2011 (3) TMI 704 - AT - Central Excise

The demand is based on the sole allegation that the partners of the appellant firm and the Directors of KML are relatives and, therefore, the appellants are owned and controlled by related persons belonging to the same family. Hence, Appellant cannot be treated as independent job workers of KML. Accordingly, the duty liability has to be discharged at the price at which KML sold the goods. Held that - the department has not made any attempt whatsoever to show that the price at which the duty liability has been discharged by the appellant job worker has been in any way influenced because of any relationship between the appellant firm and the buyer public limited company. In the absence of any such credible evidence available on record, it is difficult to support the proposition that the price at which buyer has sold the goods should be the basis for charging of excise duty in the instant case. decided in favour of Assessee.

Summary

Issues:
1. Whether the partnership firm and the public limited company are related persons under Section 4 (3) (b) of the Central Excise Act, 1944.
2. Whether the change in business practice from manufacturing to job work by the appellant firm is a deliberate attempt to evade payment of duty.

Analysis:

Issue 1:
The case involved an appeal against an order by the Commissioner of Central Excise, Thane-II, alleging that the partnership firm and a public limited company were related under Section 4 (3) (b) of the Central Excise Act, 1944. The department claimed that the firms were related due to common relatives among partners and directors, leading to a duty demand of Rs.1,09,40,507. The appellants argued that the concept of 'relative' applies to natural persons, not impersonal bodies like corporations. They cited legal precedents, including judgments by the Hon'ble Allahabad High Court and the Hon'ble Supreme Court, to support their contention. The Tribunal agreed with the appellants, emphasizing that the relationship as defined in the Companies Act applies to natural persons, not corporations. Therefore, the allegation that the firms were related had no legal basis, especially in light of the legal precedents cited. The Tribunal set aside the duty demand, interest recovery, and penalties imposed.

Issue 2:
The department also alleged that the appellant firm's change in business practice from manufacturing to job work was a deliberate attempt to evade duty. The Tribunal noted that there is no legal prohibition on firms changing their business practices based on economic factors. The Tribunal highlighted that changing business practices, such as shifting from manufacturing to job work, is a common economic reality driven by market conditions. The department failed to provide evidence that the price charged by the appellant was influenced by any relationship with the buyer company. Without credible evidence, the Tribunal found it difficult to support the proposition that the duty should be based on the price at which the buyer sold the goods. Consequently, the Tribunal set aside the demand for duty, interest recovery, and penalties.

In conclusion, the appeals were allowed, and the demands for duty, interest, and penalties were set aside based on the lack of legal basis for considering the firms as related entities and the absence of evidence supporting the allegation of deliberate evasion through a change in business practice.