Custom, Excise & Service Tax Tribunal
4 E/719/05 M/S Catherinechristo Cce, ... vs 5 E/720/05 Smt K.K. Rosy Cce, Calicut ... on 5 February, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT BANGALORE Appeal No: E/716-720/2005 (Arising out of Order-in-Original No: 2/2005 dated 29.04.2005 passed by the Commissioner of Central Excise & Customs) Calicut 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? Yes 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? Christo GeorgeThrissur Appellant Vs. The Commissioner of Central Excise & CustomsCalicut Respondent
Appearance Shri Joseph Kodianthara, learned Advocate, appeared on behalf of the appellants Shri K.Sambi Reddy, Authorized Representative (JDR), for the Revenue.
CORAM DR. S.L. PEERAN, HONBLE MEMBER (JUDICIAL) SHRI T. K. JAYARAMAN, HONBLE MEMBER (TECHNICAL) Date of Hearing: 05.02.2008 Date of decision:
ORDER No._______________________2008 Per Shri T.K. Jayaraman All these five appeals have been filed against Order-in-Original No. 2/2005 dated 29.04.2005 passed by the Commissioner of Central Excise & Customs, Calicut. The details of the appellants and duty/penalty confirmed are given in the following tabular column. Tabular Column S.No. Appeal No. Appellant Respondent O/O &O/A Duty/Penalty Remarks 1 E/716/05 M/s HykonElectronic Systems CCE, Calicut 02/2005 dt. 29.04.05 Rs.4,90,674/- DutyRs.4,90,674/- Penalty 2 E/717/05 M/s HykonPower Electronic(P) Ltd. CCE, Calicut 02/2005 dt. 29.04.05 Rs.4,31,243/- DutyRs.4,31,243/Penalty 3 E/718/05 M/s Christo George CCE, Calicut 02/2005 dt. 29.04.05 Rs.10,000/- Penalty 4 E/719/05 M/s CatherineChristo CCE, Calicut 02/2005 dt. 29.04.05 Rs.5000/- Penalty 5 E/720/05 Smt K.K. Rosy CCE, Calicut 02/2005 dt. 29.04.05 Rs.2500/- Penalty
2. In this case, there are actually two manufacturing units and another firm HMSPL which is a Marketing Firm. The Manufacturing Firms are HES and HPE. Apart from the duty, penalties have been imposed on three other persons who are the Managing Director/ Managing Partner of the unit. The issue is one of the valuations. The case of the Revenue is that the value of the goods cleared by HES and HPE for Central Excise purpose should be the sale value of the goods sold by M/s HMSPL which is a Marketing Firm. Mr. Christo George is the Managing Director of the Marketing Firm. He is also the Managing Partner of HEL. The period is prior to 1.7.2000 when the new Section 4 was introduced. The allegation of the department is that these two manufacturing units are related to the marketing firm HMSPL and therefore the price at which marketing firm sold the goods has to be taken as value for Central Excise purpose in respect of all the goods cleared by HEL and HPE. Consequently, duty has been demanded as indicated in the above tabular column. Equal penalty also has been imposed and in respect of Christo George, Catherine Christo and Smt. K.K Rosy penalties have been imposed as indicated above. The appellants strongly challenge the impugned order. Hence, they have come before this Tribunal for relief.
3. Shri Joseph Kodianthara, learned Advocate, appeared before us for personal hearing on behalf of the appellants and Shri K. Sambi Reddy, learned JDR, argued for the Revenue.
4. We heard both sides. The only issue before the Tribunal is the valuation of the goods cleared by HES and HPE to M/s. HMSPL which is a marketing firm. The learned Commissioner comes to the conclusion that the sales of these two units to the marketing firm are not at arms length and the manufacturing units and distributing marketing firm have interest directly or indirectly in the business of each other. Therefore, he has held that the value to be adopted is the sale price of the goods sold by the marketing firm. The learned JDR reiterated the findings of the Commissioner. For clarity we reproduced the following findings of the Commissioner in Para 33 of the Order-in-Original.
