1. These five appeals have been filed by the Revenue against the orders of the Commissioner as given below:-----------------------------------------------------------------------------------Sl.
Appeal Order-in- Show Cause Notice No. Period covered by the ShowNo No. Original No. and Date By the Show Cause Notice----------------------------------------------------------------------------------1. E/2955/98 1/97, Dt 4-8-97 C.No. V/85/17/237/95, 2/95 and 3/95 Dt. 1-9-95----------------------------------------------------------------------------------2. E/2964/98 4/97, Dt 4-8-97 C.No. V/85/17/237/95 3/96 and 4/96 Dt. 4-9-96----------------------------------------------------------------------------------3. E/2965/98 5/97, Dt 4-8-97 C.No. V/85/17/237/95 5/96 and 10/96 Dt. 2-12-96----------------------------------------------------------------------------------4. E/2966/98 2/97, Dt 4-8-97 C.No. V/85/17/237/95 6/95 and 12/95 Dt. 18-6-96----------------------------------------------------------------------------------5. E/2967/98 3/97, Dt 4-8-97 C.No. V/85/17/237/95 1/96 and 2/96 Dt. 30-7-96---------------------------------------------------------------------------------- and are being disposed off by this common order since the issues involved are the same and the Collector relying on his finding as impugned in appeal No. E/2955/98, has passed the subsequent orders.
2. Brief facts in appeal No. E/2955/98 are, proceedings of undervaluation of sales made to related person were initiated against this Public Sector Undertaking (hereinafter referred to as M/s. ECIL) by the issue of Show Cause Notice, after conducting enquiries, when the Superintendent on a visit found that:- (a) M/s. ECIL were clearing X-Ray Baggage Inspection Systems (XBIS) valued at Rs. 25 lakhs to Rs. 26 lakhs during the period September, 1994 to February, 1995 to different customers on payment of appropriate duty had sold 16 nos. of such systems to a joint venture company viz., M/s. ECIL Rapiscan, Hyderabad during February, 1995 to March, 1995 at assessable values ranging from Rs. 12 lakhs to Rs. 13 lakhs per system, while the joint venture company in turn had sold the same to various customers at higher prices.
(b) The Superintendent during his enquiries observed that joint venture agreement was entered into on 4-1-94 in order to organize a limited liability joint venture company to manufacture, assemble, test, market, sell and service the products, including such products as being manufactured by M/s. ECIL and after scrutinizing the provisions of the joint venture agreement especially paras 3.2, 3.4, 3.7, 5.1, 6.1, 6.2, 7.1, 9.1 thereof and considering the provisions of Section 4(3)(c) of Central Excises and Salt Act, 1944 and the meaning of 'related person' therein a Show Cause Notice was proposed alleging that:- "(i) The normal price of the XBIS was known to ECIL, even before the formation of M/s. ECIL Rapiscan and were paying duty accordingly on the value. It appears that M/s. ECIL had formed a joint venture with Optic Sensors Inc., USA to form M/s. ECIL Rapiscan only with a view to undervalue the goods, thereby pay lower amount of duty. M/s. ECIL and M/s. ECIL Rapiscan have mutuality of interest in one another, where M/s. ECIL Rapiscan was acting as a so called marketing agency and M/s. ECIL was supplying the goods. Since there was mutuality of interest, M/s. ECIL, it appears, had chosen to supply XIBS on lower values to M/s. ECIL Rapiscan. The dividends of M/s. ECIL Rapiscan, arising out of the subject transactions, would also flow to M/s.
ECIL, as per their share ratio. Hence, it also appears that the price is not the sole consideration of sale between ECIL and ECIL Rapiscan. It appears that M/s. ECIL Rapiscan was formed exclusively to deal such transactions and to undervalue the goods. The value hence is a manipulated value and not the normal value. The normal value is the value at which supplies were made to independent buyers and such value was already known to ECIL.
(ii) As per Section 4(1)(iii) of the Central Excises and Salt Act, 1944, when the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessees to or through such 'related person' shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade... Hence, the normal price of the goods sold by M/s. ECIL, Hyderabad should be the price at which M/s. ECIL Rapiscan sold the goods, under Section 4 of the Central Excises and Salt Act, 1944.
(iii) In view of the above, and Section 4(1)(iii) of the Central Excises and Salt Act, 1944 it appears that M/s. ECIL, Hyderabad have to pay the differential Central Excise duty of Rs. 15,89,048/- on the sixteen XBIS sold by M/s. ECIL, Hyderabad to M/s. ECIL Rapiscan Security Products Ltd. Since M/s. ECIL, Hyderabad have undervalued the goods sold to M/s ECIL Rapiscan which resulted in short payment of Central Excise duty." and duty demands were made under Rule 9(1) of the Central Excise Rules and penalty under Rule 173Q was proposed.
3. The Commissioner after granting the personal hearings and considering the records especially Memorandum of Understanding dtd.
