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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 ..... , they have interest directly or indirectly in the business of each other. Audit verification has revealed that the price adopted to the distributor was much less than the price adopted at which these goods were sold to ultimate Customers. The pricing pattern itself reveals the mutuality of interest as the Appellant was benefited by reduced tax outflow and benefit to the distributor company was by way of reduction in cost of purchase and payment resulting in the distributor seeking increased supply of goods from the appellant, thus resulting in mutual benefit. The Appellant in their reply to Show Cause Notice or in the Grounds of Appeal have never contested the fact that there did exist a different and depressed price for the sales made by the appellant to their parent's distributorship firm and further they have not disputed the differential duty arising out of such undervalued sales which stood paid up. Such payment of short paid duty according to the price difference as suo motu assessed and computed by them itself evidences the differential pricing and the extent of duty evasion. The transaction value on which the duty is required to be paid is the value of the goods at whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as 'Appellant') assailing the Order-in-Appeal No. 523/2016 dated 30.12.2016 passed by the Commissioner of Central Excise (Appeals-II), Chennai confirming demand of differential duty as proposed in the Show Cause Notice No. 20/2015 dated 01.05.2015 setting aside the Order-in-Original No. 47/2016 dated 20.07.2016 which had dropped further proceedings initiated in the Show Cause Notice. 2. Facts briefly stated are that, the Appellant who is engaged in the manufacture of Textile Auxillary Chemicals and Textile Enzyme were effecting clearances to their distributors Viz. M/s. Harris and Menuk and to other buyers. 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o public companies whereas in fact, the decision referred to all artificial persons without distinguishing between types of artificial persons. v. It was contended that the impugned order without adequate examination determined that the corporate veil of a body corporate may be torn at will whereas it was only resorted to in the event of a colourable transaction or an attempt to evade payment of tax and cannot be applied to a case where no mala fides have been proven. In this regard, it was pointed out that the impugned order had erroneously interpreted the Apex Court's decision in J Foundation [2015 (324) ELT 422 (SC)] to 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the buyer cannot be treated as a related person merely because the Directors of the appellant company and partners of the Distributor are related. Reliance was placed on various decisions of the Tribunal to contend that such an attempt to demand differential duty is contrary to the law. The Original Authority dropped the proceedings by holding that though the shareholders of the company and the partners of the Distributor firm are relatives, the buyer and seller of goods in this case cannot be considered as relatives as they are impersonal bodies and hence not fit into the definition of the term "relative" as mentioned 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f their shareholding, have an interest in the business of the company and that equally, the fact that two public limited companies have common Directors does not mean that the one company has an interest in the business of the other. The Apex Court distinguished its earlier order in Calcutta Chromotype Limited v. Collector [1998 (99) E.L.T. 202 (S.C.)] holding that "the principle that a company under the Companies Act, 1956 is a separate entity and that therefore, where the manufacturer and the buyer are two separate companies, they cannot than anything more be related persons within the meaning of clause (c) of sub-section (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision. In the former case the Supreme Court had noted that there was identity of interest between the two partnership firms. Under the partnership agreement, the partners were to share the profits but not liable for losses. It was held that the two firms could not be said to be at arm's length or independent parties and that the prices at which the goods were sold by the manufacturing firm to their Chief Distributor firm could not be taken to be their real value. This judgment was noted and followed by the Tribunal in the case of Rakesh Bulb Industries. There were two partnership firms in that case, one being the manufacturer 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 ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling price of Minsulate India is not excessive. Accordingly the McDowell case had no application here. In the circumstances, we hold that the Additional Collector was not justified in treating M/s. Minsulate India as a related person of the appellant company and treating the selling price of the former as the basis for assessment of duty at the hands of the latter. Though the appeal is thus allowed on merits, the plea against the application of the longer period of limitation is also acceptable. The appellants had filed price list in the appropriate form applicable in respect of sales through a related person. As has come out 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted company are relatives the firm and the company are related, has no legal basis whatsoever, especially in the light of the judgment of the Hon'ble Apex Court in the case of Hind Lamps Ltd. The said legal position was affirmed by the Hon'ble Apex Court in the case of Jay Engineering Works Ltd., referred to supra wherein it was held that concept of "relative" has no application to impersonal bodies. 