Full Judgment
2. Finally, it is alleged that the respondents had opted for the benefit of Notification No. 120/75 dated 30.4.75 but they were ineligible for the concession in view of condition No. 4 of the said Notification which the respondents did not satisfy.
3. The Order-in-Original in this matter was passed by the concerned Assistant Collector, who observed that the basic point for decision was whether M/s Mehta & Mehta Associates, to whom goods were being sold by the respondents would be considered as an independent buyer and whether the price charged was the sole consideration or not. The Assistant Collector came to the conclusion that the price charged by the respondents from M/s Mehta & Mehta was not 'free and independent price' and the contract was not at arm's length on the ground that "M/s Mehta & Mehta is a partnership trust with total 10 partners..., M/s Minichem is also a partnership firm and there are 11 partners in this firm----There are two common partners". The Assistant Collector further observed "the partners cannot start with another business unless they consult mutually. Since partners are beneficiaries, mutually to both the partnership firms they are acting in concert/conspiracy". The Assistant Collector also concluded that in the context of the aforementioned facts, there was no sale at the factory gate to an independent buyer and the benefit of Notification No. 120/75 was not available to the party.
4. We also find that the Assistant Collector has held that respondents should have disclosed to the Central Excise, their relationship with M/s Mehta & Mehta Associates. Since they did not do so, they suppressed material information to obtain the benefit of invoice valuation. This was considered by the Asstt. Collector to amount to a mis-declaration, attracting Section 11-A of the Central Excises & Salt Act. The Assistant Collector has further taken the view that since credit was availed by the party as a result of assessment of their R.T.12s for the past period, it was not open to them to urge that in the present matter, duty could not be demanded from them because it was beyond six months period.
5. In the light of the above conclusions, the Asstt. Collector decided that the respondents should be assessed on the basis of the prices of M/s Mehta & Mehta less the amount of Sales Tax charged by M/s Minichem India from M/s Mehta & Mehta. The claim of the respondents that there should also be deduction on account of interest & deferred payment was rejected.
6. When the respondents went in appeal before the Collector of Central Excise (Appeals) Bombay, (Appellants before the Collector (Appeals), he set aside the order of the Asstt. Collector on the ground that M/s Merita & Merita Associates and M/s Minichem India, although two partners of the latter are trustees in the former have to be treated as separate legal entities. It was held that the lower authorities had failed to establish that the prices at which the goods were sold to M/s Mehta & Mehta Associates was influenced by any consideration other than the relationship created by the sale of the impugned goods. It was noted by the Collector (Appeals) that the appellants had filed two price lists for clearances to M/s Mehta & Mehta Associates and sought for a clarification regarding the concept of related person. But no cognizance was taken of these nor any appealable order was given on these price lists. It was also noted by the Collector (Appeals) that out of the three products manufactured by the respondents, only one product, namely, Manganese Sulphate Solution was sold to M/s Mehta & Mehta Associates.
7. Shri V.M. Doiphode, Senior Departmental Representative appears before us on behalf of the department. The respondents have requested that the matter may be disposed of in their absence on the basis of records.
8. The learned SDR reiterates what has been stated in the grounds of appeal, that is to say that M/s Minichem India actually manufactured goods on behalf of M/s Mehta & Mehta Associates and that, therefore, the prices charged by M/s Mehta & Mehta have to be considered for determination of assessable value in terms of Notification 305/77 dated 5.11.77. In support of this the declaration filed by M/s Mehta & Mehta Associates to the Superintendent of Central Excise has been referred to and it is stated that this is also confirmed by M/s Minichem India.
Further more, it is urged that since M/s Minichem India are manufacturing goods on behalf of M/s Mehta & Mehta Associates, therefore, the two are having mutual relationship in each other's business and in view of this, as per condition No. 4 of Notification No. 120/75 M/s Minichem India cannot be extended the benefit of invoice price option under the Notification. It is further urged that the view taken by the Collector (Appeals) that both the firms have separate legal entities, is of no relevance as "the buyer himself is the owner of the goods". It is added that the difference in the price at which M/s Minichem India are selling to M/s Mehta & Mehta Associates and the price at which M/s Mehta and Mehta Associates sell to their buyers is so wide that it cannot be explained in terms of normal trade.
9. Shri Doiphode has stated that the contention of the respondents that the demand of duty is barred by limitation, is not tenable because failure to furnish essential information to the department would fall within the category of mis-declaration attracting liability for extended period under Section 11-A of the Central Excises & Salt Act, 1944.
10. The following case law has been cited by the learned SDR in favour of Revenue.Deputy Commissioner of Sales Tax (Law) v. K. Kelukutty.Binny Limited v. Superintendent of Central Excise, Guindy and Ors..
(3) 1956(29) I.T.R. 535 - Dull Chand Laxmi Narayan v. Commissioner of Income Tax.Additional Commissioner of Income Tax (Andhra Pradesh) v. M. Venkatanarasimha Rao.G.D. Industrial Engineers, Faridabad v. Collector of Customs & Central Excise, Chandigarh.
11. We have carefully considered the facts of the case and the submissions made before us. We find that the period for which the duty has been demanded is February 1979 to January 1980. Notice to show cause-cum-demand had been issued on 13.4.81. The demand for the extended period had been raised and justified by the Assistant Collector under Section 11-A of the Central Excises and Salt Act. Under Section 11-A, when any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty by such person or his agent, the period within which such duty can be demanded is extended to 5 years. In the present matter, duty has been demanded after the period of six months and the question remains whether the view taken by the Asstt. Collector that there was a suppression of facts and mis-declaration justifying demand of duty beyond the normal period of six months, is valid in law. The Collector (Appeals) of course, did not consider this issue because he felt that limitation apart the notice to demand duty was not sustainable even on merits.