13-8-93 and the Joint Venture Agreement dtd. 4-1-94, interim agreement dtd. 13-1-99 and Memorandum of Understanding dtd. 20-11-94 was convinced to conclude that:- "(i) ECIL and ECIL Rapiscan are two independent legal entities and the transaction between both of them is at arms length and on principal to principal basis. It is no doubt true that the OSI and the ECIL are stock holders of the ECIL Rapiscan and the percentage of stock holding is 51% and 49% respectively. Quite obviously, the profit sharing is in proportion to the stockholding percentage. I find that the business transaction between the ECIL and the ECIL Rapiscan is on principal to principal basis and there is no material evidence to show that there is any other consideration than the normal commercial consideration in the dealings between both of them.
(ii) It is alleged that the ECIL and ECIL Rapiscan have mutuality of interest in one another inasmuch as the ECIL Rapiscan was acting as a so-called marketing agency and the ECIL had chosen to supply the impugned goods at lower values. The ECIL have vehemently contested this allegation. A careful perusal of the show cause notice reveals that a wide variation in the prices of the impugned goods during the two periods, i.e. September to January, 1995 and February and March, 1995 promoted the Department to allege that the prices were deliberately lowered in favour of ECIL Rapiscan. The Department went to the extent of saying that it was done with an intention to evade payment of the appropriate duty of excise. The question that needs a detailed examination is whether the price declaration was the outcome of normal business activity or an act done to evade payment of the Central Excise duty.
(iii) At this juncture, it is worthwhile to know the nature of the impugned goods and type of actual users of these goods. The impugned goods are XIBS (X-ray Baggage Inspection System). The main customers are International Airports Authority, Videsh Sanchar Nigam and the customs Department and they are the actual users of the impugned goods. It is noticed that during the period September, 1994 and January, 1995, the ECIL sold the said goods directly to the actual users without the intervention of any wholesale dealer and the assessable value during the said period ranged between Rs. 25 lakhs to Rs. 26 lakhs. However, after the ECIL Rapiscan had come into being, the impugned goods were sold to it at the assessable value ranging between Rs. 12 lakhs and Rs. 13 lakhs. By this act, the Department inferred that the ECIL had indulged in evasion of duty.
There appears no proper appreciation of the nature of the price existed prior to the formation of the ECIL Rapiscan. As mentioned above, during September, 1994 to January, 1995, the impugned goods were sold directly to the actual users. The question is whether the price charged to such 'actual users could be considered as a 'wholesale price' or 'retail price'. The answer is that the price charged to the actual users shall be treated as a retail price. That being the factual position, the price at which ECIL supplied the XIBS to their customers during September, 1994 and January, 1995 shall be considered as a 'retail price'. However, during the period February-March, 1995, the impugned goods were sold only to the ECIL Rapiscan who in turn sold them to the same customers. The price at which the goods were sold to ECIL Rapiscan ranged between Rs. 12 lakhs to Rs. 13 lakhs. Although the ECIL sold the goods to only one wholesale dealer, i.e. ECIL Rapiscan, such a price can be considered as a 'wholesale price in view of the ratio contained in decision of the Hon'ble Appellate Tribunal in Modi Xerox Ltd. v. CCE [1989 (40) E.L.T. 481 (Trib.)]. Therefore, assessment of excise duty has to be done only with reference to such wholesale price. Since there was no wholesaler during the period September, 1994 to January, 1995, it was perfectly in order to charge duty on the sale price effected to the actual users. But, when the impugned goods were sold to a wholesale dealer, the price charged to such a wholesale dealer is relevant and not the retail price at which the goods were sold in the past.
(iv) The price variation between the said two periods appear to be justifiable because price charged during September, 1994 and January, 1995 was a 'retail price' and the price during February- March, 1995 was a 'wholesale price'. The retail sale quite obviously is inclusive of all the expenses incurred in connection with marketing of the product to the actual users. Hence, it is bound to be higher than the price at which it is sold to a wholesale dealer.
Therefore, comparison of different types of prices would lead to absurd conclusion. I am convinced that the instant show cause notice suffers from such vice.
(v) ECIL has been accused of forming the joint venture with a view to depress the assessable value of the impugned goods and thereby evaded payment of the appropriate Central Excise duty. It should be noted that the ECIL is Government of India Enterprise under the Department of Atomic Energy and formation of the joint venture, viz., ECIL Rapiscan has the tacit approval of the Government. It is, therefore, too much to make such a wild allegation against them." "Electronics Corporation of India Ltd. are manufacturers of X-Ray Baggage Scanning Systems (XBIS). These were being sold by them to various customers at prices ranging from Rs. 25 lakhs to Rs. 26 lakhs till they entered into a joint venture agreement with upto Sensors of USA, after which the prices came down to a range of Rs. 12 to Rs. 13 lakhs. The machines were sold at these reduced prices to the joint venture company, viz., ECIL Rapiscan, which in turn sold them to the customers.
A show cause notice dt. 1-9-95 was issued to ECIL alleging that it had entered into the Joint venture only with a view to undervalue the goods (last paragraph of page 3 of the notice, which alleged that the assessable value declared was a "manipulated value" (same paragraph, page 24 of the paper book). It was proposed in the notice that the assessable value should be the value at which ECIL Rapiscan sold the goods (second paragraph on page 4 of the notice, page 24 of the paper book), which was about 50% higher than the price at which the goods were billed to them (the figures are at the top of page 2 of the notice, page 22 of the paper book) Rs. 15, 89,048/- was demanded from ECIL on this account.
