2003 (5) TMI 174 - AT - Central Excise

Summary

Issues Involved:
1. Relationship between the appellant and Lakme Lever Ltd.
2. Assessable value of the goods.
3. Alleged evasion of duty.
4. Limitation period for issuing the show cause notice.

Detailed Analysis:

1. Relationship between the appellant and Lakme Lever Ltd.:

The primary contention was whether the appellant and Lakme Lever Ltd. were related parties under Section 4 of the Central Excise Act. The department alleged that the appellant and Lakme Lever Ltd. were related because the appellant held 50% of the shares of Lakme Lever Ltd., and the entire production of the appellant's cosmetics was sold to Lakme Lever Ltd. The appellant argued that, according to the Supreme Court's judgments in U.O.I. v. Atic Industries Ltd. and Alembic Glass Industries Ltd. v. CCE, merely holding 50% shares does not establish a relationship as defined under the Act. The Supreme Court had clarified that one company having a 50% shareholding in another does not mean that the two companies have an interest in each other's business.

2. Assessable value of the goods:

The department proposed that the assessable value should be the price at which Lakme Lever Ltd. sold the goods to its dealers, based on clause (3) of the proviso under clause (a) of sub-section (1) of Section 4 of the Act. The appellant contended that the assessable value should be based on the price at which it sold the goods to Lakme Lever Ltd., as they were not related parties. The Tribunal agreed with the appellant, stating that the judgment in Atic Industries Ltd. and Alembic Glass Industries Ltd. applied, and therefore, the assessable value could not be based on the price at which Lakme Lever Ltd. sold the goods.

3. Alleged evasion of duty:

The department argued that the creation of Lakme Lever Ltd. was a deliberate arrangement to reduce the incidence of duty. The Assistant Commissioner and the Commissioner (Appeals) emphasized that the transfer of the marketing infrastructure to Lakme Lever Ltd. and the subsequent reduction in prices indicated an attempt to evade duty. However, the Tribunal found no merit in this argument, stating that there was no evidence to suggest that the creation of Lakme Lever Ltd. was solely for the purpose of evading duty. The Tribunal noted that the Supreme Court in McDowell & Co. Ltd. v. Commercial Tax Officer had held that while tax avoidance schemes could be scrutinized, there must be clear evidence of intent to evade tax.

4. Limitation period for issuing the show cause notice:

The appellant argued that the demand for the period July and August 1996 was barred by limitation, as the show cause notice was issued on 3-4-1997, beyond the six-month period. The appellant had informed the department of the facts by a letter dated 19-7-1996. The Tribunal did not address this issue in detail, as it decided the case on the merits, concluding that the appellant and Lakme Lever Ltd. were not related parties, and thus the assessable value could not be based on the price at which Lakme Lever Ltd. sold the goods.

Conclusion:

The Tribunal concluded that the appellant and Lakme Lever Ltd. were not related parties under the Central Excise Act. Consequently, the assessable value of the goods could not be based on the price at which Lakme Lever Ltd. sold the goods to its dealers. The appeal was allowed, and the impugned order was set aside.