12. The Show Cause Notice has referred to a declaration dated 2.2.79 of M/s Minichem India, in which they have opted for payment of duty on the basis of invoice value of their products. The products manufactured by them are referred in this declaration to be Zinc Chloride Solution, Manganese Sulphate Solution and Zinc Sulphate Solution falling under Tariff Item 68 of the Central Excise Tariff. It is stated that while they have opted for this Notification, they contravened condition No. 4 thereof rendering them ineligible to the benefit of the Notification.
On the other hand, there is a separate declaration made by M/s Minichem India that they are manufacturing Zinc Sulphate Solution on behalf of M/s Mehta & Mehta Associates. A similar declaration is on record from M/s Mehta & Mehta Associates seeking exemption from licensing requirements under Rule 174 of Central Excise Rule on the ground that Zinc Sulphate Solution is manufactured on their behalf by M/s Minichem India who, therefore, will observe all the Central Excise procedural formalities including declaration of the prices at which the said goods are sold in order to enable the determination of value of the said goods under Section 4 of the Central Excises & Salt Act, 1944. It would be seen now that both the declarations cited in the Show Cause Notice pertain to manufacture of Zinc Sulphate Solution by M/s Minichem India on behalf of M/s Mehta & Mehta Associates. There is no such declaration in respect of Manganese Sulphate Solution. Respondents have repeatedly urged that they have not manufactured Manganese Sulphate Solution on behalf of M/s Mehta and Mehta Associates but sold the product to M/s Mehta & Mehta. In the Order-in-Original, the Asstt. Collector has held that the respondents were not entitled to the benefit of assessment on the basis of invoice value in terms of Notification No. 120/75, since their transactions with M/s Mehta & Mehta Associates were not at arms length. There are two apparent reasons on which this conclusion is based. Firstly, that two partners of M/s Minichem India are also trustees of M/s Mehta & Mehta Associates and secondly, there is a wide disparity in the prices at which M/s Minichem India sell the products to M/s Mehta & Mehta Associates and the price at which M/s Mehta & Mehta sell the goods to their buyers. However, it appears to us that neither of these reasons is adequate in law for not treating the relationship between M/s Minichem India and M/s Mehta & Mehta being at arms length. The learned SDR has referred in this connection, to the decision of the Supreme Court in the case of Deputy Commissioner of Sales Tax (Law) v. K. Kelukutty 1986 (24) ELT 186 (SC) (supra) in order to make the point that in the face of the fact that two of the partners of M/s Minichem India are also trustees of M/s Mehta & Mehta Associates, they should not be treated as separate entities. We do not, however, think that the decision of this case helps the department. We re-produce below a part of the judgement of the Hon'ble Supreme Court, which we consider pertinent to the matter before us: "It is permissible to say that a partnership agreement creates and defines the relation of partnership and therefore identifies the firm. If that conclusion be right, it is only a further step to hold that each partnership agreement may constitute a distinct and separate firms. That is not to say that a firm is a corporate entity or enjoys a juristic personality in that sense. The firm name is only a collective name for the individual partners. But each partnership is a distinct relationship. The partners may be different and yet the nature of the business may be the same, the business may be different and yet the partners may be the same. An agreement between the partners to carry on a business and share its profits may be followed by a separate agreement between the same partners to carry on another business and share the profits therein.
The intention may be to constitute two separate partnership and therefore two distinct firms. Or to extend merely a partnership, originally constituted to carry on one business to the carrying on of another business. It will all depend on the intent on of the partners. The intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances, including evidence as to the interlacing or interlocking of management, finance and other incidents of the respective businesses." It would, thus, be seen that the Supreme Court had taken a view that in cases of this type, a decision has to be taken with reference to the entire circumstances, the nature of the agreements including factors such as interlocking of management, finance, etc.
13. The other cases cited on behalf of the department also do not go in their favour on this issue. It was for the department to investigate and to un-earth any evidence that might have existed to show that the transactions between M/s Minichem India and M/s Mehta & Mehta Associates were not at arms length. The mere fact that in respect of one item of production, the respondents might have agreed to take up the manufacture on behalf of M/s Mehta & Mehta Associates does not help to establish that the transactions in respect of other products of M/s Minichem India with M/s Mehta & Mehta Associates are not at arms length. There is a vague reference to an un-justified and wide variation in the prices at which M/s Minichem India sells to M/s Mehta & Mehta and the latter sell to others. But there are no details or any.
evidence in this regard before us, or even in the Show Cause Notice issued to M/s Minichem India. The Show Cause Notice alleged that M/s Minichem India had made a wrong declaration of the assessable value. In the course of the arguments, the learned SDR could not show to us as to which is the wrong declaration which the respondents have made. We note here the remarks of the Collector (Appeals) that in fact, two price lists for clearances to M/s Mehta & Mehta Associates were submitted by the respondents who sought for a clarification on the concept of related person but no cognizance of the same had been taken. This is not denied by the department. We are. therefore, unable to see what has been the suppression of the facts on the basis of which demand of duty is sought 14. In the light of our foregoing findings, this appeal fails and is dismissed.