CX - A manufacturer can always decide to sell his entire production to another person instead of incurring expenses on marketing and advt. himself and for this reason, manufacturer and his customer cannot be treated as related person: CESTAT
By TIOL News Service
NEW DELHI, AUG 20, 2015: THE appellant is a manufacturer of Colour T.V. (CTV) sets. The period of dispute is June 1994 to August 1996.
Till February 1994, the rate of duty on CTV swas specific and during that period, the appellant were selling the CTV sets directly to their dealers. W.e.f. 1/3/1994, the rate of duty on CTV became ad-valorem. With the change in the duty to ad-valorem rate, the appellant changed their marketing pattern and instead of selling the goods directly through their depots, they started selling the entire production to a company named, M/s. Adonis (India) Limited (AIL) and although it had been floated with share capital of Rs.70/-, it had been financed by extending loans by the other group companies. The department's contention is that the appellant and M/s. AIL are related persons and, therefore, during the period of dispute the AV of the goods manufactured and cleared by the appellant would be the price at which the same goods were sold by M/s. AIL to their dealers; admissibility of trade discounts extended by M/s. AIL is also disputed.
A demand notice was issued seeking recovery of differential CE duty of Rs.35,63,925/- by adopting the price at which goods were sold by AIL to dealers and another demand of Rs.28,35,170/- by denying the trade discounts.
The CCE, Indore dropped the demand of Rs.28.35 lakhs but confirmed the demand of Rs.35.63 lakhs and imposed penalties & interest.
Based on this order the appellant filed a refund claim of Rs.28.35 lakhs which was rejected by the Assistant Commissioner but allowed by Commissioner(A). The Tribunal, however, on Revenue appeal, remanded the matter for examination of the principle of unjust enrichment; that matter is pending.
In the matter of the demand confirmed of Rs.35.63 lakhs, in appeal filed by assessee, Tribunal remanded the matter.
This time around, the Commissioner confirmed both the demands made in the SCN of Rs.35.63 lakhs and Rs.28.35 lakhs respectively and imposed penalties.
Against this order, the appellant and the employees of the company have filed appeals before the CESTAT.
The appellant submitted that the duty confirmed of Rs.28.35 lakhs was not the subject matter in denovo proceedings and hence has to be set aside. As regards the allegation of related person and undervaluation on account therefor the appellant submitted that the allegations are not sustainable in view of the following decisions -
(a). CCE Vs. Xerographic Ltd - 2006-TIOL-201-SC-CX
(b). CCE Vs. Kwality Ice-cream - 2010-TIOL-100-SC-CX
(c). Union of India Vs. Kira District Co-operative Milk Procedures - 2002-TIOL-525-SC-CX
(d). Alembic Glass Industries Ltd. Vs. CCE - 2002-TIOL-626-SC-CX-LB
(e). CCE Vs. Amar Sinhji Stationery Indus Ltd - 2005-TIOL-258-CESTAT-DEL
(f). BasudevGarg Vs. CCE- 2013-TIOL-464-HC-DEL-CUS
(g). Uniworth Textiles Ltd. Vs. CCE- 2013-TIOL-13-SC-CUS
The AR reiterated the findings of the adjudicating authority.
The Bench observed -
Demand of Rs.28.35 lakhs:
In the de-novo proceedings, the Commissioner was required to go only into the question of duty demand of Rs.35,63,928/- confirmed against the appellant company and also question of imposition of penalty on them and other notice. The duty demand of Rs.28,35,170/- had not been challenged by the department and as such was not the subject matter of the appeals filed before the Tribunal which were decided by the Tribunal vide order dated 4/5/2001. In view of this, the Commissioner's order confirming the duty demand of Rs. 28,35,170/- is not only totally incorrect order but also a perverse order and, therefore this part of the order has to be set aside.
Related person:
+ Just because the entire production of goods of the appellant company was being sold to M/s. AIL who were selling the same at a higher price or that M/s. AIL were incurring the expenses or marketing and advertisement of the goods produced by the appellant company, the two cannot be treated as related persons in the sense that there was mutuality of interest in the business of each other. Similarly, just because the appellant company along with two other group companies, had extended loan of about Rs.50crore to M/s. AIL, it cannot be said that the transactions between the appellant company and M/s. AIL was not on principal to principal basis, as it is not the contention of the department that the loans extended by the appellant company - and two other group companies, M/s. Adonis (India) Limited were interest free loans or at interest much lower than the market rates.
+ The appellant company and M/s. AIL can be treated as related persons if there is an evidence to prove that the appellant company had all pervasive financial year and managerial control over M/s. AIL and M/s. AIL were just an extension of the appellant company. But in this regard, we do not find any such evidence.
+ A manufacturer manufacturing certain goods can always decide to sell his entire production to another person instead of marketing the same himself and incurring expenses on marketing and advertisement himself and for this reason, the manufacturer and his customers cannot be treated as related persons.
+ As regards the allegation of the department that the premises rented by M/s. AIL as depots were also being used by the employees of the appellant company as their branch office, the appellant's plea in this regard is that the employees of the appellant company were visiting those premises only for stock taking and as such the premises of M/s. AIL were not being used permanently as branch office. In any case, we are of the view that just on this ground, it cannot be said that the appellant company and M/s. AIL would acquire mutuality of interest in the business of each other.
+ The difference between the price at which the appellant company sells the goods to M/s. AIL and the price at which M/s. AIL sells the same goods to its dealers is only about 7% to 8%, which in our view is not abnormal. The department has not conducted any enquiry into this aspect. From this angle also, we are of the view that this cannot be said to be the case where the assessable value of the goods was being artificially depressed by the appellant to reduce their duty liability. [ CCE Vs. Xerographic Limited 2006-TIOL-201-SC-CX ratio applicable]
Holding that the appellant company and M/s. AIL cannot be treated as related persons, the impugned order confirming CE duty was set aside along with the penalty on the company and other noticees and the appeal was allowed.
(See 2015-TIOL-1748-CESTAT-DEL)
