1. M/s. Ajanta Transistor Clock Manufacturing Co. (hereinafter referred to as a First Respondent) is a Partnership Firm with 12 Partners engaged inter alia, in the manufacture of wall clocks. They had been selling the clocks to approximately 70 independent wholesale dealers situated throughout the country. Apart from sales to such wholesale dealers, they had also sold clocks to M/s. Ajanta Sales Agencies (hereinafter referred to as ASA) which is an independent Partnership Firm. The percentage of sales made by the First Respondent to ASA during the period from 1991-92 to 1994-95 are as under:------------------------------------------------------------------------------Year Corrected total Out of that % of Sales to ASA Clearance (SCN) sold to ASA1991-92 108319671 6787672 6.271992-93 224870339 29336895 13.051993-94 431153602 399982556 92.771994-95 613665956 522735264 85.18------------------------------------------------------------------------------ The clocks had been sold by First Respondent to ASA at the same price as that other independent wholesale dealers. Show Cause Notice was issued to the Respondents proposing to treat ASA as a related person in terms of Section 4(4)(c) of the Central Excise Act, 1944 and to demand differential duty of Rs. 7.48 crore on the clocks manufactured and sold by the Respondent to ASA during the period February 1991 to July 1995 by treating the sale price of ASA as the assessable value in terms of proviso (iii) to Section 4(1)(a) and proposing to impose penalty. The Notice did not demand duty on the clocks sold by the Respondent to the 70 independent wholesale dealers and hence did not challenge the price charged by the First Respondent for such sales. The Respondents filed replies to the show Cause Notice contending that the Respondents and ASA can not be treated as related persons. It was further contended that even if ASA was treated as a related person the proviso (iii) to Section 4(1)(a) can not be made applicable since there were sales to 70 independent dealers other than ASA and the sale price to such wholesale dealers was the same as that to ASA. The demand was also contested on the ground of time bar in view of the existence of correspondence with the Department in 1986 itself, when the Department informed the Respondents that ASA was a related person and notification No. 120/75 was not available to them and therefore, there was no suppression of facts. The Commissioner of Central Excise dropped the proceedings against the Respondent, holding that proviso (iii) to Section 4(1)(a) was not applicable that ASA was not a related person in terms of Section 4(4)(c) and also holding that the demand was barred by limitation. Hence, these appeals by the Revenue.
2. We have heard Shri Karnail Singh, S.D.R. and S/S. V. Shridharan and D.H. Shah, Learned Advocates.
3. We find that the grounds raised in the Review Order as well as in the Appeal filed pursuant thereto are that the Commissioner has not dealt with the related person aspect with reference to the evidence adduced in the Show Cause Notice, that Advertisement expenses incurred by ASA is liable to be included in the assessable value of clocks and that the demand is not time barred in the light of the decision of the Larger Bench of the Tribunal in the case of Nizam Sugar Factory v.Collector of Central Excise, Hyderabad reported in 1999(114)ELT429.
4. The ground in the Revenue Appeal that the Commissioner has not dealt with the related person aspect is factually incorrect. From para 11.5.3 to 12.6, the Commissioner has considered in detail the various grounds and the evidence relied upon in the Show Cause Notice to treat ASA as a related person. After considering the same he has come to the conclusion that ASA is not a related person. He has held that mutuality of business interest has to be established for holding that two persons are related persons under Section 4(4) (c) of the Central Excise Act.
The grounds on which the Show Cause Notice seeks to allege mutuality of interest are the following:- i. In the Balance Sheet of ASA for 1993-94 as on 31.03.1994, Noticee No. 1 and Noticee No. 2 were shown as creditors to the extent of Rs. 91.71 lakhs and Rs. 1.00 Lakhs respectively.
ii. Partners in ASA and advanced loans to Noticee No. 1. Similarly, partners in Noticee No. 1 and the shareholders of Noticee No. 2 advanced loans to ASA. The business of ASA ran solely on these loans.
iii. ASA had incurred large amounts as expenses for advertising the products of Noticee No. 1 and Noticee No. 2 as well as other miscellaneous advertisements. These expenses were more than those incurred by Noticee No.1 or Noticee No. 2 Themselves.
iv. Sales to the independent buyers were made only against specific orders and after receiving advance payments by way of Demand Drafts of post-dated cheques, whereas sales to ASA were affected without either by such specific orders or advance payments.
v. At the end of the day, the stock remaining with Noticee No. 1 or Noticee No.2 was transferred to ASA. vi. ASA had issued circulars and communications to the dealers of the product of Noticee No.1 and Noticee No.2 regarding the products in issue.
vii. Notice No.1, Noticee No.2 and ASA were located in a common plot. Noticee No.1 was located in premises owned by ASA and ASA in premises owned by Patel Sales Corporation, a sister concern.
viii. A common PBX system was used by three units, which was located in Noticee No.1's premises and taken on lease from Ajanta Time Industries.
