Judgment:
1. These six appeals are taken for decision by this common order, as they are appeals against the same impugned order, wherein the Commissioner had decided that M/s. Brindavan A1loys Ltd. (hereinafter referred to as A1), manufacturer, is liable to pay duty of Rs. 31,82,60/- being the amount of duty of Central Excise, evaded due to incorrect valuation of the Iron and alloy steel products the excisable goods cleared by them during the period to the three buyers viz.
appellants M/s. Southern Steels & Forgings (hereinafter referred to as A4), M/s. India Industrial Enterprises (hereinafter referred to as A5), M/s. Southern Steels & Ferro Alloys Corporation (hereinafter referred to as A6) all partnership firms consisting of relatives of one Shri S.K. Gandhi (hereinafter referred to as A-3) and controlled by him.
Appellant Shri M.R. Jayaram (hereinafter referred to as A-2) is the Managing Director of A-1).
(a) Alleged that during the period June 1994 to July 1995, excisable goods were removed on payment of duty to A4 to A6, were under valued as - (i) A1 was selling the entire production to A4 to A6 and the said transaction was not at arms length and on principal to principal basis, that suppression of facts relating to mutuality of interest between the parties was effected.
(ii) While A1 is a registered Company with A2 as Managing Director the other Directors being his relatives, A1 entered into an agreement dt. 25-5-94 with A4, A5, A6 represented by A3 for supply after manufacture of various Iron & steel Rolled products (after converting the input material supplied by the said firms).
(iii) From the terms & conditions of this Agreement dt. 25-5-94 and the statements recorded, it appeared that A3 had taken over the Financial Management of A1 and the business of A1, A4 to A6 was so arranged that entire raw material supplied by A4 to A6 was converted and received back by them, besides expenses of A1 were met by A3 during June 94 to June 95. There was sale to no one else.
(iv) The documents indicate that A1 would by not raising the value of the end product incurred a loss of Rs. 13,000/- per M.T. on the goods sold to A4 to A6.
(v) Shri S.K. Gandhi (A3) was partner of A5 and had his wife and sons partners in A4 & A5 effectively controlled and entered into agreement on behalf of buyers with A1.
(vi) Since the transactions were not at Arms length, the price at which goods were sold by A1 to A4, A5, A6, could not be considered as the normal price. The same could not be accepted and resort to proviso (iii) to Section 4(1)(a) of Central Excise Act, 1944 for the purpose of determining the value for levy of duty was called for as that would represent the normal wholesale price and on which value for the determination of Central Excise Duty should be made.
(i) Confirmation of the differential duty Rs. 31,82,601/- under Section 11A of Central Excise Duty on A1.
(iv) Penalty under Rule 209A of the Rules on A4, A5, A6 - of Rs. 50,000/- each on A4, A5 & A6. of Rs. 25,000/- on A3. of Rs. 10,000/- on A1.
(a) The findings of the Commissioner that the appellant A1 is the manufacturer of the goods, thereafter his finding that A4, A5 & A6 had control over A1 cannot be found to be assailed, as it is apparent from the perusal of the clauses of the agreement dated 25-5-94, relied upon in para 3 of the Statement of facts enclosed to the Show Cause Notice as below - "..... Para 3. The Terms and Conditions of the said agreement dated 25-5-94 entered between M/s. BAL and M/s. SSF, M/s. SSFAC and M/s.
IIE (exhibit 1,2 & 3) are - AND WHEREAS the party of the FIRST PART (i.e. M/s. SSFAC, M/s. SSF & M/s. IIE) is in a position to supply melting steel scrap, HB sponge iron, billets, ingots and other inputs and is interested in getting the same converted into TOR Steel and other rolled products by the parties of the SECOND PART (i.e. M/s. BAL), who is having adequate capacity to under take such conversion job on contractual basis.
AND WHEREAS after discussion the party of the SECOND PART has agreed to convert such melting scrap, steel billet and ingots etc., supplied by the party of the FIRST PART confirming to ISI standard on the terms and conditions herein after appearing :- 1. This agreement comes into force with effect of 25th May 1994. The party of the FIRST PART will start supply of the melting scrap, HP Sponge Iron Billets and other inputs to the party of the SECOND PART as per the requirements depending upon the production planning and schedule of the party of the SECOND PART. 2. The Party of the SECOND PART in turn will convert the steel scrap into steel billets and rounds as per specification strictly and deliver such converted material to the party of the FIRST PART or their order as per schedule of quantities indicated by the party of the FIRST PART. 3. The specification of the finished product should be strictly in adherence to the standards as specified and all the sizes and length as may be required by the party of the FIRST PART. 4. The rate agreed for carbon steel rounds of Prime quality is Rs. 13,000 per MT and Rs. 10,250 per MT for Commercial quality and for other specifications the rates shall be mutually discussed and agreed upon between the parties.
5. The materials are to be produced out of mild steel scrap briquette sponge iron and other inputs to be supplied by the party of the FIRST PART, and it is hereby expressly agreed between the parries of the FIRST PART and the SECOND PART that the cost of the scrap and other inputs delivered to the party of the SECOND PART would be debited to them along with the incidental expenses actually incurred.
6. Any rejection due to poor quality by the party of the FIRST PART are their customers/clients are to be replaced with goods material by the party of the SECOND PART. 7. The delivery of the steel scrap and converted steel billets are ex-works of the party of the SECOND PART at Peenya, Bangalore.
