Customs, Excise and Gold Tribunal - Mumbai
Inventa Electronics Pvt. Ltd. vs Commissioner Of C. Ex. on 7 December, 2005
ORDER Archana Wadhwa, Member (J)
1. The demand in the present case has been confirmed by the Commissioner vide his impugned order on the ground that M/s. Inventa Electronics Pvt. Ltd. (hereinafter referred to as "the appellant") are selling static converters being manufactured by them to their related person M/s. Vistar Electronics Pvt. Ltd. (hereinafter referred to as "Vis-tar"), who, in turn, are selling UPS system to their customers and as such the price at which Vistar is selling the goods to the ultimate customer has to be adopted as the assessable value of the static converters. It has further been held that the value of batteries which Vistar is buying from the other manufacturers and selling along with the static converters procured from the appellant is to be added in the value of the converters. Further, the benefit of SSI exemption availed by the appellant has been denied to them on the ground that if the value of batteries is taken into account and the value at which Vistar is selling the goods to the ultimate customer is adopted, the appellant has enhanced the eligibility criteria of clearances provided under the small exemption notification.
2. As per facts on record, the appellant-company was incorporated on 15-5-1986 having four directors - V.G. Chapekar, H.P. Joshi, D.V. Bhide and C.G. Tulpule. It is seen that two directors, D.V. Bhide and C.G. Tulpule were dropped w.e.f. 27-8-1996. The said company is engaged in the manufacture of static converters and apart from selling the same to Vistar (majority of the goods manufactured by them), is also selling a small portion to other buyers. Vistar is a marketing company established in 1984 with the same four directors. It is on record that in April 1987 central excise department conducted investigations to examine the relationship between the appellant and Vistar as also of the third company called M/s. D.B. Electronics Pvt. Ltd., which is also engaged in the manufacture of static converters and selling the same to Vistar. During the course of investigation, statements of various persons including the directors of the appellant-company, V.G. Chapekar and H.V. Joshi, were also recorded. However, no further proceedings were initiated thereafter. Subsequently, in or around 1991, investigations were again conducted and based upon the same, show cause notice dated 4-1-1993 was issued to the appellant alleging that Vistar was a related person, and proposing to adopt the price at which Vistar was selling the goods to their customers, as the assessable value. The notice also proposed to add the value of battery purchased by Vistar from independent manufacturers and sold the same to their buyers in the assessable value of the static converters manufactured by the appellant on the ground that battery is a part of UPS. As a consequence of the above, small scale exemption was also proposed to be denied. The said show cause notice culminated in the impugned order by the Commissioner confirming demand of duty of Rs. 67,16,343/- (Rupees sixty-seven lakhs sixteen thousand three hundred forty-three only) against the appellant for the period January 1988 to 31st March 1992. In addition, personal penalty of Rs. 2,00,000/-(Rupees two lakhs only) has also been imposed upon the appellant along with confiscation of the goods with an option to the appellant to redeem the same on payment of fine of Rs. 1,00,000/- (Rupees one lakh only).
3. The impugned order has been assailed before us on merits as also on limitation. Learned Advocate, Shri V. Sridharan, submits that Vistar is an independent company registered under the provisions of the Companies Act and having its own independent business. Merely because some of the directors of the appellant-company are also directors in Vistar cannot be made a ground for holding them as related persons of the appellant. They have their own separate balance sheet, registration under the Income-tax Act and Sales-tax Act and separate assessment liabilities and there is no mutuality of interest in the business of each other and no flow-back of profits of Vistar to the appellant concern. He also submits that identical proceedings were initiated against M/s. D.B. Electronics Pvt. Ltd. by way of issuance of identically worded show cause notice dated 4-2-1993 proposing to treat Vistar as related person of D.B. Electronics and to include the value of batteries purchased and supplied by Vistar to their customers in the assessable value of static converters manufactured by D.B. Electronics. The said proceedings were dropped by the Commissioner vide his order dated 29-6-1994 holding that Vistar cannot be treated as agent of D.B. Electronics and value of batteries cannot be included in the assessable value of UPS system. Appeal filed by the Revenue against the said order of the Commissioner was rejected by the Tribunal as reported in 2000 (126) E.L.T. 1017 except in respect of that part where batteries were brought to the factory of D.B. Electronics and cleared with the UPS system. For the said limited purpose, the matter was remanded to the original adjudicating authority. He submits that the reasons given by the Commissioner in his impugned order are identical to the show cause notice issued to D.B. Electronics, which stands confirmed by the CESTAT and as such by adopting the same reasoning, it has to be held that the price at which goods are sold by Vistar cannot be made the basis for determining the value of static converters.
4. The learned advocate further submits that the appellant is engaged in the manufacture of static converters and are not buying the batteries. The same are bought by Vistar and supplied by them directly to their customers. In such circumstances, it cannot be held that the value of the battery is includable in the value of the static converters. For the above purposes, he relied upon the Tribunal's decision in the case of Siemens Ltd. v. C.C.E. 2002 (150) E.L.T. 422 as confirmed by the Hon'ble Supreme Court reported in 2003 (158) E.L.T. A74. Reliance was also placed upon the decisions in the case of C.C.E. v. A.Z. Electronics and C.C.E. v. D.B. Electronics Pvt. Ltd. 2000 (126) E.L.T. 1017 and Tribunal's Final Order No. C-II/1759/02/WZB, dated 10-6-2002 in the case of C.C.E. v. Target Marketing.