I find that Shri Christo George, the Managing Director of M/s HMSPL is having the overall control over the affairs of the distributing/marketing firm. He himself is the Managing Partner of HES and his wife is the Managing Director of HPE. Free service training imparted to the technicians of marketing firm, huge credit balance when compared to the low share capital of the firm and particularly when they have taken considerable amount as loan for working capital, Smt. Catherine Christo, the Managing Director of HPE acquiring amount to M/s HMSPL on her personal guarantee as secured loan, HMSPL advertising for the goods manufactured by two manufacturing units with regard to the relationship with the distributor all indicate that the sales are not at arms length and that they (the manufacturing units and the distributor/marketing firm) have interest directly or indirectly in the business of each other.
5. On the other hand, the learned Advocate pointed out that M/s HES, HPE and HMSPL are three separate legal entities. He stated that the two manufacturing units undertake sales not only to the marketing firm but also independently to various other parties. That apart, he said that the marketing firm purchases not only from the two manufacturing units but also from others. He urged the point that there is no finding that the relation between the manufacturing firms and the marketing unit have influenced the price. We also brought to our notice that the marketing firm has imported similar items at far less rate also. All the products are not marketed under the brand name of Hykon. Purchase price and sale price differ due to huge marketing expenses. There is no under valuation in purchase. He also brought to our notice that the total purchase of HMSPL from HES and HPE for the year 1998,1999 and 1999-2000 is Rs 34,48,067/- and Rs 1,04,52,719/- and Rs 44,57,790/- and Rs 62,24,839/- respectively. Whereas the total purchase from others for the said two years is Rs 35,40,242/- and Rs 59,66,648/-. Moreover, HES and HPE have also sold to other parties during the above two years for the amounts totaling to Rs 10,06,593/- and Rs 9,19,396/-. Therefore, he urged that there is no basis to sustain the finding of the Commissioner.
6. The Commissioner has stated that prior to the period 1.7.2000, the two manufacturing firms and the marketing firm should be treated as related persons and therefore he has adopted the sale price of the marketing firm HMSPL for Central Excise duty purposes. There is no finding by the Commissioner that the price at which the two manufacturing firms sold their goods to the marketing firm was actually influenced by their relationship. It is seen that the marketing firm has not exclusively purchased the goods from the two manufacturing firms; but also from others. It has been also stated that they had also independently imported similar goods at less price. There is also evidence that the two manufacturing firms have sold goods to the other parties also. The learned Advocate in the course of hearing pointed out that there is no allegation that the appellants had sold the goods at less price to the marketing firm and at a different price to others. Therefore, he said there is absolutely no case for adopting the value of the marketing firm.
7. On a very careful consideration of the matter, we do not find that there is enough justification to hold that the two manufacturing firms and marketing firm can be considered as related person in terms of Section 4 as it stood prior to 1.7.2000. Instances of credit owed by the marketing firm to the manufacturing firms and also the fact that the marketing firm people were trained by the manufacturing firm cannot be the sole reasons for adopting the value at which the sale price of the marketing firm as assessable value. There will always be a difference in price between the price at which the marketing firm sells the goods and the price at which the manufacturing firm sells the goods to the marketing firm due to over heads and additional costs such as transportation, loading/unloading etc. Many post-manufacturing expenses are also involved. Unless it is shown that the price at which the goods have been sold to the marketing firm have been influenced by the relationship between the marketing firm and the manufacturing firms, there is no basis for adopting the valuation of the marketing firm. In such circumstances, we do not find any merit in the impugned order. The duty demand cannot be sustained. Therefore, we set aside the impugned order. Since the duty demand cannot be sustained, the penalties levied also cannot be upheld. Hence, we allow all the appeals with consequential relief.
(Operative portion of this Order was pronounced in open court on conclusion of hearing) (T.K. JAYARAMAN)Member (T) (S.L.PEERAN) Member (J) /iss/