Shri Sanjeev Lamba, Md vs C.C.E. Noida

[Arising out of Order-in-Appeal No. 105-106-107/CE/APPL/NOIDA/06 dated 26.07.2006 by the Commissioner of Customs, Central Excise & Service Tax (Appeals), Noida].

For approval and signature:

Honble Shri Ashok Jindal, Member (Judicial)

Hon'ble Shri B. Ravichandran, Member (Technical)

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

2 Whether it should 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 Departmental authorities?

M/s. Continental Furnishers,

M/s. Shresid Interiors Pvt. Ltd.

Shri Sanjeev Lamba, MD .Appellants

Vs.

C.C.E. Noida .Respondent

Appearance:

Shri Naveen Mullick, Advocate for the Appellants

Shri Pramod Kumar, DR for the Respondent

CORAM:

Hon'ble Shri Ashok Jindal, Member (Judicial)

Hon'ble Shri B. Ravichandran, Member (Technical)

Reserved on: 10.07.2015

Pronounced on: 29.07.2015

FINAL ORDER NO. 52363-52365/2015-EX(DB)

Per Ashok Jindal:

The appellant M/s. Shresid Interiors Pvt. Ltd. (SIPL) is in appeal against the impugned order confirming the demand of duty along with interest and imposition of penalty and co-appellants are against the imposition of penalties.

2. The facts of the case are that M/s. SIPL is engaged in manufacture of wooden / modular furniture & allied wooden items, wooden doors, frames, panels and aluminum structures etc. They are availing Cenvat Credit on inputs and also availed necessary exemption vide notification No. 09/2001 upto 31.03.2002. An investigation was conducted in the factory premises of the appellant M/s. SIPL and it was revealed that there was another unit in the name of M/s. Continental Furnishers (CF) at Panchkuian Road, New Delhi, engaged in the business of construction, purchase, trading, manufacture of handmade carved artistic goods and decorative furniture termed as Handicraft who claim the exemption under notification no. 76/86-CE. On the basis of the documents it was found that both M/s. SIPL and M/s. CF belongs to Continental Group. It was also observed that M/s. SIPL were selling wooden furniture and other articles to M/s. CF which were either further sold in market by M/s. CF or consumed in their manufacturing activity. M/s. SIPL have the following directors namely:

a) Shri Sanjeev Lamba (S/o Shri Kailash Lamba)  90.18%

b) Shri Kailash Lamba - 4.90%

c) Shri Madhulika Lamba (W/o Shri Sanjeev Lamba)  4.91%

d) Shri Kailash Lamba (HUF) - 0.1%

And M/s. CF is owned by Shri Kailash Lamba (HUF).

3. M/s. SIPL also procured unsecured loan from Shri Kailash Lamba. During the period 200102, 2002-03 and 2003-04 M/s. SIPL sold some goods to M/s. CF and towards such sales M/s. SIPL earned gross profit of 15.79% to 18.70%. It was alleged that as sales have been affected by M/s. SIPL to M/s. CF who is a related person, therefore, the sale price of M/s. CF shall be the assessable value of the goods sold by M/s. SIPL through M/s. CF as being related persons. A demand of Rs. 47,600/- was also sought to be confirmed against M/s. SIPL on the grounds that aluminum windows installed at the premises of M/s. Addi Industries, Noida have been manufactured by M/s. SIPL being the manufacturer and failed to pay the duty thereon. Therefore, a show cause notice was issued by invoking extended period of limitation to demand the differential duty on the goods cleared to M/s. CF by M/s. SIPL and aluminum windows fabricated at the site of M/s. Addi Industries, Noida along with interest and penalties against all the appellants before were also proposed. Matter was adjudicated. Both the lower authorities confirmed the demand as proposed in the show cause notice along with interest and penalties were also imposed. Aggrieved from the said orders appellants are before us.

4. The Ld. Counsel for the appellants submits that the allegation in the show cause notice is that as both M/s. SIPL and M/s. CF are related persons, therefore, the price at which the clearance took place from M/s. SIPL to M/s. CF is not correct transaction value and profit of 18% is to be added thereon. That allegation is on the basis of that both are related person. He submits that both are independent and separate legal entity having their own plant and machinery independently and are assessed to income tax and sales tax and other allied laws independently. He further submits that the profit alleged cannot be considered as a related person to M/s. CF. Even the share holding of Shri Kailash Lamba is about 4% and other share holding of Shri Kailash Lamba (HUF) is only 0.01%. Therefore, the provision of section 4(3)(b)(3) also cannot be invoked as it is not alleged that M/s. CF is distributor or sub distributor of M/s. SIPL. He further submits that the provision of section 4(3)(b)(2) in relation to M/s. CF cannot be invoked as a Pvt. Ltd. company cannot be treated as related because the legal status of directors and shareholders is different from the company.

Merely because M/s. SIPL consist of shareholders who owns M/s. CF does not mean both these entities are having interest in business of each other as held by this Tribunal in the case of Cooper Pharma Vs. CCE New Delhi-2004 (174) ELT 143 (Tri-Del) and by the Honble Apex Court in the case of Alembic Glass Industries Ltd. Vs. CCE-2004 (143) ELT 244 (SC). He further submits that if it is considered that M/s. SIPL and M/s. CF being related persons under section 4 of the Central Excise Act still the deemed sale of M/s. CF cannot be considered for working out transaction value of goods sold by M/s. SIPL to M/s. CF. As during the period 2001-02 to 2003-04 sales of M/s. SIPL to M/s. CF were 8.97%, 20.23% and 3.20% respectively which shows that M/s. SIPL was not selling the goods manufactured by them through M/s. CF. As per the Rule 9 and 10 of the Valuation Rules during the impugned period the said rules could only be made applicable where all the sales in general are routed through the related persons. Therefore, loading of 18% to the transaction value is not justifiable. He further submits that the goods sold by M/s. SIPL to M/s. CF, M/s. SIPL earned gross profit of 18.70%, 16%, 15.79% and 19.60% respectively.

