Customs, Excise and Gold Tribunal - Delhi
Nestler Boilers (P) Ltd. vs Collector Of Central Excise on 25 January, 1993
Equivalent citations: 1993ECR233(TRI.-DELHI), 1993(67)ELT83(TRI-DEL)
ORDER P.K. Kapoor, Member (T)
1. This is an appeal against the order No. 14/MP/85 dated 26-5-1985 passed by the Collector, Central Excise, Baroda. Briefly stated the facts of the case are that on 19-8-1983 the Central Excise (Preventive) officers visited the factory premises of M/s. Nutherm Pvt. Ltd., Baroda (hereinafter referred to as the "factory") and their head office at 505, Dalamal Chamber, V.T. Marg, Bombay for carrying out detailed scrutiny of their records. It was found that the factory was engaged in the manufacture of boilers, burners and their parts and accessories falling under Item 68 of the erstwhile Central Excise Tariff and the goods were being removed on payment of Central Excise duty on the invoice value after availment of the benefit of Notification No. 120/75 dated 30-4-1975. It was observed that almost the entire production of boilers and burners was being sold by the factory to M/s. Nestler Boilers Pvt. Ltd., Bombay (hereinafter referred to as "company") whose office was located in the same premises in which head office of the factory was functioning. On scrutiny of the records, produced by the factory and the company and on investigation the officers arrived at the following conclusions :-
(i) The "Company" was a subsidiary of M/s. Star Chemicals Pvt. Ltd., Bombay (hereinafter referred to as "Chemical") as its entire equity capital was owned by the Chemical. Further, since Shri Suresh R. Shah was the Managing Director of the "Company" and also the Director of "Factory" in which the only other Director was his wife Smt. Charu S. Shah, "Factory" was, therefore, a subsidiary of the "Company" and "Chemical" could be deemed as a holding company with two subsidiary companies namely, "Company" and "Factory" rendering "Factory" and "Company" as related persons within the meaning of Section 4(4)(c) of the Central Excises & Salt Act, 1944.
(ii) Factory had failed to satisfy conditions (iv) and (v) of the Notification No. 120/75 dated 30-4-1975 and wrongly availed the benefit under Notification No. 120/75 dated 30-4-1975 inasmuch as the invoice price under which the goods were sold by "Factory" to "Company" was influenced on account of the relationship between the two.
(iii) "Factory" and "Company" were promoting the business of each other since except for the sale of accessories valued at Rs. 3287.50 to outside parties during the year 1978-79 to 1981-82 the entire production of boilers and burners, accessories and components valued at over Rs. 1.50 crores was sold by "Factory" to "Company".
(iv) "Factory" had been evading duty by not including the value of the raw materials, supplied by "Company" for the manufacture of boilers in working out their assessable value. The supply of raw materials by "Company" to "Factory" amounted to the supply of working capital and showed mutually of interest in the business of each other.
(v) "Company" was placing orders for the supply of raw materials to -"Factory" on various suppliers and had entered into correspondence on behalf of - "Factory" with various parties which was indicative of association in the business of each other.
(vi) "Company" was engaged in the manufacture of boilers, burners, accessories and component parts at Bombay prior to the setting up of "Factory" in 1978 in the wake of the strike at the Bombay works of "Company". "Factory" at Baroda was set up by the Managing Director of "Company" by setting a private limited company with himself and his wife as Directors and certain close family members, HUF and Family Trust as the only other share-holders.
(vii) "Company" being an established concern in the field of boilers, provided, technical know-how, finance, working capital, to "Factory" which functioned as its manufacturing wing.
(viii) "Factory" was supplying complete boilers, parts and accessories to its customers as revealed by the declarations made in the price lists and gate-passes, and was also incurring expenses towards boiler inspection.
(ix) The invoices issued by - "Company" showed separate charges on account of packing, forwarding and price enhancement and "Factory" had also issued debit notes to "Company" for packing charges, but such charges were not included in the assessable value.
