2015 (12) TMI 1160 - SC - Central Excise

Undervaluation of goods - Demand of differential duty - Evasion of duty - The case set up in the Show Cause Notice was that at the relevant time, manufacturing of electric hair removers and dyers was reserved for SSI unit, hence, Gillette could not have directly manufactured the said goods. Therefore, in connivance with Braun, which is a group company of Gillette and Rialto, it got the same manufactured in the premises of Rialto. Held that - Evidence which was produced and relied upon by the Commissioner in his order, the CESTAT has arrived at an categorical finding of fact that Rialto was not a dummy or shadow company of Gillette and further that the contract between the parties was on principal to principal basis. It has also stated that, if at all, such a contract can be treated as one whereby Gillette had given job work to Rialto, the transaction between the parties were not sham. Even if, it was a job work done by Rialto, Rialto had been paying excise duty thereon. Findings which are returned by the CESTAT in this behalf included finding that Rialto and Gillette are separate and independent Companies with separate juristic personality; Rialto manufactured the goods and supplied the same to Gillette on payment of duty of excise under statutory invoices; in the Show Cause Notice, the Department did not raise any objection with regard to these returns; the goods were not manufactured by Rialto out of raw materials procured by themselves; the capital goods used for the purpose, i.e., machinery, was lawfully acquired by Rialto under a lease agreement with Braun. Facts which weighed with the Commissioner were brushed aside by the CESTAT with cogent reasons. It pointed out that the same were insignificant and were, in any case, satisfactorily explained by both Gillette and Rialto. - Decided against Revenue.

Summary

Issues:
Alleged evasion of central excise duty through under valuation of goods by a company in connivance with another company; Whether the second company was a shadow company created to facilitate evasion; Confirmation of demand raised in Show Cause Notice; Appeal against Order-in-Original; CESTAT's findings on the nature of relationship between the companies.

Analysis:
The case involved a show cause notice issued to a company, alleging connivance with another company to evade central excise duty through under valuation of goods. The respondent company had entered into an agreement with a Small Scale Industrial unit (SSI unit) for manufacturing electric hair removers and dyers. The Revenue alleged that the SSI unit was a shadow company created to facilitate evasion. The Commissioner confirmed the demand raised in the notice, imposing interest and penalties. However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeal, finding that the SSI unit was not a dummy company and the contract was on a principal to principal basis.

The CESTAT found that the companies were separate entities with separate juristic personalities. It noted that the SSI unit manufactured and supplied goods to the respondent, paying excise duty. The Department did not object to the statutory invoices. The capital goods used by the SSI unit were lawfully acquired under a lease agreement. The CESTAT dismissed the facts relied upon by the Commissioner, deeming them insignificant and satisfactorily explained by both companies.

The Revenue's senior counsel argued that the CESTAT's findings were perverse and contrary to the record. However, upon review, the Supreme Court held that the CESTAT's findings were not perverse. Consequently, the appeals were dismissed for lacking merit.

In conclusion, the Supreme Court upheld the CESTAT's findings, determining that the SSI unit was not a shadow company and the transactions were genuine. The judgment emphasized the separate legal identities of the companies and the lawful payment of excise duty by the SSI unit.