TMI Blog1989 (2) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... in excess of the duty calculated on the basis of the invoice price (excluding duty and local taxes, if any, included in such price) charged by the manufacture for the sale of such goods : Provided that the aforesaid shall be admissible only if :- (i) the manufacturer files with the Superintendent of Central Excise having jurisdiction a written declaration to the effect that he opts to avail of the said exemption; (ii) the manufacturer avails of the said exemption uniformly in respect of all goods, sold by him, which fall under the Item aforesaid; (iii) the manufacturer certifies that the price referred to in the invoice represents the price actually charged by him for the relevant sale and that the price is the sole consideration for the sale; (iv) the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods; (v) no part of the proceeds of the subsequent sale, or disposal of such goods accrues eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s does not involve only the cost of material, cost of overheads and the profit but also includes various other expenses involved in designing, engineering, etc. constituting pre-manufacturing expenses connected only with the services rendered in the regard by M/s. Elcon Engineering Co. Ltd., Vallabh Vidyanagar, Gujarat. Since the said expenses of designing, engineering, etc. incurred before embarking on the process of manufacture over the raw materials supplied to M/s. Elcon (Madras) Ltd., Madras, they are not reflected and do not constitute part of value of the goods manufactured and delivered to the customer by M/s. Elcon (Madras) Ltd., Madras. We say, therefore, that the prices shown in the invoices of M/s. Elcon Engineering Co. Ltd., Vallabh Vidyanagar, Gujarat has nothing to do with the prices raised by M/s. Elcon (Madras) Ltd., Madras in their invoice and therefore, the Central Excise duty paid on the basis of such invoices by M/s. Elcon (Madras) Ltd., Madras is correct in all respects and does not conflict with the provisions of proviso IV of the notification. 4. They sent further reply vide their letter dated 9.7.85. In this, they admitted that they were wholly owned sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment memorandum that the assessments are finalised without prejudice to raising a demand at a later date in terms of show cause notice issued by the office O.C. No. 513/83 dated 28.4.83". Based on some of the invoices issued by the holding company, a demand was also raised under this show cause notice and the working sheets were also attached. The department, in this show cause notice, further, reserved the right to raise the demand for differential amount of duty on the basis of the difference, between the value of the goods as invoiced by the appellants and the value of the same goods as invoiced by their holding company to the ultimate customers and that a supplementary show cause notice would be issued in this regard. A demand of Rs. 4,54,834.99 was raised and Section 11A proviso (i) was invoked for raising the demand beyond six months period read with the provisions of 9(2) of the Central Excise Rules. 6. The Assistant Collector, after taking into account the submissions made in reply to the second show cause notice and the earlier show cause notice, vide his order dated 18.8.86, dropped the proceedings. The Assistant Collector, while dropping the proceedings, has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nely removing. They have not put up any evidence for such removal. Whatever the goods manufactured by the asses see have been cleared only on payment of duty and under valid documents and hence, invoking Rule 9(2) read with Section 11A proviso 1, is not correct." As it has been proved that no extra commercial consideration is involved or the price is unduly influenced, the assessee cannot be denied the benefit of Notification 120/75. The demand issued under Section 11A invoking the extended period is not correct and valid as stated above. 7. The Collector, against the order of the Assistant Collector, filed an appeal before the Collector of Central Excise (Appeals) in terms of 35E of the Central Excises and Salt Act and following grounds of appeal were agitated : It is not disputed that M/s. Elcon Engineering Company Ltd., Vallabh Vidyanagar, Gujarat are the holding company of M/s. Elcon (Madras) Ltd. and the latter a subsidiary of the former. In the fact of it the ascertain by M/s. Elcon (Madras) Ltd. that their transaction with their holding company were on principal to principal basis and that there was no commercial consideration other than price, does not appear to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector and confirm the differential duty demanded for the period 28.10.82 to 28.3.85 as a notice dated 28.4.83 was already issued to the assessee and to withdraw the benefit of Notification No.120/75 and render Justices." 8. In their written submission before the Collector (Appeals), the appellants, after setting out the parameters of Section 4, have stated as under : To sum up, we wish to state that we are although a subsidiary company of M/s. Elcon Engg. Co. Ltd., Vallabh Vidyanagar, we do not have any financial or other interest except for the commercial transactions which are purely on principal to principal basis, in the business of M/s. Elcon Engg. Co. Ltd., Vallabh Vidyanagar and thus are not satisfying both the conditions of the concept of related person as stipulated in Section 4(4) (c) of the Central Excises and Salt Act, 1944 and hence cannot be treated as a related person in terms of Section 4(4)(c) of the said Act. 9. The Collector (Appeals), after giving the appellants a personal hearing, allowed the department s appeal in the following terms: It is seen from the facts of the application that orders secured by the holding company of the respondents in Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te customers and for that reason the appellants were alleged to have resorted to suppression of fact. He pleaded that such an allegation