8. All the stocks of steel scrap received by the party of the SECOND PART from the party of the FIRST PART and billets manufactured thereof shall be held by the party of the SECOND PART as trustees of the party of the FIRST PART. Therefore these commodities mentioned herein above are not liable for sale, mortgage, pludging etc. by the party of the SECOND PART except delivering the said commodities to party of the FIRST PART and/or their order. Further these commodities are also not available for any attachment, injection etc. concerned with the party of the SECOND PART and no lien over such commodities/stocks of the party of the FIRST PART can be excessive by the banks and/or any financial institution of the party of the SECOND PART. The party of the SECOND PART should exercise adequate caution and care of the safe custody of the aforesaid commodity and they should not mix up the same in their own stock of similar nature. Further the party of the SECOND PART shall be responsible of all the losses, damages etc., caused to the said commodities during the possession.
9. The party of the FIRST PART shall arrange to take the delivery of the finished stock on day to day basis and or as early as possible.
10. The party of the FIRST PART shall settle the payment on mutually acceptable terms. It is also agreed by both parties that the payments will also be made to certain suppliers of materials and services nominated by the party of the SECOND PART in order to keep continuity of supplies of various consumable etc. to facilitate production uninterruptedly and this shall be adjusted against the dues payable to the parts of the SECOND PART by the party of the FIRST PART. 11. This agreement can be terminated any time by either of the above said parties with mutual consent and with 15 days notice. In such an event of premature termination of the agreement, the quantity agreed to be converted will be the actual quantity of inputs delivered by the parties of the FIRST PART as on the date of termination of this agreement." and relying upon the corroboration that emerges from the statement of Shri S.R. Muralidharan, Manager (Accounts) and Shri G.V. Menon, Manager (Finance) that the entire amount of operation from procurement, pricing of raw materials to production planning, defrayment of costs of manufacture and the selling price of the final product were not the independent decisions arrived at by A2 or A1 but were the result of the Puppet Strings being pulled by A3 not even in the back ground hidden away, but brazenly in an open manner.
We therefore accept that the determination and sale of the final products was not a 'negotiated prices' as strongly urged by the Advocate for A1 & A2. Since price was definitely not the sole consideration for sale in the facts of this case before us, the same cannot be accepted. The sale price and removal are not at arms length.
(b) We have anxiously considered the plea made by A1 before us that to prove 'Related Person' concept and apply the deemed price as per proviso 4(1)(a)(iii), the fact of sale merely not at arms length will not call for nor be sufficient. Mutuality of interest on each other and 'related person' definition in Section 4 as applicable in the case of Companies and Firms will rule the day. No evidence of such mutually of interest exist between A1 & A4/A5/A6, Merely because A4, A5 & A6 may be Related Persons will not cause the same to shift the burden between A1 and the buyers is pleaded before us.
The learned Adjudicator for A1 drew our attention to the fact that the decision in the case of Pilky footwear of Bombay High Court was an issue not under the new Section 4, as the concept of Related Person was introduced w.e.f. 1-10-75 but it related to an issue in 1966 when Section 4 did not have any such concept.
(c) On consideration of case law in the case of Killik Slotted Angles Ltd. [1988 (35) E.L.T. 647] M/s. Television Factory Solen [1986 (26) E.L.T. 317 (T)] (wherein para 12 of the reported decision, the case of Cibatul [1985 (22) E.L.T. 302 (S.C.)] was differentiated, based on the facts of "freedom of action" under the respective agreements) and Nutri Foods [1993 (67) E.L.T. 344], wherein once again relying upon the Restrictions on decision making, as regards pricing, production manufacture planning were considered and its consequences relied upon and the Tribunal was led to conclude from the joint pricing clauses to reject the price to be under Section 4(1)(a). It was thereafter held - "18. From the total analysis of all the abnormal conditions of sale and purchase which have been brought on record, the inevitable conclusion to which we are led is that the prices stipulated in the agreement and the manner of their determination cannot be considered to be normal. Such prices are not the prices on which the goods are ordinarily sold by the manufacturer in course of wholesale trade, and extra commercial considerations have entered in the determination of the price. In these circumstances, we consider that the only permissible method under the law was the one adopted by the authorities below which is covered by proviso (iii) of Section 4(1)(a) of the Act, but in doing so the deductions on account of freight for transportation of the goods from the factory gate of M/s. Nutri Foods will have to be excluded........" In the case before us, we would, following these observations, which are found to be squarely applicable in the facts of this case, to order the re-determination of the value as per Section 4(1)(a) proviso (iii); but after allowing the deductions eligible on expenses incurred after removal, including the determination of the assessable value as per the decision of Srichakra Tyres case [1999 (108) E.L.T. 361 (T-LB)] of the Larger Bench of the Tribunal.
(d) The activities herein, as from the evidence on record, are inter meshed, to conclude that the person behind the manufacturer and buyers is the same. Financial flow back in terms of supply of raw material and meeting of expenses, on manufacture by the buyer lead us in this case to follow the decisions, in the case of Narendra Machine Works Pvt. Ltd. [2001 (128) E.L.T. 118 (T)] and Sumaran Industries [2001 (132) E.L.T. 694 (T)] to conclude that the A1 is related to A4, A5, A6 and the extended time limit period has been correctly invoked.
(e) Since it is well settled position in law that Section 11AC provisions are not retrospective in operation, the levy of penalty in this case under Section 11AC is therefore not called for and is set aside.
(f) As regards penalty under Rule 173Q and Rule 209A, the same is set aside, with direction that the quantum thereof, should be re-determined depending on the amount of duty that may become payable if and as determined in the de novo proceedings.