The Commissioner of Central Excise, Hyderabad-III vide his order 1 /97, dt. 4-8-97 dropped the demand, holding that: * The joint venture company is a separate legal entity dealing with ECIL at arms length and on principal to principal basis (para 10.2 of his order).
* There was no mutuality of interest between ECIL and the joint venture company (para 10.3).
* Prior to the formation of the joint venture company, the sale was to actual users and it was "perfectly in order to charge duty on the sale price effected to actual users"; but thereafter it must be done only with reference to wholesale price (para 10.4, end).
* The variation of price before and after the joint venture agreement came about because the earlier price was a retail price, while the later one was a wholesale price, * ECIL is a Government company, and it is "too much" to make "wild allegations" against them that they formed the joint venture with a view to depress the assessable value of the goods and that they thereby evaded payment of duty (para 10.5).
(i) ECIL and ECIL Rapiscan do not have independent dealings with each other. Even manufacturing profits were to be transferred to the joint venture company in terms of the agreements relied upon in the show cause notice. (The amount of profits thus transferred was 71.5 lakhs).
(ii) ECIL Rapiscan are not wholesale buyers. They are not buyers at all.
(iii) The Commissioner's acceptance of the difference in price in the pre-and post-joint venture periods as wholesaler's margin is not reasonable. The difference is too much to be thus explained away, as the prices ranged from 24 to 25 lakhs earlier, and were then brought down to 12 to 13 lakhs. Further, as per agreements, no manufacturing profits were left in the hands of the manufacturer.
(iv) The cost of technical know-how supplied by Rapiscan was not part of the price, which thus did not reflect the intrinsic value.
The respondent-company argued that the transactions with the joint venture company were at arm's length, born out of normal commercial considerations, bona fides and principal to principal. (Para 2 of written submissions of ECIL).
These arguments of ECIL stand negated by the order of the Tribunal in the case of the same company, reported in 2001 (137) E.L.T. 1031.
In that case the Tribunal had occasion to examine the same agreement and MoU by which the joint venture company was said to have been formed and operationalised. Paragraph 12 of the order records that the Tribunal went through these documents. Having seen the documents the Tribunal came to the conclusion that the joint venture was "a front and a convenience" (para 17). The Tribunal also remarked that the ECIL continuously misrepresented facts to various authorities (para 16). Again in para 24 the Tribunal remarked as follows: "As far as ECIL-RSPL is concerned we have held it to be child of convenience of M/s. ECIL. On its behalf certain obligation had been taken by ECIL. In its name certain transactions have been done by the ECIL. It had no place in the entire scheme of things. It had no independent voice. All times it was used as a convenient tool." Given these findings on facts by the Tribunal, it is submitted that the joint venture company was a front for depressing the assessable value, as alleged, and that the impugned order of the Commissioner holding otherwise, was incorrect and deserves to be set aside.
Without prejudice to the above, it is also submitted that in a similar situation where the formation of a joint venture company had led to fall in prices, the Tribunal had held that the joint venture company was a "vehicle of convenience and a front to justify the reduction in price." [paras 23, 33-36 of Godrej and Boyce Manufacturing Co. ltd. v. CCE, Mumbai-II, reported in 2002 (148) E.L.T. 161]Flash Laboratories v. CCE, New Delhi reported in 2003 (151) E.L.T. 241 (S.C.), the Supreme Court came to a finding of mutuality of interest based on shareholding patterns and marketing arrangements, in para 7 of their order.
The objections of the respondent to the departmental appeal, as summarized on the last page of their written submissions (para 12) are dealt with as under: (Harichand K. Khanna v. CCE, Surat) is reported at 2003 (150) E.L.T. 1323 (Trib.- LB). Further, the Board has informed in another case that it is their practice to retain the signed copy in the Board's office and send the attested copy to the Commissioner concerned.
12.2 Merits are discussed above. The issues are within the scope of the Board's authorisation.
12.3 The Board's review order has not travelled beyond the scope of the show cause notice, inasmuch as the notice alleged "manipulated, Prices" and creation of joint venture company only with a view to undervalue the goods. The review order is on the same issue. In addition it refutes the Commissioner's point regarding retail sales.
12.4 The order of the Board was passed after proper application of mind, as can be seen from a perusal of the order.
12.5 The order of the Board was passed in proper exercise of its powers under Section 35E. The Chief Commissioner may have sent the files in terms of administrative procedures set up by the Board.
