M/S. Adonis (India) Ltd vs Cce-Indore

[Arising out of order-in-original no. 05/2006 dated 16/1/2006 passed by Commissioner of Central Excise-Indore]

1. Whether Press Reporter may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

M/s. Onida Saka Ltd.

Shri Ashok Chawla,

Shri Lokesh Khanna and

M/s. Adonis (India) Ltd. Appellant

Vs.

CCE-Indore Respondent

Appearance: Shri R. Santhanam, Advocate for the appellant.

Shri M.S. Negi, DR for the respondent.

Coram: Honble Shri Rakesh Kumar, Member (Technical)

Honble Mrs. Sulekha Beevi, Member (Judicial)

Final Order No. 51980-51983/2015

Per: Rakesh Kumar

The facts leading to filing of this appeal are, in brief, as under:

1.1 M/s. Onida Saka Ltd. (hereinafter referred to as Appellant Company) are manufacturers of colour T.V. sets. The period of dispute in the present case is from June, 1994 to August, 1996. During the period till, February, 1994, the rate of duty on colour T.V. sets was specific and during that period, the appellant were selling the colour T.V. sets manufactured by them directly to their dealers. W.e.f. 1/3/1994, the rate of duty on Colour T.V. sets became ad-valorem. With the change in the duty to ad-valorem rate, the appellant changed their marketing pattern and instead of selling the goods directly through their depots, they started selling the entire production to a company named, M/s. Adonis (India) Limited (hereinafter referred to as AIL). AIL is a company belonging to Onida Group and from the records, it appears that though it had been floated with share capital of Rs. 70/-, it had been financed by extending loans by the other group companies, namely, M/s. Onida Savak Limited (hereinafter referred to as OSL), M/s. Monica, Electronics Limited (hereinafter referred to as MEL) and M/s. Onida Saka Limited (OSL). The departments contention is that the appellant and M/s. AIL are related persons, and therefore, during the period of dispute, i.e., period from June, 1994 to August, 1996, the assessable value of the goods manufactured and cleared by the appellant would be the price at which the same goods were sold by M/s. AIL to their dealers. Besides this, there was another dispute regarding admissibility of trade discounts extended by M/s. AIL. Accordingly, a show cause notice dated 4/6/1999 was issued to the appellant for demand of duty of Rs. 35,63,925/- on the basis that the assessable value of the goods manufactured and cleared by the appellant would be the price at which the same were sold by M/s. AIL. The same show cause notice demanded another duty of Rs. 28,35,170/- on the account of trade discounts being given by M/s. AIL, as according to Department, deduction of these trade discounts was not admissible.

1.2 The matter was adjudicated by the Commissioner vide order-in-original no. 48/2000 dated 22/12/2000 by which while the Commissioner dropped the duty demand of Rs. 28,35,170/- holding that the deduction of trade discounts extended by M/s. AIL to its dealers is admissible, he confirmed the duty demand of Rs. 35,63,928/- on the ground that the appellant and M/s. AIL are related persons, and therefore, the price charged by M/s. AIL from their dealers would be the assessable value of the goods cleared by the appellant. Besides this, he also imposed penalty of equal amount on the appellant company under section 11AC and another penalty of Rs. 10 lakh on them under Rule 173Q. He also demanded interest on the above mentioned duty under section 11AB. The Commissioner also imposed penalty of Rs. 10 lakh, Rs. 5 lakh and Rs. 3 lakh under Rule 209A of Central Excise Rules, 1944 on M/s. AIL and Shri Lokesh Khanna and Shri Ashok Chawla, employees of the Appellant Company.

1.3 In pursuance of the Commissioners order dated 22/12/2000, the appellant company filed a refund application before the Assistant Commissioner for refund of the amount of Rs. 28,35,170/-. The refund application was, however, rejected. The appellant, thereafter, filed an appeal before the Commissioner (appeals) against the Assistant Commissioners order and the Commissioner (appeals) vide order-in-appeal no. INT/Ist/669/03 dated 18/12/2003 allowed the appeal holding that the refund is admissible. Against this order of the Commissioner (appeals), the Revenue filed an appeal before the Tribunal. The Tribunal vide final order no. 974/04B dated 16/12/2004 remanded the matter to the original adjudicating authority for deciding the refund claim of the Appellant Company after examining the applicability of the principle of unjust enrichment. According to the appellant, the matter of refund is still pending before the Assistant Commissioner.

