Customs, Excise and Gold Tribunal - Bangalore
Gomti Carbon Dioxide (A Division Of ... vs The Commissioner Of Central Excise on 9 June, 2006
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been filed against Order-in-Appeal No: 649-CE/AAPL/KNP/2004 dated 31.12.2004 passed by the Commissioner of Central Excise (Appeals), Kanpur.
2. The appellants manufacture carbon dioxide. The Central Excise officers conducted certain investigations and it was revealed that the appellants sell their entire product to M/s. CPL another company for a price of Rs. 4/- per kg. But M/s. CPL sell the product at Rs. 12/- per Kg. Further scrutiny of records revealed that the appellants had taken unsecured loans of Rs. 20 lakhs, Rs. 35 laksh ans Rs. 35 lakhs on 31.3.1991, 31.3.92 and 31.3.93 from M/s. CPL no interest was paid by them to M/s. CPL on the unsecured loans. The Head Offices of both the appellants and M/s. CPL were located at 239, Mahalakshmi Layout, Bangalore. The Department proceeded against the appellants on the ground that the appellants and M/s. CPL are related persons. Five Show Cause Notices were issued. The Deputy Commissioner, Central Excise, Kanpur in his Order-in-Original dated 22.5.2001 confirmed a demand of Rs. 12,86,996/- upon the appellant under Section 11A of the Central Excise Act 1944. He relied on Tribunal's finding in Final Order No. 1220-1223/98-A dated 1.9.98 to the effect that the appellant and M/s. CPL are related. Penalties were imposed on the appellant company, Shri K.C. Kini, Partner of the appellant and Shri Suresh Kamath, Plant Manger of the appellant under various sections of the Central Excise Rules. The appellants approached the Commissioner (A). The Commissioner (A) in the impugned order held that the appellant and M/s. CPL are related persons. He confirmed the Order-in-Original. The appellants strongly challenge the impugned order, hence, they have come before this Tribunal for relief.
3. Shri C.R. Pandit, learned advocate appeared for the appellant and Shri Sambi Reddy, learned JDR for the Revenue.
4. The learned advocate urged the following points.
(i) Even though the Tribunal in its order dated 1.9.98 has in uncertain terms left open the question arising under Section 4(4)(c) of the Act for consideration in respect of any period subsequent to 28.2.97 in case either party raises any such question at the appropriate stage, the lower authorities had without examining the issue concluded that the appellant and M/s. CPL are related. Therefore, there is no application of mind at all by the lower authorities.
(ii) In view of the observations of the Tribunal the appellant had the right to raise and refute the question of related person for the period from 1.3.1997 to 31.3.1998 to which the present appeal relates. The Adjudicating Authority had the corresponding duty to address the question in the light of facts of the case and only thereafter he can come to any conclusion regarding the related person issue. Instead he has arbitrarily held that the appellants and M/s. CPL are related persons.
(iii) The Commissioner (A) in the impugned order has mechanically without application of mind upheld the Order-in-Original without even considering the facts of the case brought on record by the appellant and the statement of facts in his appeal dated 20.7.2001 filed before the Commissioner (A).
(iv) On merits also it is possible to establish that the appellants and CPL are not related persons within the meaning of Section 4(4)(c) of the Act for the following reason;
a. The buyer company was not a partner of the appellant firm and therefore, had no financial or managerial interest therein.
b. Only one Director out of the eight Directors of CPL was the Partner in the appellant firm, therefore even indirectly CPL had no financial or managerial interest in the appellant firm.
c. The appellant had no controlling interest in CPL. The individual partners in the appellant firm in their individual capacity as shareholders had interest in the buyer company CPL. In view of the above, neither the appellant nor CPL had any financial or managerial interest directly or indirectly in the business of each other.
d. There is actually no flow back from CPL to the appellant. The so called unsecured loan of Rs. 35 lakhs given by CPL to the appellant was actually a capital advance paid on a back-to-back basis out of the capital advance of Rs. 50 lakhs which CPL received from TISCO, Jamshedpur for entering into a long term supply contract with CPL. On this capital advance, CPL could obviously not charge interest to the appellant since at all times CPL itself, as a credit customer of the appellant for CO2, was a debt to the appellant.
e. it was explained to the Adjudicating Authority that there was a contract between TISCO and CPL. For breach of contract, TISCO had to pay CPL a compensation of Rs. 1.277 crores spread over 92-93, 93-94 and 94-95. out of this compensation, CPL passed on to the appellant Rs. 31,78,929.37 in 92-93; Rs. 26,29,847.50 in 93-94; and Rs. 4,49,280/- in 94-95. Thus out of a total compensation of 1.277 crores, the appellant was paid approximately Rs. 63/- lakhs which is 50% of the compensation. Considering that the appellant had made a capital investment of Rs. 123 lakhs, appellant should have got a compensation of Rs. 92.4 lakhs. The capital advance and compensation transaction between CPL and the appellant was specific to the TISCO project and had nothing to do with the sale of carbon dioxide by the appellant to the CPL. The Adjudicating Authority has ignored this and has proceeded on a erroneous basis.
f. The fact that the buyer company entered into a contract with IFFCO a quasi government organization for purchase of CO2 at the rate of Rs. 3.50 per kg. Shows that the price of Rs. 4 per kg at which the appellant factory cleared the goods to the buyer company was a bonafide commercial price and therefore ought to be treated as the assessable value irrespective of whether the appellant factory and the buyer company were related persons.
5. The learned JDR reiterated the orders of the lower authorities.
6. We have gone through the records of the case carefully. The Deputy Commissioner in his Order-in-Original relies on the Tribunal Order for an earlier period and holds that the appellant and CPL are related persons. Based on the above assumptions, the Original Authority discusses the admissibility of various discussions. It is not understood how the Original Authority has made the above assumptions despite the following observations of the Tribunal in its final Order No. 1220-1223/98 dated 1.9.98.
We therefore leave open the question arising under Section 4(4)(C) of the Act for consideration in respect of any period subsequent to 28.2.97 in case either party raises any such question at the appropriate stage.
The appellants have given elaborate reasons for receipt of advances from CPL, which are in the nature of capital advance and compensation in connection with a specific project of TISCO. A point has been made that this has nothing to do with the sale of carbon dioxide to CPL. Moreover, the appellant has stated that M/s. CPL purchased carbon dioxide even at a lesser price of Rs. 3.50 per kg from M/s. IFFCO, a quasi governmental authority. It appears that the lower authority has not appreciated all these facts in arriving at a decision. He has also completely ignored the Tribunal's decision.
7. A close reading of the Tribunal's order indicates that for the period subsequent to 28.2.97, the question of related person has been kept open, therefore the appellant had every right to challenge the department's contention that the appellant and CPL are related. The Adjudicating Authority erred in relying on a finding of the Tribunal for a period prior to 28.2.1997 even when the Tribunal has kept that question open for a subsequent period. To put it differently, the Adjudicating Authority should have examined in detail the question of related person and arrived at a proper finding in accordance with law based on the actual position. He has miserably failed to do his job. The Commissioner (A) without proper application of mind has passed an order confirming the Order-in-Original perfunctorily. In these circumstances, we set aside the impugned order and remand the case to the Original Authority with a direction to pass a denovo order in the light of our observations above after giving an opportunity to the appellants to present their case. The appeal is disposed of in the above manner.
(Pronounced in open Court on 9 Jun 2006)