of the goods produced by M/s. Koron Business Systems Ltd. are sold through M/s. Kores (India) Ltd. These circumstances still cannot lead to the conclusion that M/s. Koron Business Systems Ltd. and M/s. Kores (India) Ltd. are related persons as sought to be made out by the Commissioner. The same view is held by the Bombay High Court in the case reported in 1988 (36) ELT 102 (Bom).
5. The Commissioner laid emphasis on the fact that an unsecured loan has been given by M/s. Kores (India) Ltd. to M/s. Koron Business Systems Ltd. to the tune of Rs. 63,25,000/-. In fact he makes this circumstance as one of the grounds for issuing a show cause notice to the appellant even though the same issue of 'related person' was earlier adjudicated upon twice in respect of the same appellant. We observe that this transaction between two companies does not make them relate persons. The Tribunal in the case of Automotive Axles Ltd. v. CCE, Bangalore 2002 (142) ELT 706, held that the fact that interest free loan has been given by one company to another does not lead to the conclusion that the companies concerned are related persons. In fact there are plethora of decisions on this issue. Mutuality of interest in each other's business means that there should be a two-way flow.
6. The Commissioner also observed that M/s. Kores (India) Ltd., the company which sold major part of goods produced by M/s. Koron Business Systems Ltd., charges from the customers Rs. 3,000/- to Rs. 5,000/- as installation and warranty charges. These are not voluntary charges as these were collected from every buyer. What the Commissioner finds is that these charges should be included in the assessable value. We are unable to agree with this proposition. We observe that it appears that these charges are indeed collected from every customer. But it is the trader (M/s. Kores (India) Ltd.) who is collecting this amount for the service it renders to its customer. Unless it is established that such collections are flowing back to the assessee (M/s. Koron Business Systems Ltd.) it is not permissible to load the value by this amount. Further, we also observe that on occasions M/s. Koron Business Systems Ltd. has directly sold the machines to government organisations and even in those cases similar sum is collected, but the same is passed on to M/s. Kores (India) Ltd. who has to render after sale service. The Commissioner's finding that this situation establishes that the two companies are related persons has to be rejected.
7. It was also argued before us that the show cause notice is time barred. The department was well aware of the circumstances under which M/s. Koron Business Systems Ltd. and M/s. Kores (India) Ltd. operate, as on two earlier occasions the issue of 'related persons' came up for adjudication in their own case. The department invokes larger period of limitation on the ground that it has come to know for the first time that some Directors are common and that an unsecured loan was given by one to another. We have already discussed as to how these two factors do not denote that the two companies are related persons.
8. The order of the Commissioner is set aside. The appeals are allowed.