1.4 Against the Commissioners order dated 22/12/2000 confirming the duty demand of Rs. 35,63,928/- against the appellant company along with interest and imposing penalty on them under Section 11AC and Rule 173Q (1), the appellant company filed an appeal before the Tribunal. The Tribunal vide final order no. 181-184/001A dated 4/05/2001 set aside the Commissioners order and remanded the matter to the Commissioner for fresh adjudication for certain directions. The matter was adjudicated de-novo by the Commissioner vide order-in-original no. 05/06 dated 16/1/2006 by which the Commissioner besides confirming the duty demand of Rs. 35,63,928/- on the basis that the allegation that the appellant company and M/s. AIL are related persons, also confirmed the duty demand of Rs. 28,05,170/- which was not the subject matter of the appeal and which had earlier been set aside by the Commissioners order dated 22/12/2000 and the matter of whose refund is still pending before the Assistant Commissioner. The Commissioner, however, in this order did not impose penalty under section 11AC but imposed penalty of only Rs. 5 lakh on the appellant company under section 173Q and besides this, imposed penalty under Rule 209A of Central Excise Rules, 1944 of Rs. 2 lakh, Rs. 1 lakh and Rs. 1 lakh on M/s. AIL, Shri Lokesh Khanna and Shri Ashok Chawla respectively.

1.5 Against this order of the Commissioner, these four appeals have been filed by the appellant company (M/s. Ondia Saka Limited), it employees Shri Ashok Chawla, Shri Lokesh Khanna and the marketing company-M/s. AIL.

2. Heard both the sides.

3. Shri R. Santhanam, Advocate, ld. Counsel for the appellants, pleaded that the confirmation of duty demand of Rs. 28,35,170/- linked with the question as to whether the trade discounts extended by the appellant company to M/s. AIL are admissible or not, is absolutely without any basis and illegal, as this duty demand had been dropped by the earlier order dated 22/12/2000 passed by the Commissioner and the matter of refund of this amount is pending before the Assistant Commissioner and the Revenue had not filed any appeal before the Tribunal against the Commissioners order dated 22/12/2000 dropping the duty demand of Rs. 28,35,170/-. He, therefore, pleaded that the duty demand of Rs. 28,35,170/- has to be set aside simply on the ground that this duty demand was not the subject matter of appeal before the Tribunal and in de-novo proceedings, in pursuance of the Tribunals order dated 4/5/2001 and therefor, the Commissioner could not again rake up the admissibility of trade discounts and confirm this demand. With regard to the duty demand of Rs. 35,63,928/-, Shri Santhanam pleaded that this demand is on the basis of allegation that the appellant company and the marketing company M/s. AIL are related person; that this allegation is without any basis; that there is neither any common Directors nor any shareholding of the appellant company in M/s. AIL or of M/s. AIL in the appellant company; that just because the entire production of the appellant company is sold to M/s. AIL or that the appellant company does not charge any security from M/s. AIL, it cannot be concluded that the two are related person; that there is absolutely no evidence on record to show that transactions between the appellant company and M/s. AIL were not of principal on principal basis or that the appellant company had all pervasive financial and managerial control over M/s. AIL; that in this regard, just because the appellant company had extended some loan to M/s. AIL or that M/s. AIL had taken on rent the depots which earlier had been rented by the appellant company or that M/s. AIL is incurring expenses on the marketing of the goods manufactured by the appellant company, it cannot be concluded that there was mutuality of interests in the business of each other.

Shri Santhanam, emphasized that there is absolutely no evidence produced by the department to establish mutuality of interest between the appellant company and M/s. AIL and since the two cannot be treated as related persons, the duty demand of Rs. 35,63,928/- confirmed against the appellant company and also penalty on the appellant company and other noticee is not sustainable. Shri Santhanam cited the following judgments of the Supreme Court and Tribunal in support of his plea that M/s. Onida Saka Limited and M/s. Adonis (India) Limited are not related persons:

(1). CCE Vs. Xerographic Ltd. reported in 2010 (257) ELT 11 (SC)

(2). CCE Vs. Kwality Ice-cream Company reported in 2010 (260) ELT 327 (SC.)

