Custom, Excise & Service Tax Tribunal
M/S. Goldjyoti Polymers vs Commissioner Of Central Excise & S.T., ... on 12 May, 2015
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad Appeal No. : E/638-641/2011, E/10897-10900/2013, E/11056-11067/2014 (Arising out of OIO-01/OA/VAPI/2011 dated 10.01.2011, OIO-02/MP/VAPI/2011 dated 17.01.2011, OIA-SRP/299-300/VAPI/2012-13 dated 07.03.2013 and OIA-VAP-EXCUS-000-APP-416-419-13-14 dated 30.12.2013, Passed by Commissioner/ Commissioner (Appeals) Central Excise, Service Tax & Customs, Ahmedabad/ Vapi) M/s. Goldjyoti Polymers : Appellant (s) Shri Premji V. Bhanushali VERSUS Commissioner of Central Excise & S.T., Vapi : Respondent (s)
Represented by :
For Appellant (s) : Shri K.S.V. Ravishankar & Shri N. Anand, Advocates For Respondent (s) : Shri K. Sivakumar, Authorised Representative For approval and signature :
Mr. P.K. Das, Hon'ble Member (Judicial) Mr. H.K. Thakur, Hon'ble Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
No 3 Whether their Lordships wish to see the fair copy of the Order?
Seen 4 Whether Order is to be circulated to the Departmental authorities?
Yes CORAM :
Mr. P.K. Das, Hon'ble Member (Judicial) Mr. H.K. Thakur, Hon'ble Member (Technical) Date of Hearing : 21.04.2015 Date of Decision : 12.05.2015 ORDER No. A/10572-10591/2015 dated 12.05.2015 Per : Mr. H.K. Thakur;
These appeals have been filed by appellants M/s. Goldjyoti Polymers (Unit No. I and Unit No. III) and its partners against two OIO Nos. 01/OA/VAPI/2011 dated 10.01.2011 and 02/MP/VAPI/2011 dated 17.01.2011, passed by Commissioner of Central Excise and Customs, Vapi and different Orders-in-Appeal passed by first appellate authority. Appellant Shri Premji V. Bhanushali is the partner of appellant M/s. Goldjyoti Polymers. Both sides agreed that the issue involved in all the Orsder-in-Original passed by the low Adjudicating authority is the same, therefore all these appeals are being taken up together for disposal.
2. Shri K.S.V. Ravi Shankar (Advocate) and Shri N. Anand (Advocate) appeared on behalf of the appellants. It was argued by Shri K.S.V. Ravi Shankar that both Unit No.I & III of M/s. Goldjyoti Polymers are selling their manufactured goods (HDPE/ PP Bags) to, inter-alia, two Interconnected Undertakings (ICUs) M/s. Goldcoin Polypack Pvt. Limited, established in 1985 and M/s. Canon Laminators Pvt. Limited also established in 1985. That in addition to the sales to these ICUs, appellants are also selling about 30% of their sales to independent customers like M/s. Chambal Fertiliser and Chemicals Limited, M/s. Zuari Industries etc. Learned advocate made the bench go through the partners/ shareholders of the appellants and ICUs which are admitted by the appellants to be related persons as per Section 4 of the Central Excise Act, 1944. That adjudicating authority has examined the provisions of Rule 9, 10 and 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (Valuation Rules for short) and Section 4 of the Central Excise Act, 1944 to hold that even if provisions of Rule 9 and 10 are not strictly applicable, still by virtue of Rule 11, the valuation has to be done as per Rule 10 of the Valuation Rules. Learned Advocate also made the bench go through the provisions of Section 4(1) and 4(3) of the Central Excise Act, 1944. He also read the provisions of Rule 9 and 10 as existed in Valuation Rules, 2000 as issued under original Notification No. 45/2000-Central Excise (NT) dated 22.11.2013. That as per Rule 10 of the Valuation Rules the sales of 100% goods manufactured by an assessee should be sold through the related person (ICUs in appellants case). It was his case that in addition to the entire sales through related person the conditions specified in Section 4(3) (b) (ii) or (iii) or (iv) should also be satisfied. That the word relative/ relatives used in Section 4(3) (b) of the Central Excise Act, 1944 has to be read in the light of Section 2(41) and Section 6 of the Companies Act, 1956 as interpreted by the Courts. That the findings recorded in Para 20 of the OIO were never disclosed in the show cause notice. That the concept of relative under Section 4(3) (b) (ii) and (iii) are not applicable to ICUs especially when the goods manufactured by appellants are also sold to independent buyers and also at times the price, at which the goods sold to independent buyers, is higher than the price at which related persons sell the goods to independent buyers. Learned Advocate also argued that the demands for extended period are not sustainable, as it is an interpretational issue, in the light of various judicial pronouncements and there can not be any intention to evade any duty. He relied upon the following case laws in support of his contentions:-
(a) Alembic Glass industries Limited vs. CCE [2002 (143) ELT 244 (SC)]
(b) UOI vs. Atic Industries Limited [1984 (17) ELT 323 (SC).]
