Customs, Excise and Gold Tribunal - Tamil Nadu
Supra Hi-Tech Electro Equipments (P) ... vs Commr. Of C. Ex. And Cus. on 6 January, 1997
Equivalent citations: 1997(93)ELT604(TRI-CHENNAI)
ORDER T.P. Nambiar, Member (J)
1. These are four appeals filed against the orders passed by the Collector of Central Excise (Appeals) wherein it was held that M/s. Supratronics (P) Ltd. is the related person of the appellant company. Accordingly duty demands were made against the appellants in the four appeals. In Appeal No. 5327/ the duty demanded is Rs. 36,212/- for the period December, 1993 to February, 1993. In Appeal No. 438/96 the duty demanded is Rs. 14,982.35 and the period involved is March, 1994. In Appeal No. 1557/96 the duty demanded is Rs. 30,402/- and the period of dispute is July, 1994. In Appeal No. 1724/96, the duty demanded is Rs. 1,05,104/- and the period involved is August, 1994 to December, 1994. Since common questions are involved in these four appeals and since the appellant is the same, we propose to dispose of these appeals by a common order.
2. The brief facts of the case are that the appellants are the manufacturers of Uninterrupted Power Supply (UPS) System and Voltage Stabilisers. They are selling major portion of their goods to M/s. Supratronics (P) Ltd. The case of the Department is that the appellant and M/s. Supratronics are having 2 common Directors and the majority of shares are held by these common Directors. The appellants were accordingly issued with 4 show cause notices in the above said cases proposing to demand the above mentioned duties for the periods mentioned supra.
3. The grounds on which the duty demands were made are that the appellants have sold the UPS System without including the value of the batteries, a bought out item, in the assessable value since the battery is an essential part of the System. Secondly it was alleged that the appellant and M/s. Supratronics (P) Ltd. having common Directors are related persons and in the context of Section 4(1)(a)(iii) of the Central Excises & Salt Act, 1944 and hence the assessable value of their products will be the value at which such goods are sold to the ultimate customers by M/s. Supratronics (P) Ltd. After the issue of show cause notices in all the 4 cases, the Assistant Collector confirmed the demand which was confirmed by the Collector (Appeals). It is against these 4 decisions passed by the Collector (Appeals) the above four appeals are filed.
4. As far as the first point is concerned, we have to find out whether the value of the batteries which are supplied by the appellant along with the UPS System are to be included in the assessable value. In this connection the learned Advocate Shri A.K. Ramachandran, stated that the value of the batteries supplied by the appellant to M/s. Supratronics (P) Ltd. is liable to be added to the assessable value in view of the fact that batteries are essential for the functioning of the UPS System. Therefore he fairly conceded that wherever the batteries are supplied by the appellants along with the UPS System they have no objection for loading the value of the same in the assessable value.
5. But he contended that where the batteries are supplied by M/s. Supratronics (P) Ltd. along with this UPS System, that price is not liable to be added. In this connection he pointed out that the main dispute is with respect to the fact that M/s. Supratronics (P) Ltd. is related person of the appellant. In this connection he pointed out that the only evidence which is relied on in the impugned orders to hold that they are the related persons is that in M/s. Supra Hi-tech Electro Equipments (P) Ltd., out of 5,000 total shares 3,370 shares are owned by Shri O. Padmanabhan and Shri T.J. Subhash who are the Directors of the said firm and the very same persons hold 120 shares out of the total of 150 shares of M/s. Supratronics (P) Ltd. He also pointed out that the adjudicating authority held that this firm i.e. M/s. Supratronics (P) Ltd. make bulk purchases from the appellant at lower price. He pointed out that these factors alone are not sufficient to hold that M/s. Supratronics (P) Ltd. is a related person of the appellant. In this connection he relied on several decisions.
6. But the learned SDR on the other hand contended before us that there is mutuality of interest between M/s. Supratronics (P) Ltd. as well as the appellant. He pointed out that M/s. Supratronics (P) Ltd. bought the goods at a much lower price from the appellant and sell it along with the battery. He also pointed out that in the appellant's firm out of 5,000 total shares 3,370 shares are owned by Shri O. Padmanabhan and T.J. Subhash who are also Directors of the said firm and these very same persons hold 120 shares out of a total of 150 shares of M/s. Supratronics (P) Ltd. He therefore pointed out that the dominant ownership of shares of both the firms lies in the hands of Shri O. Padmanabhan and Shri T.J. Subhash who are the common Directors of both the units. Hence he pointed out that there is mutuality of interest between the two firms. He also pointed out that the sales of M/s. Supratronics (P) Ltd. are at a lower price and the battery is an essential integral part of the UPS System. Therefore he pointed out that the picture which emerges from the above facts is that the purchase of battery by M/s. Supratronics (P) Ltd. and which is sold along with the UPS System manufactured by the appellant is a convenient arrangement made by the two firms. He therefore justified the decisions of the lower authorities.
7. We have considered the submissions of both the sides. The point to be determined is whether M/s. Supratronics (P) Ltd. is a related person of the appellant. In order to be a related person there must be a mutuality of interest between these two companies. It must also be shown that the appellant's company has an interest directly or indirectly in the business of M/s. Supratronics (P) Ltd. These are principles laid down in the decision reported in 1977 (1) E.L.T. (J 1) in the case of Hind Lamps Limited v. UOI which is relied on by the appellants.