(3). Union of India Vs. Kira District Co-operative Milk Procedures reported in 2012 (146) ELT 502 SC

(4). Alembic Glass Industries Ltd. Vs. CCE reported in 2002 (143) ELT 244 (S.C.)

(5). CCE Vs. Amar Sinhji Stationery Indus Ltd., reported in 2005 (184) ELT 186 (Tri.-Del)

(6). Samtel Electron Devices Ltd. Vs. CCE, 2000 (118) ELT 262 (Tribunal-LB)

(7). Basudev Garg Vs. CCE reported in 2013 (294) ELT 353 (Del.)

(8). Shalimar Rubber Industries Vs. CCE reported in 2002

(146) ELT 248 (SC)

(9). Uniworth Textiles Ltd. Vs. CCE reported in 2013 (288) ELT 161 (SC)

3.1. Shri Santhanam also pleaded that in any case, the duty demand raised by the show cause notice dated 4/6/1999 for the period from June, 1994 to August, 1996 is time barred, as the conditions required for invoking extended period under proviso to section 11A(1) existence of fraud, wilful mis-statement, suppression of facts, deliberate contravention of the provisions of Central Excise Act, 1944 or of the Rules made therein with intent to evade the payment of duty or not preset in the present case. He, therefore, pleaded that the impugned order is not correct.

4. Shri M.S. Negi, ld. DR, defended the impugned order by reiterating the findings of the Commissioner in it. He cited the judgment of Tribunal in the case of M/s. Adonis (India) Limited Vs. CCE-Meerut reported in 2000 (119) ELT 68 wherein in respect of transactions between a group Company- Ondia Savak Limited and M/s. AIL, the departments stand was that the two are to be treated as a related person and the price charged by M/s. AIL would be the assessable value of the goods manufactured by M/s. Onida Savak Limited and in this case, the appellants counsel did not contest, the departments allegation that M/s. Onida Savak Limited and M/s. AIL are related persons and only contested the question of trade discounts. He pleaded that the Tribunals judgment in the case of M/s. AIL (Supra) wherein the Tribunal held that the price charged by M/s. AIL to the wholesale dealers would be the assessable value of the goods cleared by M/s. Onida Savak Limited and trade discounts or cash discounts offered by M/s. Adonis (India) Limited to the dealers would be deductible from the assessable value, is squarely applicable to the facts of this case. Besides this, he raised the following points:

(1) Before budget of 1994, i.e., before 1/3/1994 when the rate of duty was specific, the appellant company-M/s. Onida Saka Ltd. were selling the colour T.V. sets manufactured by them directly to their dealers through their depots. It is only when the rate of duty became ad-valorem w.e.f. 1/3/1994 that the marketing company, M/s. AIL came into picture. This shows that M/s. AIL has been floated to depress the assessable value.

(2) The statement of Shri Viajy Joshi, Vice-president of the Onida Group and other employees of the Appellant show that M/s. AIL had been created for marketing of the products of Onida group. Besides this, it is also seen that while M/s. Adonis (India) Limited had been flouted with share capital of only Rs. 70/-, its entire working capital had been provided by extending loan totalling about Rs. 50 crores by the appellant company  M/s. Onida Saka Limited and other group companies- M/s. Onida Savak Limited and M/s. Monica Electronics.

(3) While earlier M/s. Onida Saka Limited were charging security amount from their dealers but no security was being taken from M/s. AIL.

(4) Once, the marketing functions were taken over by M/s. AIL, it is M/s. AIL who were incurring the expenses on marketing and advertisement of the goods manufactured by the appellant company and it is M/s. AIL who took on rent, the premises earlier rented by the appellant company for using the same as sales depots. However, the premises taken on rent by M/s. AIL were also being used by the employees of Appellant company as Branch Office of M/s. Onida Saka Limited and no rent or telephone charges were being paid by the Appellant Company.

(5). In the instruction manual of the Colour T.V. Sets the depots of M/s. AIL were being shown as branch office of the Appellant Company.

