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M/s. Karan Engineers Pvt. Ltd., Shri Sanjay Gambhir, Shri Rajeev Gambhir Versus C.C.E. Delhi

2016 (10) TMI 614 - CESTAT NEW DELHI

Valuation - interconnected undertakings u/s 2(g) of MRTP Act, 1969 - related party transaction - Valuation Rules, 2000 - demand of differential duty - imposition of penalties u/r 26 of Central Excise Rules, 2001/2002 - Held that: - there is financial flow back or mutuality of interest among the legal entities. It is apparent that when the affairs of these 3 units were managed by overall control, the benefit accrue to the closely connected family member. There is no need to show, demonstratively, .....

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investigation brought out facts which have direct bearing on the valuation. The declarations filed by the main appellant, as claimed, does not throw light on any of these aspects. The extended period is rightly invoked - demand of duty and penalty rightly imposed - appeal rejected - decided against assessee. - Excise Appeal No. E/385-387/2008-Ex[DB] - Final Order No. 53787-53789 /2016 - Dated:- 27-9-2016 - Mr. S. K. Mohanty, Member (Judicial) And Mr. B. Ravichandran, Member (Technical) Mr. Seema .....

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manufactured goods to M/s DD Industries Ltd. (DDIL) who in turn were further clearing the goods to a trading firm M/s DD Sales Corporation (DDSC). KEPL and DDIL were private limited and limited companies respectively, whereas DDSC was a partnership firm. Further, detailed inquiries were conducted by verification of various documents, price list, annual balance sheet and by recording statement of various Directors, employees and partners of these 3 entities. On completion of investigation, the D .....

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elated person and the value has to be refixed in terms of Valuation Rules, 2000. A differential duty of ₹ 1,33,00,542/- for the period March, 2002 to May, 2006 was confirmed. Penalty of equivalent amount was also imposed on the main appellant. Penalties of ₹ 25 Lakhs each was imposed on the other 2 appellants in terms of Rule 26 of Central Excise Rules, 2001/2002. The present appeals are directed against this order. 2. The Ld. Counsel for the appellants submitted that the constitutio .....

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le of excisable goods is on principal to principal basis; payments received regularly from DDIL; no evidence of mutuality of interest and extra commercial consideration from buyer to seller resulting in reduction of price; no loan transaction from DDIL or DDSC or any Directors/ Partner/ shareholders of these two; there is no dues of DDIL; appellants have independent premises, machinery and staff; audited balance-sheet of the appellant clearly shows profit; the price is on a normal commercial bas .....

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DDSC sold goods to replacing market and such price is on cum duty basis. Finally, the Ld. Counsel for the appellants contested the demand on the ground of time bar. It was submitted that they have filed declaration under erstwhile Rule 173(C) giving all the details of their sales pattern and as such there is no substance in the allegation of suppression etc. 4. The Ld. AR supported the impugned order. He specifically referred to the fact that the major shareholder of KEPL, DDIL and partners of .....

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does not pay salary to them. For example, Sh. Vipin Kumar, Director of KEPL never received any salary/ dividend or any monetary compensation from KEPL. However, he worked as a marketing consultant in DDSC where he was paid consideration for his work. The Ld. AR brought out many such instances to emphasis that there is overwhelming evidence to show that KEPL is only a fagade created in order to show suppressed value for Central Excise purposes. He further submitted that once MRP based assessment .....

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r on the manufacturer (appellant). The full implication of the web of interconnection and common benefits to all the family members by reduced transaction value could be brought out only on detailed investigation by the Department. These things were never part of any declaration or return filed with the Department. The cross utilization on services of certain key employees and directors and other responsible persons in managing the above 3 entities could be brought out only after detailed invest .....

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DDIC and DDSC are all interconnected entities being substantial and effectively controlled by members of one Gambhir family . KEPL is a unit floated by these family though with the different persons and exercised significant control over the same. 8. Since the nature of relationship among KEPL, DDIL and DDSC has to be analyzed based on facts relevant to the period, the observation of the original authority on these facts are relevant. The original authority observed from para 13.2 to 13.10. 13.2 .....

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ors. It further appeared that both the two companies, KEPL and DDIL and the partnership firm, DDSC are interconnected entities controlled by common management headed by the Gambhirs and their family members. It would be worthwhile to look at the persons controlling the company/firm at the material time which is detailed below :- (a) As per the records of the firm M/s. DDIL the following were Directors in the company. (i) Shri Surinder Kumar alias Surinder Gambhir S/o Lt. Sh. Daulat Ram (ii) .....

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Kumar S/o Sh. Ashok Kumar In the year 2004 Shri Tarun Kumar ceased to be the director and only S/Shri Anil Kumar & Vipin Kumar were the directors. 13.3 In the year 2005 Shri Tushar Kumar was functioning as the third director of the said firm M/s. KEPL in addition to S/Shri Anil Kumar & Vipin Kumar. 13.4 Further in the year 2006, Shri Anil Kumar ceased to be a director and only S/Shri Vipin Kumar & Tushar Kumar were directors of the M/s. KEPL. From the statements tendered by .....

