Related Parties – Chairman and some directors of two companies were common – held, when mutuality of interest nor established they cannot be said to be related parties.

PJ/Case Laws/2012-13/1026

Case: Sarita Steel & Industries Ltd v/s Commr of C. Ex., Visakhapatnam

Citation: 2011 (272) ELT 572 (Tri - Bang)

Issue:- Related Parties – Chairman and some directors of two companies were common – held, when mutuality of interest nor established they cannot be said to be related parties.

Limitation – Demand raised in 2003 for period 3.12.98 to 30.06.2000 – No objection to Excise returns filed regularly – demand is time barred.

Brief Facts:- Appellant are manufactures of iron and steel products. They belong to GER Vasavi Group industries. Their group consists of many industries. Sri Vasavi Industries Ltd, Vishakhapatnam has another branch at Rajeevnagar, Visakhapatnam where they have taken dealer’s registration. Scrutiny of sale invoices and ledgers of appellant and SVIL during the period 3.12.98 to 30.06.2000 showed that appellant were charging lower prices to SVIL when compared to clearance made to other parties. Also it was noticed that Sri G Eshwar Rao was the Chariman of both appellant firm and SVIL and he held 9.72% of shares in SVIL and 12.17% of shares in appellant firm. There were some other common directors and few staff members also worked for both these firms. Statements of various persons were recorded. Show cause notice was issued for demand of duty, imposition of penalties and demand of interest on the duty.

The appellants contested show cause notice before the Adjudicating Authority on merits as well as on limitation. The Adjudicating Authority, however, disagreed with appellant’s contentions and concluded that there being common chairman and common Director, appellants M/s SSIL and M/s SVIl are related persons and confirmed the demand with interest and also imposed penalties on the appellants.

Aggrieved by such an order, appellant preferred an appeal before the Commissioner (Appeals) inter alia raising the same question of merits as well as the question of limitation. The Commissioner (Appeals) held that appellants M/s SSIL and SVIL are related persons and hence there is suppression of value and the assessable value for finished goods cleared by SSIL has to be the price at which the appellants M/s SSIL sold the goods to other purchasers. The Commissioner (Appeals) dismissed the appeals. Aggrieved by order-in-appeal, appellant have filed an appeal before Tribunal.

Appellants Contention:- Appellants submits that M/s SSIL and SVIL are Public Limited Companies. That Revenue has failed miserably to show mutuality of interest between both the appellants i.e. the purchaser and the seller. They further submit that the question of limitation will also arise as the demand is for the period 3.12.1998 to 30.06.2000 and show cause notice was issued on 17.1.2003. The appellant submit that during the relevant period, they have been filing RT-12 returns with the authorities regularly.

Revenue’s Contention:- Revenue submitted that there is mutuality of interest. The appellant M/s SSIL had exhausted their quota of steel allotted to them by M/s. Visakhapatnam Steel Plant and hence procured steel which has been allocated to M/s. SVVIL at a nominal profit margin of Rs. 100 par MT to M/s. SVIL. They also submitted that no seller will sell steel allotted to him on a nominal margin of Rs. 100/- per MT. The appellant M/s SSIL had manufactured the finished goods and sold it to M/s SVIL at a price which is less than the price charged by them for the supplies made to independent buyers. The revenue also relied on decision of the Supreme Court in the case of Supreme Washers (P) Ltd. V. CCE, Pune [2003 (151) ELT 114] for the proposition that inter–relationship and interdependence of the units were established and hence they have to be considered as related persons. Reliance was also placed on decision of the Tribunal in case of Lubricare Relays Pvt. Ltd. V. CCE., Pune [2000 (125) ELT 904 (T)].

Reasoning of Judgment:- The Tribunal found that the issue involved in this case is regarding value of goods sold by appellants M/s SSIL to another appellant M/s. SVIL. Revenue’s main contention was that both the companies are related persons under the provision of Section 4(4)(C) of the Central Excise Act, 1994 during the relevant period and hence price which has been charged by the appellant M/s SSIL to other independent buyers needs to be applied for clearances made to M/s SVIL and duty demand was confirmed and consequential penalties were imposed and interest on the duty demanded was also confirmed.

The Tribunal also viewed that chart of the share holding pattern of the both companies and found that shareholding pattern of both the companies are widely dispersed and different and it is also find that SSIL does not have any nominee directors. The Tribunal further found that only bone of contention for Revenue is that raw material obtained by M/s SVIL from Visak Steel Plant was sold steel to M/s SSIL at a nominal profit margin of Rs. 100/- Per MT and M/s SSIL procured steel from Goel steel at the same price.

The Tribunal also considered the decision of the Supreme Court in case of Alembic Glass Industries Ltd and noted that the Supreme Court in that case has considered the very same provisions of Section 4 of Central Excise Act, 1944 and it was also considered whether the concept of related persons can be invoked if the chairman and three directors were on the Board of both the companies.

The Tribunal noted that above case is not related to this case and the issue is now squarely settled in favour of the appellants. It was held that Revenue has failed in this case to bring on record the mutuality of interest between M/s SSIL and SVIL to press home the charge of depression of price of final goods sold by M/s SSIL to SVIL. The only allegation that Mr. G. Eshwara Rao was a chairman of both companies and two directors being on the board of both companies, cannot be the reason, for coming to a conclusion that both the companies are related persons, so also the reasoning that SSIL procured steel from SVIL on a nominal increase of price by Rs.100/-

The Tribunal further found that contention raised by appellant that issue involved in this case is for period 3.12.1998 to 30.06.2000 and Show cause notice issued on 7.1.2003 is hit by limitation. It is undisputed that in this case the appellant-company were filing returns with Authorities. The Authorities never raised any objection nor sought for any clarification from appellant. The Tribunal found that Revenue was aware of clearances which were made by appellant M/s SSIL to other persons and the show cause notice issued on 17.11.2003 for demands during the period is blatantly time barred.

The Tribunal held that case laws relied upon by Revenue would not apply to this case and case law relied by appellant case of Alembic Glass Industries Ltd. will directly apply to the facts of the case. In view of the above, the Tribunal found that the impugned order confirming demands on appellant is set aside.

Decision:- Appeals allowed with consequential relief if any.

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PJ/Case Laws/2012-13/1026

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