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TMI Blog1996 (7) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... heir customers at Rs. 8450.00 per unit initially and at Rs. 8700.00 subsequently. Notice was issued to the appellants to show cause why the prices charged by NELCO to their customers should not be taken to be the assessable value of the TV sets cleared by the appellants and different duty should not be demanded. Appellants resisted the notice, but the Collector passed the impugned order confirming the notice treating the prices charged by NELCO to their customers as cum-duty prices of the appellants and giving deduction for duty and sales-tax element from such prices. The Collector also justified the invocation of the proviso to Section 11A of the Central Excises and Salt Act, 1944 (for short, the Act). A sum of Rs. 8,02,167.00 has been demanded in the impugned order as against the sum of Rs. 9,22,615.80 shown in the notice. The Collector also imposed penalty of Rs. 2 lakhs on the appellants under Rule 173Q of the Central Excise Rules, 1944 (for short, the Rules). The period covered is 1-6-1984 to 16-3-1985. The Manufacturer has filed Appeal No. E/650/87-A against the impugned order and the department has filed the other appeals against the deduction of duty and tax element from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to other concerns were paper transactions arranged to create a shadow market. The notice also stated that Shri K.K. Kandoi, Director of appellants had stated that the circuit diagrams were based on circuit diagram of standard Toshiba TV and the appellants made prototypes which, with modifications as suggested by NELCO were approved by NELCO, that front appearance of the TV sets was approved by NELCO, that they incorporated various suggestions of NELCO regarding performance-related specifications. These statements of Shri K.K. Kandoi were contrary to facts and statements of NELCO officers. The circuit design blue print has inscriptions to the effect that they were the property of NELCO and could not be used without permission of NELCO. The notice alleged that Shri S.R. Karnik, Manager (Projects) of NELCO stated that the appellants extended 30 days credit and declined to extend 90 days credit requested by NELCO due to financial constraints, that, therefore, NELCO looked for supply with better credit facility, that 90 days credit was offered by M/s. Leader Packaging Industries India Pvt. Ltd. and hence NELCO started procuring TV sets from them and other concerns. According to the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the NELCO prices to their customers, expenditure on technical knowhow, assistance etc., not being reflected in the declared prices show relationship between the two. Suppression of supply to NELCO through six other concerns attracts the proviso to Section 11A of the Act. (d) In fact, the appellants could not sell TV sets or even defective sets to others without permission of NELCO which showed that appellants were working as hired manufacturer and were not the owners of the TV sets. (e) Sale price of the six concerns could not be regarded as assessable value. The sale price of NELCO to their customers reflects assessable value. (f) Penalty has to be levied under Rule 173Q of the Rules for suppressing relevant information with regard to special relationship with NELCO and filing misleading price lists with a view to evade duty. 5. The contentions of learned counsel for the appellants can be summarised as follows : Aspects covered by some of the findings and some of the materials relied on in the impugned order were not disclosed in the show cause notice. The Collector did not apply his mind to the appellants claim that they themselves developed the circuits based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement claimed that they had developed circuit designs for the two models of TV sets in the last quarter of 1983, that they procured main set of components from the appellants and assembled five prototypes in 1983-84, that appellants manufactured TV sets as per NELCO specifications, that NELCO gave assistance by solving technical problems and that the components used were evaluated and approved by NELCO laboratory. Shri S.R. Karnik of NELCO stated that NELCO had no manufacturing licence for Colour TV sets and they were procuring Colour TV sets from various manufacturers. Initially TV sets were being procured from the appellants who were not extending credit facility. NELCO persuaded the appellants to extend 30 days credit facility. However, on account of financial stringency NELCO could not make payments to the appellants who warned NELCO against such default and also refused 90 days credit. During this period, according to him, NELCO had made commitments to trade for supply of Colour TV sets as Olympic Games were fast approaching. Hence, NELCO selected M/s. Leader Packaging Industries India Pvt. Ltd. as a supplier on 90 days credit. NELCO had not entered into written agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no contract with NELCO or any other buyer. 