2000 (11) TMI 793 - AT - Central Excise

Issues Involved:
1. Whether the second appellant is a "related person" under the Central Excise Act, 1944.
2. Whether the demand for central excise duty is time-barred.
3. Whether the price charged by the first appellant to the second appellant was abnormally low.
4. Whether the penalties imposed under Rule 173Q and Rule 209A of the Central Excise Rules, 1944 were justified.

Detailed Analysis:

1. Whether the second appellant is a "related person" under the Central Excise Act, 1944:
The main question to be decided is whether the second appellant is a "related person" and whether he is a "favoured buyer" by reason of the price being lower than the price finally charged by the second appellant to his customers. The appellants argued that common office premises and commonness of Directors do not establish that both of them are related. However, the investigation revealed that the entire production was sold to the second appellant, and the first appellant had been receiving advances from the second appellant to meet manufacturing and other office expenses. This established a financial interest in each other's business. The Tribunal concluded that the relationship between the appellants was not based on normal business considerations but had a special common financial interest, effectively controlled by the second appellant.

2. Whether the demand for central excise duty is time-barred:
The learned Consultant contended that the Department was aware of the entire production being sold to the second appellant, and the relevant RT-12 returns were assessed without objection. Therefore, the extended period of limitation could not be invoked. However, the Tribunal did not find this argument persuasive, as the financial dealings between the appellants indicated suppression of facts, justifying the extended period for the demand.

3. Whether the price charged by the first appellant to the second appellant was abnormally low:
The appellants argued that the price difference was due to additional expenses incurred by the second appellant, including repacking, handling, transport, and other costs. However, the Tribunal observed that the goods were sold to the second appellant in an unfinished condition (packed with straw), and the first appellant's price did not reflect the usual market condition. The Tribunal concluded that the price charged was abnormally low, influenced by the financial control exerted by the second appellant over the first appellant.

4. Whether the penalties imposed under Rule 173Q and Rule 209A of the Central Excise Rules, 1944 were justified:
The Tribunal upheld the penalties imposed by the Commissioner, finding that the appellants had violated the provisions of the Central Excise Rules by not declaring the proper value of the goods, resulting in evasion of central excise duty. The financial transactions and control between the appellants justified the penalties under Rule 173Q for the first appellant and Rule 209A for the second appellant.

Conclusion:
The Tribunal rejected both appeals, upholding the impugned order that confirmed the central excise duty demand and imposed penalties on both appellants. The relationship between the appellants was deemed to be that of "related persons," justifying the lower price charged and the extended period for the duty demand. The penalties were also found to be warranted due to the suppression of material facts and financial control exerted by the second appellant.

← Previous Next →