Custom, Excise & Service Tax Tribunal
Shri Sanjay Agrawal, Chairman & M.D vs Cce, Indore on 18 June, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. I DATE OF HEARING/DECISION : 18/06/2014. Excise Appeal Nos. 2536-2537 and 2725 of 2001 [Arising out of the Adjudication Order No. 19/COMMR/IND/2001 dated 31/08/2001 passed by The Commissioner, Customs & Central Excise, Indore.] For Approval and signature : Honble Shri Justice G. Raghuram, President Honble Shri Rakesh Kumar, Member (Technical) 1. Whether Press Reporters may be allowed to see : the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it would be released under Rule 27 of : the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? M/s Inter Metal Trade Ltd. ] Shri Sanjay Agrawal, Chairman & M.D. ] Appellants M/s Indo Zinc Limited ] Versus CCE, Indore Respondent
Appearance Shri L.P. Asthana and Ms. Tuhina Sinha, Advocates for the appellants.
Shri Yashpal Sharma, Authorized Representative (DR) for the Respondent.
CORAM : Honble Shri Justice G. Raghuram, President Honble Shri Rakesh Kumar, Member (Technical) Final Order No. 52756-52758/2014 Dated : 18/06/2014 Per. Rakesh Kumar :-
The facts leading to filing of these appeals are, in brief, as under.
1.1 M/s Indo Zinc Limited (hereinafter referred to as IZL), Pithampur, Distt. Dhar, M.P. are a manufacturer of zinc ingots, secondary zinc ingots and zinc metal residue. Shri Sanjay Agrawal is the Chairman and Managing Director of M/s Indo Zinc Limited and while Shri Manoj Agrawal the brother of Shri Sanjay Agrawal is the Joint Managing Director, Shri Rajendra Agrawal and Shri Narendra Agrawal also brothers of Shri Sanjay Agrawal, are the other Directors of the company. M/s Inter Metal Trade Ltd. (hereinafter referred to as IMTL) is another group company engaged in trading of the zinc metal and its Directors are Shri Narendra Agrawal, Mrs. Kaila Devi, mother of Shri Sanjay Agrawal, Mrs. Kalpana Agrawal w/o Shri Narendra Agrawal, Mrs. Neena Agrawal w/o Shri Sanjay Agrawal and Mrs. Ritu Agrawal w/o Shri Majoj Agrawal, all of them have 20% share holding. The period of dispute in this case is from 1995-1996 to 1998-1999. During the period of dispute, heading 7901 of the Central Excise Tariff covered unwrought zinc and this zinc, when not alloyed, was required to be of not less than 97.5% purity, as in terms of sub-heading note to Chapter 79, the zinc, non-alloyed in this chapter means the metal containing by weight at least 97.5% zinc. The alloyed zinc must contain not less than 94% by weight of zinc. Heading 26.20 of the Tariff covered slag, ash and residue (other than from manufacture of iron and steel) containing Arsenic, metals or their compounds and accordingly this heading covered zinc residue also. It is not in dispute that the appellant during the period of dispute were manufacturing prime quality zinc ingots, zinc ingots (secondary) and also the zinc metal residue.