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egorically stated that during the material period from February, 2002 to May, 2006 Shri Vipin Kumar, Shri Tarun Kumar and Shri Tushar Kumar had also been Directors of M/s. KEPL but none of these Directors including himself had ever received any amount in any form from M/s. KEPL. All the Directors had been working simultaneously in other firms or doing their own business to earn their livelihood. (C) Furthermore, Shri Anil Kumar in his statement dated 12-2-2007 had also stated that all the above .....

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the Directors of M/s. KEPL during the material period wherein he categorically stated that he worked as a Director of M/s. KEPL without any remuneration as to gain experience of tie rod ends; that the said product was not successful he worked without any remuneration; that he had his own private business to earn his livelihood. (E) Similarly statement dated 21-2-2007 was recorded u/s 14 ibid of Shri Tushar Kumar one of the Directors of M/s. KEPL since 2005 wherein he categorically stated that h .....

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ofit share or any other amount from M/s. KEPL. 13.5 From the foregoing it is clear that all the Directors of M/s. KEPL were dummy Directors having close relation with Shri Surinder Gambhir and as such with S/Sh. Sanjay Gambhir and Rajeev Gambhir. Rather three of the Directors of M/s. KEPL were employees of the other two group company/firm. Shri Anil Kumar was the Chief Executive Officer of M/s. D.D. Sales Corporation and was related to Shri Surinder Gambhir. He was in fact son of brother of .....

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the picture obtaining at the material time. Firstly Shri N.K. Agarwal General Manager (Accounts & Finance) DDIL in his statement tendered under Section 14 ibid on 15-1-2007 has categorically, inter alia stated, that he joined M/s. KEPL in February, 1993 as an accountant and worked in the company till Feb., 2002; that thereafter he joined M/s. DDIL as Accounts Officer, that he had been the authorised signatory of M/s. KEPL during the said period and he was still an authorized signatory of the .....

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at DD Sales Corporation incurred expenses on packing material freight, cartage advertisement, sales promotion, distributor incentive, and commission, etc. 13.8 Thirdly Shri Pritam Singh Accounts Assistant KEPL in his statement tendered under Section 14 ibid on 30-6-2006 had, inter alia, stated that he looked after all the works related to excise and accounting that Shri D.K. Jain who was working in M/s. DDIL at that time gave them orders for manufacturing goods and they manufactured goods a .....

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r were Directors of KEPL but they never received any remuneration from the company. That both Directors hardly (very less) came to the factory. 13.9 Fourthly, Sh. G.C. Verma Production Incharge of M/s. KEPL in his statement tendered under Section 14 ibid on 30-6-2006, inter alia, stated that he had been working as Production Incharge in KEPL since 1987 and he looked after production of motor vehicle parts of different models; that Shri D.K. Jain, Sales Manager DDIL used to direct him for da .....

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o the fact that the two firms were created only to facilitate evasion of excise duty on the goods manufactured by M/s. KEPL and sold to DD Sales Corporation through M/s. DDIL. Furthermore as per the Annexure B of the balance sheet of M/s. DDIL it is admitted position that DD Sales Corporation was one of the enterprises over which the key management personal directly on through relatives were in a position to exercise significant Influence. As regards KEPL the same was admittedly engaged in the m .....

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i Sanjay Gambhir but they were not getting any remuneration from KEPL. The so called Directors were in fact employees of either DDIL or DDSC except Shri Tarun Kumar who was running his own private business to earn his livelihood. In reality, the two firms M/s. DDSC and M/s. KEPL were extension of M/s. DDIL and after introduction of excise duty on MRP basis the other two companies ceased operations and their all operations were taken over by M/s. DDIL which is operating alone at present. 9. In te .....

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were otherwise from the body corporate then also they will be treated as interconnected undertakings. The facts recorded by the original authority is that DDIL is having effective control on DDSC and M/s Daulat Leasing and Finance (Pvt.) Ltd. The said Daulat Leasing during the period 2002 to 2006 has significant shareholding in KEPL. The various members of Gambhir family had significant shareholding in Daulat Leasing. These details are elaborated in para 1.5 and 1.6 of the impugned order. DDSC w .....

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ed fact that DDIL is the owner of the brand and 100% of the product manufactured by the KEPL are supplied only to them. DDIL in turn sells the product through various customers through a partnership firm DDSC. The status of the 3 partners and their connection with the DDIL has already been explained. One partner was the director of DDIL, the other two partners were wives of 2 directors of DDIL. All the shares of KEPL were held directly or indirectly by shareholders and directors of DDIL. There a .....

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apparent that when the affairs of these 3 units were managed by overall control, the benefit accrue to the closely connected family member. There is no need to show, demonstratively, cash flow or a specific monetary consideration from one entity to another entity. The arrangements are so, that ultimately the monetary benefit should accrue to a closed group of people in a family. The arrangement is beneficial to the persons while adversely affected the proper valuation and duty payment by the man .....

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