Custom, Excise & Service Tax Tribunal
Nilkamal Ltd vs Vapi on 3 June, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
REGIONAL BENCH -COURT NO. 03
Excise Appeal No. 1838 of 2010
[Arising out of OIA-SKSS/166&167/VAPI/2010 passed by Commissioner of Central
Excise, Customs and Service Tax-VAPI]
M/s Nilkamal Ltd ......Appellant
Survey No. 354/2, Vasona Village, Silvassa-Khanvel Road,
Silvassa, Ut Of Dadra & Nagar Haveli
VERSUS
C.C.E. & S.T.-Vapi .....Respondent
4th Floor, Adharsh Dham Building, Opp. Town Police Station, Vapi-Daman Road, Vapi Vapi, Gujarat-396191 WITH Excise Appeal No. 1839 of 2010 [Arising out of OIA-SKSS/166&167/VAPI/2010 passed by Commissioner of Central Excise, Customs and Service Tax-VAPI] M/s Nilkamal Ltd ......Appellant Survey No. 354/2, Vasona Village, Silvassa-Khanvel Road, Silvassa, Ut Of Dadra & Nagar Haveli VERSUS C.C.E. & S.T.-Vapi .....Respondent 4th Floor, Adharsh Dham Building, Opp. Town Police Station, Vapi-Daman Road, Vapi Vapi, Gujarat-396191 APPEARANCE:
Sh. T. C. Nair & Sh. Nitin N. Mehta, Advocate for the for the Appellant Sh. K. J. Kinariwala, Authorized Representative for the Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) FINAL ORDER NO. A/ 10970-10971 /2019 DATE OF HEARING: 12.02.2019 DATE OF DECISION: 03.06.2019 PER: RAMESH NAIR The present appeals have been filed against Order-in- Appeal No. SKSS/166 & 167/VAPI/2010 dated 30.08.2010 passed by Commissioner (Appeals), Vapi.
2|Page E/1838-1839/2010-DB 2. The brief facts of the case are that the Appellants are
manufacturing plastic furniture, crate etc. They are selling some quantity of crates to on M/s Stackwell Marketing Service (SMS) and the sale constitutes 4% to 5% of the total production. They were issued show cause notice dated 19.04.2007 alleging that the duty on goods cleared to M/s SMS during the period April'2002 to March'2006 was payable on sales price of SMS in terms of Rule 9 of the Central Excise Valuation Rules since the Appellant has shown M/s SMS as their "related concern/ undertaking" in balance Sheets/ Financial reports. The Appellant filed reply to same contending that the SMS is not their related concern in terms of Section 4 of Central Excise Act and the relation has not influenced the sales price as duty was paid on comparable sales price charged to other independent unrelated buyers or even at higher prices. The adjudicating authority confirmed the demands invoking Rule 8 of Valuation Rules holding that the duty has to be paid on 115% or 110% of cost of production. A second SCN on same grounds for the period April'2006 to March'2008 was also issued based upon similar allegations and came to be decided against Appellant. The Appellant filed appeal before Commissioner (Appeals) who held that there should be mutuality of interest between the two entities and commonness of directors and/ or shareholding cannot be a ground for holding both the entities as related person. He also held that since Rule 8 was not invoked hence the adjudication order is beyond the scope of Show Cause Notices. Vide Order dated 19.03.2008 the Joint Commissioner again confirmed the demands against which the Appellant filed appeal before Commissioner (Appeals) who in turn vide Order-in-
Appeal dated 31.08.2009 remanded back the matter with the similar direction contained in his earlier order. The Additional Commissioner in remand proceedings confirmed demands of both the SCNs invoking Rule 8 of Valuation Rules inspite of direction of Commissioner (Appeals) to invoke Rule 9 of Valuation Rules. On an appeal by the Appellant, the Commissioner (Appeals) vide impugned OIA dated 30.08.2010 held that the invocation of Rule 8 is incorrect, however he is empowered to decide the issue as an adjudicating authority. The 100% shares of M/s SMS are held by the director and relative of Appellant concern. M/s SMS is having share capital of 3822 shares of Rs. 100/- each. Out of total 3822 shares, 3819 shares are held Sh. Manish V. Parekh, Nayan S. Parekh and M/s Manju N. Parekh. The remaining shares were held by Purvi N. Parekh