1.2 Sometime in October 1998, the Jurisdictional Central Excise officers conducted inquiry in course of which they found that IZL had sold zinc metal residue to IMTL who, in turn, had sold the same to M/s Vishal Pipes Ltd., Sikandrabad; M/s Agrawal Tubes, Muzzafar Nagar, U.P. and M/s Nilkanth Tubes, Bahadur Garh, Haryana at higher prices ranging from Rs. 52/- per kg. to Rs. 70/- per kg. On inquiry with M/s Vishal Pipes Ltd., M/s Agrawal Tubes and M/s Nilkanth Tubes it appeared that these firm had purchased zinc ingots and not zinc metal residue, as Shri Manoj Agrawal, Director, M/s Nilkanth Tubes in his statement dated 15/12/98, and Shri Pawan Kumar, Director of M/s Agrawal Tubes in his statement dated 15/12/98 stated that they had always purchased zinc ingots from M/s IMTL while the invoices issued by IZL to IMTL mentioned in the description of the goods as zinc (metal residue). In respect of the zinc metal residue cleared by IZL to IMTL, the classification of the goods in the invoices was shown under heading 26.20 and the duty was paid @ 8% ad-valorem or 10% ad-valorem instead of 15% ad-valorem applicable to the zinc ingots. In this regard, statement of Shri Ashok Singh, Manager IZL was also recorded wherein he stated that IZL had sold only zinc ingots to IMTL, but in the invoices, on the instructions of Shri Sanjay Agrawal, the description of the goods was mentioned as Zinc metal residue. It, therefore, appeared that M/s IZL had cleared prime quality zinc ingots in the guise of zinc Metal Residue and by this modus operandi, they had evaded the duty amounting to Rs. 25,73,500/- during period from 1995-1996 to 1998-1999.
1.3 The other allegation against M/s IZL is that during the period from 1995-1996 to 1998-1999 they have also evaded duty by under valuation in as much as they have not declared the fact that they had made substantial sales to their related person M/s IMTL and while they were selling the zinc ingots to M/s IMTL who, in turn, were selling the same at much higher price to independent buyers, the duty had been paid by M/s IZL at their sale price to M/s IMTL. The duty evasion alleged on this basis during the period 1995-1996 to 1998-1999 is Rs. 7,74,218/-.
1.4 On the basis of the above investigation, a show cause notice was issued to M/s IZL, M/s IMTL and Shri Sanjay Agrawal for
(a) recovery of short paid duty amounting to Rs. 25,73,500/- and Rs. 7,74,218/- from M/s IZL for the period from 1995-1996 to 1998-1999 alongwith interest thereon under Section 11AB ;
(b) imposition of penalty on M/s IZL under Section 11AC;
(c) imposition of penalty under Rule 209A of Central Excise Rules, 1944 on M/s IMTL and Shri Sanjay Agrawal ; and
(d) confiscation of land, building, plant and machinery of M/s IZL under Rule 173Q (2) of Central Excise Rules, 1944.
1.5 The above show cause notice was adjudicated by the Commissioner vide order-in-original dated 31/08/01 by which
(a) The above-mentioned duty demands were confirmed against M/s IZL alongwith interest thereon under Section 11AB ;
(b) penalty of Rs. 32,20,818/- was imposed on M/s IZL under Rule 173Q (1) of Central Excise Rules, 1944 readwith Section 11AC of Central Excise Act, 1944 ;
(c) penalty of Rs. 5,00,000/- each was imposed under Rule 209A of Central Excise Rules, 1944 on M/s IMTL and Shri Sanjay Agrawal ; and
(d) land, building, plant and machinery of M/s Indo Zinc Limited was ordered to be confiscated with option to be redeemed on payment fine in lieu of confiscation of Rs. 3,00,000/-.
1.6 IZL, IMTL and Shri Sanjay Agrawal filed appeals to the Tribunal against the above order of the Commissioner. The Tribunal vide final order No. 187-89/2005-B dated 06/01/2005 set aside the Commissioners order in toto and allowed the appeals with consequential relief. The Tribunal in this order set aside the duty demand based on the allegation of mis-declaration of prime quality zinc ingots as zinc metallic residue observing that there is absolutely no evidence to show that M/s IZL cleared prime quality zinc ingots to M/s IMTL which, in turn, had been sold by M/s IMTL to their customers and on the basis of mere description of the goods by the trading company - M/s IMTL as zinc ingots in the invoices issued to their buyers, it cannot be inferred that prime quality zinc ingots were cleared by IZL to IMTL by mis-declaring the same as zinc metal residue. The Tribunal has also observed that firstly, the cross-examination of Shri Ashok Singh of M/s IZL, Shri Pawan Kumar of M/ Agrawal Tubes and Shri Manoj Agrawal of M/s Nilkanth Tubes was not allowed to M/s IZL who wanted to cross check the veracity of the statements which had been recorded at their back and secondly Shri Ashok Singh in his statement has nowhere stated that zinc metallic residue was not manufactured by IZL. With regard to the allegation of duty evasion by under valuation, the Tribunal observed that even if M/s IZL and M/s IMTL are treated as related persons, the transactions between them do not get tainted for the reason that only a part of the sale of M/s IZL were through M/s IMTL and substantial sales of the same goods were to independent buyers also.