With regard to the issue of limitation as raised in para 11 of the respondent's submissions, it is seen that the assessment was provisional for the period, as mentioned in the last paragraph on page 4 of the show cause notice dtd. 18-6-96, at page 19 of appeal file E/2966/98. Hence, there is no time-bar. (It may also be mentioned that this plea was not taken before the Commissioner, and being a point of fact, may not be entertained now. There are also no findings by the Commissioner on this; nor any appeal or cross-objections by the party on this account.)" 5. The matter was heard, the submissions made by the ld. DR, cross objections filed by the ld. Chartered Accountant for the appellants and the material on record considered, and it is found:- "it may be true that these two companies i.e ECIL and ECIL Rapiscan may have been created to give them separate legal identity but Commissioner has not appreciated that in actual fact, the terms and agreements of the joint venture have taken away all the independence of ECIL. The formation of Joint Venture Co., Board of Directors also confirms this. Thus on one hand though ECIL has been given the right of determining the price of goods manufactured which they will sell it to ECIL Rapiscan, in practice this is not being done. Thus all profits which means even the manufacturing profit of Rs. 71.5 lakhs were transferred to the joint stock company as per the memorandum.
This point has been admitted in the order of the Commissioner.
However; Commissioner is silent about transferring of all profits including manufacturing profit which was transferred, unless there is mutuality of interest between ECIL and ECIL Rapiscan." On a perusal of the findings in the impugned order, no such admission by the adjudicator to the effect that "........even manufacturing profit of Rs. 71.5 lakhs were transferred to the joint stock company as per the memorandum. This point has been admitted in the order of the Commissioner......" as urged in this ground is found by us. On a question from the Bench, the ld. DR pointed out to para 7(h) of the order where the submissions made on behalf of M/s. ECIL have been recorded as:- "7(h) The agreement is clearly understood, and duly approved. The two share holders have an equity participation of 51% to 49% to form an independent company wherein ECIL and Opto Sensors Inc. were merely equity holders and not related to ECIL. The Superintendent was also ignorant of the fact that as per the memorandum of understanding ECIL had transferred the profits of the systems sold during August, 1994 to February, 1995 amounting to Rs. 71.5 lakhs to the joint venture company." This recording of the submissions of the appellant and the Id .DR's references drawn also to Cost Analysis Sheets for transfer price for X-Ray Baggage Inspection System as Annexures to MOU dt. 1-4-94 (signed on 20-11-94) do not and cannot constitute to an admission by the Commissioner of 'transfer of all profits including manufacturing profits'. Annexure-I consist of figures of Transfer of Income over Expenditure i.e Profits; Service Income Estimates, Warranty and Commission charges on system installed along with installation charges; Annexure-II and III consists of figures, amounts, etc., of Salary of Maintenance Staff, Travel and other immediate expenses and pricing of inventory of spares carrying cost for pre-incorporation of the like. None of these expenses could be considered in or as 'manufacturing profit' they being in nature of 'post clearances costs to be incurred' on systems supplied, for the upkeep of the machines sold before Joint Venture Agreement was effected to retail customers. The ground as taken, is therefore found to be non-existent on facts and on merits. Appeals by Revenue are to be restricted, being circumcised by law, to be taken up, under Section 35E, only after the CBEC comes to a conclusion about the legality and proprietory of an adjudication order passed by a Commissioner and thereafter 'points formulated, which are to be taken up for determination' by the Tribunal. Such points have, therefore necessarily to be made out, on existing facts and materials available before the adjudicator. They cannot be hypothetical and or fresh material. When the Commissioner in the order has not found and/or admitted to any such transfer of profits in the impugned order, he was not required to arrive at any findings thereon.
Therefore, the point taken up in ground No. 1, in this case, that Commissioner is silent about transferring of all profits including manufacturing profits is therefore not a valid point for our determination. This ground does not call for upsetting the impugned order.
"Secondly, Commissioner has stated that the price of Rs. 4.25 lakhs charged directly from the customers like Air-India, Airport Authority of India, etc., is a retail price. Fact of the matter is that this product is always customs built i.e. it is built according to the specific requirements of the buyer. It is not as though ECIL Rapiscan is buying several machines at any given point of time from ECIL. At best, ECIL Rapiscan can be considered as marketing organisation and they are getting purchase orders from different buyers. However, it cannot be logically concluded that they are wholesale buyers. Legally this concept of whole sale buying in case of XBIS is a legal fiction created in order to show lower values for the purposes of excise. The show cause notice has charged that from February '95 onwards (i.e. up to March '95) that 16 machines (XBIS) had been sold to ECIL Rapiscan at assessable value of around Rs. 12 to Rs. 13 lakhs. The ECIL could only reply that prices are at earlier point of time when sales were made to consumers. ECIL Rapiscan was not a buyer.
Thus indirectly they have accepted the show cause notice allegation and could not satisfactorily defend themselves." The point taken herein viz., "ECIL Rapiscan was not a buyer" is a plea made in direct conflict with the position taken by Revenue in the show cause notice and this ground itself to the effect that "....machines (XBIS) had been sold to ECIL Rapiscan" i.e. the joint venture company. If it is the case of Revenue, as made out now in this ground in appeal, that joint venture company was not a wholesale buyer, but was only a marketing organisation which was procuring purchase orders from different buyers, then, that would be making out a new case in appeal, which the respondents strongly protest and urge before us that such building of a new case in appeal is not permissible in law. Besides, as pleaded by Revenue, if the joint venture company was not a buyer, then their sale price further cannot exist and thus could not be taken for purposes of value under Section 4(1)(a) proviso (iii) as proposed in the notice.