3|Page E/1838-1839/2010-DB and M/s Nalini V. Parekh. Thus 100% shares of M/s SMS are held by the Parekh family. The balance sheet of M/s Nilkamal reveals that 57.17% of the voting rights are with promoters i.e. the Parekh family. The shareholder pattern of both the company and managerial control leaves no doubt that both are interconnected undertakings. Therefore M/s Nilkamal Ltd and M/s SMS are related persons as per clause (i) of sub- section 3 (b) of Section 4 of the Central Excise Act. He relied upon the case of D.D. Industries Ltd. 2010 (251) ELT 401 that if more than 40% shares of manufacturing unit are held by the partners of distributing firms and entire shares of manufacturing are held by the relatives of directors of manufacturing unit or partners of distributing firms they are relatives. The said judgment is applicable as the Appellants and M/s SMS are relatives. The buyer and the manufacturer are related persons as per clause (i) of sub section 3 (b) of section 4 of the act. As per rule 10 of Central Excise Valuation Rules, 2000, in respect of inter-connected undertakings, the value at which buyer sells the goods can be taken as value for payment of excise duty, only if conditions as per sub clause (ii) or (iii) or (iv) of sub - section 4 of the Act are fulfilled or the buyer is a holding company or subsidiary company of the assessee. It is fact that M/s SMS are the distributors of Appellant and thus condition of clause
(iii) is fulfilled. Moreover SMS is 100% subsidiary of Appellant. Therefore as per rule 10 of said rules, the duty has to be paid as per provisions of Rule 9 i.e. at the price at which M/s SMS were selling the goods. That the Appellant were selling goods to M/s SMS at less rate than other buyers. The Appellant and M/s SMS are related person; the sales price to independent buyers vary from time to time and hence the same cannot be invoked. He held that the Appellants are also entitled for cum duty benefit and remanded back the matter to the adjudicating authority. Hence the present appeals before us.
3. Ld. Counsel Sh. T.C. Nair and Sh. Nitin N. Mehta appearing for the Appellant submits that the Appellant and M/s SMS cannot be treated as related person only because there are some common directors or shareholders. There must be mutuality of interest between them. The Appellate Commissioner in first round of appeal before him had admitted that the evidences of comparable prices were provided and that commonness of director and shareholder cannot be criterion for holding both units as related person. The said findings were not challenged by
4|Page E/1838-1839/2010-DB the revenue and the Department cannot take contrary stand in remand proceedings. That even if both the entities are assumed as related person, such relation has not influenced the sales price to SMS and hardly 4 to 5% of the total production of crates were cleared to M/s SMS and balance was sold to other independent buyers at same or lesser price. If the Appellants had any malafide intention to sell the goods to so called related person at a lesser price they would have sold maximum quantity of their production to M/s SMS and marginal quantity to independent unrelated person. In any case the relation between the two has not influenced the price as the Appellant has cleared the goods to M/s SMS on payment of duty on the comparable price charged to independent buyers as evident from the records and admitted by the lower authorities and therefore the question of demanding duty on the sales price of so called related person M/s SMS under rule 9 of Valuation Rules, does not arise. He relies upon the judgments in case of M/s Ispat industries Ltd. 2007 (209) ELT 185 (TRI - LB), Handy Wires Pvt. Ltd. 2015 (329) ELT 169 (TRI), Steel Complex Ltd 2004 (171) ELT 255 (TRI) as upheld by Apex Court reported in 2015 (321) ELT A- 138 (SC), Vashisti Detregents 2017 - TIOL - 25 - CESTAT - Mum, Sterlite Optical Technologies 2018 (359) ELT 723 (TRI) and Shiv Shakti Ingots 2016 (338) ELT 421 (TRI). He also submits that the demand is barred by limitation as there was no suppression or mis-statement. The duty was paid on comparable prices; marketing pattern was declared and required information was filed under rule 173 C of Central Excise Rules, 1944, periodical returns were filed and the records were audited by the Central Excise officers. That in case of second show cause notice dated 18.03.2008 the demand was made for the period April'2006 to Feb'2007 which is clearly time barred. He relies upon the judgments in case of Nizam Sugar factory 2006 (197) ELT 465 (SC), ECC Industry Ltd. 2004 (164) ELT 236 (SC), Hyderabad Polymers 2004 (164) ELT 151 (SC), P & B Pharmaceuticals 2003 (153) ELT 14 (SC).