9. Shri A.K. Banwarilal, Director of M/s. Leader Packaging Industries (Pvt.) Ltd. stated that since 1984 they were trading in electronic goods, they were purchasing Colour TV sets from the appellants, M/s. Ambar Industries (their family concern) and M/s. Giriraj Trading and Finance Pvt. Ltd. and selling the same to NELCO under their own invoices and through Bank and challans at a profit of Rs. 1500.00 per set. He admitted that M/s. Sati Industries, M/s. Swati Enterprises, M/s. Shivam Enterprises and M/s. Gupta Industries were his family concerns. The addresses shown in appellants gate passes were residences of himself and his relations or the factories of some of the concerns. They purchase Colour TV sets from concerns other than appellants also. They had no relationship with the persons connected with the appellants. They give guarantee and service facility. Appellants have given guarantee to them. Appellants had developed circuit diagrams. Inspection was carried out by NELCO at their request. M/s. Sati Industries manufactured Colour TV sets and supply to them. M/s. Leader Packaging Industries Pvt. Ltd. purchase Colour TV sets f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents such as Colour Tube were being imported. The evidence clearly indicates that appellants have their factory, technical and other personnel, Branch Office R D department and manufactured Colour TV sets. The bulk of the TV sets, unbranded, were sold to NELCO initially and to other concerns subsequently and a small part of the production was being sold to third parties under the appellants brand name. NELCO did not supply components or raw materials. There was no allegation of any personal relationship between the persons connected with appellants and those of NELCO. The department has no case that apart from the sales of these TV sets, there were any other dealings or any other connection or interest, monetary or otherwise, between the two. It is not the case of the department that the appellants have any interest in the business of NELCO. There was no written agreement between the parties. The impugned order does not state that NELCO had obliged themselves to buy any percentage of the TV sets; nor were the appellants barred from selling TV sets to any others. In these circumstances, there was no justification for the finding that the appellants were hired manufacturer of NELC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly from other suppliers who were prepared to extend 90 days credit. It was on this account that NELCO stopped buying from the appellants and started obtaining supplies from M/s. Leader Packaging Industries Pvt. Ltd. and their sister concerns. One of them M/s. Sati Industries were manufacturing Colour TVs and the other concerns purchased the sets from the appellants and in turn sold the same to NELCO at higher prices at a profit of Rs. 1500.00 per set. These facts emerge from the statement of A.K. Banwarilal, Director of M/s. Leader Packaging Industries Pvt. Ltd. Learned counsel further submitted that Balance-sheets produced before the Collector show that NELCO was a losing concern, which, it is said, will point to the financial constraints of NELCO. That NELCO was working at a loss does not necessarily indicate such severe financial crunch as to compel NELCO to pay more than Rs. 1500.00 per set to the other concerns merely to secure credit for 60 more days. Such a conduct would be wholly inconsistent with normal commercial practice. There is no case that thereafter NELCO increased their prices correspondingly. The claim of the Director of M/s. Leader Packaging Industries Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been proved. In these circumstances, the absence of reference in the notice to the proviso to Section 11 of the Act is of no consequence. We, therefore, hold that the extended period of limitation was validly invoked in this case. The notice is not barred by limitation. 14. The appeals filed by the department are directed against the direction of the Collector that Sales Tax and Excise duty paid on the TV sets should be deducted from the assessable value. These elements are deductible in view of Section 4(4)(d)(ii) of the Act. The direction was fully justified. 15. In the light of our findings, we agree that this is a fit case for imposition of penalty. But penalty has to be quantified afresh after determining the extent of differential duty. 16. (i) The impugned order is set aside. (ii) It is directed that the assessable value of TV sets cleared by appellant from July, 1984 till 16-3-1985 shall be based on the prices paid by NELCO on the ostensible purchases from M/s. Leader Packaging Industries Pvt. Ltd. and others of Colour TV sets manufactured by the appellants. The correct prices and assessable value shall be determined by the Commissioner. (iii) Element of Sales T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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