5. As regards denial of the benefit of small scale exemption notification, the learned advocate submits that if relief is granted in respect of the above two issues, the aggregate value of clearance of the appellant unit would remain well within the exemption limit.
6. The learned advocate also strongly assailed the demand on the ground of limitation, Show cause notice dated 4-2-1993 having been issued for the period January 1998 to March 1992 is barred by limitation inasmuch as the department itself has conducted investigations and examined the issue of relationship between the appellant and Vistar in the year 1987 itself. As such the learned advocate submits that no suppression, misstatement or fraud etc. can be attributed to the appellant so as to justifiably invoke the longer period of limitation of five years. It has also been argued before us that vide his earlier order dated 31-5-1999, the Assistant Commissioner of Central Excise had dropped the proceedings initiated against the appellant proposing inclusion of value of the batteries which were sold to their customers by Vistar without bringing the same to the appellant's factory.
7. Shri R.B. Pardeshi appearing for the Revenue, supports the impugned order passed by the Commissioner and draws our attention to the various factors detailed by the adjudicating authority in the impugned order in support of his findings that there was financial involvement between the two units, thus establishing that Vistar was related person to the appellant. He also submits that when Vistar is selling UPS system to their customers, and being a related person of the appellant, it has to be concluded as if the entire UPS system is being sold by the appellant. In such a scenario, the inclusion of the value of the batteries has been correctly adopted by the adjudicating authority. The learned DR also supports the reasoning of the adjudicating authority that conducting of investigations in the year 1987 by itself cannot debar the Revenue from invoking the longer period of limitation inasmuch as the subsequent investigations conducted in the year 1991 resulted in revealing of presence of a relationship between the two.
8. After considering the submissions made by both the sides, we find that admittedly the appellant is only manufacturing static converters and is selling majority of the same to Vistar. The said Vistar was incorporated in the year 1984 whereas the appellant-company was floated in 1986. As such to conclude that a related company was born much before the main company, with an intention to dilute the assessable value of the goods manufactured by the appellant, does not seem to be just and proper. The Commissioner in his impugned order has repeatedly observed that Vistar being a marketing company, is only an extension of the main company. It is not understood as to when the main company was not in existence in the year 1984, how an extension can be created. It is also seen that two of the directors in the appellant-company resigned from the board of directors by August, 1986. As such it is only two directors, V.G. Chapekar and H.P. Joshi, who were common directors in the two companies during the relevant period. The entire marketing was being done by Vistar, who also gave guarantees and provided after-sales services such as installation commissioning etc. Reference and reliance to some of the correspondence with the two companies indicating that the appellant gave some guarantee to the bank for procurement of loans or showing some transfers of money from the overdraft facility of Vistar to the appellant are all factors of common business relationship and normal commercial transaction and would not indicate mutuality of interest between the two.
9. We also find force in the appellant's contention that identical proceedings initiated against D.B. Electronics were dropped by the Commissioner holding that Vistar cannot be held to be related person of D.B. Electronics and the value of the battery cannot be included in the value of the converters. Revenue's appeal against the said order was rejected by the Tribunal as reported in C.C.E. v. D.B. Electronics Pvt. Ltd. 2000 (126) E.L.T. 1017. It was observed in the said decision that the allegation of relationship between two companies is not sustainable and the payment of duty has to be determined with reference to manufacture and removal from D.B. Electronics. It was also held that value of the batteries cannot be included in the assessable value of the UPS system where the same were sold by Vistar after purchasing the batteries from the open market. It was only in those cases where UPS system was cleared by D.B. Electronics along with batteries that the value of batteries has to be included in the value of UPS system.
10. By adopting the ratio of the above decision, we hold that Vistar cannot be held to be related person with the appellant and the value of the batteries cannot be included in the value of the static converters manufactured by the appellant wherever they have been purchased by Vistar and supplied independently to the buyers. This was also the law declared by the Tribunal in the case of C.C.E. v. A.Z. Electronics laying down that battery not manufactured by the assessee but only arranged to be supplied to buyers of uninterrupted power supply (UPS) as a trading activity cannot be held to be includable in the assessable value. To the same effect was the Tribunal's decision in the case of Siemens Ltd. v. C.C.E. 2002 (150) E.L.T. 422 (T). As such we hold that the value of the battery is not to be treated as clearances from appellant unit. As a result, the appellant unit would be entitled to the benefit of small scale exemption inasmuch as the same was denied only on account of enhancement of the clearance value on account of the above two factors and there is nothing on record to show that otherwise also the appellant had exceeded the limit and was not entitled to the benefit.
11. Apart from holding in favour of the appellant on merits, we also note that the demand is hopelessly barred by limitation. The adjudicating authority has stated in his impugned order that investigations to examine the relationship between the two units were conducted in the year 1987 and statements of the directors as also the other persons were recorded during such investigations. Apparently, the department was satisfied about the independent identity of the two units and no further proceedings by way of issuance of show cause notice were initiated. We also take note of the Assistant Commissioner's order passed in the year 1999, dropping the charges oh the ground of inclusion of value of batteries in the assessable value of converters. As such it can be safely concluded that the Revenue was in knowledge of the existence of the two units and their constitution right from the beginning and the appellant cannot be said to have suppressed or misdeclared any facts with intent to evade payment of duty. In such a case, invocation of longer period of limitation against the appellant is not justified. Accordingly, we hold that the demand is also barred by limitation.
12. In view of the foregoing, we set aside the demand as also confiscation and imposition of penalty upon the appellant, and allow the appeal with consequential relief to the appellant.