2018 (4) TMI 1314 - AT - Central Excise

SSI Exemption - dummy units - mutuality of interest between Fizikem and its distributor - value of clearances in the related preceding financial years had exceeded the SSI limit - Held that - The investigation has not thrown up irrefutable evidence to establish that there is mutuality of interest , flow back of funds or even tangled web of financial arrangements between the respondents - lower appellate authority is correct in concluding that there is no corroborative evidence to substantiate the allegation that advertising charges are borne by respondents 3 & 4 on behalf of Fizikem. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Interpretation of Section 4 (1) (a) of the Central Excise Act, 1944 in relation to the concept of "related person"
- Determination of normal price under Section 4 (1) (a) of the Act when dealing with related persons
- Consideration of transactions under Section 4 (3) (d) of the Act
- Evidence of managerial control by the manufacturer over distributing firms
- Inclusion of expenses borne by distributors in the transaction value under Rule 6 of the Valuation Rules, 2000

Analysis:

The case involved M/s. Fizikem Laboratories Pvt. Ltd. availing SSI exemption as manufacturers of medicaments. The department conducted investigations revealing a complex chain of distribution involving related entities. The department alleged that Fizikem did not deal with their distributing firms at arm's length and had control over them. The department adopted the sale price of goods by one of the distributing firms as the basis for assessable value, leading to demands for duty payment and denial of exemption.

The adjudicating authority confirmed a substantial demand against Fizikem and imposed penalties on various individuals associated with the entities involved. On appeal, the Commissioner (Appeals) set aside the order, finding no substantial evidence of mutual interest or financial arrangements between Fizikem and its distributors. The lower appellate authority also noted the absence of corroborative evidence regarding advertising charges being borne by distributors on behalf of Fizikem.

The Revenue filed appeals challenging the Commissioner's decision, arguing for a different interpretation of related person transactions, normal price determination, and consideration of transactions under specific sections of the Act. However, upon review, the Tribunal found that the lower appellate authority had thoroughly analyzed the issues. The Tribunal concurred with the findings that there was no conclusive evidence of mutual interest or financial entanglements between Fizikem and its distributors. The Tribunal upheld the lower authority's conclusion that the advertising charges were not borne by the distributors on behalf of Fizikem.

Ultimately, the Tribunal dismissed the Revenue's appeals, citing the lack of merit in their arguments. The Tribunal found no fault in the lower appellate authority's decision and upheld the order, emphasizing the absence of irrefutable evidence supporting the department's allegations. The Tribunal's decision was pronounced on 17.04.2018, affirming the Commissioner (Appeals) order and rejecting the Revenue's appeals.