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TMI Blog2025 (2) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. During verification by the Audit, it was revealed that the Directors of the Appellant who together held 99% shares, were both siblings being the sons of the partners of the said Distributors and hence related persons in terms of Sub-section 4(3)(b) of Central Excise Act,1944 (Act). Therefore, the Department was of the view that such clearances to related persons were to be assessed under Rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rule, 2000 (CEVR) instead of the transaction value in terms of Section 4(1) of the Act read with Rule of CEVR, thereby resulting in short payment of duty. A Show Cause Notice dated 01.05.2015 was issued to the Appellant, seeking to demand differential duty & cess of Rs.49,92,825/- during the period from April 2010 to October 2014 along with applicable interest, besides proposing to impose penalty under Section 11AC of the ACT ibid and to appropriate the amount of Rs.49,92,825/- already paid by the Appellant before issuance of Show Cause Notice. The Adjudicating Authority has dropped further proceedings by holding that the transaction between the Appellant and Distributor could not be considered as a related party tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclude the lifting of corporate veil without considering the shareholding in question, unexplained variations in selling price and their implication on duty payable. vi. It was pointed out that the impugned order disregarded the directives of the Supreme Court in Union of India Vs. Atic Industries wherein it was held that even if same person holds 50% of shareholding in two companies and controls them, does not lead to the conclusion that two companies were related. vii. Reliance was also placed on the ratio of the following judgements: - (a) Reliance Industrial Product [2012 (276) ELT 107 (Tri.-Mumbai)] (b) Mineral Wool Manufacturing (India) Pvt. Ltd. Vs. CCE, Patna [1999 (109) ELT 228 (Tri.)] (c) Cooper Pharma Vs. CCE, New Delhi [2004 (174) ELT 143 (Tri.-Del.)] (d) CCE, Chennai Vs. B.K.Office Needs Pvt. Ltd. [2015 (318) ELT 288 (Tri.-Che.)] (e) Alembic Glass Industries Ltd. Vs. CCE [2002 (143) ELT 244 (SC)] (f) Dhanesh Textiles Indus Pvt. Ltd. Vs. CCE, Mumbai [2005 (191) ELT 0498 (Tri.-Bom.)] 4. The Ld. Counsel Shri J. Shankar Raman representing the Appellant have reiterated the averments in the Grounds of Appeal and further submitted that in view of the settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Section 4 of the ACT. It was also held that nowhere in the Show Cause Notice there is an allegation that the buyer and seller are so associated that they have interest in the business of each other and in the absence of transfer of funds between the buyer and the seller it is difficult to come to a conclusion that the above parties are related. Pursuant to an appeal filed by the Department, the Commissioner (Appeals) allowed the Department's appeal by relying upon the Apex Court's decision in M/s. Hind Lamps and J Foundation cited supra to hold that flow back or mutuality of interest need not be established as the intent appears to evade payment of duty. We also find that the amount of Rs.49,92,825/- demanded towards differential duty was already paid by the Appellant before the issuance of Show Cause Notice without protest. 9. We find that the Ld. Counsel has placed reliance on various judgements and so it is essential to examine these cases as to their applicability to the facts of this appeal. 9.1 In the case of Dhanesh Textiles Indus Pvt. Ltd. Vs. CCE, Mumbai [2005 (191) ELT 0498 (Tri.-Bom.)], it was held as follows: - "4. ----------Applying the above definitions, in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) of Section 4 of the Act is not of universal application. 6. In the light of the above, we hold that Dhanesh Textile Industries Pvt. Ltd. does not have any proprietary interest in Dhanesh Industries" 9.2 In Cooper Pharma Vs. CCE, New Delhi [2004 (174) ELT 143 (Tri.-Del.)], the Tribunal held as follows: - "There is a duty demand of about Rs. 5 lakhs and penalty of Rs. 1.5 lakhs. ...... ..... .... ...... ....... It is pointed out that the appellant-manufacturer is a partnership and the goods in question were being sold to a private limited company viz. M/s. Dynamic Lab. Pvt. Ltd. ......... .... .... 