2007 (9) TMI 481 - AT - Central Excise

Summary

Issues:
1. Demand of differential duty and penalty under Section 11AC of the Central Excise Act for the period July'01-Sept'03.
2. Allegation of the buyer being related to the assessee under Section 4(3)(b)(iii) of the Act.
3. Interpretation of the term "related" under Section 4(3)(b)(iii) and its applicability in the case.
4. Establishing the relationship between natural persons in the Boards of Directors of the two companies to determine the alleged "relationship" under the Act.
5. Claim of M/s. VIPPL being distributor or sole selling agents of the assessee.

Analysis:
1. The Commissioner demanded a differential duty of over Rs. 1 crore from the appellants for a specific period, rejecting the transaction value of goods cleared to a public limited company, M/s. Velvette International Pharma Products Ltd. The authority also imposed an equal amount of penalty under Section 11AC of the Act. The dispute centered around the alleged relationship between the appellants and the buyer, leading to the demand and penalty.

2. The department alleged that M/s. VIPPL were related to the appellants under Section 4(3)(b)(iii) due to common directors and family relations. The Managing Director and his wife of the appellant-company were also directors of the buyer-company, along with other relatives. The buyer was claimed to be a distributor of the assessee. The Commissioner held the buyer to be related to the assessee based on the Memorandum and Articles of Association, leading to the demand and penalty.

3. The Tribunal examined the definition of "related" under Section 4(3)(b)(iii) and emphasized that for a buyer to be related, they must be both a relative and a distributor of the assessee. The term "relative" was defined with reference to the Companies Act, highlighting the need to establish a relationship between natural persons, not juristic persons. The Tribunal found no attempt to lift the corporate veil to establish a relationship between natural persons on the Boards of Directors of the two companies.

4. The Tribunal noted that there was no effort in the show-cause notice or the impugned order to demonstrate the distributorship of M/s. VIPPL for the goods in question. The focus was on M/s. VIPPL being the sole selling agents. The appellants argued against the finding of a relationship, citing shareholding patterns and the operational aspects of both companies.

5. Ultimately, the Tribunal found a prima facie case for the appellants against the alleged relationship between the assessee and the buyer. Consequently, there was a waiver of pre-deposit and a stay of recovery concerning the duty and penalty amounts. The decision was made in favor of the appellants based on the lack of evidence establishing the claimed relationship under the Act.