M.P. Steel Works Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. this is an appeal filed by m/s. m.p. steel works, kanpur ('m.p.steel', for short), being aggrieved with the order-in-original no.1/collector/mp/85, dated 16-3-1985 passed by the collector of central excise, kanpur. m/s. m.p. steel were engaged in the manufacture of steel furniture classifiable under the then item no. 40 of the erstwhile central excise tariff. one shri p.r. tandon was the proprietor of m.p. steel. there was another partnership firm in the name and style of deepak safe and co. ('m/s. deepak' for short), whose partners were shri p.r. tandon (proprietor of m.p. steel) and his real brother, shri k.b. tandon. from 1-1-1975 to 31-12-1975 the minor son of shri p.r. tondon, shri deepak tandon became the sole proprietor of deepak. there was also a khadi and village industries commission (kvic) unit, m/s. shankar seva ashram ('seva ashram' for short) whose president was one shri k.s. pandey. it was alleged in the show cause notice dated 1-7-1980 that deepak was a related concern of m.p. steel and the value at which deepak sold the goods in the open market should be the value of the goods manufactured by m.p. steel for central excise purposes. it was alleged that a number of items of steel furniture were actually manufactured by m.p. steel but were shown as having been manufactured by seva ashram. when all the production during the years 1975-76,1976-77 and 1977-78 was taken together i.e. the production shown in the name of m.p. steel and the production shown in the name of seva ashram although manufactured by m.p. steel, on the values at which all these goods were sold by m/s. deepak then it had exceeded rs. 2 lakhs in each year and thus m/s. m.p. steel were not eligible for exemption which they availed of unauthorisedly under notification no.33/71-c.e., dated 1-4-1971 read with notification no. 101/72-c.e., dated 17-3-1972. the central excise duty of rs. 1,70,402/- was demanded and confirmed by the collector of central excise, kanpur. a penalty of rs. 2 lakhs was also imposed on m/s. m.p. steel.2. the matter was heard on 5-8-1996 when shri b.b. gujral, advocate appeared for the appellants. shri p. das, sdr represented the respondents/revenue.3. shri b.b. gujral, advocate argued that the matter related to the simplified procedure and the show cause notice was issued after the said simplified procedure had been withdrawn. during the year 1975-76, the appellants were working under self-removal procedure (srp) and during the years 1976-77 and 1977-78, they were working under simplified procedure. the duty liability had been determined under the defunct rules. the case of the revenue is based on the statements of the witnesses, who had retracted from their earlier statements. the basis of the case had been demolished by the cross examination.4. shri p. das, sdr replied that when offence was committed the relevant rules under which the duty had been demanded were there on the statute book. there were two charges against the appellants - one regarding selling goods through related persons and the other passing of the goods manufactured by the appellants as if manufactured by seva ashram. the witnesses had given their statements voluntarily without any duress and the subsequent retraction was an after-thought and was not to be taken note of. the case was based on the facts and all the relevant issues have been analysed and considered by the adjudicating authority.5. we have carefully considered the matter. the appellants, m.p. steel had sold their steel furniture through deepak. in deepak, the proprietor of m.p. steel - shri p.r. tandon and his real brother were the partners. during the period 1-1-1975 to 31-12-1975, deepak tandon minor son of shri p.r. tandon became the sole proprietor of m/s.deepak. it had been alleged in the show cause notice dated 1-7-1980 that both m.p. steel and deepak were related persons and the real value of clearances was the enhanced value at which deepak sold the goods in the market. the appellants have contended that deepak was a separate firm registered with the registrar of firms having its separate registration numbers of the u.p. sales tax department, income tax deptt, etc.6. the 'related person' has been defined in clause (c) of sub-section (4) of section 4 of the central excises & salt act, 1944 (hereinafter referred to as the 'act') as under :- '"related person' means a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor. explanation : in this clause 'holding company', 'subsidiary company', and 'relative' have the same meanings as in the companies act, 1956 (1 of 1956)." the first part of the definition requires that the person, who is sought to be branded as a 'related person' must be a person, who is so associated with the assessee that they have interest directly or indirectly in the business of each other. it is not enough that the assessee has an interest direct or indirect in the business of the person alleged to be a related person, nor is it enough that the person alleged to be related person has an interest direct or indirect in the business of the assessee. it is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest direct or indirect in the business of each other. the equality and degree of interest which each has in the business of the other may be different. the interest of one in the business of the other may be direct while the interest of the latter in the business of the former may be indirect. that would not make any difference so long as each has got some interest direct or indirect in the business of the other (refer supreme court's decision in the case of u.o.i. v. atic industries ltd. reported at 1984 (17) e.l.t. 323 (s.c.) (para 5).7. in the present case, there is nothing to show the mutuality of interest of the assessee in the business of deepak and that of deepak in the business of m.p. steel. m/s. deepak was a partnership firm and in addition to the proprietor of m.p. steel, there was one more partner. the fact that this other partner was the real brother of the proprietor of m.p. steel is not enough to establish the interest of the partnership firm in the business of m.p. steel. there is nothing on record to show the interest of the other partner of deepak in the business of m.p. steel.8. accordingly, we do not consider that the value at which the goods were sold by m/s. deepak could be taken as the value for determining the value of clearances of m.p. steel. the prices at which deepak sold the steel furniture in the market also included handling, transport, fitting charges, etc. the items involved are steel furniture in which the cost of transport even from the manufacturer's premises to the showroom may be considerable. no allowance on these accounts had been given while arriving at the differential duty. on this issue, therefore, we hold that the allegations are not substantiated.9. now, coming to the other issue of sale on vouchers of seva ashram, it had been alleged that m.p. steel manufactured steel furniture themselves but obtained the bills for the same from seva ashram. this allegation is largely based on the statements dated 15-10-1977 and 7-11-1977 of shri k.s. pandey, president of the seva ashram. these statements are clearly incriminatory. there are details in the statements, which only shri k.s. pandey could know. they reveal the modus operandi of m.p. steel. specific details about bills issued by seva ashram, commissions/payments received had been given in these statements. we do not agree with the plea that these facts had been dictated to shri k.s. pandey by the central excise officers. the details of the bills of seva ashram were matched by the details in the private accounts of deepak. we also are of the view that the retraction was obviously an after-thought and the original statements would not be doubted on that account. notwithstanding these infirmities in the defence of the appellants, the basis on which the allegations had been sought to be proved too suffer from a number of infirmities. the value of the clearances had been arrived at on the basis of the prices of deepak which in our view is not correct. except the relationship of brother, there is no other evidence or ground to establish the mutuality of interest between a proprietor's concern, m.p. steel and the partnership firm, deepak. the conversion of partnership into proprietary concern with minor son of the proprietor of m.p. steel had not been discussed. all the removals under invoices of seva ashram had been taken as removals of m.p. steel, which is also not substantiated.it had been admitted that m/s. seva ashram had manufacturing facilities and had actually manufactured some items of steel furniture. we find that no allowance for the same had been given while arriving at the duty liability.10. total evasion of central excise duty during the period 1975-76 to 1977-78 as per show cause notice had been calculated at rs. 1,70,402.16. the show cause notice was issued on 1-7-1980. it is thus, seen that a part of the demand from 1-4-1975 to 1-7-1975 is even beyond the maximum period of 5 years. although there is reference to surreptitious removals, no basis for alleging suppression or clandestine removals had been detailed. the application for special procedure under simplified procedure scheme had been filed by the appellants on 16-2-1976 for working under chapter viib procedure of the rules. the appellants had submitted that the clearances during the financial year 1975-76 when they were working under the self-removal procedure had been effected under approval and consent of the jurisdictional central excise officers and they had finalised their duty liability under the simplified procedure scheme. the statement of shri k.s. pandey had been recorded on 15-10-1977. the bank accounts had been resumed on 7-11-1977. the statements of s/shri p.r. tandon, deepak tandon and smt. phool tandon had been recorded on 17-10-1977. the show cause notice was issued in july, 1980. in the circumstances, there does not appear adequate justification for invoking the extended period of limitation.11. in view of the above discussion, we consider that the basis on which the allegations had been sought to be proved was not sound and the demand for duty and levy of penalty could not be sustained.12. we have not gone into other issues raised by the appellants as we consider that the basis on which the duty had been demanded and penalty had been imposed was not sound. the appellants had cited certain decisions in support of their contentions that the show cause notice was issued under simplified procedure after that procedure had been omitted from the statute book. as we are inclined to allow the appeal of the appellants on the grounds as discussed above, we have not gone into this aspect of the matter.13. taking all the relevant considerations into account, we allow the appeal, and order accordingly.