The entire basis of the demands thus, as made by show cause notices, therefore, disappear. The ground as made, is not only conflicting in itself, it exhibits lack of application of mind. The ld. DR's reliance on the finding by the CEGAT in the case under Customs Act, in appellants own case viz., 2001 (137) E.L.T. 1031, especially the finding arrived at in para 24 of the reported decision "ECIL Rapiscan was a child on convenience etc." would result in a new case/ plea of the joint venture company, i.e. ECIL Rapiscan, to be a non-existing buyer. That was not the case before the adjudicator.
The show cause notice accepts that sales were made to this entity, which the notice admits and alleges were to a related person under Section 4(3)(c) of the Central Excise Act, 1944. If the case of Revenue is that "ECIL Rapiscan" was not existing and no sales were/could be made to them, then that would be entirely overhauling the proposals in the notice and in appeal making out a new case.
That is not permissible. The concept and definition of 'related person' for valuation under Customs Act, is different from that under the Central Excise Act, 1944. The reliance placed on the decision in 2001 (137) E.L.T. 1031 by the SDR does not help this appeal, except in making out a new case. Any ground/plea making out a new case in appeal is required to be totally rejected, as it is not permitted. Therefore, this ground/plea cannot be considered to upset the order impugned.
"The assessee have thus been able to show an artificial lower price at the factory gate. Assuming but not accepting that Rs. 24 to 25 lakhs is final price of the buyer and that final price cannot be considered as wholesale price, we can also not accept Rs. 12 to 13 lakhs as wholesale price. In this assumption the wholesale price may be somewhere in between i.e. retail price minus margin of profit that normally has gone to a wholesaler The margin of profit for the wholesaler normally would be reasonable amount over and above the normal bank rate of interest i.e. about 25 to 30%. However, under no circumstances can we accept that (i) the margin of profit would be 100% or more of the manufacturing cost, (ii) there will be no manufacturing profit." The finding of the Commissioner is that sales to buyers e.g Air India etc., earlier, were in retail and to the joint venture company in wholesale and such retail prices cannot be compared with wholesale prices. These findings of the impermissible comparison, between wholesale and retail price is not challenged. The ground taken as regard margin of profits not being 100% or any other percentage e.g. 25 to 30% are conjectures and surmises. No material was relied upon in the show cause notice or and the grounds now, to conclude or determine 'a margin of profit' for these products. The respondents on this hand, in their submissions, have made the following submissions on this point of margins of profits, in following terms; - "10. The profit margin [ground numbers (ii) & (iii) of the impugned ld. Revenue appeal herein] which the ld. Revenue had erroneously canvassed in the impugned appeal is highly contrary to mixed question of law and facts. Since the ld. Revenue, originally in the impugned show cause notice itself, had compared the assessable value in the hands of the Respondents herein (ECIL) with the purchase order price of ECRL as can be seen from the Annexures to the impugned show cause notices (which were not enclosed in the paper book filed by the ld. Revenue and furnished to the Respondents herein) underlying the impugned orders Under Section 35E. As a result, without prejudice to the submissions that the prices charged by ECIL were unfettered prices having arisen out of commercial negotiations and therefore the transactions are at arm's length between the independent Seller and the independent Buyer, the following serious discrepancies arise, namely:- (10.4) Installation and Commissioning executed by ECRL at its behest and charged accordingly had also been not reckoned; and such serious discrepancies were committed by the ld. Revenue while reaching the fallacious conclusions as to profitability criterion which is the lone canvass harbored in the impugned proceedings and if the elements cited at point (10) above are reckoned as deduction from the purchase order price, the gross price different (as distinct from profit) - i.e. difference between the price of ECIL and the price of ECRL - is less than 60% of ECIL price or, in other words, is less than 40% of ECRL price (and to draw reference - without prejudice - to an allied provision in the same Act - and not to draw reference to Bank Rate as was erroneously done by the ld. Revenue in the impugned proceedings - with a view only to justify the bona fides and without prejudice to all the earlier submissions) as against the Hon'ble Government's permissible gross price difference enunciated in terms of Section 4A of the Central Excise Act which ranges from 54% to 100% as between the first and final sale points and such a gross price difference when expressed in terms of profit it is less than 10% of ECRL price and not 100% of the ECIL price as was erroneously canvassed by the ld. Revenue in the impugned proceedings pursued by the ld. Revenue; Since profit refers to the net results from operations after abating for operational costs and taxes and duties which ECRL has to bear. This ground alone is sufficient to prove that the ld. Revenue's impugned proceedings are highly contrary to the mixed questions of both law and facts and all the submissions herein were submitted without prejudice independent buyer and were/are at arm's length basis as set out earlier. Further and without prejudice to the above submissions it is submitted that, the comparison between assessable value of ECIL and the purchase order price of ECRL leads to fallacious conclusions as to the turnovers for the entire impugned period both in terms of quantum of sale and the price comparisons and the ratios inasmuch one to one comparison cannot be achieved. In addition and without prejudice to all the foregoing submissions, only with a view to highlight the extreme revenue bias that had entered the said ld. Revenue's impugned proceedings, it