1.7 The Department filed an appeal to Honble Supreme Court against the above-mentioned judgment of the Tribunal. The Apex court vide order dated 14/02/09 remanded the matter to the Tribunal for fresh denovo consideration of the entire matter in accordance with law. In this regard, the order of the Apex court is reproduced below :-
Having gone through the impugned judgment, we find that in these cases the differential duty was claimed by the Department on two grounds, namely, undervaluation and clandestine removal. As far as undervaluation is concerned, the Tribunal has not examined the percentage of sales to unrelated buyers. According to the assessee the entire material was placed in that regard before the Commissioner, but unfortunately the Tribunal has not considered that material while deciding the question of undervaluation. On the second ground of clandestine removal, the case of the Department is that zinc ingots were removed at the time of clearance in the guise of zinc metallic residue. This issue has also not been gone into by the Tribunal.
For the aforestated reasons, we set aside the impugned judgment of the Tribunal dated 6th January 2005 and remit the matters to the Tribunal for fresh denovo consideration of the entire matter in accordance with law.
Departments Civil Appeals are accordingly allowed with no order as to costs.
Accordingly, the matter was taken up for denovo decision.
2. Heard both the sides.
3. Shri L.P. Asthana, Advocate, and Ms. Tuhina Sinha, Advocate, the learned Counsels for the appellants, pleaded that M/s IZL during the period of dispute were manufacturing prime quality zinc ingots, zinc ingots (secondary) and also zinc metallic residue, that the duty demand of Rs. 25,73,500/- for the period from 1995-1996 to 1998-1999 has been made in respect of clearances of zinc metallic residue during the above period by classifying the same under heading 26.20, by M/s IZL to IMTL, who, in turn, sold those goods to M/s Vishal Pipes Ltd., Sikandrabad, M/s Agrawal Tubes, Muzaffar Nagar and M/s Nilkanth Tubes, Bahadur Garh, Haryana, that the basis of the Departments allegation that the goods cleared by M/s IZL to M/s IMTL, which were ultimately sold to M/s Vishal Pipes Ltd., M/s Agrawal Tubes and M/s Nilkanth Tubes, were prime quality zinc ingots classifiable under heading 79.01 and not zinc metallic residue is the statement of Shri Ashok Singh, Manager of M/s IZL and also the statements of Shri Pawan Kumar, Director of M/s Agarwal Tubes and Shri Manoj Agrawal, Director of M/s Nilkanth Tubes, that while Shri Ashok Singh, Manager M/s IZL in his statement dated 11/3/99 has stated that they had sold only Zinc ingots to M/s Inter Metal Trade Ltd. but on the instructions of Shri Sanjay Agrawal, the description of the goods in the invoices was shown as zinc metallic residue, Shri Manoj Agrawal of M/s Nilkanth Tubes and Shri Pawan Kumar of M/s Agrawal Tubes in their respective statements have stated that they have only purchased zinc ingots from M/s Inter Metal Trade Ltd., that firstly no reliance can be placed on statements of these persons, as their cross-examination had been requested but the same was not allowed, that secondly it is not in dispute that at the time of officers visit to the factory of M/s IZL on 06/10/98, certain stock of zinc metallic residue had been found, that the zinc ingots would be classifiable under heading 79.01 only if the zinc content is 97.5% or more and if the zinc content is below 97.5% the goods would not be classifiable under this heading and as such there would be no short payment of duty, that there is nothing in the statements of Shri Ashok Singh of M/s IZL, Shri Manoj Agrawal of M/s Nilkanth Tubes or Shri Pawan Kumar of M/s Agrawal Tbes to indicate that the goods cleared by M/s IZL to M/s IMTL which, in turn, were sold to M/s Vishal Pipes Ltd., M/s Agrawal Tubes, M/s Nilkanth Tubes were