Customs, Excise and Gold Tribunal - Delhi
Hingorani Air Products vs Collector Of Central Excise on 22 October, 1996
Equivalent citations: 1997(89)ELT513(TRI-DEL)
ORDER J.H. Joglekar, Member (T)
1. The appellants were a small scale industrial unit manufacturing oxygen gas and availing benefit of notification granting exemption for clearance below a certain value limit. The oxygen was sold to 6 buyers, about 51% to 78% being sold to M/s. G.S. Gas Agency. Shri Gopal Hingorani was the Managing Director of the appellant company with Shri Kishan Hingorani, his son as the other Director. Shri G.S. Gas Agency was the sole proprietary concern of Smt. Gita the wife of Shri Gopal Hingorani. After recording the statement of Shri Gopal Hingorani the jurisdictional officers were of the belief that M/s. G.S. Gases were "related persons" of the appellant unit and, therefore, the value at which such goods were sold by such related persons to their customers, should be taken to be the value for purpose of assessment at the manufacturers end. On such recalculation the total value of clearances made to G.S. Gas Agency as well as to others were found to be higher than the limits specified by the relevant Notification. A Show Cause Notice dated 30-3-1985 was, therefore, issued seeking to recover duty short levied to the extent of Rs. 1,21,31,762.96 during the period 1979-80 to 1984-85 (upto August, 1984). Liability to penalty was also alleged. The Show Cause Notice invoked the provisions of the Proviso to Section HA(i) of the Act citing the necessary ingredients such as suppression of facts etc. The Collector on hearing the assessee passed an order dated 26-8-1987 permitting the benefit of Notification No. 224/75 for part of the period to the extent of Rs. 3,25,424 and confirming the remaining amount. She also imposed a penalty of Rs. 5 lakhs on the assessee. The present appeal is directed against this order.
2. Shri V. Lakshmikumaran, ld. Counsel appeared for the appellants. Revenue was represented by Shri M. Haja Mohideen, JDR.
3. Shri V. Lakshmikumaran, ld. Counsel claimed that the belief of the Collector that M/s. G.S. Gas Agency were related to the appellants was wrong. Citing the judgment of the Bombay High Court in the case of Cosmos (India) Rubber Works Private Limited and Anr. v. Union of India and Ors. -1988 (36) E.L.T. 102 (Bom.); he claimed that merely because large volume of sales goes to a particular concern, that person does not become a related person. In this case he urged that the Hon'ble Court did not accept the Department's plea that where 80% of the goods were sold to one wholesale dealer, relationship was established. He stated that the relationship between a proprietor of the sales agency and the Managing Director of the manufacturing company could not have any bearing on the relationship as envisaged in Section 4 of the Central Excises and Salt Act, 1944. This was the ratio of the Apex Court judgment rendered in the case of Union of India and Ors. v. Kantilal Chunilal and Ors. -1986 (26) E.L.T. 289 (SC). He stated that these two judgments would show that these two units were not related and that the very concept of related person was to ensure that there should be no artificial depreciation of assessable value. Referring to the annexures to the Show Cause Notice which give details of other charges charged to the dealers, Shri Lakshmikumaran, ld. Counsel claimed that the prices at which the goods were sold to M/s. G.S. Gas Agency were the same at which the goods were sold to the other buyers, except for M/s. Panchmahal Sales Ltd., who were charged less price. He referred to Rule 4 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and claimed that the transaction value was acceptable even where the buyer and the seller were related, if the circumstances showed that the relationship did not influence the price. In other words where the same price was charged to persons not related and more related persons, there was no reason for denying the transaction value. He submitted that although there was no specific enactment to this effect in the case of valuation under the Central Excise Rules, the basis of valuation being the same, the same should apply. He further submitted that apart from the fact that M/s. G.S. Gas Agency were not related persons, the Department had erred in taking the entire amount charged by the G.S. Gas Agency to their customers as the basis of their valuation because the amount included charges not related to manufacture. Referring to the annexures to the Show Cause Notice he stated that all the dealers had charged loading and unlaoding charges, delivery and collection charges, container charges and transportation. These were post manufacturing charges and were, therefore, deducted by the assessees for the purposes of computation of the assessable value. However, the same charges when they were recovered by the dealers from their buyers, were sought to be added. The jurisdictional Assistant Collector in his earlier order dated 27-3-1982 had permitted deductions for loading and unloading charges as well as holding charges. He claimed that Assistant Collector in his order referring to the case of Collector of Central Excise v. Indian Oxygen Ltd. - 1988 (36) E.L.T. 730 (SC) had held that rental charges for gas cylinders were not includible in the assessable value. Maintenance and service charges for durable and returnable containers were held to be deductible from the assessable value by the Tribunal in the case of Collector of Central Excise v. Century Spg. and Mfg. Co. Ltd. - 1988 (37) E.L.T. 277 (Tribunal). Summing up Shri V. Lakshmikumaran, ld. Counsel, stated that no case had been established by the Department to warrant loading of the assessable value.