is submitted that the differential duty was worked out on the purchase order price of ECRL while not even construing it as an all inclusive price. All these grounds clearly go to establish the fact that the Hon'ble Board had not ful filled the demands of Section 35E of the Act in so far as it relates to calling for and examining the records are concerned - a demanding provision under Section 35E - and in the event when the same was not exercised the Hon'ble Board as had occurred in the impugned proceedings - it is submitted that on these counts alone the impugned order Under Section 35E and consequently the impugned appeal of the ld. Revenue requires to be set aside since your Respondents have disproved/controverted all the appeal grounds of the ld. Revenue based on the submissions made at points (8) to (10) above in particular and all other grounds dealt with herein or are on records for which your Respon dents herein pray for." The ld. DR has also not specifically raised any contest to these submissions of the respondents. We find these explanations made by the Respondents to be not only reasonable but satisfactory to explain the difference in prices, when it is an accepted position, that the entire responsibility and work of post-sale maintenance/installation/service for the system as sold by M/s. ECIL was to be looked after by the Joint Venture Company which was earlier the responsibility of M/s. ECIL. Therefore, reductions in the sale price from the earlier levels should not be ipso facto considered a commercial and not be doubtful. The sales in retail to Joint Venture Company at price levels lower than earlier retail prices, which included post clearance costs cannot be a cause of alarm to raise the present demands. The points taken in this ground cannot be held to be helping the case of Revenue to upset the Commissioners finding.
"It is observed from ECIL, written submission record that during September, 1994 to February, 1995 ECIL received technical know-how for manufacturing similar machines from Rapiscan, UK. For making available this technical know-how (from Rapiscan) ECIL had paid Rs. 1 lakh U.S. Dollars to Rapiscan, UK. The technology transfer by Rapiscan was limited to enable ECIL to produce and market 20 systems (XBIS) these machines were cleared by M/s. ECIL directly to various customers at price between Rs. 25 to 26 lakhs. It is only the subsequent production of similar machines, which they manufactured and supplied to the joint venture company that they have reduced the prices to almost 50%. This highly reduced price to ECIL Rapiscan was not a normal price at which ECIL was selling the goods there were no independent sales to any other customers after Feb., 95 and similar machines supplied to independent customers up to Feb, 95 (with the help of know-how firm Rapiscan UK was around Rs. 25 to 26 lakhs). It is evident that the price was drastically reduced due to free technical know-how provided by ECIL Rapiscan for these machines which were sold only to ECIL Rapiscan who then sold to independent customers at prices which were comparable to prices at which earlier similar systems (XBIS) was sold directly by ECU using paid technical know-how for the machines. As the machines with specialized features could not be manufactured without technical know-how which was the property of M/s. Rapiscan, the difference in prices before and after Feb. 95 can be largely attributed to cost of this know-how which ECIL did not change to ECIL Rapiscan. The price changed by ECIL to ECIL Rapiscan thus could not be taken to be the time intrinsic value of the XBIS sold to ECIL Rapiscan. In fact as the machines entered into the marketing stream only after these were disposed off by ECIL Rapiscan, the sale price of the later could rightly form the basis of valuation and Commissioner erred in accepting the sale prices of ECIL and dropping thedemands." A reading of this ground indicates that the argument advanced that the prices were reduced due to free technical know-how provided by ECIL-Rapiscan for the machines sold to them is not factually correct. No evidence of ECIL having any financial interest in ECIL-Rapiscan have been alluded. The transactions between ECIL and ECIL-Rapiscan, the joint venture company have been found by the Commissioner in the impugned order to be on principal to principal basis. There was no material evidence to show that there was any other consideration than the normal commercial consideration in the dealings between the two. The ground now taken that ECIL-Rapiscan supplied the technical know-how is not borne out from the allegation in the Show Cause Notice. The respondents in their cross-objections have made the following plea: - "1.2 When the ld. Commissioner in the impugned order-in-original had relied upon Central Govt.'s clearance for ECIL-Rapiscan and clearly recognized the commercial nature of the venture and the dire necessity to have an organisation, one of the nature of ECIL-Rapiscan in the interest of Security arrangements and the Techno-Commercial justification that was recognized by Govt. of India to the effect that M/s. Rapiscan being a front-line runner in the globe in that line of business and bears Techno-Commercial Supremacy as is evident from the record of the impugned proceedings - it tantamounts to of the fact that the Hon'ble Board in ignorance of all such aspects would like to question the terms of arrangement rather than establishing in what manner such an arrangement leads to deprivation of any legal or propriety aspects while the ld. Revenue purports to concern itself in the invocation of 'related person' concept under the provisions of Section 4 of the Central Excise (CE) Act, 1944, inasmuch as the provisions of 'related person' being a deeming fiction under the said Act, it should receive strict and restricted construction whereby transactions between Holding and Subsidiary companies alone are subjected to the rigours of the application of 'related person' concept under Section 4(4)(c) of the C.E., Act by virtue of the inclusive nature of the definition roping in the transactions between Holding and Subsidiary companies and not otherwise within the realm of Proviso (iii) to Section 4(1)(a).