4. Ld. AR Sh. K.J. Kinariwala appearing for the revenue submits that since M/s SMS and the Appellant are related person, the demand is sustainable. He also reiterates the findings of the impugned order.
5. Heard both the sides and perused the records. We find that earlier twice the matter was remanded by the Commissioner (Appeals) on the
5|Page E/1838-1839/2010-DB ground that the said orders were passed beyond the scope of show cause notice and also that Section 4 (3) (b) clause (ii) and (iii) are not applicable. In his previous remand order vide Order-in-Appeal No. KRS/290/VAPI/2008 dated 30.09.2008 while remanding back the case to the adjudicating authority had held as under:
"6.1 on the question of applicability of Rule 9 of Valuation Rules as sought in the SCN, I find that for the application of the said rule one basic requirement that the buyer and seller have interest in the business of each other is required to be fulfilled in terms of sub-clause(iv) of Section 4(3)(b). Sub clause (ii) & (iii) of section 4(3)(b) are not applicable here as buyer and seller are not relatives here. The adj. authority has held the buyer and seller to be related only on the ground that some of the directors are common and the appellants have shown the said concern to be related in their balance sheet. I find that the above is not sufficient to hold them as related person. What is required here to be established is the mutuality of interest and the price charged should be lower than the normal price and the reduction must be on account of extra transactions between them and M/s Stackwell Marketing Services P. Ltd were purely based on commercial consideration, at arm's length and without considering the fact of commonness of directors and they even sold the goods to M/s Stackwell Marketing Services P. Ltd. at a price higher than charged to other buyers. They have also submitted copies of some of the sales invoices in this respect. The facts need to be ascertained and the mutuality of interest is required to be established. Since the issue has not been dealt with by the adjudicating authority from these angles and the impugned order has been issued on the issue not covered in the SCN, the impugned order therefore is required to be set aside and remanded back for denovo adjudication."
The above findings of the Commissioner (Appeals) had attained finality as the same was not challenged by the revenue. The Appellate Authority thus cannot nullify its earlier findings. The Appellate authority in his earlier Order-in-appeal held that clause (ii) and clause (iii) of Section 4 (3) (b) of the Act are not applicable and directed the adjudicating authority to verify if there is mutuality of interest in each other's business. Thus the adjudicating authority was to examine only sub clause (iv) of Section 4 (3) (b). In such case the Appellate Authority could not have re-visited and nullified his own above findings and only the limited scope left to be examined as whether the sub clause (i) is applicable. Clearly the Order-in-appeal travels beyond his own categorical findings which had attained finality. Further in earlier round of proceedings the adjudication orders were twice set aside on the ground of having been passed beyond the show cause notice. The
6|Page E/1838-1839/2010-DB Appellate Authority has himself travelled beyond the scope of show cause notice. The show cause notice only invoked provisions of Section 4 (3) (b) (ii), (iii) and (iv). The clause (i) was never invoked in show cause notice and the adjudication order as well as Appellate order never examined sub clause (iv). Hence the order-in-appeal is not sustainable on this ground. Otherwise also we find that provisions of Rule 9 of Central Excise Valuations Rules invoked in the impugned order in no way affects the valuation if the person is related person. It states as under:
"Rule 9. When the assessee so arranges that the excisable goods are not sold by an asseessee 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 values of 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."
