TMI Blog2018 (7) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Only Shri George Varghese attended the same - None of the proprietors of the said distribution firms had invested any capital nor they received share of the profits; They did not have any control of day to day activities of the firms; the persons have lent their names only and had no say in the affairs of the firms. In instant case, mutuality of interest is established by the investigation and has been brought out by the learned Commissioner in his Order-in-Original. The corporate veil has been lifted satisfactorily. It has been established that the Directors of the appellants were managing various distributors of M/s. Concept Sales either by themselves or through their employees. None of the distributing firms were functioning independently and were for all practical purposes controlled and managed by Shri George Varghese of the appellants - there is interdependence between the appellants, M/s. Concept Sales and other distributing firms. As discussed above, there have been number of financial transactions shown in the name of different companies which are in favour of the Directors of the appellants. Therefore, under these circumstances, it has to be held that leave about mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be equal - Having held that the other noticees had hardly any role in the day to day affairs of the firms, levying penalty on them appears to be harsh - As the issue has been under litigation over two decades now, we find that there is a need to revise the penalties downwards. Appeal disposed off. - E/746, 747, 756-763/2006-DB; E/84 & 85/2008 - Final Order No. 20855 - 20866 / 2018 - Dated:- 3-7-2018 - HON'BLE MR. S.S GARG, JUDICIAL MEMBER AND HON'BLE MR. P. ANJANI KUMAR, TECHNICAL MEMBER Mr. Raghavendra, Advocate For the Appellant Mr. N. Jagadish, AR For the Respondent ORDER Per : P. Anjani Kumar There are 12 appeals involved in this case. The main appellant M/s. Elingical Foods and Beverages (P) Limited are engaged in manufacture of aerated water falling under Chapter 22 of Central Excise Tariff Act, 1985 and are registered with the jurisdictional Central Excise Department. The appellants were incorporated in 1990 and the shareholders were S/Shri Joseph Varghese, George Varghese and Sundaram. Shri George Varghese, Director was managing the day-to-day affairs of the company. The appellants entered into franchisee agreements with M/s. Venkat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 535/98 and E/1552-60/1998, has remanded the case back to the adjudicating authority with a direction to consider all the points submitted by the appellants and to give a clear finding in respect of the pleas in that order. 3. The Commissioner of Central Excise (Adjudication), Chennai vide Order No.5/2006 dated 31.3.2006, has passed an order in remand confirming the duty of ₹ 78,05,867.44 and imposing a penalty of ₹ 20,00,000/- on the company. He imposed a penalty of ₹ 5, 00,000/- each on Shri Joseph Varghese and George Varghese and ₹ 25, 000/- each on other co-noticees. He has also confiscated land, building and plant and machinery giving an option to redeem on payment of fine of ₹ 10, 00,000/-. The appellants and other noticees have filed various appeals against this order, which are the subject matter of this order. 4. The learned advocate for the appellant submitted that this is a second round of litigation. He submitted that the transaction value cannot be denied on the allegation of related party transactions as the price at which M/s. Concept Sales sold to all distributors and dealers are same; Department has alleged that M/s. Concept Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise, SCN dated 20.3.1996, demanding a duty of ₹ 78, 05,867, issued by Commissioner is bad in law and cannot be maintained; they have placed reliance on Neyveli Lignite Corpn. Ltd. vs. Collector of Central Excise: 1992 (58) ELT 76 (Tri.) and the decision of this Bench in the case of Kripa Chemicals Ltd. vs. CCE: 2005 (191) ELT 801 (Tri.-Bang.); Marc Pharmaceuticals: 2005 (183) ELT 145; Alembic Glass Industries Ltd. vs. CCE: 2002 (143) ELT 244 (SC); and Collector of Central Excise, Madras vs. T.I. Millers Ltd.: 1988 (35) ELT 8 (SC). 4.2. The appellants further submitted that admitting but not accepting the valuation made by the department, it was incorrect to deny the benefit of various discounts given by them to the customers. They have claimed that they have been giving scheme discounts and other discounts which were not accepted by the department while computing the differential duty. They have placed reliance on following cases (i). Asst. Collector of Central Excise and Others vs. Madras Rubber Factory Ltd.: 1987 (27) ELT 553 (SC) (ii). CCE, Aurangabad vs. Goodyear South Asia Tyres Pvt. Ltd.: 2015 (322) ELT 389 (SC). (iii). CCE vs. Bisleri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wati Air Products Ltd. vs. Collector of Central Excise: 1998 (98) ELT 391 (Tri.), while holding that Hon ble Supreme Court s order in Pushpam Pharmaceutical Co. Ltd. : 1995 (78) ELT 401 (SC), has held that where facts are known to both the sides, the omission by one to do what he might have done and not that he must have done does not render it a suppression of fact within the meaning of the proviso to Section 11A of Central Excise and Salt Act, 1944. Whereas, in the present case, department had no knowledge of certain facts known only to the appellants; the same were uncovered only after a comprehensive inquiry by DGAE; they have also relied upon the case of Burn Standard Co. Ltd. vs. CCE: 2000 (119) ELT 650 (Tribunal); therefore, the Departmental Representative submitted that issue of second show-cause notice by Commissioner was not bad in law. 5.1. Coming to the valuation issue, the learned AR has placed reliance of Hon ble Supreme Court s decision in the case of Modi Alkalies and Chemicals Ltd.: 2004 (171) ELT 155 (SC), wherein it was held that pervasive financial and management control are prima facie indicators of interdependence; conclusion that a unit is dummy has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants for their clearance to M/s. Concept Sales is correct in terms of Section 4 of Central Excise and Salt Act, 1944; Whether the appellants are related to M/s. Concept Sales and other distributors so as to fall under the mischief of related person in terms of Section 4 of Central Excise Act, 1944; whether the department has successfully proved the interdependence of different companies involved and whether the corporate veil has been successfully lifted. (ii) Whether the issue is barred by limitation; (iii) Whether the department was correct in including the clearances of soda of McDowell brand by the appellants; (iv) Whether the discounts claimed by the appellants are eligible to be allowed. 