(6). There was no written agreement or contract between the Appellant company and M/s. AIL regarding marketing of the goods manufactured by the appellant company by M/s. AIL.

4.1. Shri Negi also pleaded that the appellants have suppressed the facts from the department and hence, longer limitation period of five years under proviso to section 11A(1) has been correctly invoked.

5. Shri R. Santhanam in rejoinder with regard to the Tribunals judgment in the case of M/s. Adonis (India) limited Vs. CCE-Meerut reported in 2000 (119) ELT 68, pleaded that this judgment is not authority for holding that M/s. Onida Savak Limited and M/s. AIL were related persons, as this allegation had not been contested by the appellants counsel in this case.

6. We have considered the submissions from both the sides and perused the records.

7. The appellant are manufacturers of Colour T.V Sets and the period of dispute is from June, 1994 to August, 1996. During this period, the entire production of Colour T.V. Sets of the appellant company was being cleared to M/s. AIL which is a group company of Onida Group. Initially, there were two allegations against the appellant company. First allegation was that the appellant company  M/s. Ondia Saka Limited and M/s. AIL are related persons within the meaning of this term as defined under section 4 (4) (c) of Central Excise Act, 1994 and accordingly, assessable value of the goods manufactured and cleared by the appellant company would be the price at which the same were sold by M/s. AIL. The second allegation is that certain trade discounts extended by M/s. AIL to its dealers are not admissible for deduction. Initially in the first round of litigation, when this matter had been adjudicated by the Commissioner vide order-in-original dated 22/12/2000, the Commissioner while confirming demand of Rs. 35,63,928/- on the ground that the appellant company and M/s. AIL are related persons, had dropped the demand of Rs. 28,35,170/- holding that the trade discounts extended by M/s. AIL to its customers are not includible in the assessable value.

This part of the order of the Commissioner had not been challenged by the Department before the Tribunal and in pursuance of this order of the Commissioner, the appellant had filed a refund claim for an amount of Rs. 28,35,170/- before the Assistant Commissioner as this amount had already been paid by them. While the Assistant Commissioner rejected the refund claim, on appeal being filed to Commissioner (appeals), the Commissioner (appeals) set aside the Assistant Commissioners order and ordered the refund. On appeal being filed by the Revenue against the Commissioner (appeals)s order dated 18/12/2003 Tribunal vide final order no. 974/2004B dated 16/12/2004 remanded the matter to the Original Adjudicating Authority for deciding the refund claim after examining the applicability of principle of unjust enrichment. The Tribunal in this order had observed that since the Commissioner (appeals) has not gone into the unjust enrichment, the refund can be allowed to the assessee only if the same is not hit by the principle of unjust enrichment. Both the sides agree that in pursuance of the Tribunals order dated 16/12/2004, the matter of refund of Rs. 28,35,170/- is still pending before the Assistant Commissioner.

The appellant company along with other noticee  M/s. M/s. Adonis (India) Limited, Shri Ashok Chawla, and Shri Lokesh Khanna had filed an appeal before the Tribunal against the Commissioners order dated 22/12/2000 confirmed the duty demand of Rs. 35,63,928/- along with interest and imposing penalty on the appellant company as well as other notice. In respect of these appeals, the Tribunal vide final order dated 4/5/2001 had remanded the matter to the Commissioner for de-novo adjudication. The present order dated 16/1/2006 of the Commissioner is in pursuance of the Tribunals final order dated 4/5/2001. In the de-novo proceedings, the Commissioner was required to go only into the question of duty demand of Rs. 35,63,928/- confirmed against the appellant company and also question of imposition of penalty on them and other notice. The duty demand of Rs. 28,35,170/- had not been challenged by the department and as such was not the subject matter of the appeals filed before the Tribunal which were decided by the Tribunal vide order dated 4/5/2001. In view of this, the Commissioners order confirming the duty demand of Rs. 28,35,170/- is not only totally incorrect order but also a perverse order and, therefore this part of the order has to be set aside.

