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2011 (9) TMI 779 - AT - Central ExciseCommissioner confirmed demand of duty along with interest against M/s. M.M. Cylinders (P) Ltd. and imposed penalties - appellant-companies are manufacturers of new and empty LPG Cylinders for the oil marketing companies namely, Indian Oil Corporation Ltd., Bharath Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd - As per investigation conducted by the department, the appellant companies were found to have used a front organization, M/s. Sri Mehala Transport, for the purpose of inflating the freight amount and to reduce the assessable value with intention to evade excise duty - the facts of the present cases require to be analyzed to see whether the findings of the Commissioner that the two appellant-companies have deliberately reduced the assessable value by inflating the cost of transportation are correct or not - If the reasons given for charging higher rate by SMT for transport of the cylinders are to be taken as valid, no explanation is forthcoming for sudden dropping of the freight amount from July 2005 onwards - It does not make sense that the appellant-companies who were claiming their business transactions with SMT as if in the normal course of business, could afford to pay amounts of freight in excess ranging from 69% to 258% - The mere fact that the jurisdictional Superintendent of Central Excise might be aware that the SMT has been used for transport of goods and freight was claimed as abatement may not lead to any conclusion to say that the department was aware of intricate manipulation by the appellant-company - Appeals are rejected
Issues Involved:
1. Alleged evasion of excise duty by M.M. Cylinders (P) Ltd. and GDR Cylinders (P) Ltd. through inflated freight charges. 2. Use of Sri Mehala Transport as a front organization for inflating freight charges. 3. Validity of invoking the extended period of limitation for issuing show cause notices. 4. Justification for penalties imposed on individuals and entities involved. Detailed Analysis: 1. Alleged Evasion of Excise Duty: The appellant companies, M.M. Cylinders (P) Ltd. and GDR Cylinders (P) Ltd., were found to have inflated freight charges to reduce the assessable value of LPG cylinders supplied to oil marketing companies. From August 2001, the pricing was based on Gross Delivery Price (GDP) inclusive of all taxes and freight. The companies used a front organization, Sri Mehala Transport, to inflate the freight amounts and evade excise duty. The investigation revealed that the freight charges claimed as deductions were significantly higher than the actual freight incurred, leading to reduced assessable values and evasion of duties. 2. Use of Sri Mehala Transport (SMT): SMT, a partnership firm consisting of directors, relatives, and employees of the appellant companies, was used to inflate freight charges. Despite SMT being an independent legal entity, substantial control was with the management of the appellant companies. The freight charges claimed were abnormally high, and transactions with other transporters were routed through SMT, further inflating the charges. The sudden drop in freight amounts from July 2005 onwards, after the commencement of investigations, indicated manipulation. 3. Validity of Extended Period of Limitation: The appellant companies challenged the demand raised by invoking the extended period of limitation. They argued that subsequent show cause notices were time-barred as they were based on the same set of facts as the first show cause notice. However, the tribunal found that the subsequent notices were based on additional evidence gathered through further investigations, justifying the invocation of the extended period. The cases cited by the appellants were distinguished as they involved identical facts and evidences in subsequent notices, unlike the present cases. 4. Justification for Penalties: The tribunal upheld the penalties imposed on the appellant companies under Section 11AC for deliberately inflating freight charges and evading duty. Penalties on individuals directly involved, such as the Managing Director and Director, were justified under Rule 26 of the Central Excise Rules, 2002. However, the quantum of penalties was reduced considering the overall facts and circumstances. Penalties on other individuals, like the General Manager, Despatch In-charge, and Chartered Accountant, were set aside due to the lack of significant roles in the evasion scheme. Similarly, penalties on the partner of SMT were set aside, as penalties on the firm were deemed sufficient. Conclusion: - Appeals of M.M. Cylinders (P) Ltd. and GDR Cylinders (P) Ltd. were rejected. - Penalties on Sri Mehala Transport and key individuals were reduced. - Penalties on other individuals and the partner of SMT were set aside. Pronounced in the open court on 6-9-2011.
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