8. The appellants have also relied on the decision of the Tribunal reported in 1989 (41) E.L.T. 287 in the case of International Computer India Mfg. Co. Ltd. v. Collector of Central Excise. In that particular decision at para 23 the Tribunal after referring to several other decisions of the Supreme Court and other High Courts, held as under :
23. We observe that in the present case also both ICIM & ICIL are limited companies and there is no evidence to show that the limited companies had any interest, direct or indirect, in the business of each other. There is no evidence on record to show that the U.K. holding company had influenced the price structure by using its levelage or that the prices of the two companies were so managed by the holding company that it favoured the operations in a manner that ICIL came out better off vis-a-vis ICIM. Direct or indirect interest in the business of each other between ICIL & ICIM has to be established before proviso (iii) of Section 4(1)(a) can be invoked. Nothing in this regard is on record nor any evidence has been placed before us to show that the two had direct or indirect interest in the business of each other.
9. Reliance was further placed on the decision of the Tribunal reported in 1991 (53) E.L.T. 152 in the case of Vivomed Labs (P) Ltd. v. Collector of Central Excise. In that particular case in para 6 at page 159 the Tribunal held as follows:
The details of the shareholders have also been given. It cannot be said that the shareholders in all these firms are the same group of persons so as to vest control with a single group of persons for all the units. In fact, it is also seen that the financing of the firms has been through separate application for loan from financial institutions like Maharashtra State Financial Corporation. The units also have been registered separately under the various Acts, like Income-tax Act, Sales Tax and separate Central Excise licences which have been granted after approval of the ground plan for the premises. No doubt, certain features are noticeable to show that Sami Khatib and Sohel Khatib have an over-all say in policy matters in the Medley Group of Companies. But that by itself may not be a criterion for clubbing the clearances of these firms because of the fact that the personnel discharging various functions, administration, production, in each of the firms, is not the same. There is also no conclusive evidence regarding financial flow back among these firms.
It is thus seen that in order to term M/s. Supratronics (P) Ltd. as the related person it must be shown that there is a mutuality of interest between these two firms and there is financial flow back, and that the appellant has an interest in the business of the other firm. There are no such materials brought out in this case except for the fact that in both the firms Shri O. Padmanabhan as well as Shri T.J. Subhash has got major shares. That by itself is not sufficient to hold that the appellant is a related person. The decisions relied on by the learned SDR in the cases reported in 1996 (82) E.L.T. 102 in the case of Supreme Engineering Works v. Collector of Central Excise, 1988 (34) E.L.T. 699 in the case of Sundri Surti Stores v. Collector of Central Excise and 1988 (34) E.L.T. 239 in the case of Prabhat Zarda Factory Ltd. v. Collector of Central Excise are not applicable to the facts of this case. Those decisions were decided with respect to the clubbing of the clearances of the two firms and in those cases there were evidences of financial flow back between the concerned firms as well as several other factors were available. Therefore the most important factor of financial flow back is absent in this case. In that view of the matter we are of the view that the mere fact of Shri O. Padmanabhan and Shri T.J. Subhash having got major shares in both the firms by itself is not sufficient to hold M/s. Supratronics (P) Ltd. is related person of the appellant. Accordingly we hold that this finding arrived at by the learned lower authorities are not in accordance with law and we set aside the same.
10. But it was contended before us by the learned SDR that the applicant had given a statement with respect to the sale of these goods to M/s. Supratronics as well as to other suppliers. He pointed out that with respect to the other suppliers very high price is charged by the appellant whereas with respect to M/s. Supratronics (P) Ltd. the price charged are very low. These factors were not examined by the adjudicating authority or by the Collector (Appeals) in detail. Therefore this statement furnished by the appellant in this appeal at Annexure-I is a relevant factor which should be taken into consideration for the purpose of coming to the conclusion as to whether the extra price charged from others is to be loaded to the assessable value and whether there is any extra commercial consideration shown to M/s. Supratronics (P) Ltd. by appellant. These are all factors which are required to be examined by the adjudicating authority and the learned Advocate Shri A.K. Ramachandran appearing for appellant also fairly conceded before us that the matter can be remanded to adjudicating authority to find out whether any extra commercial consideration has been shown by the appellant to M/s. Supratronics (P) Ltd. and to pass necessary orders in this behalf. He pointed out that he will satisfy the adjudicating authority in this behalf. However we find that this is a matter which is required to be examined by the adjudicating authority and for this purpose we hold that the matter has to be remitted back to the adjudicating authority in respect of the 4 show cause notices to consider this aspect of the case and to pass necessary orders in this behalf after granting an opportunity of hearing to the appellant and by observing the principles of natural justice.
11. We have also held that the evidence on record does not substantiate the plea of the Department that M/s. Supratronics is related person of the appellant. We have also held that whenever the appellant has removed the UPS System with battery, value of battery then alone is to be included in the assessable value.
12. During the course of hearing it was brought to our notice by the appellants that apart from the sales to M/s. Supratronics, the appellants were selling small percentage of the goods directly to some other dealers and users. The prices as shown in the comparative statement filed for the same range of products were higher than the price at which the goods were sold to M/s. Supratronics. In regard to the same, the learned DR pleaded that even these sales were routed through Supratronics the facts regarding the same are not on record. However, we observe that if the authorities find that the price offered to the other dealers are acceptable and found to satisfy the requirement laid down in Section 4, the authorities may consider adoption of the same for assessment of the goods. In case the said price is not acceptable, then the authorities can ascertain whether any extra consideration was shown by the appellants for sales to Supratronics for services rendered by them on behalf of the appellants and if that be so, then the extent of this extra consideration will have to be reckoned towards the assessable value.
13. In the light of the above observations the matter is remanded to the adjudicating authority to de novo adjudicate the same in the light of our observations made above. The appeals are disposed of in the above terms.