Because, ECIL -Rapiscan joint venture arrangement is one which is not in the nature of a Holding company and Subsidiary company on one hand and on the other hand, the joint venture emerged out of a strict Techno-Commercial supremacy and need. Therefore, the joint venture and the supply contracts have been evolved in the ordinary course of business where yet times skim the cream policies might prevail as between seller and buyer if the Hon'ble Board at best desires to view the margins as the lone basis for its purported proceedings Under Section 35E due to the inherent strength of the seller and the dire necessity of the buyer who have to consider bilateral advantages in all such commercial or Trade negotiations.
The above aspects are the genuine business exigencies which are distinct from the onus that is cast upon the Hon'ble Board while purporting to order Under Section 35E(1) - wherein the law empowers the Board only to satisfy legality or propriety in the orders of the subordinate officers - to prove that the Transaction Values (i.e the prices charged by the manufacturer) were influenced by mutuality of interest postulated through the concept of 'related person' which in case of body corporates applies if and only if there exists a Holding company and Subsidiary company relationship while the said Holding and Subsidiary company relationship is conspicuously absent in the impugned proceedings of which the Hon'ble Board is well aware thereby not warranting any action under Section 4(1)(a) Proviso (iii) read with Section 4(4)(c) of the C.E. Act.
In addition, ECIL submits that the Hon'ble Board never rebutted in its impugned order Under Section 35E that the Techno-Commercial considerations are prime movers or the living forces in the determination of Transactional Values which the ld. Commissioner rightly considered in the order-in-original and as a result of which the ld. Commissioner had held that the Transactional Values were unfettered.
1.3 In the entire proceedings the legality or propriety veers around considering in right perspective the definition afforded for the expression 'related person' when Section 4(1)(a) Proviso (iii) is sought to be invoked by the ld. Revenue or the Hon'ble Board at the respective stages of the proceedings and as the case may be. The definition Under Section 4(4)(c) categorically covers only one situation in case of trade transactions between body Corporates and that being the Holding and Subsidiary company relationship and none else. In fact the inclusive nature of the definition Under Section 4(4)(c) clearly sets out that but for such definition even transactions between the Holding and Subsidiary companies cannot be called as having been influenced by the 'related person' concept or definition. These aspects were well considered by the ld. Commissioner while passing the order-in-original. On all these impending, vital, propriety and/or legal aspects, the Hon'ble Board passed sub silentio. Thus, the Hon'ble Board had not called in question as to how the order-in-original passed by the ld. Commissioner is not legal or suffers from impropriety viewed in the context of the definition afforded for the expression 'related person' and the inclusive nature of such definition which provides for encompassing within its realm of 'related person' only such of those transactions that arise between Body Corporates which are interse Holding and Subsidiary Companies and it is this situation that alone would attract or invoke provisions of Section 4(1)(a) Proviso (iii) as was dealt with supra while such Holding and Subsidiary company relationship does not exist in the impugned order.
1.4 The ld. Commissioner had considered elaborate submissions made by ECIL on various legal and factual aspects concerning the impugned issue and passed a reasoned order-in-original holding that: (b) the transactions are at arm's length and on principal to principal basis; (c) the prices and mark-ups are the resultant effects of Techno-Commercial considerations and the emergent negotiating strengths underlying therein; and (d) the 'related person' definition does not encompass the impugned transactions or dealings etc.
whereas the Hon'ble Board had passed sub silentio on all such vital aspects and choses to rely on frivolous and untenable grounds which were thoroughly controverted in the impugned proceedings on record whereby the Hon'ble Board grossily erred in invoking the vires Under Section 35E and did not discharge the onus heavily cast Under Section 35E on the Hon'ble Board as to what impropriety occurred or for what grounds the order-in-original were not legal in the light of submissions ECIL set out already and available on record, salient points of which were dealt with above." These aspects, of genuine business exigencies and concept of 'related person' should have been considered by the Board while purporting to determine the points in an order under Section 35E(1).
The ground (iv) as taken are not based on any factual material, evidencing the supply of technical know-how provided by the joint venture company to M/s. ECIL. The submission made in this ground 'the difference in price before and after February, 1995 could be largely attributed to cost of the know-how of ECIL did not change (sic) (it should be charged) to ECIL Rapiscan is not based on any factual material on record. The ground itself admits in the sentence earlier to this sentence which reads as "as the machines with specialized features could not be manufactured without technical know-how which was the property of M/s. Rapiscan" which would indicate that it was M/s. Rapiscan, the foreign company which was the other partner investor in the joint venture company and owner of know-how and it was not ECIL-Rapiscan, the joint venture company which was owner or supplying the technical know-how. As regards the difference in the retail and the wholesale prices they are explained by the respondents in the submissions and are noted with, approval herein above; therefore no reason to conclude and or concur with the ground taken that the difference in the prices is due to the supply of technical know-how exist. The differences in prices are explained satisfactorily, to be due to reasons of commercial necessities and are not found to be for the supply of technical know-how of any kind by the joint venture company as made out. Revenue has no case made out in its favour in this ground.
