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2015 (11) TMI 1033 - CESTAT NEW DELHI

2015 (11) TMI 1033 - CESTAT NEW DELHI - 2015 (329) E.L.T. 121 (Tri. - Del.) - Demand of differential duty - Undervaluation - Mutuality of interest - related persons - Imposition of penalty - Held that:- It is the same group of persons, the three brothers, Shri Satnam Singh, Shri Mohinder Singh and Shri Bhupinder Singh who have all pervasive control over SBM, RD and RWM and the three units are being as one entity and the separate firm/company have been created for reducing their tax liability. Th .....

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as assessable value. However, in our view, the Commissioner's decision to adopt the average sales price at which the grey acrylic spun yarn was being purchased by RD from other suppliers would not be correct and that the correct assessable value in respect of the sale of grey acrylic spun yarn by SBM to RWM and RD would be the average price at which SBM were selling the same goods to other independent buyers during that period. Accordingly, the assessable value has to be determined on this basis .....

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for exemption. However, if SBM pay the differential duty on the clearance of grey yarn to RD, as determined by the assessing officer, the exemption notification no. 5/99 and 6/2000 CE would be applicable in respect of the dyed yarn manufactured out of grey yarn received from SBM. - Decided partly in favor of assessee.

Clandestine removal of goods - Allegation is based only on the presumption and there is absolutely no evidence to substantiate the same. Even if there is mutuality of .....

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) And Shri S.K. Mohanty, Member (Judicial) For the Petitioner : Shri B.L. Narsimhan, Advocate For the Respondent : Shri Ranjan Khanna, DR ORDER Per: Rakesh Kumar The facts leading to filing of these appeals are, in brief, as under: 1.1 M/s. SBM Woolen Mills, Ludhiana (hereinafter referred to as SBM), a partnership concern of two brothers, Shri Satnam Singh and Shri Mohinder Singh, manufacture Grey Acrylic spun yarn. M/s. Raja Dyeing, Ludhiana (hereinafter referred to as RD), a partnership concer .....

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ace the following allegations of duty evasion: 1.2.1 Allegation against SBM is that during the period of dispute, they were evading duty by grossly under-valuing grey acrylic spun yarn being cleared by them to RD and RWM and the basis of this allegation is that-(a) the price at which the grey acrylic spun yarn was being cleared by SBM to RD & RWM was much less than the cost of production; (b) SBMs sale price to RD & RWM was also much lower than the price at which the spun yarn was being .....

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d also on the basis of the allegation that three units SBM, RD and RWM were being run as one unit by the three brothers, Shri Satnam Singh, Shri Mohinder Singh and Shri Bhupinder Singh, it has been alleged that there was mutuality of interest between SBM and RD and hence the sale price of the goods by SBM in respect of their sales to RD cannot be accepted. The Commissioner, therefore, has adopted the average price at which RD during the same period were buying similar grey acrylic spun yarn from .....

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the grey acrylic spun yarn has been taken. The departments allegation is that since in respect of the yarn purchased by RD from SBM, the assessable value had been under-declared by the SBM and accordingly the appropriate duty of excise had not been paid by SBM on the grey acrylic spun yarn cleared by them to RD, in respect of the dyed yarn manufactured and cleared by the RD out of the grey acrylic yarn received by them from SBM, the concessional rate of duty under notification 5/99CE and 6/2000 .....

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nst RD is on this basis. 1.3 In view of the above investigation, after issue of show cause notice, the Commissioner vide order-in-original dated 1/11/2004 adjudicated this matter and by this order he (a) confirmed the duty demand of ₹ 5,19,100/- against SBM under proviso to section 11A(1) of Central Excise Act, 1944 along with interest on it under section 11AB and besides this, (b) imposed penalty of ₹ 5,19,100/- on SBM under section 11AC and another penalty of ₹ 50,000/- on th .....

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11AB and besides this, imposed penalty of ₹ 51,92,283/- on RD under section11AC and another penalty of ₹ 5 lakh on them under section 173Q (1) of the Central Excise Act, 1944 and (d) imposed penalty of ₹ 5 lakh each on Shri Satnam Singh, Shri Mohinder Singh and Shri Bhupinder Singh under Rule 209A of Central Excise Rules, 1944. Against this order of the Commissioner, these appeals have been filed. 2. Heard both the sides. 3. Shri B.L. Narsimhan, Advocate, ld. Counsel for the a .....

