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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. 9. I .....

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or 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. DD .....

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mitted 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. The .....

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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, 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 .....

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