was not borne out by any evidence on record. In this connection, he pointed out that the order of the Assistant Collector, under which the proceedings were dropped in respect of the two show cause notices in para 15, it has been clearly held that proviso to Section 11A under which demand could be raised beyond six month was not applicable. He pleaded that the department had filed an appeal before the Collector (Appeals) against the order of the Assistant Collector and no plea was made before the Collector (Appeals) against this finding of the Assistant Collector and that this finding of the Assistant Collector had not been upset by the Collector (Appeals). In this connection, he also drew our attention to the grounds taken by the department before the Collector (Appeals). He pointed out that there was no plea in these grounds that the findings of fact, as recorded by the Assistant Collector, were in any way wrong. He pleaded that inasmuch as the department had not made any grievance before the Collector (Appeals) in regard to the finding of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals). He pleaded that the prayer before the Collector (Appeals) was for setting aside the order of the Assistant Collector and the Collector (Appeals) had upheld the duty demanded for the entire period. To this extent, he pleaded the findings of the Assistant Collector in respect of time bar had been set aside by the Collector (Appeals). In regard to the related person, he referred to Section 4(4)(c) of the Central Excises and Salt Act and stated that the definition of related person was an inclusive one and the holding company and subsidiary company have been specifically held to be related persons. He pleaded that it was not necessary to bring home the mutuality of interest between the two, so long as the selling and buying companies have relationship of holding and subsidiary companies. He stated that in case it was to be held that the holding and subsidiary companies could be treated as related persons only if there was mutuality of interest, then the words used in the definition under Section 4(4)(c), namely, and includes a holding company, etc. would become redundant. He pleaded that according to the principle of interpretation of statues, no provision should be so read as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that in any case the absence of any specific mention in this regard cannot constitute a legal infirmity in the show cause notice issued in the facts of this case. 21. He pleaded that this fact of non-filing of the price list was brought out in the first show cause notice and the duty demand was not raised for the differential amount as the appellants had not produced the invoice of the goods as raised by the holding company on the ultimate customers. He pleaded that the first show cause notice was a valid show cause notice and the period for demand could be reckoned with reference to that show cause notice. He stated that the second show cause notice was issued based on the invoices produced and there was a reference to the first show cause notice in it. 22. He, in this connection, stated that non-mention of amount in the first show cause notice did not render that show cause notice ineffective so far as the amount of demand was concerned and he referred the case of Hindustan Aluminium Corporation Ltd. v. Superintendent, Central Excise, Mirzapur and Others [1981 E.L.T. 642 (Del.) para 19]. He stated that since the elements of suppression were shown in the show cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceased) through LRs and Others v. Union of India and Others [1986 (23) E.L.T. 3] was not relevant to the facts of this case as in that case the Supreme Court was not examining the issue as to whether the appellants fell within the ambit of the definition of related person. He stated that mutuality of interest ought to be established in the case of the sales are to be held to be a related person and cited the case reported in 1986 (26) E.L.T. 289 Union of India and Others v. Kantilal Chunilal and Others. 26. He, further, pointed out that in the first show cause notice, there was not a whisper that the invoices were required by the department. He, further, stated that it was not correct for the department to plead that the assessments were provisional. He also pleaded that the observations of the Hon ble Court in the case of McDowel had been watered down in a later judgment so far as it related to tax planning. 27. We observe that the proceedings in the case started with the issue of the first show cause notice dated 20.4.83 under which the appellants were called upon to show cause as to why the benefit of assessment in terms of Notification 120/75 should not be disallowed and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 4(l)(a) Proviso (iii), fact remain that the appellants for the purpose of assessment of the goods have laid claim to the benefit of Notification 120/75 and their claim for assessment has to be examined in terms of the provisions of this notification and in case they do not satisfy the requirements of this notification, then alone the assessment has to be done in terms of the Section 4(l)(a). 31. We observe that the lower authorities have not examined the claims of the assessee in terms of provisions of this notification and have not given any findings as to in what way the appellants fail to satisfy the provisions of proviso (iv) of the said notification. All that has been said is that subsidiary and holding companies have to be held to be related persons in terms of Section 4(4)(c) and the assessment under Notification 120/75 cannot be allowed. 32. We observe that the authorities below have failed to appreciate the point that Notification 120/75 is an exemption notification and notwithstanding the fact that the sales may be to a related person if the appellants satisfy the requirements of this notification, the benefit of the same cannot be denied to them. The proviso ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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