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TMI Blog2007 (4) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Central Excise Intelligence in the year 2002 into the transactions of KKCPPL and M/s. K.C Palanisamy & Co. (KCP & Co.), a proprietary firm owned by the Chairman and Managing Director of KKCPPL, a Show Cause Notice was issued to KKCPPL and Shri V. Sudarsan, DGM, KKCPPL, alleging evasion of Central Excise duty by undervaluing the paper and paper products manufactured and cleared by KKCPPL to KCP & Co. during the period 1-4-2000 to 31-3-2001. M/s. KCP & Co. purchased paper from KKCPPL and manufactured and cleared paper bags suitable for packing cement. Sales of the appellants were almost solely to KCP & Co. The investigation had revealed that KKCPPL and KCP & Co. were related entities for the purpose of the Central Excise Act, 1944. After considering the reply to the Show Cause Notice, the Commissioner found that the two firms had mutuality of interest. He observed that in the case of Narendra Machine Works v. CCE, 2001 (128) E.L.T. 118, the Tribunal had found the following aspects to be determinative of mutuality of interest between two entities: (a) The sale of entire goods manufactured by one unit to another related unit. (b) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; As long as the transaction value was genuine and real, the same was acceptable even if it was less than the cost of production in view of the decision of the Supreme Court in the case of Commissioner v. Gurunanak Refrigeration reported in 2003 (153) E.L.T. 249 (S.C.). (ii) The transaction could not be considered as one involving evasion merely because the sale price was less than the cost of production. (iii) An analysis would show that the payment of duty through PLA by KCP & Co. had been much higher than the duty demanded from the appellants. During the material period KCP & Co had paid an amount of Rs. 2,40,45,790/- as duty on its clearances, whereas the differential duty demanded for goods received by it from KKCPPL was only Rs. 1,15,18,485/- for the period 1-4-2000 to 31-3-2001. Even after absorbing the additional duty demanded by way of Cenvat credit, the appellants would still have paid an amount of Rs. 1,25,57,438/- through PLA. (iv) As per the impugned order, KCP & Co. had advanced an interest free loan of Rs. 31.03 crores and that machinery worth Rs. 5.83 crores had been sold to KCP & Co. at an infla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration while computing the cost of production. It was not open to the department at a later stage to say that the assessee had not indicated whether he had included bonus, gratuity, interest and profit while computing the cost. It was also held that the appellant had not suppressed the relevant facts and that larger period of limitation could not be invoked. 7. In Ganganagar Sugar Mills case supra, the Tribunal had in a case of similar facts held that the certificate produced by the appellants had shown that they had clearly stated the basis of the costing .Thus there was no suppression of material particulars. If the costing arrived was not reliable, it was for the revenue to raise objection as provided in the normal period under Section 11A of the Act. The Tribunal allowed the assessee's appeal on the ground of limitation. The civil appeal filed by the department against the above order of the Tribunal was dismissed by the Hon'ble Supreme Court. 8. In Pragathi Concrete Products Pvt. Ltd. case supra dealing with another similar case, the Tribunal had made the following observations : "It is on record that the appellants had submitted the Chartered Accountant's cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, in a time bound manner, it was incumbent on the jurisdictional Assistant Commissiner to verify the cost certificate filed by the appellants. After having failed to do the verification in time, it was not open to the department to allege suppression of facts and to invoke larger period. The ld. Sr. Counsel argued that during the financial year 2000-2001, KCP & Co. had paid a total amount of Rs. 11,69,25,780/- out of which they had paid from PLA 2,40,45,790/- and from modvat account Rs. 9,26,61,541/-.Therefore, it was submitted that even if the duty demanded in the impugned order had been charged from KCP & Co. by the appellants, KCP & Co would still have paid Rs. 1,25,27,305/- from PLA. 11. Ld. SDR submitted that the appellants were not required to furnish the cost certificate when they had submitted the same. The department had therefore not verified the correctness of the same. She submitted that in the Annexure filed on 7-4-2000 along with the price declaration in terms of Rule 173C (3A), the appellants had suppressed the relationship between them and KCP & Co. In view of this willful misdeclaration suppressing the relationship between KKCPPL and KCP & Co. the larger per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o., from PLA and Cenvat credit availed by it during the material period, it is obvious that even if the assessee had discharged duty liability on the higher value now determined by the department for the products of KKCPPL, KCP & Co., would still have been required to pay from PLA Rs. 1,25,27,305/ Duty paid by KCP & Co in the year 2000-01 COLLECTION PAYMENT EXCISE DUTY COLLECTED RG - 23 A-PART 11 RG - 23 C-PART 11 PLA DEPOSIT TOTAL 116,924,158.00 92,661,541.00 218,452.00 2,40,45,790.00 116,925,783.00 In the circumstances, the revision in value attempted and demand made would turn out to be a revenue neutral exercise, especially in view of the fact that the department has found the two entities to be related persons. 15. We find that the appellants had declared the break up of the sale price of its products supported by a cost certificate certified by a Chartered Accountant as early as on 7-4-2000. The department had accepted this price declaration and did not verify its correctness till 2004 when the demand notice was issued alleging suppression of facts on the basis that the cost certificate had exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X
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