Customs, Excise and Gold Tribunal - Delhi
Albright Morarji And Pandit Ltd. vs Collector Of Central Excise on 16 September, 1986
Equivalent citations: 1987(28)ELT539(TRI-DEL)
ORDER D.C. Mandal, Member (T)
1. The facts of the case, in brief, are that the appellants had a Phosphoric .Acid plant at Ambarnath. They had also a factory at Roha for producing Sulphuric Acid of commercial grade and Oleum (20 per cent), which were required for captive consumption in their Ambarnath plant for manufacture of phosphoric acid. They submitted pricelists for sulphuric acid on 23.7.79, 29.10.79 and 21.2.80 declaring the prices at cost of production plus 20% thereof based on the certificate of the Chartered Accountant. Similarly, they also submitted price lists for Oleum 20% on 24.7.79 and 21.2.80 declaring the price at cost plus 20% on the basis of Chartered Accountant's certificate. These price lists were approved by the Assistant Collector and the appellants paid duty on the basis of those prices. In the mean time, the appellants sent a letter dated 2.5.79 to the Assistant Collector of Central Excise, Kalyan Division stating that in order to cut down transport charges for transporting sulphuric acid from their Roha factory to their Phosphoric Acid Plant at Ambarnath for captive consumption, they proposed to hand over all the sulphuric acid produced at their Roha factory to M/s. Dharmsi Morarji Chemicals Company Ltd. (hereinafter referred to as M/s. DMC), Ambarnath for delivery to their (M/s. DMC's) various customers at Roha and other places. In exchange of this, M/s. D.M.C. would give an equivalent quantity of Sulphuric acid from their Ambarnath factory to the appellants for consumption in the Phosphoric acid plant at Ambarnath. Payment of Central Excise duty for sulphuric acid produced at Roha factory would be on the basis of the appellants' approved priced and that from M/s. DMC to Ambarnath plant would be on the basis of M/s. DMC's approved price.
3. On 12th February, 1980, the Superintendent of Central Excise, Roha, issued a show-cause notice to the appellants demanding differential duty of Rs. 26,082.35 (subsequently amended to Rs. 43,181.13 on 26.3.80) on Oleum 20% cleared from the factory during June, 1979 to June, 1980 on the ground that M/s. DMC, to whom the goods were supplied, were "related person" in terms of Section 4(4)(c) of the Central Excises and Salt Act, 1944. it was alleged in the Show Cause Notice that they made delibrate mis-declaration by filing the price lists in Part I implying thereby that the customers were not related person. Another show-cause notice was issued by the Superintendent of Central Excise, Roha, to the appellants on 9th July, 1980 demanding differential duty of Rs. 9,73,115.38 (subsequently amended to Rs. 10,03,215.38 on 15.7.80) on the ground that they were selling sulphuric acid "to their associated company M/s. Dharmsi Morarji Chemicals Company Ltd." or were "consuming themselves." In both the demand notices, duty was calculated on the basis of the prices at which M/s DMC, Ambarnath, were selling Oleum and sulphuric acid in the open market.
4. The appellants replied to both the show-cause notices and explained to the Assistant Collector that M/s. DMC were not related persons as contemplated in the Central Excise Act. The prices declared by them on the basis of cost plus 15% thereof were fair. The prices at the time and place of removal, i.e. Roha, should be the prices in terms of Section 4 of the Central Excises Act for the purpose of levy of duty.
5. After considering the replies to the show-cause notices the Assistant Collector of Central Excise confirmed both the demands. He held that the sulphuric acid manufactured by the appellants was comparable to that manufactured by M/s. DMC, Ambarnath. When normal price was not available comparable price should be accepted for duty before going to the costing, M/s. DMC had participated in the acquisition, erection and commission of the plant for the appellants and they had also lent their technical know-how to the assessee. Considering these facts, the Assistant Collector held that the price of sulphuric acid manufactured by the appellants should be the price at which the sulphuric acid is sold by M/s. Dharmsi Morarji Chemicals Company Ltd., Ambarnath.
6. An appeal filed against this order of the Assistant Collector was rejected by the Collector of Central Excise (Appeals) Bombay. The present appeal before this Tribunal is against the said order of the Appellate Collector.