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of Shri Satnam Singh as its partners; that there is no evidence that these three units were being run by a single person as one unit or that only one person was having all pervasive control over the functioning of these three units; that in view of this, SBM and RD and RWM cannot be treated as related persons and the price at which the grey acrylic spun yarn was sold by SBM to RD cannot be rejected; that in any case, there is absolutely no justification for the Commissioner to adopt the average .....

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since the factory gate price was available, discarding the same and charging the duty from SBM on the average purchase price of the grey acrylic spun yarn by RD is absolutely without any basis; that the price at which the grey acrylic spun yarn was being sold by SBM to RD is comparable with the price at which the same acrylic spun yarn was being sold to other independent buyers and in these circumstances, there was absolutely no justification for rejecting the assessable value adopted by SBM; th .....

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ation no. 5/99 and 6/2000 CE cannot be denied to RD in respect of the finished yarn (dyed yarn) manufactured and cleared by them out of the grey acrylic spun yarn purchased from SBM; that the condition for exemption under notification no. 5/99 and 28/1999CE is that the dyed yarn has been manufactured out of the yarn on which appropriate duty of excise and the special duty of excise leviable under said schedule to the Central Excise Tariff Act, 1985 or as the case may be, the additional customs .....

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the Apex Court has held that the word appropriate used in the notification in the context means the correct or the specified rate of duty; that since the duty has been paid at the correct rate, just because, there is dispute about valuation and according to departments allegation, SBM has under valued their goods, benefit of exemption notification cannot be denied to RD who had used the goods manufactured and cleared by SBM for manufacture of processed/dyed yarn; that in view of this, in any c .....

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ccounted manufacture of dyed yarn by RD, which had been cleared without payment of duty; that there is absolutely no evidence in support of this allegation, that absolutely no enquiry has been conducted with the buyers who had been purchased grey acrylic spun yarn from SBM to ascertain as to whether the yarn had actually been delivered to RD, that similarly, there is absolutely no evidence on record to prove that the grey acrylic spun yarn sold to RWM had actually been used by RD and that in vie .....

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the partners of SBM and Shri Bhupinder Singh and wife of Shri Satnam Singh are the partners of RD; that the plant and machinery of SBM and RD is actually owned by RWM and during the period of dispute, in order to evade the duty, RWM had become a trading unit and SBM and RD had become manufacturing units by taking the plant and machinery of RWM by SBM and RD on loan but during the entire period of dispute, the lease rent was not being paid by SBM and RD to RWM; that the sales were being made by .....

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s cost and was even less than the price at which the same yarn was being sold to other buyers in cash; that in these circumstances, the Commissioner has rightly rejected the assessable value adopted by SBM in respect of their sales to RD and RWM and has determined assessable value on the basis of average purchase price of grey acrylic spun yarn by RD from other suppliers; that in view of this, the duty demand of ₹ 5,19,100/- has been correctly confirmed against SBM; that since SBM in respe .....

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antum of duty of excise payable on the goods, that is, payment of duty not only at the correct rate of duty but also on the correct value; that the expression appropriate duty of excise used in these notifications cannot be construed as payment of duty at the correct rate; that even in terms of Apex Courts judgment in case of Collector of Central Excise Varodara Vs. Dhiren Chemical Industries (supra) which has been relied upon by the appellant, the Apex Court in para 6 of the judgment has obs .....

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to condition that the goods are manufactured from the raw material on which appropriate amount of duty of excise has already been paid; that applying the Apex Courts judgment in the case of Dhiren Chemical Industries (Supra), the exemption in respect of dyed yarn would be available to RD only if in respect of grey acrylic spun yarn the correct amount of duty had been paid; that since in this case correct amount of duty has not been paid, the benefit of exemption no. 5/1999 and 6/2000 CE has not .....

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selling only dyed yarn at much higher rate; that from this it is apparent that the grey acrylic yarn shown to have been sold to RWM had actually been diverted to RD where the same had been dyed and removed clandestinely; that there was no justification for SBM to sell the grey acrylic spun yarn to RWM, who was selling only dyed yarn, that similarly, there was no justification for cash sale of the grey acrylic spun yarn by SBM to other buyers that the entire quantity of grey acrylic spun yarn sh .....