(x) "Company" recovered Central Excise duty on the total value of the boilers and burners at which they were sold by them to the customers and not the actual duty paid by factory on the boilers and, therefore, the price enhancement by "Company" appeared to form a part of the assessable value of the boilers and burners.
(xi) In the absence of information in regard to the specifications and price of burners sold by the factory from time to time to "Company", the burners appeared to be chargeable to duty at the maximum price recovered in respect of burners by "Company" in cases where the corresponding sale price of "Company" was not available.
2. On these grounds a show cause notice dated 10th May, 1984 was issued to "Factory" alleging violation of Rule 173(C) of the Central Excise Rules, 1944 and fraud, wilful mis-statement and suppression of facts. It was further alleged that they had failed to file the correct price list in respect of the goods falling under Tariff Item 68 manufactured and removed during the years 1978-79 to 1983-84 (upto 19-8-1983) resulting in evasion of duty on differential value amounting to Rs. 1,21,86,433.37. The "Factory" was, therefore, called upon to show cause why duty amounting to Rs. 9,29,809.40 as worked out in the annexure to the show cause notice should not be recovered in terms of the proviso to Sub-section (1) of Section 11A of the Central Excises and Salt Act, 1944 read with Rule 9(2) of the Central Excise Rules, 1944 and why penalty should not be imposed on them?
3. In the reply dated 8-8-1984 and also during the personal hearing "Factory" denied all the allegations. However, by the impugned order the Collector confirmed the demand of duty amounting to Rs. 8,71,502.02 for the period 1978-79 to 1983-84 (upto 19-8-19ea) under the proviso to Sub-section (1) of Section 11A of the Central Excise Rules, 1944 read with Rule 9(2) of the Central Excise Rules, 1944. He also imposed a penalty of Rs. 1,00,000 on "Factory".
4. On behalf of the appellants the learned advocate Shri R.G. Seth has appeared before us. He submitted that the finding of the Additional Collector holding "Factory" and "Company" as "related person" under the second or inclusive part of definition under Section 4(4)(c) of the Act was illegal, unsustainable and without any basis or evidence. He added that there was no share holding between "Factory" and "Company" and also, there was no share holding between "Chemical" and "Factory". He stated that it is also evident from the Memorandum and Article of Association of the factory and the company as well as from the respective belance sheets of the companies that there was no power to appoint or remove the Directors in the respective companies. He argued that under these circumstances it was legally untenable to hold "Factory" and "Company" as subsidiary companies under Section 4(l)(c) of the Company's Act, 1956 and it was also legally untenable to hold "Chemical" as the holding company with two subsidiary companies namely, "Factory" and "Company". Referring to the finding of the Collector that "Company" and "Factory" as related person under the first part of the definition in Section 4(4)(c) of the Act Shri Seth argued that mere fact that Shri S.R. Shah was the Director in both the companies could not be the ground for holding them as "related person" under the first part of the definition. He added that the mere fact that the majority of the goods were sold by "Factory" to "Company" could also not be taken to mean that they were "related person", particularly when the transactions between them were on principal to principal basis and purely on commercial considerations. He further added that till 1981 the factory was manufacturing goods on job work basis under Notification No. 119/85 and after 1981 the goods were manufactured and sold on outright sale by affixing the brand name of the Company. The learned Counsel contended that the seized correspondence referred to by the Collector in the impugned order was neither individually nor commulatively sufficient to hold "Factory" and "Company" as "related person" under the first part of the definition. Referring to the allegation regarding price enhancement Shri Seth submitted that the amount under the heading "Price Enhancement" charged in certain invoices by Company included the payment already made by the Company to "Factory" on clearances of goods from Baroda. He contended that the price enhancement was only during the period 1981-82 to 1983-84 and the total amount was only Rs. 1,85,331 as also accepted by the department. He stated that the alleged excess amount was collected by the Company from the customers due to the fact that the Company was supplying many other bought out items directly to the customers and there was apprehension that the department