Whether it can be held that one company has an interest to the business of the other on the fact that two public limited companies have common Directors?

PJ/Case Laws/2012-13/1204

Case:-COMMISSIONER OF CENTRAL EXCISE, PUNE-I V/S INDUS FABRICONS PVT. LTD.

Citation:- 2012(282) E.L.T. 417 (Tri.-Mumbai)

Issue:- Whether it can be held that one company has an interest to the business of the other on the fact that two public limited companies have common Directors?
Brief Facts: - The Revenue filed this appeal against the impugned order passed by the Commissioner of Central Excise, Pune-I whereby the proceedings initiated by show-cause notice for demand of duty, interest and imposition of penalty were dropped.
M/s. Indus Fabricons Pvt. Ltd., the Respondent are engaged in the manufacture of goods such as Ducting Oil, Gas Firing System, Piping assembly, tanks etc. and cleared 90% of their manufactured goods to M/s. Mojj Engg. Systems (P) Ltd. The case of the Revenue is that the manufacturer M/s. Indus Fabricons Pvt. Ltd. and M/s. Mojj Engg. Systems (P) Ltd. is related person. Therefore, for the purpose of quantifying excise duty, the assessable value of the goods manufactured by the respondent is to be taken at the price which M/s. Mojj are selling the goods.
Appellant’s Contention: - The Appellant-Revenue submitted that both the companies are having common Directors and having under the same management. It was their contention that M/s. Indus Fabricons are having three Directors and M/s. Mojj are having four Directors and three Directors are common in both the companies. Eight shareholders, including the Directors are holding 82.01% shares of M/s. Indus Fabricons and 93.31% shares of M/s. Mojj. M/s. Mojj has been paying salaries, commission and dividend to common Directors/shareholders irrespective of their working for M/s. Indus Fabricons. At the same time, M/s. Indus Fabricons are not paying any salary, commission, dividend etc. to the common Directors/shareholders. They submit that in view of these circumstances, the two companies have mutuality of interest in the business of each other and the transactions between the two companies cannot be considered to be at arms length. Revenue submitted that in view of this, M/s. Indus and M/s. Mojj are related person in terms of Section 4(4)(c) of the Central Excise Act, 1944. The price at which M/s. Indus has sold the finished goods to M/s. Mojj cannot be considered the correct assessable value under Section 4(1)(a) and the same has to be arrived at by considering the price at which such goods are sold subsequently by M/s. Mojj to the ultimate buyers.
Respondent’s Contention: - The respondent argued that in the show-cause notice it is admitted fact that they are selling 90% of the goods to M/s. Mojj only. The contention is that 10% of the goods sold to independent buyers at the comparable price. It is also submitted that M/s. Mojj Engg. is also purchased the same goods from other manufacturer at the same price. In view of this evidence, it cannot be said that they are clearing the goods to M/s. Mojj at lower price with intent to evade payment of duty.
They also relied upon the decision of the Hon'ble Supreme Court in the case of Alembic Glass Industries Ltd. v. Commissioner of Central Excise reported in 2002 (143) E.L.T. 244 (S.C.).
Reasoning of Judgment: - The CESTAT held that the appellant(revenue) is not disputing the fact that M/s. Indus Fabricons, the respondents are clearing 10% of goods to independent buyers at the same price at which the goods have been cleared to M/s. Mojj and M/s. Mojj are purchasing the same goods from other manufacturer at almost same price. Further, they find that the Hon'ble Supreme Court in the case of Alembic Glass Ltd. (supra) has held that the shareholders of a public limited company do not, by reason only of their shareholding, have an interest in the business of the company. Equally, the fact that two public limited companies have common Directors does not mean that the one company has an interest to the business of the other. It is, therefore, not possible to uphold the conclusions that the assessee and the chemical company were related persons.
Hence the manufacturing unit has cleared 10% of the goods at comparable price at which the goods are being cleared to M/s Mojj only and in view of the decision of the Hon’ble Supreme Court, we find no merit in the appeal filled by the Revenue and same is dismissed.
Decision: - Appeal was dismissed.
Comment:- When the directors are common then it cannot be held that the units are related. Even common shareholding does not lead to conclusion that the companies are related. When the units are selling the goods to independent buyers also at comparable prices then that value has to be accepted.

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PJ/Case Laws/2012-13/1204

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