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₹ 5,19,100/- confirmed against SBM on the base of allegation of under valuation. The evidence relied upon by the department in support of the allegation of under valuation against SBM is that-(a) all the three entities, SBM, RD and RWM are being run as one business concern and are being controlled by the same persons in as much as-(i) while SBM is a partnership concern of Shri Satnam Singh and his brother Shri Mohinder Singh, RD is a partnership concern of Shri Bhupinder Singh (brother of .....

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at a price below the cost price and much lower than the price at which same goods were being sold to other independent buyers in case, huge amount of payments were outstanding from RD and RWM; (iv) while SBM running into losses, RWM was making profits and (v) this shows that there is flow of funds from SBM to RWM and these entities have been created to evade the tax. 6.1. In view of the above evidence, we are of the view that it is the same group of persons, the three brothers, Shri Satnam Singh .....

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r independent buyers on cash payment. In view of these circumstances, we hold that there is mutuality of interest between SBM and RWM, and therefore, in respect of the SBM sales to RWM, the sale price of SBM cannot be accepted as assessable value. However, in our view, the Commissioners decision to adopt the average sales price at which the grey acrylic spun yarn was being purchased by RD from other suppliers would not be correct and that the correct assessable value in respect of the sale of g .....

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pect of the dyed yarn is available only if dyed yarn has been manufactured out of the yarn on which  appropriate duty of excise and special duty of excise leviable under the schedule to the Central Excise Tariff Act, 1985 or as the case may be, the additional customs duty leviable under Customs Tariff Act, 1975 has already been paid and no credit under Rule 57A Rule 57B or 57Q of Central Excise Rules, 1944 has been availed in respect of the process dyeing, printing, bleaching or mercerizing in .....

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n respect of the grey acrylic spun yarn cleared by them to RD, as they have deliberately under valued the yarn, the yarn purchased by RD from SBM cannot be said to be yarn on which the appropriate duty of excise has been paid. The appellant plead that the expression appropriate duty of excise under the said schedule means the payment of duty at the appropriate rate not the appropriate quantum. In support of their respective plea, both the department as well as the appellants rely upon the Apex .....

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cable rate and that it need not be the correct quantum of duty on the correct value, Shri Ranjan Khanna, the ld. DR on the other hand points out to the Apex Court s observations in para 6 of the judgment that unless the manufacturer has paid the correct amount of excise duty, he is not entitled to the benefit of the exemption under notification and on the basis of this observation, Shri Khanna pleads that the expression appropriate duty of excise under the said schedule to Central Excise Tariff .....

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y. This judgment is in the context of an exemption notification which exempted finished goods subject to condition that the same have been manufactured out of the raw material on which appropriate amount of duty of excise has already been paid. In the case of Dhiren Chemical Industries the inputs out of which the goods had been manufactured were fully exempted from duty under an exemption notification and point of dispute was as to whether the inputs/raw material in these circumstances can be tr .....

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t in the case of Shri Dhiren Chemical Industries cannot be treated as an authority about how the expression appropriate duty of excise under the said schedule has been paid is to be construed-whether it means payment of duty at the correct rate or whether it means payment of correct amount of duty, i.e., payment of duty not only at the correct rate but also on the correct value in case the rate of duty is ad-valorem. The expression appropriate duty means the applicable or the correct duty. T .....

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ty of excise under the said schedule means the payment of correct amount of duty, i.e., the payment of duty not only at the correct rate but also on the correct value. Therefore, if in the present case, however, in respect of grey acrylic spun yarn, the duty has been short paid by taking recourse to under-valuation, the grey acrylic spun yarn cannot be said to be the goods on which the appropriate duty has been paid and hence, the dyed yarn made out of grey yarn would not be eligible for exempt .....

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erted to RD who have used the same for unaccounted manufacture of dyed yarn which had been cleared clandestinely without payment of duty. On going through the records, we find that this allegation is based only on the presumption and there is absolutely no evidence to substantiate the same. Even if there is mutuality of interest between SBM and RD on one hand and SBM and RWM on the other hand, it cannot be presumed that the yarn sold by SBM to RWM had actually be diverted to RD who had used it f .....

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