2. We have perused the records and considered the submissions made by both sides. In the present case the purchaser of the goods is a limited company. There is no evidence brought on record that an artificial legal arrangement had been created in order to evade duty. The only reason for treating the appellant and the limited company as 'related persons' is that they are having interest in the business of each other since share-holders/Directors of the limited company were blood relations of the manufacturing partnership. It is well settled that a limited company is a juridical pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urer and the other the buyer. The partners of one were partners of the other firm which also had an additional partner in the person of their mother. The Tribunal held that the manufacturer and buyer were therefore one and the same and that it cannot be imagined that there is no financial interest in themselves or that the mother had no financial interest in her sons' business consisting of both manufacturing and buying. No additional evidence would be required to establish that the manufacturer would strive hard to promote the business of the buyer and vice versa as they would be doing it all for themselves. Examining the present case in the light of these decisions, we find that in this case the manufacturer (appellants) are a Private Limited Company and the buyer is a partnership firm, the partners being the sons of two of the Directors of the Appellant company. The Private Limited Company does not consist of only the Directors. It has a distinct identity. There is no indication that the partners of Minsulate India had any special arrangement of being eligible for the profits only and not liable for the losses as was the arrangement in the Mohanlal Bhavsar case decided by the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the arguments before us which has also been referred to in this order earlier, the Assistant Collector had held that it was "superfluous". In the circumstances of the case, the element of suppression or wilful mis-statement etc. cannot be said to be involved. The appeal succeeds on the plea of limitation also." 9.4 In Reliance Industrial Product Vs. CCE, Thane [2012 (276) ELT 107 (Tri.-Mumbai)] it was held as follows: - "7. In the Hind Lamp's case (referred supra) the Hon'ble High Court of Allahabad held that the concept of "relative" has no application to the present case because the five customer companies are not natural persons but impersonal bodies. The said decision was challenged by the Revenue before the Apex Court and the Apex Court affirmed and upheld the findings of the Hon'ble Allahabad High Court. Similarly in the case of Kwality Ice Cream Company's case referred to supra, the Hon'ble Apex Court held that to be held as related persons, each of the parties involved should have direct or indirect interest in the business of each other and certain interdependence and reciprocity beyond relationship are required to consider whether the parties are related persons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practice is a deliberate attempt to escape or to evade payment of duty. There is no law we find that prohibits or proscribes a firm or a company from changing its business practice. Whether somebody should remain a manufacturer or a job worker are determined by economic factors. It is also a practice, which is observed widely now in India, that many well known brand owners of consumer products who were manufacturing the products on their own earlier have resorted to getting goods manufactured on job work basis and no longer manufactures the goods themselves. Contract manufacturing is an economic reality, which is dictated by economic and market conditions and, therefore, there is no substance in the allegation that merely because the partnership firm, who is the appellant in this case, has changed its business practice, should be deemed to be related to the public limited company on whose behalf it is undertaking job work. We further observe that the department has not made any attempt whatsoever to show that the price at which the duty liability has been discharged by the appellant job worker has been in any way influenced because of any "relationship" between the appellant firm a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in catena of judgments of this Court. However, we need not take stock of these judgments as this very Bench in a recent decision in the case of 'Commissioner of Central Excise, Hyderabad v. Detergents India Limited [2015 (318) E.L.T. 559 (S.C.)] took note of the existing case law and formulated the test in the following manner : "12. When we come to the definition of "related person" the legislature has used a well-known technique. It first employs the expression "means" and states that persons who are associated with the assessee so that they have a direct or indirect interest in the business of each other would get covered. The definition then goes on to use the expression "and includes" thereby indicating that the legislature intends to extend the definition to also include various persons that would not otherwise have so been included. These include a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor. The necessity for including holding and subsidiary companies as defined under the Companies Act, 1956 is to lift the corporate veil in order to get to the economic realities of the transaction." 