8. Coming to the question of duty demand of Rs. 35,63,928/- against the appellant company and also imposition of penalty on them and other notices, the key question to be decided is as to whether the Appellant Company-M/s. Onida Saka Limited and M/s. AIL are related persons. There is no dispute that neither there are any common directors between the Appellant Company and M/s. AIL nor there is any mutuality of shareholding. The only ground on which they can be treated as related persons would be whether there is evidence to prove that there is existence of mutuality of interest in the business of each other.

9. In this regard, Revenue relies upon the following evidences:

(1) M/s. Adonis (India) Limited had been floated only w.e.f. 1/3/1994 when the rate of duty at Colour T.V. sets became ad- valorem and from this it has been inferred that this company was floated only to depress the assessable value of the goods manufactured by the appellant company.

(2) Entire production of M/s. Ondia Saka Limited (Appellant company) was being sold to M/s. AIL who were selling the goods at a higher price and entire marketing and advertisement expenses were being incurred by M/s. AIL.

(3) No security deposit was being taken from M/s. AIL while during period prior to 1/3/1994, the appellant were charging security amount from their dealers.

(4) The appellant company along with two other group companies- M/s. Monica Electronics and M/s. Onida Savak Limited had extended loan of about Rs. 50 crores to M/s. AIL.

(5) The depots of M/s. Adonis (India) Limited whose rent was being paid by M/s. AIL was also raised by the employees of the appellant company as their branch office butno rent, telephone, electricity charges were being paid.

10. In our view, just because the entire production of goods of the appellant company was being sold to M/s. AIL who were selling the same at a higher price or that M/s. AIL were incurring the expenses or marketing and advertisement of the goods produced by the appellant company, the two cannot be treated as related persons in the sense that there was mutuality of interest in the business of each other. Similarly, just because the appellant company along with two other group companies, had extended loan of about Rs. 50 crore to M/s. AIL, it cannot be said that the transactions between the appellant company and M/s. AIL was not on principal to principal basis as it is not the contention of the department that the loans extended by the appellant company and two other group companies, M/s. Adonis (India) Limited were interest free loans or at interest much lower than the market rates.

11. The appellant company and M/s. AIL can be treated as related persons if there is an evidence to prove that the appellant company had all pervasive financial year and managerial control over M/s. AIL and M/s. AIL were just an extension of the appellant company. But in this regard, we do not find any such evidence. A manufacturer manufacturing certain goods-can always decide to sell his entire production to another person instead of marketing the same himself and incurring expenses on marketing and advertisement himself and for this reason, the manufacturer and his customers cannot be treated as related persons. As regards the allegation of the department that the premises rented by M/s. AIL as depots were also being used by the employees of the appellant company as their branch office, the appellants plea in this regard is that the employees of the appellant company were visiting those premises only for stock taking and as such the premises of M/s. AIL were not being used permanently as branch office. In any case, we are of the view that just on this ground, it cannot be said that the appellant company and M/s. AIL would acquire mutuality of interest in the business of each other.

12. According to the appellant, the difference between the price at which the appellant company sells the goods to M/s. AIL and the price at which M/s. AIL sells the same goods to its dealers is only about 7% to 8%, which in our view is not abnormal. The department has not conducted any enquiry into this aspect. From this angle also, we are of the view that this cannot be said to be the case where the assessable value of the goods was being artificially depressed by the appellant to reduce their duty liability. We find that Apex Court also in the case of CCE Vs. Xerographic Limited reported in 2010 (257) ELT 11SC has held that the distributor companies of an assessee cannot be treated as related persons, as existence of extra commercial consideration for discarding the normal price between the assessee and the distributor companies has not been shown. In our view, the ratio of these judgment of the Apex Court is applicable to the facts of this case.

13. In view of the above discussion, we hold that the appellant company and M/s. AIL cannot be treated as related persons. Since this is the only on the basis of the duty demand of Rs. 35,63,928/- against the appellant company, the same would not be sustainable. For the same reason, there would be no justification for imposing penalty under section 11AC on the appellant company and imposition of penalty under Rule 209A of the Central excise Rules, 1944 on the other notices. In view of this the impugned order is not sustainable. The same is set aside. The appeals are allowed.

(Rakesh Kumar)

Member (Technical)

(Sulekha Beevi C.S.)

Member (Judicial)

Ritu

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