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2015 (10) TMI 2547 - AT - Central ExciseDemand of duty with interest - related person - laundry soap - whether the duty be levied and exemption notification withdrawn on the ground that the director of M/s. Washwell Soap (P) Ltd. is relative of the proprietor of the appellants and they are related person - Held that - Both concerns are owned by close family relations. Shri Devilal Somani, proprietor of Devilal Kutir Soap, his wife and his father Shri Ladu Ram Somani are directors of M/s.Washwell Soap Pvt.Ltd. It is seen stated that Shri Devilal Somani had relinquished the directorship of M/s. Washwell Soap (P) Ltd. on 1.6.1999. Be that as it may, there is no evidence placed to bring out any mutuality of interest between two concerns to treat them as related persons. Commonness of the directors or even one or two directors being relatives of the director/partner of other concern cannot make the two as related persons unless there is evidence of mutuality of interest of two concerns, or interest of one in the business of the other. There is no categorical statement in the declaration that they are related persons. Moreover, the department has not carried out any investigation to ascertain whether there is mutuality of interest - the demand of duty, interest and penalties are unsustainable - appeal allowed - decided in favor of appellant.
Issues:
1. Allegation of being related persons between two concerns. 2. Exemption from Central Excise duty for small scale unit. 3. Duty demand, interest, and penalties imposed by the department. 4. Declaration filed under Rule 173C (3A) of Central Excise Rules, 1994. Allegation of Being Related Persons: The case involved a small scale unit engaged in the manufacture of laundry soap, exempt from Central Excise duty as per KVIC approval. The department alleged that the unit and a trading company were related persons due to family relations between their owners. The Commissioner (Appeals) upheld the duty demand, interest, and penalties imposed. The appellant argued that there was no evidence of mutuality of interest between the two concerns, and their dealings were independent. The Tribunal held that common ownership or family relations alone do not establish related person status without evidence of mutual interest or business involvement. The declaration filed under Rule 173C (3A) did not explicitly state related person status, and the department failed to prove mutual interest, leading to the set aside of the orders. Exemption from Central Excise Duty: The appellants, as a Kutir Udyog approved by KVIC, were exempt from Central Excise duty for their laundry soap manufacturing. However, the department issued show cause notices alleging related person status with a trading company, leading to duty demands, interest, and penalties. The Commissioner (Appeals) confirmed these demands, prompting the appellants to appeal to the Tribunal. The Tribunal ultimately allowed the appeals, emphasizing the lack of evidence supporting the related person allegation and the exemption status of the Kutir Udyog. Duty Demand, Interest, and Penalties: The department issued show cause notices proposing duty demands, interest, and penalties based on the alleged related person status between the appellants and a trading company owned by the same family. The Commissioner (Appeals) confirmed these demands, leading to the appeals before the Tribunal. The Tribunal found that without evidence of mutual interest or financial transactions between the concerns, the duty demands, interest, and penalties were unsustainable. As a result, the impugned orders were set aside, and the appeals by the appellants were allowed. Declaration Filed Under Rule 173C (3A): The declaration filed under Rule 173C (3A) of the Central Excise Rules, 1994, indicated the market agency as a related person. The department argued that the trading company was the market agency of the appellant, establishing related person status. However, the Tribunal noted that the declaration was made under protest while paying duty and did not explicitly state related person status. The absence of evidence of mutual interest and the failure of the department to investigate further led to the dismissal of the related person allegation and the associated duty demands, interest, and penalties.
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