8. The department has also alleged that the party has changed their business practice i.e., prior to 1-4-2005 they were a manufacturer themselves and subsequently they became job workers and, therefore, this change in business 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. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding recorded by the Tribunal is a pure finding of fact which docs not call for interference. 9. In the light of the above discussion, we do not find any merit in this appeal and dismiss the same with no order as to costs" 10. Whereas we find that the impugned order dated 30.12.2016 has placed reliance on the ratio of the following judgements which are also required to be examined. 10.1 In the case of CCE Vs. J Foundation [2015 (324) ELT 422 (SC)], the Hon'ble Supreme Court held as follows: - "12. The ingredients which are to be satisfied to show that the two persons are related persons, have already been laid down 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he acceptance of the finding of the adjudicating authority, referred to above. Once those findings are accepted, the conclusion that there is mutuality of interest between the two concerns is inevitable. In this view of the matter, we set aside the finding of the Tribunal that the respondent and M/s. International are not related persons." 14. We are of the opinion that the aforesaid judgment squarely applies to the facts of the present case as it holds that where the two companies/firms etc., belong to the same group then the test of mutuality is established and satisfied. In a sense, the Court has torn the corporate veil 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusive of financial and management control by Mr. Sukhdev Narang over the partnership firms. In the case of Reliance Industrial Product [2012 (276) ELT 107 (Tri.-Mumbai)], the partners involved are five companies and it was held therein that the concept of 'relative' has no application as the companies are not 'natural person' but impersonal bodies. Whereas in the present appeal, the manufacturer seller is a private limited company, but the buyer of the goods is the distributor which is a partnership firm which cannot be called as a impersonal body. The liability of the partners is unlimited, joint and several. Further, in the 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted to the distributor was much less than the price adopted at which these goods were sold to ultimate Customers. The pricing pattern itself reveals the mutuality of interest as the Appellant was benefited by reduced tax outflow and benefit to the distributor company was by way of reduction in cost of purchase and payment resulting in the distributor seeking increased supply of goods from the appellant, thus resulting in mutual benefit. By lifting the corporate veil of the Appellant, the economic realities of the underlying transactions are clearly discernible. We find that the impugned order has relied on the Hon'ble Supreme 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 exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly / indirectly over the corporate company (Appellant) and the firm (distributor firm)." This fact also came to light only during verification by internal audit. At no point in time has the appellant disclosed to the Department that their distributor is a partnership firm of their parents. The very fact that when confronted by the audit, the appellant has acceded to the existence of this arrangement designed with intent to evade duty, is borne out from their contemporaneous action in admittance of not only preparing the worksheet of such short payment of duty upto August, 2014, but also thereafter paying the entire differential 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months from commencement of differential duty payment by appellant, and a month after payment of the final installment of differential duty due upto October 2014 in March 2014, that in May 2014, the SCN came to be issued. We hold that the appellant is liable to pay interest on the differential duty suo moto paid by the appellant. Since the duty paid without protest to the exchequer is already merged with the consolidated fund of India, any exercise in appropriation is a mere superfluity. 19. The issue that remains for our consideration is the proposal for penalty under Section 11AC in the SCN. We find that while the Ld. Commissioner (Appeals) has set aside the impugned Original-in-Original of the Adjudicating Authority, he has not rendered any finding or discussed about the penalty proposed. The Department too has not filed any cross objection against the non-imposition of penalty. It is a settled principle in law that the appellant cannot be put in an worse off position upon the appellant's preferring of the appeal. Thus, the benefit of non-filing of cross objections should enure to the appellant. We refrain from remanding the matter to decide on penalty in such peculiar facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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