1986 (12) TMI 255 - AT - Central Excise

Issues Involved:

1. Whether M/s. Sarang Products and M/s. Gaurav Products should be treated as separate entities.
2. Whether the goods were supplied to M/s. Bajaj Electricals Ltd. at a very low price to evade excise duty.
3. Whether the clearances of M/s. Sarang Products and M/s. Gaurav Products should be clubbed for excise duty calculation.
4. Whether the penalty imposed under Rule 173-Q of the Central Excise Rules, 1944, was justified.

Issue-wise Detailed Analysis:

1. Whether M/s. Sarang Products and M/s. Gaurav Products should be treated as separate entities:

The Tribunal examined the constitution of both firms. M/s. Sarang Products had four partners, while M/s. Gaurav Products had two partners, both being common in M/s. Sarang Products. The Tribunal noted that M/s. Gaurav Products was housed in a garage with no evidence of manufacturing activity. The expenses for electricity and tools were only recorded in M/s. Sarang Products' accounts. The Tribunal concluded that M/s. Gaurav Products existed merely on paper and had no real existence. Thus, the firms should not be treated as separate entities.

2. Whether the goods were supplied to M/s. Bajaj Electricals Ltd. at a very low price to evade excise duty:

The Tribunal considered the price at which M/s. Sarang Products supplied goods to M/s. Bajaj Electricals Ltd. and compared it with the resale price by M/s. Bajaj Electricals Ltd. The Tribunal referred to the Supreme Court judgment in Union of India and Others v. Cibatul Limited, which held that the wholesale price at which the seller sells goods to the buyer is the assessable value under Section 4 of the Central Excises and Salt Act, 1944. The Tribunal concluded that the sales were at arm's length and did not reflect a special relationship between the buyer and seller. Therefore, the goods were not supplied at a very low price to evade excise duty.

3. Whether the clearances of M/s. Sarang Products and M/s. Gaurav Products should be clubbed for excise duty calculation:

The Tribunal noted that the total sales of both firms amounted to Rs. 7,26,832.70, exceeding the exemption limit of Rs. 5 lacs under Notification No. 80/80-C.E. The Tribunal upheld the Collector's decision to club the clearances of both firms, as M/s. Gaurav Products was a mere facade and did not have a separate factory or electric connection. The Tribunal directed the Revenue authorities to demand duty accordingly after allowing the benefit of exemption Notification No. 80/80-C.E.

4. Whether the penalty imposed under Rule 173-Q of the Central Excise Rules, 1944, was justified:

The Tribunal observed that the penalty of Rs. one lakh imposed by the Collector was harsh, considering the reduction in the quantum of duty payable. To meet the ends of justice, the Tribunal reduced the penalty to Rs. 50,000/-.

Conclusion:

The Tribunal concluded that M/s. Sarang Products and M/s. Gaurav Products should not be treated as separate entities, and their clearances should be clubbed for excise duty calculation. The goods were not supplied at a very low price to evade excise duty. The penalty imposed was reduced to Rs. 50,000/-. Except for these modifications, the appeal was otherwise rejected.

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