2005 (3) TMI 268 - AT - Central Excise

Valuation (Central Excise) - Related person in terms of erstwhile Section 4 - Remand - SSI Exemption - Penalty - Whether extended period of limitation is invocable for demanding Central Excise duty - HELD THAT - In the present matters, the mutuality of interest has been presumed by Revenue on the basis of sale of entire production by the manufacturing units to M/s. Meghal Enterprises on the basis of mutually agreed price, the goods were known in the market to be those of Kanchan Industries, price list was circulated on the letter head of Kanchan Industries and the entire responsibilities of advertisement and publicity rested with Meghal Enterprises. These grounds do not satisfy the first part of the definition of related person as given in Section 4(4)(c) of the Central Excise Act, that is, all these factors do not establish that they have interest, directly or indirectly, in the business of each other. Sale of entire production by a manufacturing unit is not sufficient to prove that the purchaser is a related person as found by the Tribunal in the case of Lakme Ltd., supra. All the factors mentioned in the impugned order for treating M/s. Meghal Enterprises as a related person are nothing but business transaction as Meghal Enterprises purchase the entire production of the goods manufactured by the manufacturing units on mutually agreed price and they are responsible for advertising and publicity by of the goods. Bearing the responsibility of advertisement and publicity by Meghal Enterprises does not make them related person as they have also their own interest in advertising the goods. The second part of the definition of related person as given in Section 4(4)(c) of the Act is also not attracted as it is not that a natural relative is purchasing the goods. Meghal Enterprises as a partnership concern and M/s. Kanchan Kitchen Aid P. Ltd. is a company under the companies Act. We thus hold that the Revenue has not succeeded in establishing that M/s. Meghal Enterprises are a related person. To this extent we allow the appeal without going into the aspect of demand being time-barred. As the question of clubbing of the value of clearance has not been pressed before us, the matters are remanded to the jurisdictional Adjudicating Authority to examine as to whether even after clubbing the value of clearance, the manufacturing units would be eligible for exemption as a small scale unit. All other questions such as demand of duty, if any, being time-barred and penalties to be imposed on any of the Appellants are left to be decided by the Adjudicating Authority in accordance with law and after following the principles of natural justice. All the appeals are disposed of in these manners.

Summary

Issues:
1. Clubbing of value of clearances for excisable goods of multiple companies
2. Determination of related persons under Central Excise Act
3. Imposition of penalties on the appellants
4. Applicability of extended period for demanding Central Excise duty

Analysis:
1. The primary issue in this case is whether the value of clearances of excisable goods from multiple companies should be clubbed together for the purpose of a specific notification. The appellant argued that even if the values are combined, they would still fall within the exemption limit. The Tribunal held that the definition of "related person" requires a direct or indirect interest in each other's business, which was not established in this case. The Tribunal found that the grounds presented did not prove a mutual interest as required by law. The case was remanded to the Adjudicating Authority for further examination.

2. The determination of related persons under the Central Excise Act was crucial in this judgment. The Revenue argued that the companies involved were related due to various business interactions and associations. However, the Tribunal found that the factors presented did not meet the criteria set out in the Act for establishing related persons. The Tribunal emphasized the need for a direct or indirect interest in each other's business, which was not proven in this case.

3. The issue of imposing penalties on the appellants was also addressed in this judgment. The appellant contended that no penalties should be imposed as there was no finding in the impugned order for such penalties. The Tribunal agreed and stated that the question of penalties should be decided by the Adjudicating Authority following the principles of natural justice.

4. Lastly, the question of the extended period for demanding Central Excise duty was raised. The appellant argued that the demand was time-barred as the show cause notice was issued beyond the normal period specified in the Act. The Tribunal did not delve into this aspect as the primary issue of related persons was resolved in favor of the appellants. The matter was left for the Adjudicating Authority to decide in accordance with the law.

In conclusion, the Tribunal allowed the appeal on the grounds that the Revenue failed to establish the companies as related persons. The case was remanded for further examination on the clubbing of clearance values and other related matters.