Custom, Excise & Service Tax Tribunal
H.J.Rathi vs Cce Raigad on 26 November, 2018
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.2
APPEAL No.E/1913 to 1916/2010
(Arising out of Order-in-Appeal No.YDB/447 to 450/RGD/2010 dated
13/08/2010 passed by the Commissioner of Central Excise (Appeals),
Mumbai Zone-II)
M/s.Rathi Dye Chem Pvt. Ltd., : Appellants
Shri H.J. Rathi
Shri S.H. Rathi
Shri H.J. Rathi
VS
CCE, Mumbai-II : Respondent
Appearance Shri.Vinay S. Sejpal, Advocate for Appellant Shri.A.B. Kulgod, Asst. Comm. (A.R) for respondent CORAM:
Hon'ble Dr.Suvendu Kumar Pati, Member (Judicial) Hon'ble Shri P Anjani Kumar, Member (Technical) Date of hearing : 23/10/2018 Date of decision : 26/11/2018 ORDER NO. A/88002-88005/2018 Per : Shri P. Anjaji Kumar The appellant, M/s.Rathi Dye Chem Pvt. Ltd., (M/s.RDCPL in short) are manufacturers of dyes and chemicals falling under Chapter 32 of the Central Excise Tariff Act, 1985. They have cleared their products to various dealers, distributors and manufacturers during the period October 1999 to March 2003. M/s.Jagat Trading Co. (M/s. JTC in short), there are many customers. The department has alleged that M/s.JTC is a related company and therefore, the price at which M/s.JTC have sold the goods, further to their customers should be 2 Appeal No.E/1913 to 1916/2010 held to be the assessable value in terms of Section 4 (1) (b) of Central Excise Act, 1944 read with Rule 9 of Central Excise Valuation (Determination of the Price of Excisable Goods) Rules, 2000. The department has also alleged that the appellants, M/s.RDCPL have paid over riding commission to one of the distributors i.e., M/s.JTC and on account of that Central Excise duty of Rs.6,94,924/- is payable by them. On completion of the investigation a show-cause notice No.4889 dated 20/05/2005 issued to all the four appellants, i.e., M/s.RDCPL was issued to M/s.RDCPL, Shri H.J. Rathi, S.H. Rathi and Shri H.J. Rathi. All the appeals are taken up together for consideration.
2. The show-cause notice was dropped by the Additional Commissioner, Central Excise vide order dated 31/01/2007. On an appeal filed by the Commissioner, Central Excise, the Commissioner (Appeals) vide order No.SRK/144/RGD/2008 dated 31/03/2008 has remanded the matter to the lower authorities for passing fresh order. Additional Commissioner, Central Excise vide order-in-original No.20/08-09 dated 31/12/2008 has confirming (i) Central Excise duty of Rs.18,10,443/- on goods cleared to M/s.JTC by the appellant, M/s.RDCPL (ii) confirming duty of Rs.6,94,924/- on the over-riding commission paid by the appellants to M/s.JTC (iii) imposing penalty of Rs.25,05,367/- on the appellants, i.e. M/s.RDCPL under Section 11AC of the Central Excise Act, 1944; (iv) imposing penalty of Rs.5.00 lakhs on the appellants, M/s.RDCPL under Rule 173Q and Rule 25 of Central Excise Rules, 2001/2002 (v) imposing penalty of Rs.5.00 lakhs each on Shri H.J. Rathi and Shri S.H. Rathi of M/s.RDCPL and lastly
(iv) imposing penalty of Rs.5.00 lakhs on Shri H.J. Rathi in his capacity 3 Appeal No.E/1913 to 1916/2010 as Trustee of Smt. Chandravatibai Laddha Trust (Partner of M/s.Jagat Trading Corporation). The Commissioner (Appeals) vide order-in- appeal No.YDB/447 to 450/RGD/2010 dated 13/08/2010 has upheld the order of lower authority. Therefore, all the four concerned i.e., M/s.RDCPL, Shri H.J. Rathi, Shri S.H. Rathi and Shri H.J. Rathi are filed four appeals.
3. As all the four appeals are arising out of the same show-cause notice, the same are taken up together for disposal.
4. Heard both sides and perused the records of the case.
5. The learned Counsel for the appellants has submitted that the show-cause notice was clearly barred by limitation and the original authority in the first adjudication order has dropped the proceedings in the entirety. They have been regularly filing the price marketing declaration under Rule 173C (3a) and, therefore, no suppression could be alleged against the appellants. The dispute against the order-in- original was only on the merits and no appeal was filed in respect of limitation. Therefore, it is to be construed that the issue of limitation has attained finality and the Tribunal was not required to discuss the issue on merits.
