Customs, Excise and Gold Tribunal - Ahmedabad
Meena Polysack P. Ltd., Amit Polysack P. ... vs Cce on 15 May, 2007
Equivalent citations: 2007(120)ECC193, 2007ECR193(TRI.-AHMEDABAD), 2007(215)ELT293(TRI-AHMD)
ORDER M.V. Ravindran, Member (J)
1. All these appeals arise out of Order-in-Original dated 28.2.2003 vide which differential duty was confirmed and penalties imposed on all the appellants. Since the issue involved in this case is interconnected, and arising out of the same order-in-original they are being disposed of by a common order.
2. The relevant facts that arise for consideration are that all the appellants are Private Limited companies, and are manufacturing HDPE bags/sacks. All the appellants sold 90% of their production to one M/s. Bardanwala Plastics Ltd. (hereinafter referred as BPL) at a price which was lower than the price at which BPL sold to their customers. On a visit of the Central Excise officers to the premises of the appellants it was noticed that BPL were the owner of the premises where all the 4 appellants were situated and the premises were divided into different parts and given on rent to the appellants. After recording the statements of various persons, the authorities issued show cause notice to all the appellants directing them to show cause as to why BPL should not be considered as related person, and that the price at which final product was sold by BPL should not be considered as the correct assessable value and differential duty be not demanded from all 4 appellants. The appellants resisted the show cause notice on the ground that they are not related to BPL and the price at which they are selling their product to were not depressed due to any relation and also that they sold the same product to independent buyers and price is the same as charged to BPL. The adjudicating authority did not accept the contention of the appellant, and confirmed the differential duty amount on the ground that the 4 appellants were related to BPL, and there was financial accommodation between BPL and the 4 appellants which resulted them being related to each other. Hence, these appeals by the appellants.
3. Learned Counsel appearing on behalf of the 4 appellants takes us through the entire show cause notice, statements, and the order-in-original. It is his submission that the concept of related person in these cases do not arise as there is no cross share holding of the appellant companies by the BPL or vice versa. It is his submission that the decision of the Hon'ble Supreme Court in the case of Atic Industries Ltd. 1984 (17) ELT 323 (SC), and Alembic Glass Industries Ltd. 2002 (143) ELT 244 (SC) will apply in these cases, and there cannot be any confirmation of demand of differential duty. It was further submitted that, even if it is held that the appellants and BPL are related, the prices charged by the appellant companies to BPL were the same as is charged by the appellants to independent buyers. This would indicate that there was a factory sale and the question of depression of price does not arise, and hence, there cannot be any demand on the appellants.
4. Learned JTCDR on the other hand contends that BPL was the main player in this case and they created a facade of companies in order to evade payment of Central Excise duty. It is his submission that BPL gave loans and gave financial accommodation to all the appellants while setting up the manufacturing units. It was submitted that the appellants were manufacturers and as well as job workers of BPL. It was also submitted that once financial accommodation is given and the common facilities are given for manufacturing then the relationship stands established and, hence the price at which BPL sold the goods to their customers would be applicable for discharge of duty liability by the appellants.
5. Considered the submissions made at length by both sides and perused the record. It is undisputed that the appellants are private limited companies. It is also undisputed that the appellants had independent manufacturing facilities and were having separate central excise registration certificates in their names. It is also undisputed that the appellants had factory gate sale of the final products and were also selling their products to BPL. The learned adjudicating authority has come to the conclusion that the appellants were related persons to BPL on the ground that BPL is so associated with the appellants that they have interest in the business of each other and the appellants had sold almost 95% of their total production to BPL. Hence, they would fall under the category of related persons.
6. It is seen from the record that the appellant had clearly indicated in the replies to the show cause notice and as well as before us that the appellants being private limited companies their shares are not held by BPL and vice versa. We find that the appellants had given satisfactory reply to the authority on financial accommodation. The said reply clearly indicates that the appellants had explained that the amounts paid by M/s. BPL is towards the consideration of sale, was not contradicted by adjudicating authority in Order-in-Original. Be that as it may be, we find that the three judge Bench of the Hon'ble Supreme Court in the case of Alembic Glass Industries Ltd. (supra) has held as under:
4. It was submitted by learned Counsel for the assessee that the assessee was a public limited company as was the chemical company and two public limited companies could not be said to be 'related persons', unless one was the holding or the subsidiary company of the other, which was not the case here. The fact that the assessee held shares of the chemical company and that the chemical company held shares of the assessee and that they had common Directors could not lead to the conclusion that the assessee and the chemical company had an interest, directly or indirectly, in each other's business so as to make them related persons.