would try to include the value of the bought out items in the assessable value. On these grounds he contended that the price enhancement charged by Company to its customers could not be a ground for treating "Factory" and "Company" as "related person". He reiterated his stand that the transactions between the Factory and the Company were on a principal to principal basis and contended that the percentage of profit earned by the company was on an average between 10 to 15%. He submitted that the show cause notices having been issued beyond the period of 6 months was time barred since the activities of the Factory and the Company were known to the department right from their inception and the classification lists, price lists and RT-12 returns filed from time to time were finalised. He argued that under these circumstances there could be no suppression of facts as held in various decisions by the Tribunal and the courts. In support of his submissions he placed reliance on the following case law :-
(i) Jay Engg. Works Ltd. v. Union of India -1981 (8) E.L.T. 284
(ii) Kerala Electric Lamps Works Ltd. v. CCE, Cochin - 1988 (33) E.L.T. 771
(iii) Cosmos (India) Rubber Works Private Ltd., v. Union of India and Ors. -1988 (36) E.L.T. 102
(iv) Union of India and Ors. v. Atic Inds. Ltd. - 1984 (17) E.L.T. 323
(v) Hindustan Lamps Ltd. v. Union of India -1977 (1) E.L.T. (J 1)
(vi) CCE, Madras v. T.I. Millers Ltd., Madras and Anr. -1988 (35) E.L.T. 8
(vii) International Computor India Mfg. Co. Ltd. v. CCE -1989 (41) E.L.T. 287
(viii) Eddy Current Control (India) Ltd. v. CCE, Cochin -1989 (39) E.L.T. 147 (Tribunal)
(ix) Padmini Products v. CCE -1989 (43) E.L.T. 195
5. On behalf of the Department, the learned SDR Shri V.K. Jain appeared before us. He took us through the impugned order. He prayed that the appeal may be rejected in view of the detailed findings by the Collector on each of the points raised by the appellants.
6. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the two main points that require examination in this case are :-
(i) Whether in view of the evidence brought on record the 'factory' and the 'company' could be deemed as related persons within the meaning of Section 4(4)(c) of the Central Excises & Salt Act, 1944.
(ii) Whether the show cause notice having been issued beyond the period of 6 months was time-barred.
7. It is seen that the Collector's finding that the 'factory' and the 'company' were "related person" in terms of the second part of the definition of "related person" in clause (c) of Sub-section (4) of the Central Excises and Salt Act, 1944 was based on the following reasoning :
"The officers also examined the relationship of the factory and the Company under the first part of Section 4(4)(c) of the Central Excises and Salt Act, 1944, which revealed that the director of the factory, managing director of the company and director of the Chemical was the same person viz. Shri Shirish R. Shah, who looked after Techno-Commercial work of the factory and general overall management of the Company, determined the sale price of the products of the factory and the company in the capacity of the director and managing director of the factory and company respectively. Such examination also revealed to the officers that the factory did not negotiate for the sale of boilers and burners with the Company, a sole purchaser of both the products, while as seller of the products purchased from the factory, prices were negotiated by the Company with each customer based on specific requirement with whom the Company had entered into contract. Thus the officers found that the contention of the factory that their prices were commercial prices for any party would not appear to be correct on the face of evidence that all the boilers and burners were sold by the factory to the Company only."
8. On behalf of the appellants the learned counsel Shri Seth has contended that the Collector's finding that "Factory" and "Company" were "related person" under the second or inclusive part of the definition of "related person" in Section 4(4) (c) of the Act, is legally unsustainable. In this regard he has pointed out that there is no shareholding between - "Factory" and "Company" and also between "Factory" and "Chemical". It has also been pointed out that it is borne out from the Memorandum and Articles of Association of "Factory" and "Company" as well as from the respective balance sheets of both the companies that there was no power to appoint or remove directors in the respective companies. On these grounds it has been contended that it would be legally untenable to hold - "factory" and "Company" subsidiary companies under Section 4(l)(c) of the Companies Act, 1956 or to treat "Chemical" as the holding Company with two subsidiary companies namely, "Factory" and "Company".