5.1 Learned Counsel also submitted that the appellate authority and the second adjudicating authority had travelled beyond the show- cause notice; The show-cause notice states that M/s.JTC squarely fall in the category of related persons in terms of Section 4 (3) (b) of 4 Appeal No.E/1913 to 1916/2010 Central Excise Act, 1944 and, therefore, valuation needs to be made in terms of Rule 6 (c) of old Central Excise Valuation Rules, 1975 and provisions of Rule 9 of new Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 holding that the buyer, i.e., M/s.JTC is a related person of the seller/appellant and sale price of M/s.JTC to their customers was adopted. The order-in-appeal dated 30/07/2010 has proceeded on the ground that the transactions are paper transactions and that the appellants were running their business through a façade of M/s.JTC, which did not have independent existence of their own. Therefore, the order-in-appeal having travelled beyond the scope of the show-cause notice is also liable to be set aside.
5.2 The learned Counsel for the appellants making further submissions on the merits of the case has stated M/s.JTC is not covered under the scope of "related person" in terms of Section 4 (3)
(b) of the Central Excise Act, 1944. He submitted that the appellants are a private limited company and M/s.JTC is a partnership firm, therefore, Section 4 (3) (b) (ii) cannot be invoked as they are not natural persons; Moreover, Section 4 (3e) (b) (iii) is invocable only when the buyer is a relative and distributor. M/s.JTC is neither a distributor nor a relative; Section 4 (3) (b) (iv) cannot be invoked as the appellants and M/s.JTC have no interest directly or indirectly in the business of each other. The appellants have not provided sharing relation with M/s.JTC or M/s.JTC have not share holding in the appellants Limited Company. Therefore, in the absence of mutuality of any business interest and in the absence of flow back of any financial 5 Appeal No.E/1913 to 1916/2010 benefits from M/s.JTC to appellants. There is no allegation of M/s.JTC being company interconnected undertaking in terms of MRTP Act 1960 in terms of Section 4 (3) (b) (i) of Central Excise Act, 1944. Therefore, this cannot be held to be in his relative in terms of any provisions of Section 4 of the Central Excise Act, 1944.
Learned Counsel for appellants has relied upon the following cases:
a) UOI Vs. Atic Industries Ltd. - 1984 (17) ELT 323 (SC)
b) Alembic Glass Industries Ltd. Vs. CCE - 2002 (143) ELT 244 (SC) 5.3 Learned Counsel for the appellants has also submitted that it was alleged that M/s.JTC was related as partners of M/s.JTC were relatives of the appellants/directors and M/s.JTC of the appellant; on occasions goods were moving directly from the appellants factory to M/s.JTC customers under the cover of M/s.JTC invoice and certain staff of M/s.JTC were sitting in the appellants premises. It is submitted that even when such conditions existed, it does not automatically proved that either relationship or the mutuality of interest or flow back. They relied upon the decision in the case of CCE Vs. Damnet Chemicals Pvt.Ltd. - 2007 (216) ELT 3 (SC).
5.4 Learned Counsel also submitted that even if one assumes that the appellant and M/s.JTC are interconnected, they would be covered under the scope of Rule 10 of Valuation Rules, 2000, which becomes operational only if the sales are only through such companies. In the instant case only 3% to 13% of appellant's sale are to M/s.JTC, 6 Appeal No.E/1913 to 1916/2010 therefore, Rule 10 would not apply. They relied upon the following decisions:
a) Handy Wires Pvt. Ltd. Vs. CCE - 2015 (329) ELT 169 (Tri- Mum)
b) Universal Starch Chem Allied Ltd. Vs. CCE - 2017 (358) ELT 279 (Tri-Mum)
c) South Asia Tyres Pvt. Ltd. Vs. CCE - 2003 (152) ELT 434 (Tri-
Mum)
d) CCE Vs. Goodyear South Asia Tyres Pvt. Ltd. - 2015 (322) ELT 389 (SC) 5.5 Learned Counsel further submitted that the Tribunal has been taking a consistent view that where assessee is selling the goods to related persons as well as to an independent customer then the price at which the goods are sold to the independent customers should be adopted in terms of Rule 4 of Valuation Rules, 2000. The Rule 4 has to be preferred over Rule9 where the sale price of very same goods is available to an independent customer. He relied upon the following decisions:
a) Ispat Industries Ltd. Vs. CCE, Raigad - 2007 (209) ELT 185 (Tri-LB)
b) Shiv Shakti Ingots Ltd. Vs. CCE - 2016 (338) ELT 421 (Tri- Ahmed)
c) Hatsun Food Company Vs. CCE - 2004 (178) ELT 676 (Tri- Che)
d) CCE Vs. Sterlite Optical Technologies Ltd. - 2018 (359) ELT 723 (Tri-Mum) 5.6 Learned Counsel for the appellants has also submitted that the quantification is also made in erroneous manner without giving allowance to Sales tax and Excise duty paid by M/s.JTC. 7
Appeal No.E/1913 to 1916/2010
6. Learned AR for the department have reiterated the findings of the Order-in-Original dated 31/12/2008 and Order-in-Appeal.