(c) CCE vs. Bharti Telecom Limited 2008 (226) ELT 3 (SC).]
(d) Sanjay Bahadur vs. CCE [2009 (240) ELT 282 Tri. Mum.)]
(e) Chennai Petroleum Corporation Limited vs. CCE [2009 (240) ELT 372 (Tri. Che.)]
(f) Pankaj Kasturi Herbals India Limited vs. CCE [2010 (250) ELT 559 (Tri. Bang.)]
(g) Llyods Metals & Engineers Limited vs. CCE [2008 (222) ELT 84 (Tri. Mum.)]
(h) Reliance Industrial Products vs. CCE [2012 (276) ELT 107 (Tri. Mum.)
(i) Vinny Overseas Pvt. Limited vs. CCE [2009 (245) ELT 759 Tri. AHmd.)]
(j) Victory Paper & Boards (I) Limited vs. CCE [2007 (217) ELT 212 (Tri. Bang.)]
(k) Sree Nirmal Spinners vs. CCE [2014 (300) ELT 469 (Tri. Che.)] 2.1 It is also the case of the appellants that commonality of Directors/ Partners cannot be the ground to hold that buyer and Seller are related, in view of the following case laws:-
(a) Alembic Glass industries Limited vs. CCE [2002 (143) ELT 244 (SC)]
(b) CCE vs. Superior Products [2008 (230) ELT 3 (SC).]
(c) CCE vs. Besta Cosmetics Limited [2005 (183) ELT 132 (SC)] 2.2 That demands beyond one year are time barred as extended period is not invokable.
3. Shri K. Sivakumar (AR) appearing on behalf of the Revenue argued that adjudicating authority has not held that Rule 10 is applicable but has held that by virtue of Rule 11 of the Valuation Rules, the appropriate Rule applicable, mutatis mutandis, will be Rule 10(a). Learned AR made the Bench go through Para 23.4 of the Order-in-Original No. 01/OA/VAPI/2011 dated 10.01.2011 to drive home the point that appellants are related persons. He also relied upon the judgment of Apex Court in the case of Calcutta Chromotype Limited vs. CCE, Calcutta [1998 (99) ELT 202 (SC)] to argue that courts can lift the corporate veil to find out the true nature of transaction and relationships. He also made the Bench go through Para 14 of the law laid down by the Apex Court in the case of Calcutta Chromotype Limited vs. CCE (supra). That adjudicating authority by tabulating the partners and extent of their shareholdings in Para 21.1 of the adjudication order dated 10.01.2011 17.01.2011, has correctly held in Para 21.5 that the persons behind the inter-connected undertakings are deemed relatives in a manner as specified in Schedule 1A of Section 6 and as defined in Section 2 (41) of the Companies Act, 1956.
4. Heard both sides and perused the case records. The issue involved in these proceedings is as to whether Valuation of the HDPE/ PP Bags manufactured by the appellants sold through related person, as inter-connected undertakings, can be made under Rule 11, read with Rule 10(a) of the Valuation Rules, 2000 as they existed prior to 01.12.2013.
