Customs, Excise and Gold Tribunal - Delhi
Sundari Surti Stores vs Collector Of Central Excise on 8 January, 1988
Equivalent citations: 1988(15)ECR378(TRI.-DELHI), 1988(34)ELT699(TRI-DEL)
ORDER K.L. Rekhi, Member (T)
1. The appellants were a partnership firm. They, manufactured branded chewing tobacco. They marketed it through another partnership firm of sole selling agents, M/s. Sundari Sales Corporation, They submitted price lists for the quarters ending 31-03-1975 and 30-09-1975 on the basis of discount of 25% and 20%, respectively. The departmental officers approved these price lists. When the new Section 4 came into force w.e.f. 01-10-1975, with its concept of 'related person', the Appellants submitted a price list in Part-IV and claimed the discount of 15%. Part-IV proforma of the price list applied to cases where the manufacturer sold his products to or through a related person in terms of Section 4(4)(c) of the Act. The Appellants declared the discount of 15% in their price list. The price list as submitted, was approved by the departmental officers. Later on, their investigation revealed that the sole selling agent of the Appellants was not allowing the discount uniformally at the declared rate of 15% to its buyers. The authorities issued a Show Cause Notice on 22-4-1978 and, on adjudication, demanded duty on the discount portion of the value for the entire period from 01-03-1975 to 31-03-1978. In Appeal, the Appellate Collector held that there was no suppression by the Appellants and hence the extended time limit of five years Under Rule 11 of the Central Excise Rules, 1944 was not applicable. He confirmed the demand for the 12 months/6 months period of normal limitation. In the 2nd appeal, a Bench of this Tribunal held that since the appellants had not taken the plea of the sole selling agent firm being not a related person before the lower authorities, and had not furnished any data in this regard, this plea could not be considered by it. The Bench, however, allowed the minimum discount of 7% which, according to the impugned order-in-appeal of the Appellate Collector, the sdle selling firm was allowing uniformally to all buyers. Aggrieved, the appellants took the matter in appeal to the Supreme Court (CIVIL APPEAL No. 3911 (NM) of 1986]. The Hon'ble Supreme Court, by their Order dated 12-2-1987, remanded the matter to this Tribunal for giving a clear finding on the two questions : (i) Related person; (ii) Limitation, and thereafter to go into the claim made by the appellants afresh in respect of the discount allowed.
2. In compliance with the orders of the Hon'ble Supreme Court, we have heard both sides today on the above 3 questions. To take up the question of related person first, the appellants invited our attention to the Partnership Deeds of the Manufacturing Firm and the selling firm according, to which the names and shareholdings of the partners are as under :-
FIRM SOLE SELLING AGENT FIRM
__________________ _______________________
S/Shri S/Shri
1. Pratap Narain Dube - 25% 1. Kanhaiya Bux Singh - 25%
2. Gajadhar Lai Dwivedi - 40% 2. Kuldip Dube - 25%
3. Birendra Narain Dube - 35% 3. Luxmi Narain Dube - 25%
4. Jagat Narain Dube - 25%
3. The appellants stated across the bar that of the three partners of the manufacturing firm, i.e. appellants, the first two partners were not related to any partner of the sole selling agent firm or the Distributor Firm; only the third partner, Shri Birendra Narain Dube, had his two sons, namely, S/Sh. Luxmi Narain Dube and Jagat Narain Dube, as partners of the sole distributor firm. The remaining two partners of the distributor firm were not related to any partner of the manufacturing firm. The appellants invited our attention to Section 4(4)(c) of the Act which reads as under :-
"related persons" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor.
4. It has been held by the Hon'ble Supreme Court, in their judgment in the case of M/s. Bombay Tyres International Ltd. [1983 (14) ELT 1896 (S.C.)] that to be considered a related person, the distributor should be a relative of the manufacturer as well within the meaning of the term "relative" as in the Companies Act, 1956. The appellants pleaded that one partner of the manufacturing firm, Shri Birendra Narain Dube, who had his two sons as partners of the distributor firm, had only 35% share in the manufacturing firm; as such, he was not in a position to influence the commercial decisions of the manufacturing firm. The decisive voice rested with the other two partners of the manufacturing firm who together held the majority share of 65%. Similarly, the two sons in the distributor firm held together only 50% shares in the distributor firm. In other words, they too did not have a majority vote in commercial decision making in the distributor firm.
5. Regarding the limitation, the appellants stated that in view of the finding of the Appellate Collector in their favour that there was no suppression, only the normal time limit of six months as in force on the date of issue of the Show Cause Notice applied [vide 1984 (17) ELT 331/ (Tribunal - Larger Bench) - Atma Steels, para 101]. Since the Show Cause Notice had been issued on 22-04-1978, the demand, if at all maintainable, could only be for the period from 23-10-1977 to 31-03-1978 and not the way the Appellate Collector had calculated.
6. Regarding the discount, the appellants stated that the Appellate Collector had made an error. In the documentary .evidence filed by them before the lower authorities, the minimum discount allowed uniformally by the sole distributor firm to its buyers had been shown as 7% + 3%, i.e. total 10% and not 7% as mentioned by the Appellate Collector. This could be verified by the departmental authorities. If the distributor firm was held to be a related person of the appellants, subject to verification, the minimum discount of 10% should be allowed.
7. The learned representative of the department agreed with the appellants on the questions of limitation and discount. On the question of related person, he made no submissions and left the matter to be decided by the Bench and in the light of the following judgments of the Hon'ble Supreme Court and the Tribunal :-
(i) 1983 (14) ELT 1896 (SC) - Bombay Tyres International Ltd.
(ii) 1986 (23) ELT - Page 8 (SC) - Moped India Ltd.
(iii) 1985 (22) ELT 236 (Tribunal) - Bengal Paper Mills.
8. We have given the matter our earnest consideration. We find force in the appellants plea that the related partners in the two firms did not have the majority share to be able to influence commercial decisions of the firms. The decisive voice for the affairs of the appellant firm rested with the other partners who were not related. In the circumstances, the distributor firm could not be considered a relative of the manufacturing firm. We have seen the Agreement dated 20-03-1975 between the manufacturing firm and the distributor firm. There is nothing in it which could be termed as extra - commercial. No evidence of mutual financial involvement of the two firms has been brought to our notice nor is there any evidence of the two firms sharing the profits/loss of each other. In the circumstances, we hold that the sole distributor firm of M/s. Sundari Sales Corporation was not a related person of the appellant firm. In the circumstances, the discount given by the appellants to the sole distributor firm would be an admissible deduction for arriving at the assessable value of the goods Under Section 4 of the Act. The question of going into the quantum of discount given by the distributor firm to its buyers would not arise. The demand based on denial of the appellants' discount to the sole distributor firm would not be maintainable and hence there would be no need -to determine the limitation period for the demand. However, for the sake of record, we would state that the demand for the period prior to 23-10-1977 would even otherwise be time barred Under Rule 11 of the Central Excise Rules, 1944 as then in force.
9. In the result, we set aside the impugned orders and the demand and allow this appeal with consequential relief to the appellants.