9. We find that the Collector has held that "Factory" could be deemed as a subsidiary of "Company" which itself was a subsidiary of "Chemical" since Shri Shirish R. Shah was the Managing Director of "Company" and was also controlling the composition of the Board of Directors of "Factory" in which he and his wife Smt. Charu S. Shah were the only other Directors. For these reasons the Collector concluded that "Chemical" was a holding company of which both "Company" and "Factory" were subsidiaries. In this regard we find that in regard to the second part of the definition of "related person" in clause (c) of Sub-section (4) of Section 4 in the case of UOI and Ors. v. Atic Industries Ltd. reported in 1984 (17) E.L.T. 323 when M/s. Atul Products Ltd. held 50% of the share capital of the assessee and the remaining 50% of the share capital was held by M/s. Imperial Chemical Industries, London and the assessee sold the large bulk of dyes manufactured to M/s. Imperial Chemical Industries (India) Pvt. Ltd. a subsidiary of M/s. Imperial Chemical Inds. Ltd., London (later named as Crescent Dyes & Chemicals Ltd. on dilution of the share holding of Imperial Chemical Inds., London to 40%) the Hon'ble Supreme Court had observed that:
"The second part of the definition which adds a inclusive clause was admittedly not applicable because neither Atul Products Ltd., nor Crescent Dyes Chemical Ltd. was a holding Company or a subsidiary Company nor either of them a relative of the assessee so as to fall within the second part of the definition."
It has been pointed out by the counsel of the appellants that there was no share holding between "Factory" and "Company" as borne out from their Memorandum and Articles of Association and also the Balance Sheet of both the companies and there was also no power to appoint or to remove the Directors in the respective companies. In view of these facts we are of the view that neither "Company" nor "Chemical" could be deemed as holding company of "Factory" nor could either of them be considered as relative of "Factory". For these reasons we are inclined to agree with the appellants that the Collector's finding that "Chemical" was holding company of which both "Company" and "Factory" were subsidiaries and "Factory" and "Company" were related person in terms of the second or inclusive part of the definition in Section 4(4)(c) of the Act was not legally sustainable.
10. In the impugned order the Collector has also held that "Factory" and "Company" could be branded as "related person" even in terms of the first part of the definition in clause (c) of Sub-section (4) of Section 4 of the Act since they could be deemed to be having interest directly or indirectly in the business of each other. It is seen that the main consideration which weighed with the Collector in arriving at this finding were that Shri Sirish R. Shah in his capacity as Director of "Factory" in which his wife Smt. Charu S. Shah was the only other Director and as Managing Director of the "Company" was concerned with the overall management of the affairs of "Factory" and - "Company" and was thus in a position to determine the sale price of both of them. In this regard the Collector also observed that the majority of the goods manufactured by the "Factory" were sold to "Company" and whereas "Factory" was not entering into any contracts with "Company" for the sale of its products "Company" had been entering into correspondence with various parties for sale on its own account the boilers and burners manufactured by 'Factory'. In support of his finding the Collector also referred to the letters enclosed with show cause notice which indicated that "Company" was placing orders on different suppliers for the raw materials needed by "Factory".
11. On the other hand relying upon the decisions of the Delhi High Court in the case of Jay Engg. Works Ltd. and Anr. v. Union of India and Ors. (supra), the Bombay High Court judgment in the case of Cosmos (India) Rubber Works Pvt. Ltd. v. Union of India (supra) and the decision of the Tribunal in the case of Kerala Electric Lamps Works Ltd. and Anr. v. CCE, Cochin (supra) the appellants have contended that the two companies could not be deemed as "related person" in terms of the first part of the definition in Section 4(4)(c) merely because Shri Shirish R. Shah was a Director in both the companies. They have also contended that on the ratio of the Supreme Court's decision in the case of Jt. Secty. to Govt. of India v. Food Specialities Ltd. reported in 1988 (22) E.L.T. 324 and Union of India and Ors. v. Cibatul Ltd. reported in 1988 (22) E.L.T. 302 the mere fact that the majority of the goods were sold by "Factory" to "Company" would not mean that they were "related person", particularly when the transactions between them were on principal to principal basis on purely commercial considerations. In regard to the allegation that "Company" was providing financial assistance to the "Factory" by arranging the supply of raw materials free of cost, it has been pointed out that the raw materials were being supplied by "Company" only upto 1981 when the goods were being manufactured by "Factory" on job work basis under Notification No. 119/75 and in the separate proceedings launched by the Department for the recovery of duty by including the value of such raw materials, the Collector (Appeals) had decided the issue in favour of the appellants. The appellants have further contended that the correspondence relied upon by the Collector was neither individually nor cumulatively sufficient to hold the two companies as "related person" under the first part of the definition.
