2023 (10) TMI 1213 - AT - Central Excise

Method of valuation - to be valued under section 4 of CEA or not - related party transaction - case of the department is that since the manufacturing firm and the trading firms are run by one family members they are related in terms of Section 4 of Central Excise Act 1944 - levy of penalties - extended period of limitation - suppression of facts or not - HELD THAT - Entire case is made out on the allegation that there is undervaluation of the excisable goods cleared by M/s Asha Industries on the ground that the buyer namely IPCO Sales Agency is related to M/s. Asha Industries. It is found that manufacturer Asha Industries is a partnership firm and the buyer M/s IPCO Sales Agency is proprietorship firm - a proprietorship firm and the partnership firm even though the said proprietor is one of the partner in the partnership firm, both cannot be a related person. However, this is a highly debatable issue. Time Limitation - HELD THAT - The appellant manufacturer was partnership firm and the names of the partners are appearing on the registration i.e. Shri Indu bhai M Patel, Shri Devang bahi R Patel, Smt. Nayna ben A Patel. With this information the department was very well within the knowledge of the constitution of the manufacturer partnership firm - appellant from time to time informed the department regarding any change either in the manufacturer firm or in the buyer firm M/s IPCO Sales Agency. In the present case the demand was raised for the period 2002-06 to 2007-08 by issuing the show cause notice dated 30.09.2013 therefore, the entire demand is covered under the extended period of limitation - It is accepted that the above letters were submitted by the appellant with the department whereby the department was kept informed from time to time about the constitution of the manufacturer s partnership firm as well as the buyer s proprietorship firm. Therefore there is no suppression of fact on the part of the appellant. In the facts and circumstances of the present case, we find that the judgments relied upon by the Learned Counsel which are on the issue of limitation directly apply in the present case. Accordingly, the entire demand is beyond the normal period of limitation. Hence the same is not sustainable on the ground of time bar. Since the demand itself is not sustainable, penalty on the appellant and other two appellants under Rule 26 shall also not be sustainable. Appeal allowed.

Summary

Issues:
The issues involved in the judgment are related to the determination of related persons under the Central Excise Act, 1944, specifically in the context of a partnership firm and a proprietorship firm being considered as related entities. The case also deals with the imposition of excise duty based on alleged undervaluation of goods and the applicability of the time bar for raising demands and penalties.

Issue 1: Related Persons Determination:
The case revolved around the contention that the manufacturing firm and the trading firm were related due to familial connections, leading to the demand for differential duty. The Adjudicating Authority confirmed the demand, citing Section 4 of the Central Excise Act, 1944. The appellant challenged this, arguing that a partnership firm is a juridical person and cannot be considered a relative as per the Companies Act, 1956. The appellant also emphasized that the term "family" is not defined in Section 4 of the Act. Additionally, the appellant highlighted the timely communication of changes in partners and proprietors to the department, asserting that there was no suppression of facts, thus invoking the defense of being time-barred.

Issue 2: Time Bar and Evidence Consideration:
The Tribunal analyzed the evidence presented, including correspondence informing the department of changes in the firms' constitution. The appellant contended that despite acknowledgment by the department, the Adjudicating Authority questioned the authenticity of the letters due to missing entries in the inward register. The Tribunal found that the department failed to investigate the genuineness of the letters, relying on presumption and assumption. It was established that the demand fell under the extended period of limitation, but the Tribunal ruled in favor of the appellant, holding that the demand was not sustainable due to being beyond the normal limitation period.

Conclusion:
The Tribunal set aside the demand on the grounds of time bar, allowing the appeals and providing consequential relief to the appellant. The judgment emphasized the importance of proper investigation and adherence to legal provisions in determining related persons under the Central Excise Act, ensuring that demands are raised within the prescribed limitation period to maintain the validity of penalties imposed.