2007 (10) TMI 124 - AT - Central Excise

Assessee & RMLM Co., related person Common directors No evidence produced by Dept. of financial flow back Sale price to RMLM was lower because of cost of transport & advertisement, not incurred by assessee Demand on account of requantification of value of clearances is not justified

Summary

Issues:
1. Demand of duty, interest, and penalty imposed under Rule 173Q of Central Excise Rules, 1944.
2. Allegation of related persons between M/s. Rumi Herbals (P) Ltd. (RUMI) and M/s. Rumi Multi Level Marketing Company (RMLM).
3. Suppression of material facts and financial flow back between RUMI and RMLM.
4. Applicability of Section 4 of the Central Excise Act '44 regarding related persons.
5. Requantification of value of clearances based on sale price of RMLM.

Analysis:

1. The impugned order upheld the demand of duty, interest, and penalty on M/s. Rumi Herbals (P) Ltd. The penalty imposed was restricted to the duty demand post-28-9-1996 under Rule 173Q of the Central Excise Rules, 1944.

2. The case revolved around the allegation of related persons between RUMI and RMLM due to common Directorship and financial transactions. The original authority found that RUMI and RMLM operated from the same premises, indicating a financial flow back from RMLM to RUMI. The lower authority concurred with these findings.

3. The appellants contested the related persons' status, citing lack of mutuality of interest between RUMI and RMLM. They argued that the sale price difference to RMLM accounted for transportation and advertisement costs not incurred by the assessee. The absence of financial flow back evidence and periodic price declarations indicated no suppression of facts.

4. The Tribunal analyzed the related persons' aspect, emphasizing that common Directorship alone does not establish related persons. Deposits made in RMLM's account were returned to RUMI, and no evidence of financial flow back existed. The sale price difference to RMLM was justified by cost variations, and no overriding commission was paid to sub-dealers in the South.

5. Ultimately, the Tribunal ruled in favor of M/s. Rumi Herbals (P) Ltd., setting aside the impugned order. The demands based on the reassessment of clearances using RMLM's sale price as the assessable value were deemed unsustainable due to the lack of evidence supporting the related persons' claim between RUMI and RMLM. The appeal was allowed, absolving the appellants from the imposed duty, interest, and penalty.