12. As pointed out by the learned counsel for the appellants it is now well settled that two companies cannot be deemed as having interest directly or indirectly in the business of each other merely on the ground that they have certain common Directors or the Chairman of one company is also a Director in the other company. In this regard we consider it desirable to refer to the following extract from para 16 of the decision of the Hon'ble Delhi High Court in the case of Jay Engg. Works Ltd. v. Union of India (supra);
"Apart from a vague mention that one of the directors of Usha is also the Chairman of the petitioner company there is nothing else to show how the two concerns are interested in each other. In our opinion, it is clear from the facts on record which are undisputed that Usha is an independent buyer of the major part of the assessee goods and it cannot be said to be a related person within the meaning of Section 4."
We also find from the following extract from the judgment in the case of Cosmos (India) Rubber Works Pvt. Ltd. v. Union of India (supra) that a similar view was taken by the Hon'ble Bombay High Court:
"In my opinion, the above extract from the judgment of the Supreme Court in Union of India v. Kantilal Chunilal answers both the questions which have been raised in this petition. In the first place, it shows that merely because a large volume of the sales of a particular company goes to some partnership or other entities, that itself does not make that other entities related persons and does not authorise the department to levy excise duty on the prices at which these latter entities sell the products. Secondly, this authority also shows that merely because there are certain directors common to the assessee and the wholesalers, be they partnership firms or limited companies, that itself does not make the latter as related persons under Section 4 of the Act unless there is some mutuality between the petitioner company and the other entities to whom the products are sold as wholesalers by the petitioner company."
13. On the ratio of the decisions quoted above it follows that "Factory" and "Company" could not be deemed as "related person" in terms of the first part of the definition in Section 4(4) (c). We find that the two companies could not be held as "related person" even on the grounds that "Factory" was producing goods bearing the trade mark of "Company" and was selling almost its entire production to "Company" since it has been held by the Hon'ble Supreme Court in the case of UOI v. Hind Lamp Ltd. reported in 1989 (43) E.L.T. 161 (S.C.) that unless the sale price is based on any extra commercial consideration manufacturing company and the customer cannot be treated as "related person" even if the goods produced bear the customer's brand name and the entire production is sold to him. The relevant extracts from the said judgment are reproduced below:
"Shri Sibal placed before us a Chart indicating the similarity of the facts of Atic Industries' case (supra) and the facts of the present case. In Atic Industries' case, 50 per cent of share capital belonged to Atul Products Ltd. and 50 per cent to the Imperial Chemicals (London) Ltd., a foreign company. In the case of the respondent herein, 50 per cent share capital belonged to the Bajaj Electricals Ltd. (Indian Company) and 50 per cent belonged to Philips (17.67%), Mazda (14.86%), G.E.C. (10.59%) and C rompton (6.88%), all foreign companies. In case of Atic Industries' the sale of goods was on principal to principal basis and to share holding company and to another company, which was initially a subsidiary of the foreign share holding company and to which subsequently became "associate" company of the foreign shareholding company. In the instant case also, it was on principal to principal basis and to a shareholding company (Bajaj Electricals Ltd.) and so called to associated companies of the foreign shareholding companies. Goods were supplied to customers in their brand name in the case of Atic Industries as in the instant case. In Atic Industries' case, there was no allegation of extra commercial consideration and in the instant case also there was no allegation of extra commercial consideration. In Atic Industries' case, same prices were charged from all the customers, similar is the position in the instant case.