Judgment:
1. This is an appeal filed by M/s. M.P. Steel Works, Kanpur ('M.P.Steel', for short), being aggrieved with the Order-in-Original No.1/Collector/MP/85, dated 16-3-1985 passed by the Collector of Central Excise, Kanpur. M/s. M.P. Steel were engaged in the manufacture of steel furniture classifiable under the then Item No. 40 of the erstwhile Central Excise Tariff. One Shri P.R. Tandon was the Proprietor of M.P. Steel. There was another partnership firm in the name and style of Deepak Safe and Co. ('M/s. Deepak' for short), whose partners were Shri P.R. Tandon (Proprietor of M.P. Steel) and his real brother, Shri K.B. Tandon. From 1-1-1975 to 31-12-1975 the minor son of Shri P.R. Tondon, Shri Deepak Tandon became the sole proprietor of Deepak. There was also a Khadi and Village Industries Commission (KVIC) Unit, M/s. Shankar Seva Ashram ('Seva Ashram' for short) whose President was one Shri K.S. Pandey. It was alleged in the show cause notice dated 1-7-1980 that Deepak was a related concern of M.P. Steel and the value at which Deepak sold the goods in the open market should be the value of the goods manufactured by M.P. Steel for central excise purposes. It was alleged that a number of items of steel furniture were actually manufactured by M.P. Steel but were shown as having been manufactured by Seva Ashram. When all the production during the years 1975-76,1976-77 and 1977-78 was taken together i.e. the production shown in the name of M.P. Steel and the production shown in the name of Seva Ashram although manufactured by M.P. Steel, on the values at which all these goods were sold by M/s. Deepak then it had exceeded Rs. 2 lakhs in each year and thus M/s. M.P. Steel were not eligible for exemption which they availed of unauthorisedly under Notification No.33/71-C.E., dated 1-4-1971 read with Notification No. 101/72-C.E., dated 17-3-1972. The Central Excise duty of Rs. 1,70,402/- was demanded and confirmed by the Collector of Central Excise, Kanpur. A penalty of Rs. 2 lakhs was also imposed on M/s. M.P. Steel.

