2006 (4) TMI 272 - AT - Central Excise

Summary

Issues Involved:
1. Determination of whether M/s. Geldhof Ltd. is a "related person" to the appellants under Section 4(4)(c) of the Central Excise Act.
2. Validity of the price determination method used between the appellants and M/s. Geldhof Ltd.
3. Applicability of extended limitation period under Section 11A of the Central Excise Act for duty demand.

Issue-wise Detailed Analysis:

1. Determination of whether M/s. Geldhof Ltd. is a "related person" to the appellants under Section 4(4)(c) of the Central Excise Act:

The appellants argued that the Commissioner misinterpreted Section 4(4)(c) of the Central Excise Act, which defines "related persons." They contended that merely having common directors does not establish that the two companies are interested in each other's business. Citing precedents such as *International Computer India Mfg. Co. Ltd. v. Collector of C. Ex.* and *Mahalaxmi Glass Works v. Collector of Central Excise*, the appellants emphasized that common shareholding alone does not prove mutual interest. The appellants also referenced *Alembic Glass Industries Ltd. v. Collector of C. Ex. & Cus.*, where it was determined that having common directors does not necessarily make companies related persons if there is no mutual business interest.

The department, on the other hand, presented multiple facts to establish that M/s. Geldhof Ltd. was a related person, including common directors, shared office premises, and inter-company financial guarantees. They relied on cases like *H.T. Bhavnani Chemicals (P) Ltd. v. Collector of C. Ex., Baroda* and *Mohanlal Bhavsar v. U.O.I.*, where mutuality of interest was established through common management and directors.

The Tribunal concluded that the two companies, being distinct legal entities, do not have mutual business interests merely due to common directors or shared office space. The Tribunal also noted that the agreement was made when the duty was specific, not ad valorem, thus no intent to evade duty was evident. Consequently, the Tribunal did not find M/s. Geldhof Ltd. to be a related person under Section 4(4)(c).

2. Validity of the price determination method used between the appellants and M/s. Geldhof Ltd.:

The appellants justified their pricing method based on the cost of raw materials, specifically calcium carbide, and argued that the method was a legitimate business practice. They cited that there was no legal bar against such pricing methods and that the agreement was made when the duty was specific, negating any intent to evade duty.

The department argued that the price determination method was not normal and was designed to benefit both companies financially, given their close relationship and shared management.

The Tribunal found that the pricing method based on cost construction was legitimate and that there was no evidence of ulterior motive or price depression to evade duty. The Tribunal emphasized that the agreement was made when the duty was specific, thus no intent to evade duty could be inferred.

3. Applicability of extended limitation period under Section 11A of the Central Excise Act for duty demand:

The appellants argued that since the agreement was made in 1991, when the duty was specific, there was no intention to evade duty. They had submitted the agreement to the department, and it was the department's responsibility to investigate further. The appellants contended that there was no suppression or mis-declaration of facts.

The department maintained that the appellants should have disclosed the common management and directorial interests, which had a direct bearing on the price determination.

The Tribunal concluded that there was no suppression or mis-declaration by the appellants. The agreement was submitted to the department, and there was no evidence of intent to evade duty. Therefore, the extended limitation period under Section 11A could not be invoked.

Conclusion:

The Tribunal allowed the appeals both on merits and limitation, concluding that M/s. Geldhof Ltd. was not a related person under Section 4(4)(c), the pricing method was legitimate, and the extended limitation period was not applicable. The judgment was pronounced in court on 7-4-2006.