2001 (4) TMI 118 - AT - Central Excise

Summary

Issues Involved:
1. Validity of the lease agreement.
2. Determination of the manufacturer.
3. Basis for assessable value and duty demand.
4. Imposition of penalties.

Summary:

1. Validity of the Lease Agreement:
The appellants contended that the lease agreements between RSWML, BSL, and PFTL were valid commercial transactions among independent public limited companies. They argued that the Central Excise Commissioner had no jurisdiction to investigate the lease agreements and that his findings were erroneous. The appellants emphasized that the lease agreements were legitimate, involving a rental consideration of Rs. 2 crores per annum, which was either paid or adjusted against processing charges. They asserted that the Commissioner's examination of the lease agreement's validity was beyond his legal authority and that his findings were merely personal opinions.

2. Determination of the Manufacturer:
The impugned order held that the lease agreement was a sham and that RSWML was the actual manufacturer operating the process house. The appellants argued that BSL and PFTL, as lessees, were the manufacturers under Central Excise law, carrying out processing activities for several parties, including RSWML. They contended that the processing work for RSWML constituted only 60% of the total work, with the remaining 40% done for other parties. The appellants maintained that the processing charges were comparable for all parties, and there was no basis for treating the processing work for RSWML differently.

3. Basis for Assessable Value and Duty Demand:
The appellants argued that the method of valuation for processed fabrics, as laid down by the Supreme Court in the case of M/s. Ujagar Prints Limited, was correctly followed. They contended that the duty demand based on treating RSWML as the manufacturer was unjustified. The Revenue's case was that the lease agreement was created to reduce Central Excise duty liability and that RSWML should be treated as the manufacturer. However, the Tribunal found that the processing charges were comparable for all parties and that the duty demand based on a different valuation method for RSWML was not legally justified.

4. Imposition of Penalties:
The Tribunal held that since there was no evasion of duty, the penalties imposed on the appellants could not stand. The findings that the lease agreement was a sham and that RSWML was the real manufacturer were not sustained. The Tribunal also noted that the demand could not be raised for the extended period under the proviso to Section 11A(1) of the Central Excise Act, as there was no fraud or suppression of facts involved.

Conclusion:
The Tribunal set aside the impugned order, allowed the appeals, and directed the return of the amounts deposited by the appellants during the proceedings. The findings that the lease agreement was a sham and that RSWML was the real manufacturer were not upheld, and no duty evasion was found. Consequently, the penalties imposed were also set aside.