5. Learned Counsel for the Revenue submitted that it was not necessary that one public limited company should be the holding or the subsidiary company of another public limited company, for the definition of 'related person' in Section 4 was inclusive. He submitted that, in the present case, the assessee held shares in the chemical company and vice versa and there were common Directors which clearly showed that the one had an interest in the business of the other and that, therefore, the valuation of the assessee's glassware sold to the chemical company would have to be made having due regard to the relationship, of related persons, between the assessee and the chemical company.
6. Both sides relied upon the judgment of this Court in the case of Union of India and Ors. v. Atic Industries Limited 17 E.L.T. 323. Briefly put, the assessee in that case was a limited company that manufactured dyes. Its share capital was held by two companies. The assessee had sold its dyes to the two companies. The question was whether it could be said that the sales had been made to "related persons". In this regard, this Court said:
There are two points of view from which the relationship between the assessee and Atul Products Limited may be considered. First, it may be noted that Atul Products Limited is a shareholder of the assessee to the extent of 50 per cent of the share capital. But we fail to see how it can be said that a limited company has any interest, direct or indirect, in the business carried on by one of its shareholders, even though the shareholding of such shareholder may be 50 per cent.
(Emphasis supplied)
7. In our view, this is the heart of the matter. The shareholders of a public limited company do not, by reason only of their shareholding, have an interest in the business of the company. Equally, the fact that two public limited companies have common Directors does not mean that the one company has an interest in the business of the other. It is, therefore, not possible to uphold the conclusion of the Tribunal that the assessee and the chemical company were related persons. This being so, it is unnecessary to go into the alternate arguments advanced on behalf of the assessee.
8. At this stage of the judgment, learned Counsel for the Revenue draws our attention to the judgment, of a Bench of two learned Judges of this Court, in Calcutta Chromotype Limited v. Collector of Central Excise, Calcutta 99 E.L.T. 202. 0It does not appear to us that the judgment carries the case of the Revenue any further, nor does learned Counsel so suggest. He says that he has referred to it because of this sentence therein: "The principle that a company under the Companies Act, 1956 is a separate entity and, therefore where the manufacturer and the buyer are two separate companies, they cannot, than (sic) anything more, be 'related persons' within the meaning of Clause (c) of Sub-section (4) of Section 4 of the Act is not the universal application." We have difficulty, for the reasons already stated, in accepting as correct this sentence. It appears to have been so stated in relation to and in the context of facts of that case. Therefore, the learned Judges, it should be added, remanded the matter for further inquiry into the facts.