The Commissioner has held that advancement of credit facilities to ASA is clearly a normal trade practice and can not lead to any legitimate inference "Relationship." He has found that loans were advanced by Partners of the respondents for which ASA used to pay interest at the prevalent Bank rate and therefore, has held that allegations of relationship for this reason can not be sustained. He has found that when compared to the total sales made by the First Respondent, advertisement expenses covered only meagre amounts and therefore, such expenses can no be treated as amounting to any additional or extra commercial consideration. amounting to any additional or extra commercial consideration. He has further relied upon the fact that the price at which goods were sold to independent buyers was the same as that at which they were sold to ASA to hold that the incurring of advertisement expenses by ASA did not depress the sale price in any manner and therefore, the First Respondent and ASA are not related persons. Since supplies were being effected to ASA who was the bulk buyers of products of the Fist Respondent on credit basis, the transaction can not be regarded as tainted. Regarding issue of circualrs and communications to dealers of the products of the Respondents, that Commissioner is held that in the absence of any allegations that these communications were issued by ASA or on behalf of the Respondents and in the absence of any allegations that these communications disclose any extra commercial consideration as passing between the Respondents and ASA, the mere (sic) of such communication can not support the charge or relationship. In the same manner, he has dealt with the remaining grounds in detail.
5. The Review direction and the appeal filed pursuant thereto do no question correctness of the conclusion arrived at by the Commissioner after considering the various grounds in the Show Cause Notice. The conclusion of the Commissioner is contested only on the ground that he has wrongly relied upon the decision of the Hon'ble Supreme Court in the case of Calcutta Promottape Ltd. 1996 (99) ELT 202 (SC). The (SIC) not sufficient, since even assuming that the law relied upon by the Commissioner is distinguishable on facts, the affect remains that the Commissioner has dealt with the issue of related person on the facts unfolding before him and his analysis of the evidence remains unchallenged. Therefore, the first ground raised in the appeal is rejected.
6. The next ground in the Revenues Appeal relates to inclusion of advertisement expenses incurred by ASA in the Assessable value of clocks. We note that the Show Cause Notice did not propose to include such expenses, but only alleged that ASA is also incuring Advertisement expenses apart from Advertisement expenses incurred by the Respondents and therefore, ASA should be treated as related person. The Commissioner has correctly held that such a ground can not be the basis to hold that ASA is a related person. Therefore, we agree that the Respondent with the Commissioner's order can not be questioned on the ground that advertisement expenses have not been included by ASA in the Assessable value. Further, the Advertisement expenses have not been included while computing the duty demand. In any event, the finding of the Commissioner that even if ASA is a related person, the sale price of ASA can not be basis for determination of ASSEssable value, since sales to other independent buyers at the same price at which clocks were sold to ASA existed, has not been challenged in the appeal filed by the Revenue and further, the appeal of the Revenue requires to be rejected. We further note that the wholesale price at which clocks were sold to independent dealers is not in dispute an in such a situation that price along will be the basis for determining assessable value.
Since the Respondents paid duty on the basis of such price in respect of sales to ASA also, no differential duty can be demanded by invoking proviso (iii) to Section 4(1)(a). The finding of the Commissioner regarding non-applicability of the above provision of law, is correct in law in view of the decision of the Tribunal in the case of Hingorani Air Products v. CCE, 7. We also see substance in the submission of the respondents that the demand is barred by limitation, since the facts about the relationship was known to the Department as is evident from the correspondence between the Department and the Respondents in 1986 itself and the appeal of the Revenue has not challenged this aspect. The Revenues reliance upon the Larger Bench decision in the case of Nizam Sugar situated at Supra does not advance their use since that decision does not lay down the principle that even when the facts are known to the Department, the extended period of limitation can be invoked and since the facts were known to the Department even prior to February 1991, which is commencement of the period of demand, the demand is barred by limitation under Section 11(A) of the Central Excise Act.
In the light of the above discussion, we held that the impugned order of the Commissioner is correct in law, upheld the same and reject these appeals.