3. Shri M. Haja Mohideen, ld. JDR, maintained that M/s. G.S. Gas Agencies were related persons in terms of Section 4 of the Act. The additional charges collected by virtue of debit notes or invoices were not shown to the department. This amounted to suppression of fact.
4. We have carefully considered the submissions made by both the sides.
5. In her order the Collector dealt on the issue whether M/s. G.S. Gas Agencies were a related person of the assessee in terms of Section 4(4)(c) of the Act. She established the relationship on the observation that the proprietor of the agency was the wife of the Managing Director of the assessee company, that the agency was a distributor of the assessee company and that the proprietor of the distributor was a shareholder in the assessee company. On this ground it was held that the assessment should be done at the price at which the agency sold the products to the consumers. The concept of related person has been discussed in a number of court judgments including the judgment of the Hon'ble Supreme Court cited by Shri V. Lakshmikumaran, ld. Counsel for the appellants. In the cited case a partner of one of the dealers was related to the Directors of the manufacturing company. About 40% of the total production was sold to such dealers. In the circumstances, the Hon'ble Court held that no relationship could be alleged and the wholesale cash price at which the goods were sold by the assessee to the various dealers at the factory gate the only price liable to be taken for the purpose of levy of excise duty. This judgment of the Hon'ble Supreme Court is an exact precedent for the case before us. The percentage of goods sold is also an indicator to relationship. In the second cited case the Hon'ble Bombay High Court has observed as under :-
"The language of this proviso clearly shows that it applies only where all the goods are sold through a related person. If some of the goods are sold to persons or entities other than the related persons, naturally this proviso would not come into operation. In instant case, the firm who form the wholesale buyers of the appellants account for nearly about 80% of the appellants' sale. The remaining 20% are sold to their customers. As such the proviso is inapplicable and the price at which the appellants were selling their products to the wholesalers is the basis on which excise duty could be levied".
6. In this case also certain Directors of the assessee company and the allegedly related persons were common, but the Hon'ble High Court held that no relationship could be alleged under these circumstances.
7. Applying the ratio of these two judgments, it is established that no relationship as envisaged in Section 4(4)(c) existed between the appellants and M/s. G.S. Sales Agency. The proposition that duty be levied at the rates at which the products were sold by M/s. G.S. Gas Agency, therefore, must fail.
8. The basis premise of valuation is that the same price must prevail in the case of each buyer. This is of course subject to the principle that for different classes of buyers, there could exist different prices. In the case brefore us the basis of assessment to duty in case of the other buyers, (dealers) was not proposed to be altered. This proposition if accepted would have created a very serious imbalance in the pricing pattern of the assessee unit.
9. In view of our holding that there was no relationship between the assessee and M/s. G.S. Sales there is no warrant for us to go into the charge of suppression of recovery of extra charges. Even then two factors are required to be [noted] the first is that the acceptance of such charges was known to the Department as is evident from the order of the Assistant Collector dated 27-3-1982 in which these charges were held to be deductible. The second is that the deductibility of the charges has been upheld in the later judgment referred to and relied upon by Shri V. Lakshmikumaran, ld. Counsel.
10. In the result, we find that the order of the Collector based on [wrong] appreciation of facts and law cannot sustain. We accordingly allow the appeal, set aside the impugned order and direct consequential relief, if any.