prime quality zinc ingots of at least 97.5% purity, that in view of this, the duty demand of Rs. 25,73,500/- by classifying the goods, in question, cleared by M/s IZL to M/s IMTL under heading 7901 is without any basis and is not sustainable, as for classification of the goods under heading 79.01, the zinc content should be at least 97.5% while there is absolutely no evidence that the zinc, in question, was of at least 97.5% purity, that as regards the duty demand of Rs. 7,74,218/- on the basis of allegation of under valuation, the departments allegation that M/s IZL and M/s IMTL are related person is without any basis, that just because there is one common Director, the two companies cannot be treated as related person, that it is also admitted position that all the sales of M/s Indo Zinc Limited were not to or through the alleged related person M/s IMTL and, therefore, even if M/s IZL and M/s IMTL are treated as related persons, the provisions of Rule 6 (c) (iii) of the Central Excise Valuation Rules, 1975 cannot be invoked and in respect of sales to M/s IMTL the assessable value would be the price at which the goods were sold to independent buyers, that in fact, the price at which the goods were sold to M/s IMTL is the same as the price at which the same goods were sold to independent buyers and that in view of this the duty demand of Rs. 7,74,218/- based on the allegation of under valuation is without any basis.
4. Shri Yashpal Sharma, the learned DR, defended the impugned order by reiterating the findings of the Commissioner. He pleaded that M/s IZL had cleared zinc ingots in the guise of zinc metallic residue and this fact is clear from the statement of Shri Ashok Singh, Manager of M/s IZL and also from the statements of Shri Pawan Kumar, Director of M/s Agrawal Tubes and Manoj Agrawal, Director of M/s Nilkanth Tubes who have stated that they had purchased only zinc ingots from M/s IMTL and not zinc metallic residue, that the denial of cross examination of Shri Ashok Singh, Shri Pawan Kumar and Shri Manoj Agrawal has not vitiated the adjudication proceedings in any manner, that the goods cleared by M/s IZL to M/s IMTL which, in turn, were sold by them to M/s Vishal Pipes Ltd., M/s Agrawal Tubes, M/s Nilkanth Tubes were, in fact, prime quality zinc ingots classifiable under sub-heading 7901.10 and not zinc metallic residue of heading 26.20 and thus the allegation of duty evasion of Rs. 25,73,500/- by mis-declaration of description is on strong footing, more so, when Shri Ashok Singh, Manager of M/s IZL has stated in clear terms that only zinc ingots had been sold to M/s IMTL and on the instructions of Shri Sanjay Agrawal, the description of the goods in the invoices to M/s IMTL was mentioned as zinc metallic residue. With regard to the allegation of under valuation in respect of sales through related person, the learned DR pleaded that since Shri Agrawal is controlling both the companies M/s IZL and M/s IMTL in as much as while in M/s IZL, the other Directors are the real brothers of Shri Sanjay Agrawal, he himself being the Managing Director, in M/s IMTL, the Directors are a brother of Shri Sanjay Agrawal, his wife and his mother and wives of his brothers and hence the two companies have to be treated as related persons. In this regard he also pleaded that at the address of M/s Inter Metal Trade Ltd. there was no activity and all the business of M/s IMTL was being handled from the residential premises of Shri Sanjay Agrawal and this also shows that M/s IZL and M/s IMTL are related persons. He, therefore, pleaded that in respect of sales through M/s IMTL, it is the price at which the M/s IMTL sold the goods to the independent buyers which be the assessable value and not the price at which the goods were sold by M/s IZL to M/s IMTL. He accordingly pleaded that there is no infirmity in the impugned order passed by the Commissioner.