8. In the aforesaid view of the matter and in view of the ratio of the said decision, Shri Sibal sought to urge that the High Court was right in the view it took. In our opinion Shri Sibal is right. There is a lurking doubt that the five customer companies were the favoured customers; but no investigation seems to have been carried out. The High Court while allowing the writ petition held that it was open to the Central Excise authorities to examine whether or not the five custorner companies were the favoured customers and whether the price at which respondent company sold by a manufacturer in the course of wholesale trade for delivery at the time and place of removal. Apparently, no such scrutiny was done."
14. We find that one of the considerations that weighed with the Collector in arriving at the finding that "Factory" and "Company" were "related person" under the first part of the definition in Section 4(4)(c) was that "Factory" undertook the production of boilers and burners merely on receipt of the specifications from "Company" and no prior agreement or contract was entered into between the manufacturer and the buyer to lay down the sale price of any goods or the conditions of sale. In this regard we find that the Collector held that "Company" was entering into correspondence on behalf of "Factory" with various suppliers of raw materials and was also financing the operations of "Factory" through supplies of raw materials for which no payment were made by "Factory". The appellants while denying these allegations have contended that the free supplies of raw materials were made by "Company" only upto 1st March, 1981, when goods were being manufactured by "Factory" on job work basis in terms of Notification No. 119/75. In this regard it has been pointed out that the Department had subsequently launched proceedings alleging that excise duty on the goods was leviable by including the value of raw materials supplied by the buyer but ultimately by order No. M-17/BD/10/86 dated 12-3-1986 the Collector Central Excise (Appeals), Bombay had decided the matter on merits as well as on limitation in favour of the appellants. The appellants have further contended that the transactions between the two companies were on principal to principal basis and the price at which "Company" sold the goods to the customers was even though escalated over and above the sale price of "Factory" the escalation was only to take into account the cost of the parts procured by "Company" and also the other services which were required to be rendered during installation and commissioning of the boilers. It has also been contended that the margin of profit earned by "Company" being about 20% was not excessive. Since for the period prior to March, 1981 in the proceedings initiated by the Department for recovering duty by including the cost of the raw material supplied to "Factory" by the appellants, the Collector (Appeals) had relied in favour of the appellants and there is no finding based on specific instances that the appellants continued to supply raw materials to "Factory" even after March, 1981. We are of the view that the Collector's finding that the appellants were financing the operations of "Factory" by supplying raw materials free of cost is not sustainable. Under these circumstances, and having regard to the fact that the department has not led any evidence to show that "Factory" was in fact selling its products to "Company" below their normal wholesale price or there was any flowback from the buyer to the manufacturers which was not reflected in the sale invoices the appellants' contentions that the transactions between them and "Factory" were at arms length and were influenced purely by trade considerations has to be accepted. For these reasons the Collector's finding that "Factory" and "Company" were "related person" even in terms of the first part of the definition in Section 4(4)(c) of the Act is not sustainable. We are, therefore, of the view that the answer to the first question has to be in the negative.