2. The matter was heard on 5-8-1996 when Shri B.B. Gujral, Advocate appeared for the appellants. Shri P. Das, SDR represented the respondents/Revenue.

3. Shri B.B. Gujral, Advocate argued that the matter related to the simplified procedure and the show cause notice was issued after the said simplified procedure had been withdrawn. During the year 1975-76, the appellants were working under Self-Removal Procedure (SRP) and during the years 1976-77 and 1977-78, they were working under simplified procedure. The duty liability had been determined under the defunct rules. The case of the Revenue is based on the statements of the witnesses, who had retracted from their earlier statements. The basis of the case had been demolished by the cross examination.

4. Shri P. Das, SDR replied that when offence was committed the relevant rules under which the duty had been demanded were there on the Statute Book. There were two charges against the appellants - one regarding selling goods through related persons and the other passing of the goods manufactured by the appellants as if manufactured by Seva Ashram. The witnesses had given their statements voluntarily without any duress and the subsequent retraction was an after-thought and was not to be taken note of. The case was based on the facts and all the relevant issues have been analysed and considered by the adjudicating authority.

5. We have carefully considered the matter. The appellants, M.P. Steel had sold their steel furniture through Deepak. In Deepak, the Proprietor of M.P. Steel - Shri P.R. Tandon and his real brother were the partners. During the period 1-1-1975 to 31-12-1975, Deepak Tandon minor son of Shri P.R. Tandon became the sole Proprietor of M/s.

Deepak. It had been alleged in the show cause notice dated 1-7-1980 that both M.P. Steel and Deepak were related persons and the real value of clearances was the enhanced value at which Deepak sold the goods in the market. The appellants have contended that Deepak was a separate firm registered with the Registrar of Firms having its separate registration numbers of the U.P. Sales Tax Department, Income Tax Deptt, etc.

6. The 'Related Person' has been defined in clause (c) of Sub-section (4) of Section 4 of the Central Excises & Salt Act, 1944 (hereinafter referred to as the 'Act') as under :- '"Related Person' means a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor.

Explanation : In this clause 'holding company', 'subsidiary company', and 'relative' have the same meanings as in the Companies Act, 1956 (1 of 1956)." The first part of the definition requires that the person, who is sought to be branded as a 'related person' must be a person, who is so associated with the assessee that they have interest directly or indirectly in the business of each other. It is not enough that the assessee has an interest direct or indirect in the business of the person alleged to be a related person, nor is it enough that the person alleged to be related person has an interest direct or indirect in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest direct or indirect in the business of each other. The equality and degree of interest which each has in the business of the other may be different. The interest of one in the business of the other may be direct while the interest of the latter in the business of the former may be indirect. That would not make any difference so long as each has got some interest direct or indirect in the business of the other (refer Supreme Court's decision in the case of U.O.I. v. Atic Industries Ltd. reported at 1984 (17) E.L.T. 323 (S.C.) (para 5).