(e) It is also found that the ground taken together only reiterate the charges made in the Show Cause Notice and bring out new charges of ECIL-Rapiscan, the joint venture company, not being a buyer and rely on certain averments/statements, which are found to be incorrect and not substantiated by any material evidences.
Consequently, points made in all these grounds are required to be ignored and appeals rejected. The ld. DR in the submission made, has valiantly tried to make out a case in favour of Revenue. From the submissions made by the ld. DR, we find that the DR is making a claim that the cost of technical know-how supplied by Rapiscan was not part of the price. This argument is in direct conflict with the written submissions in ground taken in appeal and thus cannot be allowed.
(f) The ld. DR has relied upon the Supreme Court decisions in the case of Godrej and Boyce Manufacturing Co. Ltd. [2002 (148) E.L.T. 161] to consider the plea of "joint venture company was a vehicle of convenience and a front to justify the reduction in price" and in this case also ECIL the assessee, a Public Sector Undertaking, wholly owned by Government of India, should be viewed in the same light as far as joint venture company, 'ECIL-Rapiscan' is concerned and the reduction in prices for sales effected by this Public Sector Unit under Department of Atomic Energy to a joint venture company should be questioned. While the adjudicator has considered the reasons for variations in the price charged during September, 1994 and January, 1995 and February-March, 1995 and thereafter concluded in paragraph (iv) of his finding "the retail sale quite obviously is inclusive of all the expenses incurred in connection with marketing of the product to the actual users. Hence, it is bound to be higher than the price at which it is sold to a wholesale dealer. Therefore, comparison of different types of prices would lead to absurd conclusion, I am convinced that the instant show cause notice suffers from such vice" and there is no contest, in the ground in appeal or in the pleas made before us, against this reason in the finding of the adjudicator. The clarifications offered by the Respondent manufacturers as regards this difference in prices have been accepted to be explained and approved. There is, therefore, no reason to differ from the finding of the adjudicator 7 am convinced that the instant show cause notice suffers from such vice' i.e, vice of 'absurd comparisons'. Such notices and proceedings consequent thereto would be/are ab initio void. If that be so, then whether mutuality of interest could be inferred from shareholding patterns and marketing arrangements by relying upon Para 7 of the decision in the case of Flash Laboratories v Commissioner [2003 (151) E.L.T. 241 (S.C.)] or Godrej and Boyce Manufacturing Co. ltd. [2002 (148) E.L.T. 161 (S.C.)] or whether mutuality of interest 'in the business of each other' being a two ways traffic and is absolutely essential to be established, as held by a catena of decisions of the Supreme Court from U.O.I, v. Attic Industries case [1984 (17) E.L.T. 323 (S.C.)] to full bench in Alembic Glass Industries ltd. v Commissioner [2002 (143) E.L.T. 244 (S.C.)], is not the issue which requires a determination in the facts of this case. Before parting with these observations as regards the applicability of the case laws relied by the ld. SDR, it would be relevant to observe that as regards the requirement of lifting the corporate veil on this issue of 'determination of mutuality of interest vis-a-vis related person', the Full Bench of the Apex Court in the case of Alembic Glass Industries Ltd. [2002 (143) E.L.T. 244 (S.C.)], applied the test of Attic Industries [1984 (17) E.L.T. 323 (S.C.)] has held as follows :- "8. At this stage of the judgment, ld. Counsel for the Revenue draws our attention to the judgment, of a Bench of two ld. Judges of this Court, in Calcutta Chromotype Ltd. v. Collector of Central Excise, Calcutta (99 E.L.T. 202). It does not appear to us that the judgment carries the case of the Revenue any further, nor does ld. Counsel so suggest. He says that he has referred to it because of this sentence therein: "The principle that a company under the Companies Act, 1956 is a separate entity and, therefore, where the manufacturer and the buyer are two separate companies, they cannot, than (sic) anything more, be 'related persons' within the meaning of Clause (c) of Sub-section (4) of Section 4 of the Act is not the universal application." We have difficulty, for the reasons already stated, in accepting as correct this sentence. It appears to have been so stated in relation to and in the context of facts of that case.
Therefore, the ld. Judges, it should be added, remanded the matter for further inquiry into the facts." Therefore, we find no reasons to upset the finding arrived at by the adjudicator by looking behind and into the alleged reasons, for shift in sale patterns as pleaded by Revenue.
(g) No merit is found in the cross-objection of the Respondents as regards the point taken of the order of the Board not having been signed, in view of Larger Bench decision in Harichand K. Khanna [2002 (150) E.L.T. 1323].
(h) There is no force in the cross-objections as regards bar of limitation in the case E/2966/98 as the notice in that case was for finalisation of provisional assessment.
6. In view of the findings arrived at, these appeals are dismissed. The cross-objections also stand disposed off in above terms.