7. The issue involved in this case is in a narrow compass. The issue to be decided in this case is as to whether M/s.JTC is a related person in terms of Section 4 of the Central Excise Act, 1944 and if so, whether the goods (Valuation of Rules) cleared by the appellants to M/s.JTC should be based on the value at which they are further sold by M/s.JTC. The facts of the case are that M/s.JTC belongs to a Trust i.e., Smt.Chandravatibai Laddha Trust, in which Shri H.J. Rathi is said to be the Manager. The Trustees are partners in M/s.JTC. Shri HJ Rathi is the Managing Director of M/s.RDCPL. Further for the very reason that Shri HJ Rathi is the Managing Director of M/s.RDCPL and the Manager of a Trust, which is partner in M/s.JTC cannot be the sole reason for holding that the appellants and M/s.JTC are related. It can be seen that the appellants are a private limited company whereas M/s.JTC is a partnership firm. They cannot be held to be related. No element of mutuality of interest and flow back of money from M/s.JTC to the appellants is either alleged or evidenced. M/s.JTC are not also held to be interconnected undertaking. Therefore, the situation enumerated in Section 4 (3) (b) of the Central Excise Act, 1944 are not fulfilled. The only fact that M/s.JTC has a temporary office in the premises of the appellants. Some staff members of M/s.JTC are sitting there, by itself cannot be become a valid ground to hold them to be related.
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Appeal No.E/1913 to 1916/2010 7.1 The original adjudicating authority as well as the appellate authority have completely ignored the submissions made by the appellants regarding the quantum of sale made to M/s.JTC by the appellants, which was 12.97% in 1999-2000; 12.5% in 2000-2001; 5.89% in 2001-2002 and 2.86% in 2002-2003. Therefore, the situation covered by either Rule 11 or Rule 9 of Central Excise Valuation Rules, 1944 are not in existence. Inasmuch as the appellants do not sale the entire quantity of the goods to M/s.JTC, therefore, any invocation of said Rules is bad in law. Moreover, it is submitted that the price at which the appellants have sold the goods to M/s.JTC were many at times higher than the rate at which they have sold to other customers.
7.2 As far as the merits of the case are concerned; we rely upon the case laws cited by the appellants in this regard and found that the issue is no longer res integra. We find that the decision of the Hon'ble Supreme Court in the case of CCE Vs. Damnet Chemicals Pvt. Ltd. - 2007 (216) ELT 3 (SC) held that:
31. This Court in Union of India v. Atic Industries [1984 (17) E.L.T. 323 (S.C.)] held that :
"For treating the customer as a related person, the first part of the definition of 'related person' as given in Section 4(4)(c) requires 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. Thus, it is not enough that the assessee has an interest directly or indirectly in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has any interest directly or indirectly 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. The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of 9 Appeal No.E/1913 to 1916/2010 the other may be direct while the interest of the latter in the business of the former may be indirect, but that would not make any difference so long as each has got some interest direct or indirect in the business of the other. In cases, where 50% share of the manufacturing company is held by the customer company, the customer company can be said to be having interest in the manufacturing company as a shareholder but for this reason, it cannot be said that the manufacturing company has any interest direct or indirect, in the business carried on by one of its shareholders even though the shareholding of such shareholders may be 50%. In the absence of mutuality of interest in the business of each other, the customer company holding shares in the manufacturing company cannot be treated to be a 'related person'. (Emphasis supplied) 7.3 Coming to the issue of over-riding commission paid by the appellants to M/s.JTC, it cannot be by any stretch of imagination leveled to be a flow back of money. Only in case where the appellants have received certain money from their customers influence of such consideration on the price at which the goods are sold can be a thought of. Therefore, we are inclined to accept the contentions of the order-in-appeal in this regard.
8. Coming to the issue of limitation, we find that the appellants have been regularly filing the required declaration under Rule 173C
(iii) (a) giving the details of the marketing pattern and interalia mentioning the fact that M/s.JTC have premises at the appellants.
Therefore, no suppression of fact can be alleged. 8.1 The period covered in the show-cause notice is from October 1999 to March 2003 and show-cause notice has been issued on 20/05/2005. Abinitio also the period further to May 2000 is clearly barred by limitation and further extended the show-cause notice is vitiated.
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Appeal No.E/1913 to 1916/2010 8.2 In view of the appellants filing the declaration as stated above, suppression cannot be invoked as correctly held by initial order-in- appeal dated 31/01/2007 passed by the Additional Commissioner of Central Excise.
8.3 In view of the above, the demand confirmed against the appellant, M/s.RDCPL do not survive either on merits or on limitation as the demand itself is held to be not sustainable. Therefore, interest, penalty, etc. confirmed against the main appellant, i.e., M/s.RDCPL and others would automatically go.
9. In view of the above, all the four appeals are allowed with consequential relief, if any.
(Pronounced and dictated in court )
(Dr.Suvendu Kumar Pati) (P Anjani Kumar)
Member (Judicial) Member (Technical)
PJ