4.1 Section 4(1) and (2) of the Central Excise Act, 1944 reads as follows:-
SECTION 4. Valuation of excisable goods for purposes of charging of duty of excise. (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall
(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;
(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
(3) For the purpose of this Section -
(a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent;
(b) persons shall be deemed to be related if
(i) they are inter-connected undertakings;
(ii) they are relatives;
(iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or
(iv) they are so associated that they have interest, directly or indirectly, in the business of each other.
Explanation. In this clause
(i) inter-connected undertakings means two or more undertakings which are inter-connected with each other in any of the following manners, namely:-
(A) if one owns or controls the other;
(B) where the undertakings are owned by firms, if such firms have one or more common partners;
(C) where the undertakings are owned by bodies corporate,-
(I) if one body corporate manages the other body corporate; or (II) if one body corporate is subsidiary of the other body corporate;
Or (III) if the bodies corporate are under the same management; or (IV) if one body corporate exercise control over the other body corporate in any other manner;
(D) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm,-
(I) hold, directly or indirectly, not less than fifty per cent. Of the shares, whether preference or equity, of the body corporate; or (II) exercise control, directly or indirectly, whether as Director or otherwise, over the body corporate.
(E) if one is owned by a body corporate and the other is owned by a firm having bodies corporate as its partners, if such bodies corporate are under the same management;
(F) if the undertakings are owned or controlled by the same person or by the same group;
(G) if one is connected with the other either directly or through any number of undertakings which are inter-connected undertakings within the meaning of one or more of the foregoing sub-clauses.
4.2 Rule 9, 10 and 11 of the Valuation Rules, 2000 read as follows before their amendment under Notification No. 14/2013-CE (NT) dated 22.11.2013:-
RULE 9. When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of Section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail :
Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in rule 8.
RULE 10. When the assessee so arranges that the excisable goods are not sold by him except to or through an inter-connected undertaking, the value of goods shall be determined in the following manner, namely :-
(a) If the undertakings are so connected that they are also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9.
Explanation. - In this clause "holding company" and "subsidiary company" shall have the same meanings as in the Companies Act, 1956 (1 of 1956).
(b) in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of Section 4.
RULE 11. If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of Section 4 of the Act. 4.3 It is primarily the case of the appellants that inter-connected undertakings, when read with the relevant provisions of Companies Act, 1956, can not be relatives of each other as per Section 4(3) (b) (ii) of Central Excise Act, 1944 and thus valuation of the goods sold through inter-connected undertaking can only be done as per transaction value of goods sold to independent buyers under Section 4(1) of the Central Excise Act, 1944. Appellants relied upon several judgments, including of those of Apex Court to argue that inter-connect undertakings are not relatives. It is observed from the relied upon case laws that law laid down by Apex Court in Alembic Glass Industries Limited vs. Collector of Central Excise & Customs (supra) and UOI and Others vs. Atic Industries Limited (supra) was with respect to related person concept under the old Section 4 of the Central Excise Act, 1944, on the basis of mutuality of interest, when concept of Inter-connected Undertakings as related person was not existing in Section 4. Secondly, mutuality of interest has not been put into service by the Revenue in this case. Thirdly, appellants are not disputing that they are not related person. Fourthly, a Rule like Rule 10 of the Valuation Rules was not required to be interpreted by the Honble Apex Court. In the present case, Revenue has made its case on the grounds that the appellants and the other inter-connected undertakings are such that they have become relatives as per Section 4(3)(b)(ii) as mentioned in Rule 10 (a) of the Valuation Rules. The relied upon case laws are, therefore, different on facts and cannot be made applicable in the present set of facts and circumstances.
