2015 (8) TMI 1237 - AT - Central Excise

Duty demand - Valuation of goods - Related person - deduction of these trade discounts offered to dealer being a group company selling entire production of the assessee - held that - just because the entire production of goods of the appellant company was being sold to M/s. AIL who were selling the same at a higher price or that M/s. AIL were incurring the expenses or marketing and advertisement of the goods produced by the appellant company, the two cannot be treated as related persons in the sense that there was mutuality of interest in the business of each other. Similarly, just because the appellant company along with two other group companies, had extended loan of about ₹ 50 crore to M/s. AIL, it cannot be said that the transactions between the appellant company and M/s. AIL was not on principal to principal basis, as it is not the contention of the department that the loans extended by the appellant company - and two other group companies, M/s. Adonis (India) Limited were interest free loans or at interest much lower than the market rates. The appellant company and M/s. AIL can be treated as related persons if there is an evidence to prove that the appellant company had all pervasive financial year and managerial control over M/s. AIL and M/s. AIL were just an extension of the appellant company. But in this regard, we do not find any such evidence. Commissioner was required to go only into the question of duty demand of ₹ 35,63,928/- confirmed against the appellant company and also question of imposition of penalty on them and other notice. The duty demand of ₹ 28,35,170/- had not been challenged by the department and as such was not the subject matter of the appeals filed before the Tribunal which were decided by the Tribunal vide order dated 4/5/2001. In view of this, the Commissioner s order confirming the duty demand of ₹ 28,35,170/- is not only totally incorrect order but also a perverse order and, therefore this part of the order has to be set aside. Apex Court also in the case of CCE Vs. Xerographic Limited reported in 2006 (3) TMI 308 - SUPREME COURT has held that the distributor companies of an assessee cannot be treated as related persons, as existence of extra commercial consideration for discarding the normal price between the assessee and the distributor companies has not been shown. In our view, the ratio of these judgment of the Apex Court is applicable to the facts of this case. - Demand set aside - Decided in favour of assessee.

Issues Involved:

1. Whether the appellant company and M/s. AIL are related persons.
2. Admissibility of trade discounts extended by M/s. AIL.
3. Legality of the duty demand of Rs. 28,35,170/-.
4. Legality of the duty demand of Rs. 35,63,928/-.
5. Imposition of penalties under Section 11AC and Rule 209A of the Central Excise Rules, 1944.
6. Applicability of the principle of unjust enrichment for the refund claim.

Detailed Analysis:

1. Whether the appellant company and M/s. AIL are related persons:

The primary issue was whether the appellant company (M/s. Onida Saka Ltd.) and M/s. Adonis (India) Limited (AIL) are related persons under Section 4(4)(c) of the Central Excise Act, 1944. The department contended that the appellant and AIL are related due to mutual financial and managerial interests. The evidence cited included the creation of AIL coinciding with a shift to ad-valorem duty, loans extended by the appellant and other group companies to AIL, and shared usage of premises without formal agreements.

The Tribunal found that these factors alone did not establish mutuality of interest or pervasive control. It emphasized that the absence of common directors or shareholding, and the lack of evidence of the appellant's control over AIL, meant the two entities could not be considered related. The Tribunal referenced several judgments, including CCE Vs. Xerographic Ltd., to support its conclusion that the relationship did not meet the criteria for related persons.

2. Admissibility of trade discounts extended by M/s. AIL:

Initially, the Commissioner had dropped the duty demand related to trade discounts extended by AIL, holding them admissible. This decision was not appealed by the Revenue, and the matter of refund was remanded by the Tribunal for examination under the principle of unjust enrichment. The Tribunal reaffirmed that the Commissioner's earlier decision on trade discounts was final and not subject to further dispute in the current proceedings.

3. Legality of the duty demand of Rs. 28,35,170/-:

The Tribunal found the Commissioner's re-imposition of the duty demand of Rs. 28,35,170/- in the de-novo adjudication to be incorrect and perverse, as this issue had already been settled in the previous order and was not appealed by the Revenue. Therefore, this part of the order was set aside.

4. Legality of the duty demand of Rs. 35,63,928/-:

The duty demand of Rs. 35,63,928/- was based on the assumption that the appellant and AIL were related persons. Since the Tribunal concluded that they were not related, this duty demand was deemed unsustainable. The Tribunal noted that the price difference between the appellant's sales to AIL and AIL's sales to dealers was within a normal range (7-8%), further supporting the conclusion that there was no artificial depression of assessable value.

5. Imposition of penalties under Section 11AC and Rule 209A of the Central Excise Rules, 1944:

Given the Tribunal's decision that the appellant and AIL were not related persons, the basis for the duty demand and the associated penalties was invalid. Consequently, the penalties under Section 11AC and Rule 209A imposed on the appellant company and its employees were also set aside.

6. Applicability of the principle of unjust enrichment for the refund claim:

The Tribunal noted that the refund claim of Rs. 28,35,170/- was remanded to the original adjudicating authority to examine the applicability of the principle of unjust enrichment. This matter was still pending before the Assistant Commissioner, and the Tribunal's current decision did not alter the status of this specific refund claim.

Conclusion:

The Tribunal set aside the impugned order, holding that the appellant company and M/s. AIL were not related persons, thus invalidating the duty demand of Rs. 35,63,928/- and the associated penalties. The Tribunal also reaffirmed the inadmissibility of the duty demand of Rs. 28,35,170/- as it was not contested in the earlier proceedings. The appeals were allowed in favor of the appellant.

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