Customs, Excise and Gold Tribunal - Bangalore
Automotive Axles Ltd. vs Commissioner Of Central Excise, ... on 1 March, 2002
Equivalent citations: 2002(142)ELT706(TRI-BANG)
ORDER G.A. Brahma Deva, Member (J)
1. These are fifteen appeals. All the appeals involve common issues. They are therefore taken together and are being disposed of by this common order.
2. Appeal No. 5279/94 is filed by the party against the Order-in-Original dated 31-12-93 passed by the Collector of Central Excise, Bangalore. In remaining appeals, orders were adjudicated by the respective Assistant Collectors on which appeals were filed before the Commissioner (Appeals). They have become unsuccessful before the Commissioner (Appeals). Hence, all these appeals.
3. The issues relates to concept of related person. It was alleged in the show cause notice dtd. 30-11-88 in Appeal No. E/5279/94 that Bharat Forge holding 40% shares in the appellant-company/ interest free loan of Rs. 50 lakhs had been given and the said fact was not disclosed to the Department while filing the price list; the appellant-company and the said Bharat Forge Ltd. (BFL) have mutual interest in the business of each other. On similar grounds show cause notices were issued for the subsequent periods in the respective appeals. Based upon the charges that BFL holding 40% of the shares in the appellant-company, BFL has given interest free loan of Rs. 50 lakhs and sale of forgings by BFL to appellant-company at lower price, proceedings were adjudicated by the authorities below holding that BFL was related person of appellant and accordingly the price at which the crown wheel pinion of BFL should be taken as basis in determining the assessable value.
4. Shri Parameswaran, Id. Counsel appearing for the appellants in all these cases submitted that to construe related person not only the buyer has got an interest in the business of the seller, but seller also must have a business interest or associated with the business of the buyer. In the instant case, the appellant has no share holding in BFL, nor is associated with the administration or management of the business affairs of M/s. BFL. He said that the loan of Rs. 50 lakhs not given in relation to supply of goods but same was given as per the agreement with the Finance Institutions. He said that the above charges are not sufficient to hold that M/s. BFL is related person of the appellant. He said that BFL was neither related person nor extra commercial consideration received. The difference between the selling price of appellant to BFL and the selling price of BFL to others was not substantial and this factual position has also not been taken into consideration. Referring to Para 7 of the impugned Order-in-Appeal No. E/5279/94 with reference to the charge of reciprocal interest he said that this observation was beyond the scope of the show cause notice since same was never alleged in the show cause notice nor an opportunity was given to counter the same and further same was not substantiated. He submitted that in some of the subsequent show cause notices, though this charge was alleged in vague but same was not substantiated and at any rate that charge cannot be basis in treating BFL as related person of the appellant-company. He contended that the aspect as to how there has been clearance of the said product, crown wheel pinion, at the lower price has not been set out or discussed with factual information and only a general allegation has been made therein. He also submitted that there was no suppression of fact since there was no requirement in law to disclose the receipt of the said loan which has been given for a totally different and distinct purpose and nothing to do with purchase or sale of any goods between the appellant and the said BFL.
5. In support of his contention "as to who is related person within the meaning of Clause C of Section 4(4) he referred to a series of decisions of the Tribunal which in turn relied upon the decision of the Supreme Court in the case of Union of India v. Atic Industries reported in 1984 (17) E.L.T. 323 (S.C.).
6. Shri Narasimha Murthy, Id. Departmental Representative appearing for the Revenue countering the arguments submitted that in order to determine whether agreement is at arm's length or not, the cumulative effect of various circumstances arising from the agreement are required to be taken into consideration for arriving at the conclusion. The agreement provides assistance for necessary working capital by way of interest free advances for operation of the plant and other working expenses. It clearly establishes that the appellants were not independent unit but associated with the other company and the company which advanced interest free loan has interest in the appellant-company and in support of his contention he referred to the decision of the Bombay High Court in the case of Pilky Footwear Pvt. Ltd. v. Union of India and Ors. [1980 (6) E.L.T. 338].
