2014 (12) TMI 73 - AT - Central Excise

Clandestine removal of goods - Mis declaration of goods - Undervaluation - Sale made to related person - Evasion of payment of duty - Wrong classification of goods - prime quality zinc ingots cleared as zinc metal residue - Held that - Goods, in question, on which the duty demand has been raised, and which were cleared by M/s. IZL to M/s. IMTL, were zinc ingots of at least 97.5% purity. The statements of Shri Ashok Singh of M/s. IZL, Shri Pawan Kumar of M/s. Agrawal Tubes or Shri Manoj Agrawal of M/s. Nilkanth Tubes do not throw any light on this aspect. All it has been stated by Shri Ashok Singh in his statement is that M/s. IZL were selling only zinc ingots to M/s. IMTL while Shri Pawan Kumar of M/s. Agrawal Tubes in his statement has stated that they had purchased zinc ingots from M/s. IMTL. The statement of Shri Manoj Agrawal does not indicate that he had purchased prime quality zinc ingots from M/s. IMTL. No sample of the goods sold by M/s. IZL to M/s. IMTL was available or has been tested. When the criteria for classification of the goods under sub-heading 7901.10 is that the metal must contain at least 97.5% zinc and when in this regard there is absolutely no evidence, the duty demand based on classification of the goods under heading 7901.10 would not be sustainable. There is no dispute that entire sales of M/s. IZL were not to or through M/s. IMTL and there were substantial sales to independent buyers. In view of this, Rule 6(c) of Central Excise Valuation Rules, 1975 could not be invoked and, as such, the entire basis of duty demand by treating the price at which the M/s. IMTL sold the goods to independent buyers is incorrect. With regard to invoking Rule 6(c) of Central Excise Valuation Rules, 1975 when the sales are to or through a related person, the percentage of sales of an assessee to or through related person is not relevant. For invoking this rule, what is relevant is as to whether entire sales are to or through related person and only in that case, this rule would be invokable and if there is some percentage of sales, however small the same may be, to independent buyers, it is the sale price to independent buyers which would be the assessable value in respect of sales to or through related person. In this case, there is no allegation that the sale prices of M/s. IZL to independent buyers was higher than sale price to M/s. IMTL - Therefore neither the duty demand against M/s. IZL is sustainable nor penalty on M/s. IZL and their Director nor the confiscation of the land, building plant and machinery of M/s. IZL under Rule 173Q(2) is sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Alleged misdeclaration of zinc ingots as zinc metal residue.
2. Alleged undervaluation of goods sold to a related person.
3. Imposition of penalties and confiscation of property.

Issue-wise Detailed Analysis:

1. Alleged Misdeclaration of Zinc Ingots as Zinc Metal Residue:
The Department alleged that M/s. Indo Zinc Limited (IZL) sold prime quality zinc ingots to M/s. Inter Metal Trade Ltd. (IMTL) but misdeclared them as zinc metal residue under Heading 26.20 instead of Heading 79.01, resulting in a lower duty rate of 8% or 10% ad valorem instead of 15%. The basis for this allegation included statements from Shri Ashok Singh (Manager of IZL), Shri Pawan Kumar (Director of M/s. Agrawal Tubes), and Shri Manoj Agrawal (Director of M/s. Nilkanth Tubes), who indicated that they purchased only zinc ingots, not residue. However, the Tribunal noted that for classification under sub-heading 7901.10, the zinc content must be at least 97.5%, and there was no evidence to show the zinc content of the goods in question. The Tribunal also emphasized that the cross-examination of the key witnesses was not allowed, violating Section 9D(2) of the Central Excise Act, 1944. Consequently, the duty demand of Rs. 25,73,500/- based on the alleged misdeclaration was deemed unsustainable.

2. Alleged Undervaluation of Goods Sold to a Related Person:
The Department claimed that IZL and IMTL were related persons and that the goods sold to IMTL should have been valued at the price IMTL sold them to independent buyers. The Tribunal found that having one common director or family members as directors did not automatically make the companies related persons under Section 4(3)(c) of the Central Excise Act, 1944. There was no evidence of mutual interest in each other's business. Moreover, Rule 6(c) of the Central Excise Valuation Rules, 1975, applied only if all sales were to or through a related person, which was not the case here. Thus, the duty demand of Rs. 7,74,218/- based on undervaluation was also found to be without basis.

3. Imposition of Penalties and Confiscation of Property:
The Commissioner had imposed penalties on IZL and IMTL under Sections 11AC and Rule 209A of the Central Excise Rules, 1944, and ordered the confiscation of IZL's land, building, plant, and machinery under Rule 173Q(2). Given that the primary allegations of misdeclaration and undervaluation were not substantiated, the Tribunal found no grounds for these penalties and confiscation orders. Therefore, the penalties and confiscation were set aside.

Conclusion:
The Tribunal set aside the impugned order in its entirety and allowed the appeals filed by IZL, IMTL, and Shri Sanjay Agrawal. The Tribunal emphasized the lack of evidence for the alleged misdeclaration and undervaluation, as well as procedural lapses such as the denial of cross-examination of key witnesses. Consequently, the duty demands, penalties, and confiscation orders were deemed unsustainable.