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TMI Blog1993 (1) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... d 30-4-1975. It was observed that almost the entire production of boilers and burners was being sold by the factory to M/s. Nestler Boilers Pvt. Ltd., Bombay (hereinafter referred to as "company") whose office was located in the same premises in which head office of the factory was functioning. On scrutiny of the records, produced by the factory and the company and on investigation the officers arrived at the following conclusions :- (i) The "Company" was a subsidiary of M/s. Star Chemicals Pvt. Ltd., Bombay (hereinafter referred to as "Chemical") as its entire equity capital was owned by the Chemical. Further, since Shri Suresh R. Shah was the Managing Director of the "Company" and also the Director of "Factory" in which the only other Director was his wife Smt. Charu S. Shah, "Factory" was, therefore, a subsidiary of the "Company" and "Chemical" could be deemed as a holding company with two subsidiary companies namely, "Company" and "Factory" rendering "Factory" and "Company" as related persons within the meaning of Section 4(4)(c) of the Central Excises & Salt Act, 1944. (ii) Factory had failed to satisfy conditions (iv) and (v) of the Notification No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem to the customers and not die actual duty paid by factory on the boilers and, therefore, the price enhancement by "Company" appeared to form a part of the assessable value of the boilers and burners. (xi) In the absence of information in regard to the specifications and price of burners sold by the factory from time to time to "Company", the burners appeared to be chargeable to duty at the maximum price recovered in respect of burners by "Company" in cases where the corresponding sale price of "Company" was not available. 2. On these grounds a show cause notice dated 10th May, 1984 was issued to "Factory" alleging violation of Rule 173(C) of the Central Excise Rules, 1944 and fraud, wilful mis-statement and suppression of facts. It was further alleged that they had failed to file the correct price list in respect of the goods falling under Tariff Item 68 manufactured and removed during the years 1978-79 to 1983-84 (upto 19-8-1983) resulting in evasion of duty on differential value amounting to Rs. 1,21,86,433.37. The "Factory" was, therefore, called upon to show cause why duty amounting to Rs. 9,29,809.40 as worked out in the annexure to the show cause notice should not be rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e factory was manufacturing goods on job work basis under Notification No. 119/85 and after 1981 the goods were manufactured and sold on outright sale by affixing the brand name of the Company. The learned Counsel contended that the seized correspondence referred to by the Collector in the impugned order was neither individually nor commulatively sufficient to hold "Factory" and "Company" as "related person" under the first part of the definition. Referring to the allegation regarding price enhancement Shri Seth submitted that the amount under the heading "Price Enhancement" charged in certain invoices by Company included the payment already made by the Company to "Factory" on clearances of goods from Baroda. He contended that the price enhancement was only during the period 1981-82 to 1983-84 and the total amount was only Rs. 1,85,331 as also accepted by the department. He stated that the alleged excess amount was collected by the Company from the customers due to the fact that the Company was supplying many other bought out items directly to the customers and there was apprehension that the department would try to include the value of the bought out items in the assessable value. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's finding that the 'factory' and the 'company' were "related person" in terms of the second part of the definition of "related person" in clause (c) of sub-section (4) of the Central Excises and Salt Act, 1944 was based on the following reasoning : " . "The officers also examined the relationship of the factory and the Company under the first part of Section 4(4)(c) of the Central Excises and Salt Act, 1944, which revealed that the director of the factory, managing director of the company and director of me Chemical was the same person viz. Shri Shirish R. Shah, who looked after Techno-Commercial work of the factory and general overall management of the Company, determined the sale price of the products of the factory and the company in the capacity of the director and managing director pf the factory and company respectively. Such examination also revealed to the officers that the factory did not negotiate for the sale of boilers and burners with the Company, a sole purchaser of both the products, while as seller of the products purchased from the factory, prices were negotiated by the Company with each customer based on specific requirement with whom the Company had entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding of Imperial Chemical Inds., London to 40%) the Hon'ble Supreme Court had observed that: "The second part of the definition which adds a inclusive clause was admittedly not applicable because neither Atul Products Ltd., nor Crescent Dyes Chemical Ltd. was a holding Company or a subsidiary Company nor either of them a relative of the assessee so as to fall within the second part of the definition." It has been pointed out by the counsel of the appellants that there was no share holding between "Factory" and "Company" as borne out from their Memorandum and Articles of Association and also the Balance Sheet of both the companies and there was also no power to appoint or to remove the Directors in the respective companies. In view