5. We have considered the submissions from both the sides and perused the records.
6. The first allegation against the appellant is that while in respect of sales of zinc to M/s IMTL, the description of goods was mis-declared as zinc metallic residue and were classified under heading 26.20, where the rate of duty is 8% ad-valorem/10% ad-valorem, the goods sold were actually prime quality zinc ingots classifiable under sub-heading 7901.10 attracting duty at higher rate of 15% ad-valorem. In this regard the evidence relied upon by the Department is -
(a) statement dated 11/3/99 of Shri Ashok Singh, Manager of M/s IZL, wherein he stated that M/s IZL had sold only zinc ingots to M/s IMTL but on the instructions of Shri Sanjay Agrawal, Managing Director, the description of the goods in the invoices was shown as zinc metallic residue ;
(b) statement dated 15/12/88 of Shri Pawan Kumar, Director M/s Agrawal Tubes, wherein he stated that they had purchased only zinc ingots from M/s IMTL ; and
(c) Statement dated 15/12/98 of Shri Manoj Agrawal, Director M/s Nilkanth Tubes, wherein he stated that their company had purchased the zinc in form of zinc ingots only from M/s IMTL and they have never purchased zinc metallic residue from them.
7. During the period of dispute heading 79.01 of Chapter 79 of the Central Excise Tariff covered unwrought zinc and while sub-heading 7901.10 covered zinc not alloyed, the heading 7901.20 covered the zinc alloys. The zinc ingots come under the unwrought zinc. In terms of sub-heading notes of Chapter 79, the expression zinc not alloyed means the metal containing by weight at least 97.5% of zinc and the expression zinc alloys means metallic substances in which zinc pre-dominates by weight over each of the other elements provided that total content by weight of such other elements exceeds 2.5%. In terms of the sub-heading notes to Chapter 79, zinc dust means the dust obtained by condensation of zinc vapor consisting of spherical particles which are finer than zinc powder and it must contain at least 85% by weight of metallic zinc. The goods, in question, on which the duty is sought to be demanded are not zinc dust but are alleged to be zinc ingots classifiable under heading 7901.10. But for classification under this sub-heading, the metal must contain at least 97.5% by weight of zinc. In this case, there is absolutely no evidence to show that the goods, in question, on which the duty demand has been raised, and which were cleared by M/s IZL to M/s IMTL, were zinc ingots of at least 97.5% purity. The statements of Shri Ashok Singh of M/s IZL, Shri Pawan Kumar of M/s Agrawal Tubes or Shri Manoj Agrawal of M/s Nilkanth Tubes do not throw any light on this aspect. All it has been stated by Shri Ashok Singh in his statement is that M/s IZL were selling only zinc ingots to M/s IMTL while Shri Pawan Kumar of M/s Agrawal Tubes in his statement has stated that they had purchased zinc ingots from M/s IMTL. The statement of Shri Manoj Agrawal does not indicate that he had purchased prime quality zinc ingots from M/s IMTL. No sample of the goods sold by M/s IZL to M/s IMTL was available or has been tested. When the criteria for classification of the goods under sub-heading 7901.10 is that the metal must contain at least 97.5% zinc and when in this regard there is absolutely no evidence, the duty demand based on classification of the goods under heading 7901.10 would not be sustainable. Moreover, we also find that the entire basis of the allegation is the statement of Shri Ashok Singh, Manager M/s IZL, Shri Pawan Kumar, Director M/s Agrawal Tubes and Shri Manoj Agrawal, Director M/s Nilkanth Tubes and while cross-examination of these persons had been requested the same was not allowed, which in view of judgment of Honble Delhi High Court in the case of Basudev Garg vs. CC reported in 2013 (294) E.L.T. 353 (Del.) and also in the case of J&K Cigarettes Ltd. vs. Collector reported in 2009 (242) E.L.T. 189 (Del.) is necessary. Since in accordance with the provisions of Section 9D (2) of Central Excise Act, 1944, the witnesses whose statement are sought to be relied upon by the Department were not examined by the Commissioner and thereafter offered for cross-examination, the statements of these persons cannot be relied upon as evidence, as there is no finding by the Commissioner that these witnesses are not available or are being prevented by the M/s IZL or IMTL from appearing before the adjudicating authority or on their appearance for cross-examination would involve expense and time which is not justified. Therefore, in our view, the duty demand based on the allegation of duty demand of Rs. 25,73,500/- which is based on the allegation of mis-declaration of the goods as zinc metallic residues is not sustainable.