4.4 Learned Authorised Representative has correctly relied upon the Apex Court judgment in the case of Calcutta Chromotype Limited vs. CCE, Calcutta [1998 (99)ELT 2002 (SC)] to argue that facts of each case to be examined independently to come to a conclusion as to how they are related. Para 14 of this case law is relevant and reads as follows:-
14. In M/s. Mcdowel and Company Ltd. v. Commercial Tax Officer [(1985) 3 SCC 230 = (1985) 154 ITR 148], this Court examined the concept of tax avoidance or rather the legitimacy of the art of dodging tax without breaking the law. This Court stressed upon the need to make a departure from the Westminster principle based upon the observations of Lord Tomlin in the case of IRC v. Duke of Westminster [(1936) AC 1] that every assessee is entitled to arrange his affairs as to not attract taxes. The Court said that tax planning may be legitimate provided it is within the framework of law. Colourable devices, however, cannot be part of tax planning. Dubious methods resorting to artifice or subterfuge to avoid payment of taxes on what really is income can today no longer be applauded and legitimised as a splendid work by a wise man but has to be condemned and punished with severest of penalties. If we examine the thrust of all the decisions, there is no bar on the authorities to lift the veil of a company, whether a manufacturer or a buyer, to see it was not wearing that mask of not being treated as related person when, in fact, both, the manufacturer and the buyer, are in fact the same persons. Under sub-section (1) of Section 4 of the Act, value of the excisable goods shall not be deemed to be normal price thereof, i.e., the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, if the buyer is a related person and price is not the sole consideration for sale. As to who is a related person, we have to see its definition of Section 4(4)(c) of the Act. It is not only that both, the manufacturer and the buyer, are associated with each other for which corporate veil may be lifted to see who is behind it but also that they should have interest, directly or indirectly, in the business of each other. But once it is found that persons behind the manufacturer and the buyer are same, it is apparent that buyer is associated with the manufacturer, i.e., the assessee and then regard being had to the common course of natural events, human conduct and public and private business it can be presumed that they have interest, directly or indirectly, in the business of each other (refer Section 114 of the Evidence Act). It is, however, difficult to lay down any broad principle to hold as to when corporate veil should be lifted or if on doing that, could it be said that the assessee and the buyer are related persons. That will depend upon the facts and circumstances of each case and it will have to be seen who is calling the shots in both the assessee and the buyer. When it is the same person the authorities can certainly fall back on the third proviso to clause (a) of Section 4(1) of the Act, to arrive at the value of the excisable goods. It cannot be that when the same person incorporates two companies of which one is the manufacturer of excisable goods and other is the buyer of those goods, the two companies being separate legal entities, the Excise authorities are barred from probing anything further to find out who is the person behind these two companies. It is difficult to accept such a narrow interpretation. True that shareholdings in a company can change but that is the very purpose to lift the veil to find out if the two companies are associated with each other. Law is specific that when duty of excise is chargeable on the goods with reference to its value than the normal price on which the goods are sold shall be deemed to be the value provided (1) the buyer is not a related person and (2) the price is the sole consideration. It is a deeming provision and the two conditions have to be satisfied for the case is to fall under clause (a) of Section 4(1) keeping in view as to who is the related person within the meaning of clause (c) of Section 4(4) of the Act. Again if the price is not the sole consideration, then again clause (a) of Section 4(1) will not be applicable to arrive at the value of the excisable goods for the purpose of levy of duty of excise. From the above, it is evident that excise authorities are not barred from probing to find out the persons behind the companies who are calling the shots to know when Section 4(1)(a) of the Central Excise Act, 1944 will not be applicable.
4.5 In the present case adjudicating authority in Paras 21 and 21.1 of the OIO No. 01/OA/Vapi/2011 dated 10.01.2011- 17.01.2011 has analysed the persons behind the appellants and the other inter-connect undertakings. It is also observed from the statement dated 06.5.2009 of Shri Premji V. Bhanushali that he is actively looking after all the day to day affairs of the appellants. Further, in answer to Q. NO.3, in Para 6.1 of the order-in-original dated 10.1.2011- 17.1.2011, Shri Premji V. Bhanushali has admitted that M/s. Gold Coin Polypact Pvt. Limited, Mumbai and M/s. Canon Laminators Pvt. Limited, Mumbai are their trading firms and controlled by him and his brother Kanji Bhanushali.
