2015 (11) TMI 1033 - AT - Central Excise

Demand of differential duty - Undervaluation - Mutuality of interest - related persons - Imposition of penalty - Held that - It is the same group of persons, the three brothers, Shri Satnam Singh, Shri Mohinder Singh and Shri Bhupinder Singh who have all pervasive control over SBM, RD and RWM and the three units are being as one entity and the separate firm/company have been created for reducing their tax liability. There is no explanation as to why SBM in respect of their sales to RWM and RD being on long term credit, are selling goods to RWM at a price much below the cost of production and also much below the price at which the same goods were being sold during the same period to other independent buyers on cash payment. In view of these circumstances, we hold that there is mutuality of interest between SBM and RWM, and therefore, in respect of the SBM sales to RWM, the sale price of SBM cannot be accepted as assessable value. However, in our view, the Commissioner s decision to adopt the average sales price at which the grey acrylic spun yarn was being purchased by RD from other suppliers would not be correct and that the correct assessable value in respect of the sale of grey acrylic spun yarn by SBM to RWM and RD would be the average price at which SBM were selling the same goods to other independent buyers during that period. Accordingly, the assessable value has to be determined on this basis and the duty demand has to be quantified. - Decided against the assessee. Wrong availmnent of exemption - concessional rate of duty in respect of the dyed yarn - notification no. 5/99 and 6/2000 CE - Held that - in respect of grey acrylic spun yarn, the duty has been short paid by taking recourse to under-valuation, the grey acrylic spun yarn cannot be said to be the goods on which the appropriate duty has been paid and hence, the dyed yarn made out of grey yarn would not be eligible for exemption. However, if SBM pay the differential duty on the clearance of grey yarn to RD, as determined by the assessing officer, the exemption notification no. 5/99 and 6/2000 CE would be applicable in respect of the dyed yarn manufactured out of grey yarn received from SBM. - Decided partly in favor of assessee. Clandestine removal of goods - Allegation is based only on the presumption and there is absolutely no evidence to substantiate the same. Even if there is mutuality of interest between SBM and RD on one hand and SBM and RWM on the other hand, it cannot be presumed that the yarn sold by SBM to RWM had actually be diverted to RD who had used it for unaccounted manufacture of died yarn. In view of this, we hold that duty demand of ₹ 36,78,122/- is not sustainable and is to be set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Allegation of duty evasion by under-valuation against SBM.
2. Wrong availment of exemption notification by RD.
3. Allegation of clandestine removal by RD.

Detailed Analysis:

1. Allegation of Duty Evasion by Under-Valuation Against SBM:

The primary allegation against SBM Woolen Mills (SBM) was that they were evading duty by under-valuing grey acrylic spun yarn sold to Raja Dyeing (RD) and Rosy Woolen Mills Pvt. Ltd. (RWM). The basis for this allegation included the following points:
- The sale price to RD and RWM was significantly lower than the cost of production.
- The sale price to RD and RWM was much lower than the price at which the same yarn was sold to other buyers, including cash buyers.
- SBM, RD, and RWM were being run as one unit by the three brothers, indicating mutuality of interest.

The Commissioner adopted the average price at which RD bought similar yarn from other suppliers as the assessable value, resulting in a duty demand of Rs. 5,19,100/- against SBM. However, upon review, it was held that the correct assessable value should be based on the average price at which SBM sold the same yarn to other independent buyers during the same period. The matter was remanded for de-novo adjudication to determine the correct assessable value and quantify the duty demand accordingly.

2. Wrong Availment of Exemption Notification by RD:

RD was availing of the exemption under notification nos. 5/99 CE and 6/2000 CE, which provided a concessional rate of duty for dyed acrylic spun yarn, provided the grey yarn used had the appropriate duty paid and no credit was taken. The department alleged that since SBM under-declared the assessable value, the appropriate duty was not paid, making RD ineligible for the exemption.

The appellants argued that "appropriate duty" should mean the correct rate of duty, not necessarily the correct quantum. The court, however, interpreted "appropriate duty" to mean the correct amount of duty, both in terms of rate and value. Therefore, if SBM short-paid the duty due to under-valuation, the grey yarn could not be considered to have the appropriate duty paid, and RD would not be eligible for the exemption unless SBM paid the differential duty. The matter was remanded for re-evaluation based on this interpretation.

3. Allegation of Clandestine Removal by RD:

The department alleged that the grey yarn sold by SBM to RWM and other buyers in cash was actually diverted to RD for unaccounted manufacture of dyed yarn, which was cleared clandestinely without payment of duty. This resulted in a duty demand of Rs. 36,78,122/- against RD.

Upon review, it was found that this allegation was based purely on presumption without any substantive evidence. There was no enquiry with the buyers to verify if the yarn was diverted to RD, nor was there evidence to prove that the yarn sold to RWM was used by RD. Consequently, the duty demand of Rs. 36,78,122/- was set aside.

Conclusion:

The appeals resulted in the following outcomes:
- The duty demand of Rs. 36,78,122/- against RD based on the allegation of clandestine removal was set aside.
- The duty demands of Rs. 5,19,100/- against SBM and Rs. 15,14,161/- against RD were set aside and remanded for de-novo adjudication. The Commissioner was directed to re-determine the assessable value and quantify the duty demand based on the average price at which SBM sold the yarn to independent buyers. The exemption for RD would depend on SBM paying the differential duty, if applicable.
- The quantum of penalties under section 11AC and Rule 209A would be determined based on the re-quantified duty demands.

The appeals were disposed of accordingly.