8. The duty demand of Rs. 7,74,218/- is based on the allegation that M/s IZL and M/s IMTL are related persons and, therefore, in respect of sale of the goods through M/s IMTL, the duty should have been paid on the price at which the goods were sold by M/s IMTL to independent buyers, while M/s IZL have paid duty on their sale price to M/s IMTL, which has to be rejected, as the two are related persons. The basis of M/s IZL and M/s IMTL as being related persons is that the Directors of the two companies are Members of the same family and there was no activity at the address of M/s IMTL indicating that all the business of this company was being handled from the premises of Shri Sanjay Agrawal, Managing Director of M/s IZL. During the period of dispute Section 4 (3) (c) of the Central Excise Act, 1944 defined the expression related person according to which this expression means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor. The term holding company, subsidiary company and relative have the same meaning as in the Companys Act, 1956. M/s IZL and M/s IMTL who have only one common Director, cannot be said to be holding company and subsidiary company. There is absolutely no evidence to show that there was mutuality of the interest between them, as there is no evidence showing that one company was just dummy company or front for the other. In this case, no such inquiry had been made with each of the Director of the two companies on the point as to whether Shri Sanjay Agrawal was actually running both the companies and was having all pervasive control over their operations. Therefore, just on the basis that Directors of M/s IZL and M/s IMTL are from the same family or one Director is common or that there was little or no activity at the address of M/s IMTL, it cannot be said that the two are related persons in the sense that they have the interest, directly or indirectly, in the business of each other. Moreover in accordance with Rule 6 (C) of Central Excise Valuation Rules, 1975 which were in force during the period of dispute, only when an assessee so arranges that the excisable goods are generally not sold by him in course of whole sale trade except to or through a related person, the sale price in respect of sale to such related person is to be rejected and the assessable value is to be determined in terms of the provisions of Rule 6 (c). In this case, there is no dispute that entire sales of M/s IZL were not to or through M/s IMTL and there were substantial sales to independent buyers. In view of this, Rule 6 (c) of Central Excise Valuation Rules, 1975 could not be invoked and, as such, the entire basis of duty demand by treating the price at which the M/s IMTL sold the goods to independent buyers is incorrect. With regard to invoking Rule 6 (c) of Central Excise Valuation Rules, 1975 when the sales are to or through a related person, the percentage of sales of an assessee to or through related person is not relevant. For invoking this rule, what is relevant is as to whether entire sales are to or through related person and only in that case, this rule would be invokable and if there is some percentage of sales, however small the same may be, to independent buyers, it is the sale price to independent buyers which would be the assessable value in respect of sales to or through related person. In this case, there is no allegation that the sale prices of M/s IZL to independent buyers was higher than sale price to M/s IMTL.
8.1 Therefore neither the duty demand against M/s IZL is sustainable nor penalty on M/s IZL and their Director nor the confiscation of the land, building plant and machinery of M/s IZL under Rule 173Q (2) is sustainable.
9. In view of the above discussion, the impugned order is set aside. The appeals are allowed.
(Operative part of the order pronounced in the open court.) (Justice G. Raghuram) President (Rakesh Kumar) Member (Technical) PK ??
??
??
??
17