4.6 It is the case of the appellants that only biological persons can be relatives and not inter-connected undertakings. In this regard Learned Advocate appearing on behalf of the appellants made the Bench go through Section 2(41) and Section 6 of the Companies Act, 1965, which are reproduced below:-
(41) relative means, with reference to any person, any one who is related to such person in any of the ways specified in Section 6, and no others. Meaning of relative
6. A person shall be deemed to be a relative of another if, and only if, -
(a) they are members of a Hindu undivided family; or
(b) they are husband and wife; or
(c) the one is related to the other in the manner indicated in Schedule IA. 4.7 It is observed that as per Section 6(c) of the Companies Act, all the possible relations in a family are listed and covered in Schedule IA of the Companies Act, 1956. In spite of this, under Section 6(a) and (b) of the Companies Act, 1956 husband and wife and members of Hindu undivided family (HUF) are again mentioned. Legislature by virtue of its knowledge of the facts is aware of all the judicial pronouncements made by the Courts and has chosen to include sub-section (ii) and (iii) of Section 4(3) (b) and Rule 10(a) of the Valuation Rules. The entire Rule 10 is made for inter-connection undertakings. It is a well accepted legal preposition that legislation does not use any word without assigning a meaning and each word has to be accorded an appropriate meaning by respecting the wisdom of the legislature. By mentioning sub-clause (ii) or (iii) of Section 4(3) (b) of the Central Excise Act, 1944 and in Rule 10(a) of the Valuation Rules, it has to be understood that in the case of inter-connection undertakings also relationships of the inter-connection undertakings mentioned in Section 4(3) (b) (ii) or (iii) of the Central Excise Act, 1944 are possible. In the present proceedings, it has been clearly brought out by the Revenue that the persons who are calling the shots in the case of the appellants and the interconnected undertakings are relatives hence by virtue of express language of Rule 10(a) of the Valuation Rules the appellants will be held to be related. Adjudicating authority in Para 23.3 and 23.4 of the order-in-original dated 10.1.2011 17.1.2011 has held that in the present proceedings Rule 11 of the Valuation Rules is put into service according to which for determining value Rule 10(a) falls within reasonable norms. In the case of Sharda Synthetics Bombay (P) Limited vs. UOI [2006 (205) ELT 49 (Bom.)], Bombay High Court in Para 60 and 61 (reproduced below) held that while interpreting statutes, object of the statute are to be kept in mind:-
60. A statute as is well-known must be interpreted? having regard to the purpose and object which it seeks to achieve. In Associated Timber Industries and Others v. Central Bank of India, (2000) 7 SCC 93, while considering the provisions of the Bombay Money Lenders Act vis-a-vis the provisions of other Act upon a purposive and meaningful interpretation held that the banks do not come under the purview of the Assam Money Lenders Act.
61. The Court while interpreting the provisions of a? statute, although, is not entitled to re-write the statute itself, is not debarred from ironing out the crease. The court should always make an attempt to uphold the rules and interpret the same in such a manner which would make it workable. A similar view was expressed by the Apex Court in the case of Corporation Bank vs. Saraswati Abhransala [2009 (233) ELT 3 (SC)] in Para 25 reproduced below:-
25.?Furthermore the Notification having been given a retrospective effect must be construed on the touchstone of the purpose and object it sought to achieve. Principle of purposive construction should be applied in a case of this nature to find out the object of the Act. When a statute cannot be considered in such a manner which would defeat its object, the legislature is presumed to be aware of the consequences flowing therefrom. The statute should be considered in such a manner so as to hold that it serves to seek a reasonable result. The statute would not be considered in such a manner so as to encourage defaulters and discourage those who abide by the law. 4.8 In view of the above observations and settled proposition of law, we do not find any reason to interfere with the orders passed by the lower authorities and the same are upheld on merits.
5. Appellant have also raised the issue of time bar with respect to applicability of extended period in some of the demands and also argued that penalties are not imposable as there is no intention to evade duty. It is observed from the case records that issue involved in these proceedings was a contentious one and appellant had certain judicial pronouncements on the interpretation of Section 4 of the Central Excise Act, 1944 with respect to related persons. Under the existing factual matrix of facts, it can not be held that there was any intention on the part of the appellants to evade payment of duty. Accordingly, extended period is not invokable to the demands and no penalties are imposable upon the appellants. Demands have to be thus limited to the period under Section 11A of the Central Excise Act, 1944 without invoking extended period.
6. Appeals filed by the appellants are allowed only to the extent indicated in Para 5 above.
(Pronounced in the open Court on 12.05.2015) (P.K. Das) (H.K. Thakur) Member (Judicial) Member (Technical) ..KL 2