7. In the present case, there is nothing to show the mutuality of interest of the assessee in the business of Deepak and that of Deepak in the business of M.P. Steel. M/s. Deepak was a partnership firm and in addition to the Proprietor of M.P. Steel, there was one more partner. The fact that this other partner was the real brother of the Proprietor of M.P. Steel is not enough to establish the interest of the partnership firm in the business of M.P. Steel. There is nothing on record to show the interest of the other partner of Deepak in the business of M.P. Steel.

8. Accordingly, we do not consider that the value at which the goods were sold by M/s. Deepak could be taken as the value for determining the value of clearances of M.P. Steel. The prices at which Deepak sold the steel furniture in the market also included handling, transport, fitting charges, etc. The items involved are steel furniture in which the cost of transport even from the manufacturer's premises to the showroom may be considerable. No allowance on these accounts had been given while arriving at the differential duty. On this issue, therefore, we hold that the allegations are not substantiated.

9. Now, coming to the other issue of sale on vouchers of Seva Ashram, it had been alleged that M.P. Steel manufactured steel furniture themselves but obtained the bills for the same from Seva Ashram. This allegation is largely based on the statements dated 15-10-1977 and 7-11-1977 of Shri K.S. Pandey, President of the Seva Ashram. These statements are clearly incriminatory. There are details in the statements, which only Shri K.S. Pandey could know. They reveal the modus operandi of M.P. Steel. Specific details about bills issued by Seva Ashram, commissions/payments received had been given in these statements. We do not agree with the plea that these facts had been dictated to Shri K.S. Pandey by the Central Excise Officers. The details of the bills of Seva Ashram were matched by the details in the private accounts of Deepak. We also are of the view that the retraction was obviously an after-thought and the original statements would not be doubted on that account. Notwithstanding these infirmities in the defence of the appellants, the basis on which the allegations had been sought to be proved too suffer from a number of infirmities. The value of the clearances had been arrived at on the basis of the prices of Deepak which in our view is not correct. Except the relationship of brother, there is no other evidence or ground to establish the mutuality of interest between a Proprietor's concern, M.P. Steel and the Partnership Firm, Deepak. The conversion of partnership into proprietary concern with minor son of the proprietor of M.P. Steel had not been discussed. All the removals under invoices of Seva Ashram had been taken as removals of M.P. Steel, which is also not substantiated.

It had been admitted that M/s. Seva Ashram had manufacturing facilities and had actually manufactured some items of steel furniture. We find that no allowance for the same had been given while arriving at the duty liability.

10. Total evasion of Central Excise duty during the period 1975-76 to 1977-78 as per show cause notice had been calculated at Rs. 1,70,402.16. The show cause notice was issued on 1-7-1980. It is thus, seen that a part of the demand from 1-4-1975 to 1-7-1975 is even beyond the maximum period of 5 years. Although there is reference to surreptitious removals, no basis for alleging suppression or clandestine removals had been detailed. The application for Special Procedure under Simplified Procedure Scheme had been filed by the appellants on 16-2-1976 for working under Chapter VIIB procedure of the rules. The appellants had submitted that the clearances during the financial year 1975-76 when they were working under the self-removal procedure had been effected under approval and consent of the Jurisdictional Central Excise Officers and they had finalised their duty liability under the Simplified Procedure Scheme. The statement of Shri K.S. Pandey had been recorded on 15-10-1977. The bank accounts had been resumed on 7-11-1977. The statements of S/Shri P.R. Tandon, Deepak Tandon and Smt. Phool Tandon had been recorded on 17-10-1977. The show cause notice was issued in July, 1980. In the circumstances, there does not appear adequate justification for invoking the extended period of limitation.

11. In view of the above discussion, we consider that the basis on which the allegations had been sought to be proved was not sound and the demand for duty and levy of penalty could not be sustained.

12. We have not gone into other issues raised by the appellants as we consider that the basis on which the duty had been demanded and penalty had been imposed was not sound. The appellants had cited certain decisions in support of their contentions that the show cause notice was issued under simplified procedure after that procedure had been omitted from the Statute Book. As we are inclined to allow the appeal of the appellants on the grounds as discussed above, we have not gone into this aspect of the matter.

13. Taking all the relevant considerations into account, we allow the appeal, and order accordingly.