7. Shri Parameswaran, replied that the case of Pilky Footwear (supra) relied upon by the DR is not applicable to the facts of this case. Not only that case was with reference to old Section 4 of erstwhile Act but prior to the verdict of the Supreme Court in the case of Atic Industries (supra). In that case the agreement provided not merely for giving of advice, assistance and technical know-how and supervision to the buyer's unit, but also for supplying necessary working capital by way of interest free advances for operation of plant procurement and moulds and purchase of equipments. In that case the seller was prohibited from enlarging the capacity or from installing the fresh machinery without the consent of the buyer and the entire production of the buyer was to be sold to the buyer. Facts are altogether different in the instant case and further more, that case was distinguished by the High Court of Gujarat in the case of Witco Ltd. v. Union of India reported in 1995 (75) E.L.T. 61.
8. We have carefully considered the rival submissions and perused the records. While examining the issues involved herein, the concept of the related person is to be understood as envisaged under Section 4(4)(c) of the Act and as analysed by the Apex Court, in the decisions referred to and relied upon by both sides. Section 4(4)(c) reads as under: -
"4(4)(c). "related person" means a person who is so associated with the as-sessee 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"
9. In the case of Atic Industries (supra), Supreme Court held that mutual holding 50% share by a customer in the manufacturing company does not amount mutuality of interest. It is observed that first part of the definition of the related person as given in Section 4(4)(c) of the Act requires that the person who is sought to be branded as a related person must be a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other. 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 a related person must have interest, direct or indirect in the business of each other........."
10. We find that ratio of the decision in the case of Pilky Footwear relied upon by the DR is not applicable to the facts of this case as it was rightly pointed out by the appellant's Counsel. Much Water has been flown under the bridge since then by developing the Case Law on the point of issue. We are of the view that the ruling given by the Supreme Court in the case of Atic Industries, governs the field and same is applicable to the facts of this case.
11. In the instant case, the authorities below have held that M/s. BFL is related person of the appellant mainly on the grounds that M/s. BFL holding 40% of share capital in the appellant-company and the BFL has advanced interest free loan of Rs. 50 lakhs. There is nothing on record to show that the appellant-company was holding in equity in the capital of BFL. Hence, it cannot be said there was a mutuality of interest. If the transactions between the manufacturer and his customer were on principal to principal basis and wholesale price charged by the assessee to the customer was sole consideration for the sale and no extra commercial consideration entered in determining such price, customer cannot be held to be a related person merely because he holds some share in the manufacturing company in view of the decision of the Supreme Court in the case of Atic Industries (supra). Nothing is brought on record to substantiate that extra commercial consideration has been received by the assessee apart from the agreed price. Tribunal in the case of Tungabhaura Industries Ltd. v. Collector [1995 (75) E.L.T. 95] held that it is not sufficient to hold that buyer is a related person in the absence of direct or indirect interest in the business of each other and even the quantum of sale is not a criteria for determining that transaction was not at arm's length. The charge that BFL have advanced interest free loan may be a case for additional consideration or adding interest depending upon the nexus between the advances and the determination of price and at any rate that cannot be the basis for treating M/s. BFL as related person. Adding no tional interest on advances is not an issue herein nor we are concerned with that. A mere commercial contract between two independent parties for pur chase and sale of goods manufactured by one party cannot ipso facto lead to the conclusion that both are so associated as to the interest of the business of each other. In order to be regarded as related person both the ingredients have to be satisfied viz./ the two have to be associated with each other. Inter est in the business of each other would not mean mere business connection between the two persons. The interest has essentially to be financial or managerial interest. In the facts and circumstances, and in view of the ratio laid down by the Supreme Court in the case of Atic Industries and followed by the Tribunal, in a series of cases, the Department was not justified in treat ing BFL as related person and on that ground the price at which BFL sells that items should not be taken as basis in determining the assessable value at the hands of the assessee. In the view we have taken, we set aside the respec tive impugned orders and accordingly, these appeals are allowed with con sequential relief, if any, to the appellants.