From the above reproduced portion of the judgment of the Hon'ble Supreme Court it can be noticed that share holders or the directors of the two public limited companies being common would not mean that they have got interest in the business of each other per-se. In the current appeals before us we find that none of these criteria stand satisfied, and it is on record that shares of the appellant are not held by BPL or vice versa. The shares of the appellant have been held by individual persons who may have the shares of BPL, but that in itself would not amount that the appellants have interest in the business of BPL and vice versa. The adjudicating authority seeks to confirm the demand on all the appellants, taking the price of goods sold by BPL to their customers on the ground that BPL had control over the appellants due to financial accommodation given by BPL. While arriving at this conclusion, the adjudicating authority has lost the track of the fact that the appellants had sold their goods also to independent buyers at a price which is not disputed, as a incorrect price. It is also on record that the appellants' price to BPL and to independent buyers are same. If that be so, the allegation that the appellants had under valued the finished goods, while selling the finished goods to BPL is totally knocked down. We find that the decision of the Division Bench of the Tribunal in the case of Amar Sinhji Stationery Industries Ltd. 2005 (184) ELT 186 (Tri.-Del.) has clearly, in an identical situation, held as under:
4. We note that all the allegations relate to control of KIL over SASIL and SPPL but there is no allegation corresponding control by SASIL or SPPL over KIL. This would clearly show that there is no mutuality of interest itself between the SASIL and KIL or between SPPL and KIL, as regards the alleged control over maintenance of quality of goods, employment of staff and procurement of raw materials and office expenses, Raw materials are purchased by SASIL and SPPL from independent suppliers. Even if specialized raw materials are supplied by KIL they are paid for by SASIL and SPPL as the case may be. Packing material is supplied free by KIL; however, it is returned along with the goods manufactured by SASIL and SPPL packaged therein to KIL. There is no material on record to establish any flow back of profits or other consideration from KIL either to SASIL or SPPL. Therefore, the case of Department that there is mutuality of interest between respondent No. 1 and 3 and between respondent No. 2 and respondent No. 3 is without any force in the light of Supreme Court decision in the case of Union of India and Ors. v. Atic Industries Ltd., , wherein it has been held "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 enough 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 the related person must have interest, direct or indirect, in the business of each other. Each of them must have, direct or indirect interest in the business of other." The same view has been reiterated in the decision of the Apex Court in Alembic Glass Industries Ltd. v. Collector of Central Excise and Customs, . The decision of the Tribunal in the case of L.M.J.S. Tool Room v. CCE, Rajkot, , relied upon by the learned SDR, is distinguishable as in that case the entire production of the manufacturer was sold to the Marketing Company while in the present case goods were sold by SASIL and SPPL to KIL as well as to others.
This position has been accepted by the Revenue in its appeals wherein it is stated that 90% and 60% respectively of the sale of SASIL and SPPL have been made to KIL.
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8. The Revenue also relies upon the fact that unsecured loans were given to SPPL by some of its shareholders. We note that there is no prohibition in the Companies Act against a company taking a loan from its shareholders and giving a loan has no relevance to the relationship between the three companies in question.
9. The other main feature to be noticed here is that there is no ground in the appeals of Revenue that there was any extra commercial consideration between SASIL and SPPL sold carbon papers and typewriters ribbon to KIL was in any way depressed. The Commissioner has recorded a clear finding that there was no depression of price and there was no extra commercial consideration. For this reason also the charge of related persons must fail, in the light of the Supreme Court decision in the case of C.C.E., Mumbai v. Fisher Rosemount (India) Ltd., and in the case of Plus Cosmetics Pvt. Ltd. v. CCE, Kanpur, .
7. Further, the Division Bench of the Tribunal in the case of Plus Cosmetics Pvt. Ltd. v. CCE, Kanpur held as under:
Valuation (Central Excise) - Related persons - Interest free loan given by buyer to seller but no other interest in each other's business - Goods sold to buyer at normal wholesale price without any control or supervision by seller over the buyer - Payment adjustment between buyer and seller not sufficient for holding buyer to be favoured - Incurring of all sales promotion and advertisement expenses by buyer also not makes him a related person - Price at which goods sold by seller to buyer to be the normal price - Section 4 of Central Excise Act, 1944.
The above said judgment and order of the Tribunal was carried by the Tribunal to the Hon'ble Supreme Court in Civil appeal which was dismissed by the Supreme Court by the following order as reported in 2002 (143) ELT A 268(SC):
The question whether CCL and PCPL are related persons need not be gone into in this case because of the finding of the Tribunal on a question of fact that the prices at which the goods are, said to have been sold to the alleged related persons is the same as sold to the other purchasers. Therefore, there being any depressed price in favour of the related buyer will not arise. This being a question of fact we find no reason to interfere with the finding of the Tribunal.
The appeal is dismissed.
From the above reproduced portion of the judgment of the Hon'ble Supreme Court it is very clear that if the goods are sold to the related person at the same price as sold to other purchasers, it cannot be said that there was depressed price in favour of the related buyers. It is on record that the appellants had sold the finished goods at the same price to BPL as well as to independent buyers, and hence, on this point also, the impugned order is unsustainable.
8. In view of the above findings we are of the view that the impugned order is liable to be set aside, and we do so. Appeals are allowed with consequential relief, if any.
(Operative part of the order pronounced in the Open Court.)