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2015 (10) TMI 2150 - SUPREME COURT

2015 (10) TMI 2150 - SUPREME COURT - 2015 (324) E.L.T. 422 (SC) - Valuation of goods - Related person and favoured buyer - mutuality of interest - Determination of transactional value - As far as M/s. Haldyn is concerned, it is owned by the Shetty group and the Mehta group who subscribe 52 per cent and 48 per cent shares respectively in the said company. On the other hand, M/s. Travin, one of the purchasers, is wholly owned by the Shetty group and other three firms are wholly owned by Mehta grou .....

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eficiaries in the affairs of each other.

Held that:- CESTAT was not right in holding that there was no mutuality of interest and, therefore, supplier on the one hand and the purchaser on the other hand were not related persons. Insofar as the price manipulation is concerned, i.e., sale of the goods by M/s. Haldyn to the aforesaid purchasers at a depressed price, the same has been established on record on the basis of plethora of evidence tendered by the Revenue which has been discusse .....

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Adv., Mr. Jitin Singhal, Adv. And Mr. B. Krishna Prasad, Adv. For the Respondent : Mr. Praveen Kumar, Adv. And Ms. Neeru Vaid, Adv.(NP) ORDER These appeals are preferred by the Commissioner of Central Excise, Mumbai-V (hereinafter referred to as the Revenue) in which there are five respondents and the names of these respondents are (1) M/s. 'J' Foundation, (2) M/s. 'J' Traders (3) M/s. Janata Glass Works (4) M/s.Haldyn Glass Works and (5) M/s. Travin Trading & Investment Pvt .....

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ng shareholding of 52 per cent and 48 per cent respectively in M/s.Haldyn. After going through the records, the Revenue found that the aforesaid four firms/companies to which the goods were supplied by M/s. Haldin are the firms of Mehta group and Shetty group respectively. The relationship which was found in this respect is described as under: - ...Smt. Shakuntala Shetty and Smt. Vinita Shetty, wife and daughter, respectively, of Shri N. D. Shetty were Directors of M/s. Tervin Trading and Invest .....

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ce the year 1990. Thus Shri N. D. Shetty at one and was controlling activities of M/s. Haldyn Glass Ltd. as a Managing Director and at other end acitivties of M/s. Tarvin Trading as a major shareholder/close relative of Directors, whose major purchases were from M/s. Haldyn Glass Ltd. and there was 20% to 25% profit to M/s. Tarvin Trading. It is also record that constitution of J Group of concerns was as under: 1. M/s. Janata Glass Works - started actively in the year 1962: a. A.A. Mehta, Partne .....

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the M/s.Travin Trading & Investment Pvt. Ltd. (hereinafter referred to as M/s.Travin) is concerned, it was a private limited company in which Shakuntala Shetty and Vinita Shetty, wife and daughter respectively of N.D. Shetty, were Directors. On the other hand, insofar as the other firms are concerned, they belong to Mehta group which are all partnership firms in which family members of Mehta group were the partners. The investigation further revealed that goods were supplied to these firms a .....

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r initially passed orders dated 25.04.1989 dropping the proceedings by accepting the contention of the show cause noticee that the goods were sold at a price higher than the price at which they were sold to the wholesale dealer. Against the aforesaid order, the Revenue had preferred appeal before the Collector, who allowed the appeal and directed the Adjudicating Authority to look into the nature of relationship between M/s. Haldyn and 'J' Group of concerns. After its remand, fresh show .....

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CESTAT) and the CESTAT vide its order dated 13.06.2003 allowed the appeal of the Revenue thereby remanding the matter for fresh consideration by the Commissioner. After this remand, the Commissioner passed fresh orders dated 29.04.2004. This time, he confirmed the duty amounting to ₹ 96,54,914.17/- and also imposed penalty amounting to ₹ 25 lakhs on M/s.Haldyn and ₹ 4 lakhs each on the said buyers. The finding which is arrived at by the Commissioner after analysing the evidenc .....

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Trading and M/s. J Group of concerns. Here to get clear picture extract from para 6.7 of the Show Cause Notice dated 04.02.1993 is reproduced below: M/s. Janta Glass Works for several years were trading in glass bottels manufactured by the assessee. In June/July, 1988, Mehta Group joined the assessee company by acquiring 47.74% shares Mr. J. A. Mehta was introduced in assessee company's management in the capacity of whole time Director. The assessee also sold their product directly to certai .....

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illustrate the assessee sold 32 ml. P.D. Bottles to M/s. FDC Ltd. @ ₹ 365/- per thousand while to M/s. J. Foundation at ₹ 325/- per thousand and M/s. J. Foundation sold the same goods to M/s. FDC Ltd. At ₹ 672/- per thousand. Similarly, assessee sold 200 ml Brute Amber Bottles to M/s. Swift Chemicals Ltd. at ₹ 1200/- per thousand and to M/s. J. Foundation at ₹ 840/- per thousand whereas M/s. J. Foundation sold the same goods to M/s. Swift Chemicals Ltd. at ₹ 1 .....

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me M/s. FDC at ₹ 672/- per thousand when those were sold through M/s. J. Foundation. Similarly, 200 ml Brute Amber Bottels, which were earlier directly sold to M/s. Swift Chemicals Ltd. at ₹ 1200/- per thousand, were subsequently sold at ₹ 1550/- per thousand when those were sold through M/s. J. Foundation. It clearly indicates that sale, if it was not effected through M/s. J. Foundation, then duty would have been paid by M/s. Haldyn Glass Ltd. on price ₹ 672/- per thousa .....

