1987 (3) TMI 213 - AT - Central Excise

Issues Involved:
1. Violation of principles of natural justice.
2. Applicability of Rule 9(2) versus Section 11A of the Central Excises and Salt Act, 1944.
3. Determination of 'related person' under Section 4(4)(C) of the Central Excises and Salt Act, 1944.
4. Correctness of duty demand calculations.
5. Justification and quantum of penalty imposed under Rule 173Q.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellants argued that the principles of natural justice were violated because the 60 and odd retailers, whose statements were relied upon by the department, were not produced for cross-examination. Despite this contention, the appellants did not seek a remand but requested a decision on merits. The Tribunal noted that most of these retailers denied purchasing any medicines from the appellants, and even those who admitted purchases stated they bought from M/s Gulati Traders, not directly from the appellants. Thus, the Tribunal did not find merit in the appellants' claim on this ground.

2. Applicability of Rule 9(2) versus Section 11A:
The appellants contended that the demand for differential duty should have been made under Section 11A, which specifically deals with short-levy recovery, rather than Rule 9(2). They argued that only the Assistant Collector had jurisdiction under Section 11A. However, the Tribunal did not address this issue in detail as the appellants did not press for a remand and sought a decision on merits.

3. Determination of 'Related Person' under Section 4(4)(C):
The primary issue was whether M/s Gulati Traders were a 'related person' of the appellants. The Collector found that M/s Gulati Traders were the sole distributor for the appellants' medicines across India (except Delhi) and that all partners of M/s Gulati Traders were close relatives of the partners of the appellant firm. The Tribunal upheld the Collector's finding, emphasizing that a partnership firm is essentially a sum total of its partners and not a separate legal entity. The Tribunal cited the definition of 'relative' under the Companies Act, 1956, and concluded that M/s Gulati Traders were indeed a 'related person' due to the mutual business interest and financial involvement between the two firms, including the use of Matador Vans and advertisement expenses.

4. Correctness of Duty Demand Calculations:
The appellants argued that the duty demand was inflated as deductions for central excise duty and sales tax were not allowed from the sale price of M/s Gulati Traders. The Tribunal acknowledged this contention and directed the Collector to re-examine the calculations to ensure compliance with Section 4(4)(d)(ii), which mandates such deductions.

5. Justification and Quantum of Penalty Imposed under Rule 173Q:
The Tribunal found the imposition of the penalty under Rule 173Q to be legal and justified based on the facts. However, it considered the penalty amount of Rs. 4 lakhs to be excessive, as it was more than double the amount of the duty evaded. Consequently, the Tribunal reduced the penalty to Rs. 1 lakh.

Conclusion:
The Tribunal upheld the Collector's decision on the basis of valuation and classification of M/s Gulati Traders as a 'related person.' It directed the Collector to re-examine the duty demand calculations for potential errors in deductions. The penalty was reduced from Rs. 4 lakhs to Rs. 1 lakh. The appeal was otherwise dismissed.

← Previous Next →