of these facts we are of the view that neither "Company" nor "Chemical" could be deemed as holding company of "Factory" nor could either of them be considered as relative of "Factory". For these reasons we are inclined to agree with the appellants that the Collector's finding that "Chemical" was holding company of which both "Company" and "Factory" were subsidiaries and "Factory" and "Company" were related person in terms of the second or inclusive pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot mean that they were "related person", particularly when the transactions between them were on principal to principal basis on purely commercial considerations. In regard to the allegation that "Company" was providing financial assistance to the "Factory" by arranging the supply of raw materials free of cost, it has been pointed out that the raw materials were being supplied by "Company" only upto 1981 when the goods were being manufactured by "Factory" on job work basis under Notification No. 119/75 and in the separate proceedings launched by the Department for the recovery of duty by including the value of such raw materials, the Collector (Appeals) had decided the issue in favour of the appellants. The appellants have further contended that the correspondence relied upon by the Collector was neither individually nor cumulatively sufficient to hold the two companies as "related person" under the first part of the definition. 12. As pointed out by the learned counsel for the appellants it is now well settled that two companies cannot be deemed as having interest directly or indirectly in the business of each other merely on the ground that they have certain common Directors or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra commercial consideration manufacturing company and the customer cannot be treated as "related per- son" even if the goods produced bear the customer's brand name and the entire production is sold to him. The relevant extracts from the said judgment are reproduced below: "Shri Sibal placed before us a Chart indicating the similarity of the facts of Atic Industries' case (supra) and the facts of the present case. In Atic Industries' case, 50 per cent of share capital belonged to Atul Products Ltd. and 50 per cent to the Imperial Chemicals (London) Ltd., a foreign company. In the case of the respondent herein, 50 per cent share capital belonged to the Bajaj Electricals Ltd. (Indian Company) and 50 per cent belonged to Philips (17.67%), Mazda (14.86%), G.E.C. (10.59%) and Crompton (6.88%), all foreign companies. In case of Atic Industries' the sale of goods was on principal to principal basis and to share holding company and to another company, which was initially a subsidiary of the foreign share holding company and to which subsequently became "associate" company of the foreign shareholding company. In the instant case also, it was on principal to principal basis and to a shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods was leviable by including the value of raw materials supplied by the buyer but ultimately by order No. M-17/BD/10/86 dated 12-3-1986 the Collector Central Excise (Appeals), Bombay had decided the matter on merits as well as on limitation in favour of the appellants. The appellants have further contended that the transactions between the two companies were on principal to principal basis and the price at which "Company" sold the goods to the customers was even though escalated over and above the sale price of "Factory" the escalation was only to take into account the cost of the parts procured by "Company" and also the other services which were required to be rendered during installation and commissioning of the boilers. It has also been contended that the margin of profit earned by "Company" being about 20% was not excessive. Since for the period prior to March, 1981 in the proceedings initiated by the Department for recovering duty by including the cost of the raw material supplied to "Factory" by the appellants, the Collector (Appeals) had relied in favour of the appellants and there is no finding based on specific instances that the appellants continued to supply raw mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months was time-barred, the appellants have placed reliance on the following case law: (i) CCE v. Chemphar Drugs & Liniments - 1989 (40) E.L.T. 276 (SC) (ii) Padmini Products v. CCE - 1989 (43) E.L.T. 195 (SC) (iii) Nestler Boilers Pvt. Ltd. v. CCE - 1990 (50) E.L.T. 613 (Tribunal) 16. As regards the appellants' claim that the activities of "Factory" and "Company" were known to the Department right from their inception we find from the Collector's order at pages 33 and 34 that the prior to the setting up of "Factory" for the manufacture of boilers and burners at Baroda in January, 1978 we find that "Company" was carrying out manufacture of boilers and burners till May, 1977 at their works at Thana and Kalina which they had to close down in the wake of the strike at their Bombay works. As pointed out by the appellants, they were submitting copies of the relevant invoices issued by them from time to time to the Department along with the RG-12 returns which were finalised on the basis of the classification lists approved by the Department. It cannot be disputed that on the basis of these documents the fact that the appellants were selling most of their goods to "Company" was known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to hereinbefore do not warrant any inference of fraud. The assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of exempted goods which they manufactured at the relevant time. The Tribunal found that the explanation was plausibl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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