He further submits that the goods sold by M/s. SIPL to other independent buyers also on the same gross profit. Therefore, the addition in transaction value is not sustainable. It is also submitted that the panels were purchases by M/s. CF from M/s. SIPL were not sold but utilized for execution of their projects. He further submits that Shri Kailash Lamba provided unsecured loan to M/s. SIPL which was duly entered in their books of account and the said loan itself was required to be returned and M/s. SIPL has paid the said loan amount to Shri Kailash Lamba. He further submits that M/s. CF was in existent in 1948 and M/s. SIPL came into existence only in the year 1999. He also submits that by providing interest free loan does not create any mutuality of interest relying on the decision in the case of Jagjivandas & Co., Thane Vs. CCE Bombay-1989 (19) ELT 441 (Tri). He further submits that the activity of the appellant was known to the local Central Excise Officers that M/s. SIPL is selling goods to M/s. CF. Therefore, extended period of limitation is not invokable. To support this contention he relied on the decision in the case of Chemphar Drugs & Liniments Vs. CCE-1989 (40) ELT 276 (SC) and Continental Foundation Jt.

Venture Vs. CCE Chandigarh-2007 (216) ELT 177 (SC).

5. For the demand of Rs. 47,600/- of aluminum windows, he submits that said work has been executed by Shri Kultar Singh proprietor of M/s. KS Enterprises who during the proceedings filed his affidavit saying that they have manufactured these aluminum windows from their raw material and are claiming SSI Exemption. The Adjudicating authority also accepted that these aluminum windows have been manufactured separately by M/s. K S Enterprises as Central Excise duty is leviable only on the activity of manufacture and appellant being trader, therefore, duty cannot be demanded from the appellant. He further submits that as demand of duty is not sustainable, therefore, penalties on all the appellants are not imposable.

6. On the other hand, Ld. AR reiterated the findings of the impugned order.

7. Heard the parties. Considered the submission.

8. In this case, there are two issues:

a) Whether M/s. CF is related to M/s. SIPL or not, if so whether there is any mutuality of interest in the business of each other.

b) Whether the demand of duty can be confirmed on fabrication of aluminum windows by M/s. K S Enterprises in the hands of M/s. SIPL or not.

9. In the first issue, the case of the Revenue is that as Shri Kailash Lamba (HUF) is having its shareholding in both the firms and have advanced certain interest free loans to M/s. SIPL, therefore, both are related persons and having mutual interest in each others business. Merely having shareholding in two firms does not constitute the related person as held by the Honble Apex Court in the case of Alembic Glass Industries Ltd. (Supra) wherein it was held in para 7 as under:

7. In our view, this is the heart of the matter. 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 in the business of the other. It is, therefore, not possible to uphold the conclusion of the Tribunal that the assessee and the chemical company were related persons. This being so, it is unnecessary to go into the alternate arguments advanced on behalf of the assessee.

10. Therefore, merely having shareholding does not make them related persons.

11. Another reason for holding related person is that Shri Kailash Lamba (HUF) has advances certain interest free loans to M/s. SIPL. It is admitted that these loans has been repaid by M/s. SIPL in future. Moreover, goods sold to M/s. CF by M/s. SIPL at a gross profit of around 16-18% and the sale by M/s. SIPL to M/s. CF is negligible in the year 2001-02 i.e. 8.9%, in the year 2003-04 i.e. 3.20% except in the year 2002-03 i.e. 20.23%. But the gross profit during the impugned period ranges from 16% to 19% whereas the total gross profit of M/s. SIPL during the impugned period is around 18%. If at all, we presume that there is a mutuality of interest in that case also when the goods are sold by M/s. SIPL to M/s. CF on the price at which the goods have been sold to independent buyers, in that case the sale price by M/s. CF cannot be held as assessable value for M/s. SIPL. Therefore, we hold that demand of Rs.4,84,076/- is not sustainable. Accordingly, same is set aside.

The second issue is that whether the aluminum windows fabricated by M/s. K S Enterprises are liable to duty in the hands of M/s. SIPL. In this case M/s. K S Enterprises is a sub contractor and who has got manufactured this aluminum windows in question by purchasing their own raw material and at site. M/s. K S Enterprises has issued invoices to M/s. SIPL to that extent M/s. K S Enterprises, has also filed an affidavit stating that the goods have been manufactured by them and they are not paying duty as they are enjoying SSI Exemption limit. Both the lower authorities has not given credence to the affidavit filed by Shri Kultar Singh, proprietor of M/s. K S Enterprises. In fact, no contrary evidence have been produced by the Revenue, to support that the goods have been manufactured by M/s. SIPL. In fact, duty is payable on manufactured goods not on traded goods. The affidavit is having evidential value if not proved contrary. Therefore, it is held that aluminum windows were manufactured by M/s. K S Enterprises who was enjoying SSI Exemption and M/s. SIPL is only trader for said goods. Therefore, duty cannot be demanded from M/s. SIPL.

12. As both the issues has been decided in favour of the appellants, therefore, penalties on the appellants are not sustainable. With these observations, impugned order is set aside.

13. Appeals are allowed with consequential relief if any.

(Order pronounced in the open court on 29.07.2015)

(B. Ravichandran) (Ashok Jindal) Member (Technical) Member (Judicial)

Bhanu

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E/3362-3364/2006-EX(DB)