2015 (7) TMI 1033 - SC - Central Excise

Job Work - Dummy unit - revenue allege that JRE was not an independent job unit but was a dummy of the Respondent created and nurtured with the single motive that cost of manufacture be reduced by bifurcation and the cost of sale promotion, advertisements, after sales services etc. were incurred by the respondent company. - Held that - Reading of the show cause notices that main reason for taking action against the respondent assessee was that JRE was dummy of BIL. However, after going through the order of the Commissioner as well as the Tribunal, we find that this plea of the appellant has not been accepted as proved. After detailed analysis of the material produced, the aforesaid two authorities have concluded that JRE was an independent establishment. Moreover, another relevant aspect, which is material for our purposes, is that it has been found that the relationship between the BIL and JRE was on principal to principal basis. In fact, the goods were supplied by the JRE to BIL at the same rates at which within the other companies, namely, Uptron and Dixon Utilities were supplying. Therefore, no benefit was even secured by the BIL on the basis of the alleged relationship. On this aspect the case is squarely covered in favour of the respondent by the judgment of this very Bench in the case of Commissioner of Central Excise, Hyderabad v. M/s. Detergents India Ltd. & Anr. in 2015 (4) TMI 358 - SUPREME COURT . - Decided against Revenue.

Summary

Issues:
1. Allegation of non-disclosure of interest payments in financial records.
2. Allegation of creating a dummy unit to reduce manufacturing costs.
3. Dispute regarding the relationship between the distributor and the manufacturer.
4. Assessment of duty liability and differential duty amount.

Issue 1: Allegation of non-disclosure of interest payments
An investigation revealed that the respondent, a distributor of AKAI products, did not show the accrual of 18% interest on loans made to a manufacturer in its financial records. Subsequently, show cause notices were issued alleging non-disclosure of interest payments for the financial year 1994-95.

Issue 2: Allegation of creating a dummy unit
The investigating officer claimed that the manufacturer was not an independent job unit but a dummy of the respondent, created to reduce manufacturing costs. The adjudicating authority confirmed the demand for differential duty, rejecting the contention that the project report was a device to reduce duty burden.

Issue 3: Dispute regarding the relationship between parties
The Tribunal held that the project report and the certificate regarding interest payments were not significant as the duty rate was specific at the time. It concluded that the relationship between the distributor and the manufacturer was on a principal-to-principal basis, with services adequately compensated.

Issue 4: Assessment of duty liability
The Tribunal dismissed the appeal of the distributor and allowed the appeal of the manufacturer, confirming the recovery of differential duty amounting to &8377; 5,48,92,612 after adjusting the duty already paid. The Supreme Court upheld the Tribunal's decision, stating that the distributor did not benefit from the alleged relationship and that the manufacturer was an independent establishment.

In conclusion, the Supreme Court found no merit in the appeals and dismissed them, based on the independent nature of the manufacturer, the principal-to-principal relationship between the parties, and the absence of any benefit gained by the distributor from the alleged arrangement.