7. The main contentions of the appellants before the Collector (Appeals) were that (i) they and M/s. D.M.C. were not related persons, (ii) value under Section 4(1 )(a) of the Central Excises and Salt Act was the price at which they sold the goods to M/s. D.M.C. in the course of whole sale trade at the time and place of removal, (iii) since such price was ascertain-able u/s 4(1)(a), it was not open to the Assistant Collector to adopt the comparable price of M/s. D.M.C. whose manufacturing plant was at a different place, and (iv) the Assistant Collector had gone beyond the scope of show cause notice. The collector (Appeals) held that price arrived at by the appellants on the basis of costing, in terms of Rule 6(b)(ii) of Central Excise Rules could be adopted only when the price of comparable goods was not available. In terms of Rule 6(b)(i) read with Rule 8, the comparable price of M/s. D.M.C. adopted by the Assistant Collector was in order. He also held that M/s. D.M.C. had 30% shares in the appellant Company, lent technical know-how to the appellants and participated in the acquisition and erection of plants for the latter, and thus the two had interest, direct or indirect, in the business of each other. The Assistant Collector was, therefore, justified in adopting the comparable price of M/s. D.M.C. on the ground that the two Companies were related persons.
8. In the Memorandum of appeal filed before this Tribunal, the appellants have re- iterated all the points which were raised before the Collector (Appeals). During personal hearing, the learned advocate for the appellants cited the judgment of the Hon'ble Supreme Court in the case of Union of India and Ors. v. Atic Industries Limited in Civil Appeal No. 3260 of 1979 decided on 22.6.1984, reported in 1.984(17) ELT 323(SC) and said that according to the ratio laid down in this judgement, M/s. D.M.C. do not fall within the category of related persons as defined in Section 4(4)(C) of the Central Excises and Salt Act, 1944. He has also cited the decision of this Tribunal in the case of Hydraulics Limited, Madras v. Collector of Central Excise, Madras, reported in 1983 ELT 533, in which it was held that if a proper show-cause notice was not issued to the assessee, subsequent proceedings culminating in the Order-in-Original and Order-in-appeal were bad in law and liable to be quashed. The learned Advocate has concluded by saying that in the light of the above decisions, the impugned order should be set aside and the appeal allowed.
9. The learned SDR reiterated the arguments of the lower authorities as in the Order-in-Original and Order-in-appeal.
10. We have carefully considered the submissions and have also perused the records of the case. We find from the show-cause notices that the demands for differential duty were issued on the ground that the appellants and M/s. D.M.C. were related persons. While confirming the demands, the Assistant Collector did not specifically deal with this ground, but he confirmed the demands by adopting a different ground, i.e. the comparable price of the other manufacturer at a different place. The Assistant Collector should have given a clear finding as to whether M/s. Dharmsi Morarji Chemicals Company Ltd., to whom the sulphuric acid manufactured by the appellants was supplied, were related persons within the meaning of Section 4(4)(C) of the Act. After giving a finding on this point he was at liberty to adopt the price charged by M/s. D.M.C. if he was of the opinion that M/s. D.M.C. were related person. He has not choosen to do so. Instead, he has confirmed the demands on the basis of comparable price which was not the ground for demand show cause notices. The Assistant Collector could justify the demand confirmation order, if the demand notices were issued on this ground. Since, he issued the demand notices on one ground, but confirmed the demand notices on a different ground without giving the assessee an opportunity to show cause against the proposed action, the action of Assistant Collector has resulted in the denial of natural jutice to the appellants.
11. Further, turning to the ground of "related person", we find that according to the ratio of the judgment of Supreme Court in the case of Union of India and Others v. Atic Industries Limited, 1984(17) ELT 323 (SC), M/s. Dharmsi Morarji Chemicals Company Ltd., were not related persons. It was held by the Hon'ble Supreme Court in the judgement supra that:-
" the person who is sought to be branded as a 'related person' must be a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person nor is it enought that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other."
12. In this case, there is no material to show that the appellant company had any interest in the business of M/s. Dharmsi Morarji Chemicals Company Ltd., and vice-versa. The fact that M/s. D.M.C. held 30% shares in the appellant company and two of the Directors in both the companies were common, will not go to establish that they are related persons. The argument that M/s. D.M.C. participated in the erection of plant and lent technical know-how is also of no avail, as according to the appellants, they made payments to M/s. D.M.C. for their services in this regard. We are, therefore, not convinced by the reasons advanced by the Collector (Appeals) in upholding the decision of the Assistant Collector, nor are we able to accept his finding that the two Companies had interest, direct or indirect, in the business of each other.
13. In view of the foregoing discussions, we set aside the impugned order and allow this appeal.