1991 (7) TMI 189 - AT - Central Excise

Issues Involved:
1. Whether the appellants and M/s. International are "related persons" under Section 4 of the Central Excises and Salt Act, 1944.
2. Whether the show cause notice was barred by time.
3. Whether the benefit of Notification 71/78 must necessarily be passed by the manufacturers to the customers.

Issue-wise Detailed Analysis:

Issue 1: Relationship between Appellants and M/s. International
The adjudicating authority found that the appellants and M/s. International have common directors and family relations among other directors, concluding that both companies are family concerns and share benefits. Consequently, it was held that the appellants and M/s. International are related under Section 4 of the Act, and the Central Excise duty should be levied on the price charged by M/s. International.

The appellants argued that both companies are separate legal entities as Private Limited Companies and cannot be considered related. They cited the case of ICIM, where it was held that the appellant and the buying company were not related persons due to the absence of common shareholding.

The Tribunal noted that while the appellants had themselves submitted the price list in Part IV relating to "sales through related persons," they are not estopped from taking a legal position that the companies cannot be related. The Tribunal found that the facts in ICIM were different, as there was no common shareholding between the buyer and seller. In contrast, in the present case, there were common directors and family relations among directors, making both companies family concerns.

However, the Tribunal referred to the Bombay High Court's judgment in Cosmos (India) Rubber Works Pvt. Ltd. & Anr. v. UOI, which stated that merely having common directors does not make entities related persons unless there is mutuality of interest. The Tribunal concluded that no evidence of mutuality of interest was provided, and the appellants were not concerned with the further sale of goods by M/s. International. Thus, the Tribunal held that the appellants and M/s. International cannot be treated as related persons.

Issue 2: Time-Barred Show Cause Notice
The appellants contended that the department was aware of Notification 71/78 being availed of by them and had declared prices in Part IV, holding out M/s. International as the related person. Therefore, there was no suppression of facts, and the department should have verified the prices and computed the exemption limit accordingly.

The Tribunal accepted the appellants' plea, stating that once M/s. International was declared as the related person, it was the department's duty to verify the prices and compute the exemption limit. The department's failure to do so meant that the fault could not be laid against the appellants for suppression of facts. The Tribunal held that the larger time-limit of 5 years could not be invoked, and the demand of duty was barred by time. The show cause notice issued on 13-4-1982 for the period 11-4-1978 to 29-9-1979 was set aside.

Issue 3: Passing Benefit of Notification 71/78 to Customers
The appellants argued that Notification 71/78 did not require the benefit of exemption to be passed to customers, citing judgments from the Delhi High Court and Bombay High Court.

The Tribunal noted that this issue became academic due to the amendment of Section 4(4)(d)(ii) by the insertion of an explanation effective from 1-10-1975. The amendment clarified that only the effective duty payable by an assessee is to be deducted from the total price charged. However, this issue did not affect the result of the appeal due to the findings on the first two issues.

Conclusion:
The appeal was disposed of with the Tribunal holding that the appellants and M/s. International are not related persons, the show cause notice was barred by time, and the issue of passing the benefit of Notification 71/78 to customers was academic.

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