1999 (5) TMI 226 - AT - Central Excise

Summary

Issues:
Confirmation of duty demand and imposition of personal penalty based on manufacturing and removal of cosmetics under a related firm within the meaning of Central Excise Act.

Detailed Analysis:
The judgment pertains to an appeal where the adjudicating authority confirmed a duty demand and imposed a personal penalty on the appellants for manufacturing and removing cosmetics under the brand name "Nesme" through their sole selling agent, M/s. Quality Marketing, which was considered their related firm under the Central Excise Act. The duty demand amounted to Rs. 73,632.49 (Basic) and Rs. 3,681.62 (Special) for the financial year 1988-89. Additionally, a penalty of Rs. 10,000 was imposed due to the abuse of exemption under Notification No. 140/83-C.E., dated 5-5-1983.

The appellants had entered into an agreement with M/s. Quality Marketing, appointing them as a sole selling agent for the entire India with a 30% discount, of which 10% was to be utilized for advertising and sales promotion activities. Notably, one partner of M/s. Quality Marketing was the wife of the main partner of the appellants' firm. The investigation revealed that 95% of sales were made to M/s. Quality Marketing, with only 5% directly sold at the factory gate. The Commissioner of Central Excise concluded that M/s. Quality Marketing was a related firm/person of the appellant as per the Act, thereby confirming the duty demand.

After hearing both sides and reviewing the impugned order, the appeal was rejected, confirming the duty demand while reducing the penalty from Rs. 10,000 to Rs. 5,000. The Commissioner highlighted the close monitoring of sales and marketing activities in the agreement between the manufacturing firm and the sole selling agent, emphasizing the interrelation between the two firms. The investigation uncovered fictitious sales to non-existent parties, indicating malintent by the appellants to manipulate sales and remain within the small-scale exemption limit by selling goods through related parties at a high commission of 30%.

The adjudicating authority noted discrepancies in the cancellation of the agreement between the parties, as well as the flow-back of money from M/s. Quality Marketing to the manufacturing firm for advertising purposes even after the agreement was supposedly terminated. These factors, along with other incriminating evidence, supported the decision against the appellants. The judgment emphasized the mala fide intentions and modus operandi adopted by the appellants, leading to the rejection of the appeal except for the reduction in the penalty amount. The impugned order was modified accordingly, upholding the duty demand and penalty reduction while dismissing the appeal on other grounds.