6.1. It has been alleged in the show-cause notice that the appellants, (a partnership concern with Shri George Varghese and Smt. Rani Jose as partners) have cleared their entire products to M/s. Concept Sales and the price at which it was sold to M/s. Concept Sales was less than the cost of production; different distributors of M/s. Concept Sales are nothing but companies created or controlled by the appellants; there are various evidences to show that there is flow back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges to the appellants; all other payments were to the employees of the appellants for the services availed. However, we find that the contention is not acceptable as such payments, evidenced by documents, are unusual and need to be treated as flow back of funds as rightly held by learned commissioner. 6.3. It is noticed that the entire quantity purchased by M/s Concept Sales from the appellants was sold to the following companies. The allegation and findings are to the effect that Appellants cleared goods at lower value to Concept Sales who further sold at a higher rate to other distributors, who further sold at still higher rates. The Appellant received differential amount from the distributers either directly by this Appellant or indirectly into the accounts of the directors of this Appellant. (i). Vysya Sales Corporation: It is a Proprietorship Concern with Shri Jeby K.John as the proprietor; Investigation conducted revealed that Shri Jeby K.John has not invested any amount in the business; amounts from this unit were withdrawn by Shri George Varghese or spent for his personal expenses; there appears to be a flow back of money directly from this unit to the appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational, Matha Agencies. Only Shri George Varghese attended the same. (iii). None of the proprietors of the said distribution firms had invested any capital nor they received share of the profits; They did not have any control of day to day activities of the firms; the persons have lent their names only and had no say in the affairs of the firms. 6.5. The appellants have contended that the Hon ble Supreme Court held in the case of Xerographic Ltd. (supra) that on the entire reading of the Section 4 of the Central Excise and Salt Act, 1944, it is clear that three conditions are required to be satisfying before invoking the third proviso. Firstly there should be a mutuality of interest. Secondly that the alleged related person should be related to the assessee as per definition of Section 4(4)(c) given in the Act and thirdly, the price charged from the related persons was not the normal price but the price lower than the normal price and because of extra commercial consideration the price charged is less than the normal value. We find that in the instant case, mutuality of interest is established by the investigation and has been brought out by the learned Commissioner in his O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w-cause notice has been issued by Superintendent to cover an earlier period 4/95 to 9/95 the subsequent issue by the Commissioner is not vitiated on two grounds: (i) The second show-cause notice has been issued on a different context different from one issued earlier. (ii) New facts have come to light on the basis of the investigation by DGEI. The Department was not privy to certain facts at the time of issuance of earlier show-cause notice. As the same set of facts cannot be claimed to be known to both sides, we find that the department was justified in issuing the subsequent show-cause notice. We find that an earlier show- cause notice was issued by the Superintendent only on the ground that the price at which appellants have sold the aerated bottles to M/s. Concept Sales was less than the cost of production. Consequent to the investigation by DGEI, facts of interconnectedness, interdependence nature of the units and inexplicable financial transactions between different companies have come to light. Therefore, it cannot be said that the department had the knowledge of these aspects at the time of issuance of the first show-cause notice. Therefore, going by the ratio of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tham Traders would be relevant and not the quantity cleared by M/s. Gautham Traders. In view of the above, the learned Commissioner held that the quantity discount based on free supply shown in the invoices of M/s. Gowtham Traders cannot be extended to the appellants. 7. Coming to the penalties, we find that the original adjudicating authority has imposed certain penalties on different companies which were later revised upward by the Commissioner while deciding the mater in remand. Looking into the circumstances of the case, we find that only one of the Directors of the appellants i.e. Shri George Varghese had a prominent and dominating role in managing the affairs of different companies. Therefore, penalty on him and the other director cannot be equal. Moreover, it is seen that the role of other directors is hardly forthcoming. Hence, we find that they are not liable for any penalty. Having held that the other noticees had hardly any role in the day to day affairs of the firms, levying penalty on them appears to be harsh. As the issue has been under litigation over two decades now, we find that there is a need to revise the penalties downwards. 8. Accordingly, while confirmi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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