6. The reading of above rule clearly reveals that the aforesaid rule stipulates the consideration of sale price of related person as assessable value only when a manufacturer and buyer are related in terms of Clause (ii) sub clauses (ii), (iii) or (iv) of clause (b) of sub-section (3)
(b) of Section 4 of the Act. Thus the findings of the Appellate authority that both the Appellant and M/s SMS are related person in terms of sub
- clause (i) as interconnected undertakings in terms of MRTP Act is without any basis. Even sub clause (i) of Section 4 (3) (b) was never invoked in show cause notice and therefore the impugned order is incorrect. The Appellate authority should have restricted his findings only to ascertain that whether there is mutuality of interest in terms of Section 4 (3) (b) sub - clause (iv). However, we find that no evidence of mutuality of interest has been found except the fact that some of the directors of Appellant are also director in M/s SMS. In absence of any mutuality of interest between two companies, the provisions of sub clause (iv) are not applicable. Our views are based upon the judgments in case of Union of India Vs. Atic Industries 1984 (17) ELT 323, Alembic Glass Industries Ltd. 2002 (143) ELT 244. We find that there is no financial interest of Appellant and M/s SMS in each other. Further the
7|Page E/1838-1839/2010-DB case of BDH supra relied upon by the Appellate authority is not applicable as M/s SMS are not selling entire goods of Appellant but only 4 to 5% of only one product i.e. plastic crates. In view of above facts there is no reason to demand any duty on the basis of sale price of M/s SMS and we hold that the goods cleared to M/s SMS has been valued correctly by the Appellant. Nevertheless we have also gone through the invoices submitted by the Appellant before the Appellate Authority to show that the prices at which the goods were cleared to M/s SMS are comparable and even more at which the crates were cleared to independent buyers. The Appellate authority has compared the invoices and held that there is difference between the prices and the goods were cleared to M/s SMS at lower prices. However on perusal of same we find that the comparison has been made by him between prices of different models whereas the prices should have been compared of the same models of crates. The raw material used by the Appellant is polymers and the prices of same keeps on fluctuating. The sale prices to be compared should be of clearances made at same point of time. The Appellate authority has compared the prices of different models at different dates which are not correct. We find that Appellant has produced invoice No. Invoice no. 3626 dated 11.08.2005 issued for model CC- 654315C red @ Rs. 263.93 to M/s SMS and on the same day the same model has been sold @ Rs. 256.24 to Marine Exports, Goa. In case of invoice no. 2620 dated 30.06.2004 and no. 4924 dated 19.09.2004 the comparison was not correctly made. Invoice no. 2620 was issued for crate model no. JR-53300LW @ 86.20 to M/s SMS and same model was sold on same day vide invoice no. 2622 to others @ 86.20. In case of invoice no. 4924 dated 19.09.2004 model no. JR 53300BJ Orange was sold to independent buyer @ Rs. 120.36 whereas on same day the invoice no. 4928 dated 10.09.2004 the same model was sold to M/s SMS @ 124.66. In case of invoice no. 1143 dated 12.02.2005 the Model No. CC 6545315 Red was sold to M/s SMS whereas invoice no. 1120 dated 11.05.2005 was issued for model no. CH6545315 and thus the models being different the prices cannot be compared. The invoice discussed above is same which were produced before Appellate Authority but were wrongly compared.
7. We, thus find that when the sale price of independent buyer and prices at which the goods were sold to M/s SMS are equal and in some
8|Page E/1838-1839/2010-DB cases even the sale price to M/s SMS are more, there is no reason to disturb the valuation method followed by the Appellant. The sale price to M/s SMS is not influenced by any extra commercial consideration. The depot of M/s SMS cannot be considered as of the Appellant. The Appellate authority has also relied upon the transportation cost incurred by M/s SMS over the period of time. We however find that M/s SMS are not only trading in crates manufactured by the Appellant but in products which are manufactured by other entities only. Hence the transportation charges incurred by SMS which includes towards other goods also cannot be a ground to disturb valuation. Further the show cause notice does not make any such allegation against the Appellant. We find that the Appellants have also challenged the show cause notice on grounds of being time barred. We find that even in case of BDH Industries relied upon by the Appellate Authority, the tribunal held that merely on the ground that detailed examination of shareholding and various patterns does not itself leads to inference that the appellant company has suppressed the fact. Otherwise also we find that there was no intention of the Appellant company to suppress the fact to evade duty. In such case even the demands raised by invoking extended period of limitation are not sustainable. Thus we hold that apart from not sustaining on merits the demands raised by invoking extended period of limitation are also time barred.
8. In view of our above observations, we set aside the impugned order and allow the appeals with consequential reliefs, if any.
(Pronounced in the open court on 03.06.2019) (Ramesh Nair) Member (Judicial) (Raju) Member (Technical) Seema