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tal of M/s. J Group of concerns was held by Shri J. A. Mehta Family, as such, profit earned by M/s. Tarvin Trading was distributed amongst members of Shri N. D. Shetty Family and profit earned J Group of concern was distributed amongst only members of Shri J. A. Mehta Family. In turn, profit whether earned by M/s. Haldyn Glass Ltd. of M/s. Tarvin Trading and/or J Group of concerns was distributed amongst family members of Shri N. D. Shetty and Shri J. A. Mehta. However, in case of reduction in p .....

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ove logical conclusion comes that there was flow back to share holders of M/s. Haldyn Glass Ltd. from Profit earned by M/s. Tarvin Trading and M/s. J. Group of concerns as in all the organisation referred to above, beneficiaries were Shri N. D. Shetty family and Shri J. A. Mehta family as there was no outsider. Further, argument put by the noticee that M/s. Haldyn Glass Ltd. was a company, as such, separate legal entity different from its directors is not sustainable as in M/s. Haldyn Glass Ltd. .....

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effected to other industrial consumers by M/s. Haldyn Glass Ltd. Hence, it cannot be said that M/s. Tarvin Trading and J Group of concerns were not favoured buyers. In turn reliance cannot be placed on the judgment in case of Union of India vs. Hind Lamps Ltd. 1989(43)ELT-161(SC). Similarly, extra commerical concerns, since established in above said paragraphs judgments in the case of UOI and others v/s Hind Lamps Ltd., Shikhhabad, UP 1989(8) ELT-11(Del) and 1998(98) ELT-A-208(SC) and Electric .....

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ass of buyers. In turn, judgment in the case of CCE vs. Japan Mannequin Co. 1999(108)ELT-136(Tri) is not applicable and as there was sale to related person/favoured buyer judgment in the case of Jay Engineering Works Ltd. and another vs. UOI and others 1981(8) ELT-284(Del) and Viacom Electronics (P) Ltd. v/s. CCE 2002 (145) ELT-563 (Tri) are not applicable. In view of the foregoing discussions conclusion comes that M/s. Tarvin Trading and 'J' Group of concerns were related person and fav .....

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al Excise Rules, 1944 read with Section 38A of Central Excise Act, 1944. As the proposed penalty is imposed on M/s. Haldyn Glass Ltd. under Rule 173Q of Central Excise Rules, 1944 read with Section 38A of Central Excise Act, 1944, no separate penalty is imposable on Shri N. D. Shetty as a Managing Director and Shri J. A. Mehta as a Whole Time Director of M/s. Haldyn Glass Ltd. under the provisions of Rule 173Q of Central Excise Rules, 1944 as the penalty imposed on M/s. Haldyn Glass Ltd., in my .....

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ame, when there was undervaluation to determine duty liability and there was evasion of duty at factory gate of M/s. Haldyn Glass Ltd. Hence, it is evident that M/s. Tarvin Trading and Investment P. Ltd., M/s. J Group of concern aided and abated M/s. Haldyn Glass Ltd. in evasion of Central Excise Duty. Hence, M/s. Tarvin Trading and Investment Ltd. M/s. Janata Glass Works, M/s. J Foundation, M/s. 'J' Traders are liable to penalty under the Rule 209A read with Section 38A of Central Excis .....

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een only) under the provisions of sub-section (2) of Section 11A of Central Excise Act, 1944 and order that it should be paid forthwith. 2. I, impose penalty of ₹ 25,00,000/- (Rupees twenty five lakhs only) on M/s. Haldyn Glass Ltd. under the provisions of Rule 173Q of Central Excise Rules, 1944 read with Section 38A of Central Excise Act, 1944; 3. I, order recovery of interest at appropriate rate on delayed payment from M/s. Haldyn Glass Ltd.; 4. I, impose Penalty of ₹ 4,00,000/- (R .....

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ersons on the application of the definition of 'related person' appearing under Section 4 of the Central Excise Act, 1944. This contention of the respondents has been accepted by the CESTAT in its impugned orders dated 17.06.2005. Challenging the said orders, the Revenue has preferred the instant appeals. A perusal of the order of the CESTAT would show that the CESTAT has not disputed or taken exception to the relationship that is shown between the parties as noted above. However, in the .....

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r has been opposed on the aforesaid ground, let us reproduce here the definition of 'related person' which is stated in Section 4(4)(c) of the Act: - 'related person' means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation.- In this clause 'holdi .....

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the existing case law and the 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 d .....

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. Haldyn is concerned, it is owned by the Shetty group and the Mehta group who subscribe 52 per cent and 48 per cent shares respectively in the said company. On the other hand, M/s. Travin, one of the purchasers, is wholly owned by the Shetty group and other three firms are wholly owned by Mehta group. Thus, from the aforesaid, it is argued by Mr. Jaideep Gupta, learned senior counsel appearing for the Revenue, that since M/s. Haldyn on the one hand and the four purchasers on the other hand belo .....

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ng common Directors and that they were relatives of one another; a further finding was also noted that both the Companies were family concerns and were beneficiaries of their ventures and that the benefits of both the concerns are shared by members of one and the same family. From these findings, it is difficult to resist the conclusion that the respondent and M/s. International have a direct interest, in the business of each other and that the mutuality of interest between the two is apparent. .....

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