15. We find that the main considerations which weighed with the Collector while arriving at the finding that the longer period of five years was invokable in terms of the proviso to Sub-section (1) of Section 11A of the Central Excises and Salt Act, 1944 were that (1) that the appellants had deliberately and wilfully suppressed the fact that "Factory" and "Company" were "related person" within the meaning of Section 4(4)(c) of the Central Excises and Salt Act, and (2) "Factory" had suppressed the fact that it was supplying "raw materials" to "company" for the manufacture of boilers with the intent of deliberately avoiding the payment of duty on the value of such raw materials. In this regard the appellants' case is that the show cause notice having been issued beyond the period of 6 months was barred by limitation. They have contended that the activities of "Factory" and "Company" were known to the Department since their inception and the classification lists, as well as price lists filed from time to time were approved and the RT-12 returns were also regularly assessed and audited. It has been added that the proceedings initiated against "Factory" for non-inclusion of the price of raw materials in the assessable value of its products were ultimately decided by the Collector (Appeals) in favour of the assessee. In support of their claim that the demand having been issued beyond a period of 6 months was time-barred, the appellants have placed reliance on the following case law :
(i) CCE v. Chemphar Drugs and Liniments -1989 (40) E.L.T. 276 (SC)
(ii) Padmini Products v. CCE -1989 (43) E.L.T. 195 (SC)
(iii) Nestler Boilers Pvt. Ltd. v. CCE -1990 (50) E.L.T. 613 (Tribunal)
16. As regards the appellants' claim that the activities of "Factory" and "Company" were known to the Department right from their inception we find from the Collector's order at pages 33 and 34 that the prior to the setting up of "Factory" for the manufacture of boilers and burners at Baroda in January, 1978 we find that "Company" was carrying out manufacture of boilers and burners till May, 1977 at their works at Thana and Kalina which they had to close down in the wake of the strike at their Bombay works. As pointed out by the appellants, they were submitting copies of the relevant invoices issued by them from time to time to the Department along with the RG-12 returns which were finalised on the basis of the classification lists approved by the Department. It cannot be disputed that on the basis of these documents the fact that the appellants were selling most of their goods to "Company" was known to the Department from the very inception of the manufacturing activity by the appellants at Baroda. Further, "Factory" and "Company" both being limited companies their Memorandum and Articles of Association as well as the other information such as the particulars of persons having large share-holdings in the two companies and the composition of its Board of Directors could not have been concealed or suppressed by them. Evidently the appellants entertained the bonafide belief that the transactions between them and "Company" were at arm's length and both being limited companies they could not be deemed as "related person" under Section 4(4)(c) of the Act. As regards the allegation that the price of the raw materials received by the appellants from "Company" was not taken into account for working out the duty leviable in the final products, the appellants' claim is that till 1981 they were manufacturing goods on job work basis in terms of Notification No. 119/75 and the earlier proceedings initiated against them on the same grounds eventually resulted in the charges being dropped on the basis of a favourable order passed by the Collector (Appeals). Under these circumstances we are inclined to agree with the appellants that the Collector's finding that they had wilfully suppressed the fact that "Factory" and "Company" were "related person" within the meaning of Section 4(4)(c) of the Central Excises and Salt Act is not sustainable. In the case of Collector of Central Excise v. Chemphar Drugs & Liniments reported in 1989 (40) E.L.T. 276, the Hon'ble Supreme Court has held that conscious or deliberate withholding of information by the manufacturers is necessary before invocation of larger period and when the Department had full knowledge or the manufacturer had reasonable belief that he was not required to give a particular information under Section 11A the demand has to be limited to only 6 months. Paras 8 & 9 of the said judgment being relevant are reproduced below :-
"8. Aggrieved thereby, the revenue has come up in appeal to this Court. In our opinion, the order of the Tribunal must be sustained. In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to Sub-section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to hereinbefore do not warrant any inference of fraud. The assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of exempted goods which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted that the Department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the product other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal, itself as being based on no evidence.
9. In that view of the matter and in view of the requirements of Section 11A of the Act, the claim had to be limited for a period of six months as the Tribunal did. We are, therefore, of the opinion that the Tribunal was right in its conclusion. The appeal, therefore, fails and is accordingly dismissed."
17. On the ratio of the decision of the Supreme Court quoted above the answer to the second point has to be in the affirmative and the demand issued on 10-5-1984 after a lapse of more than 6 months in respect of the goods cleared by the appellants during the period 1978-79 to 1983-84 (upto 19-8-1983) has to be deemed as barred by limitation.
18. In view of the finding that the demand confirmed by the impugned order was time-barred it is not necessary for us to examine the other issues arising out of the impugned order.
19. In view of the above discussion, we set aside the impugned order and allow the appeal.