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby pointing out that such family concerns would be beneficiaries in the affairs of each other." 10.2 In the case of Food & Health Care Specialities Vs CCE, Delhi-IV [2015 (328) ELT 92 (Tri.-Del.)] it was held as follows: - "8. In our view, the expression. - "interest directly or indirectly" used in clause (iv) of Section 4(3)(b) would refer to the financial interest only. Thus two persons A and B would be treated as related persons only if from the nature of transactions between them it is clear that it is not the intention of the transactions between them that that the sale of goods and/or services between them is at fully commercial price, but the intention is to ensure flow of funds from one person to another person or in other words, ensure financial benefit to one person at the cost of the other. Similarly it may so happen that the both A and B are controlled financially and managerially by the same person or same group of persons and the benefit is flowing to that person or group of persons. In another situation, when on lifting the corporate veil of some entities say A, B, C and D, which may be partnership firms, proprietorship firms, private limited companies or pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CCE, Ahmedabad Vs. Xerographic Ltd. [2010 (257) ELT 11 (SC)], the price at which the goods were sold to the related persons was compared to the normal price and the prices at which these were sold to other distributors and the market prices and arrived at a conclusion that there was no evidence found for any extra consideration paid for fixing the normal price. Thus, the ratio of the decisions relied upon by the Ld. Counsel for the Appellant do not have a direct bearing on this case and could not support their cause as facts obtaining in this appeal are distinguishable. 12. However, the facts in the present appeal are entirely different as the private limited company is owned and run by both the sons of its Distributor which is a partnership firm consisting of the parents of the two brothers who own the appellant company. Whether there is a relationship or not has to be examined considering the total facts of each dispute and is not correct to generalize the same. 13. We find that in terms of Section 4(3)(b) an assessee and its distributor / customer shall be deemed to be related for the purpose of this section if - * They are interconnected undertakings; * They are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court's decision in the case of Commissioner of Central Excise Vs. J. Foundation wherein it was held that when two companies / firms belong to the same group, then the test of mutuality gets established and by lifting the corporate veil which reveals that such family concerns would be the beneficiaries in the affairs of each other. In the case of CCE, New Delhi v. Modi Alkalies & Chemicals Ltd. [2004 (171) E.L.T. 155 (S.C.)], the Apex Court has held that pervasive financial and management control are prima facie indicators of interdependence. On close examination of the facts in this appeal, it is very clear that the manufacturer and the distributor are one and the same being parents (Distributor Firm) and their sons (Manufacturing Company). The manufacturing company and buyer partnership firm were one and the same and it cannot be imagined that there was no financial interest in themselves or the parents had no financial interest in their sons' business, thus no additional evidence would be required to establish that the manufacturing company would strive hard to promote the interest of the parents distributor firm and vice versa as all these would be done for the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial duty suo moto without any protest in five monthly installments from November, 2014 to March, 2015 as is borne out from Para 6 of the Show Cause Notice read with the audit para enclosed with Letter dated 13.11.2014 of the Superintendent IV D Range. Further, the annexure of yearly duty liability titled "Beva Silicone Worksheet" enclosed to the SCN, duly attested by the Range Superintendent bears the endorsement that from November, 2014 the appellant is paying tax on the goods sold to related person (i.e. M/s. Harris and Menuk) at their customer's end price. Thus it remains an admitted fact from the appellant's own contemporaneous action during the period that they have accepted their liability to pay the differential duty and have thus discharged the same without a murmur of protest. 16. Once the relationship is established as above, the valuation of the goods to be adopted should be in terms of Rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 which reads as follows: - "Rule 9.- [Where whole or part of the excisable goods are sold by the assessee to or through a person who is related in the manner specified in any of the sub-clauses ( ..... 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