SANGHI ORGANISATION, GELDHOF Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE appellants are a Division of M/s Sanghi Motors (Bombay) Pvt. Ltd. They are inter alia engaged in the manufacture of Dissolved Acetylene Gas at its factory which was set up by the appellants out of their own investments and sources of finance. The Directors of the company of which the appellants are a division are as under:

(2.) ON 01.04.1991, the appellants entered into an agreement with M/s Geldhof Ltd. for sale of the entire production of their goods to M/s Geldhof Ltd. at the price to be determined by the parties under the said agreement. The excise duty at that time when the agreement was entered into was at a specific rate and not on ad -valorem basis. Excise duty on dissolved acetylene gas became ad -valorem w.e.f 01.04.1994, only.

(3.) DURING August 1997 an intelligence were gathered by the department that the assessee was not discharging duty liability correctly on their product dissolved acetylene gas in as much as they were clearing the entire quantity of the said product to M/s Geldhof, who in turn were selling the same in the market at a much higher price than the value at which the assessee paid the duty. Accordingly office and factory premises of the appellants were searched from where various documents were seized and statements of the officers of both companies were recorded. From statement and the scrutiny of the records, it was revealed that all the directors in the two companies were common and these directors held 81.91% shares in the appellants company and 99.98 in M/s Geldhof. They were sharing the same office premises and these directors stood as personal guarantors for availing banking facilities for both the units. There was no genuine sale of dissolved acetylene gas from appellants to its distributors M/s Geldhof and the appellants cleared the goods at a fixed price of Rs. 95/ - arrived at by them on the basis of cost of raw material where as the said distributor M/s Geldhof was selling the same goods at prices ranging from Rs. 130/ - to Rs. 150/ - in the wholesale market. The price of the goods were arrived at on the basis of costing and the costing depended on the price of calcium carbide one of the major raw material for manufacture of dissolved acetylene gas and the price was revised according to the cost of calcium carbide. Investigations also revealed that M/s Geldhof were recovering rental charges on delay in returning the cylinder by the customer and hire charges on fixed holding of cylinders by the customers besides cylinder deposits for possible loss/damage of cylinder by customers and were also collecting service charges for maintenance and any service rendered to customers. These charges were recovered even in respect of cylinder owned by the appellants and M/s Geldof did not pass on the benefits of the same to the appellants nor did they pay any amount towards cylinder deposit to the appellants for utilizing their cylinder etc. A reading of the balance sheet indicated that an amount of Rs. 17,68,917/ - was outstanding from the companies in which the directors of the assessee had interest and that M/s Geldhof was one such company where directors of the assessee had interest and that the outstanding amount against M/s Geldhof was Rs. 13,76,584/ - out of Rs. 17,68,917/ -. 3. In view of above facts, a show cause notice was issued to the appellants alleging mutuality of the interest between the two companies and that the arrangement of the two companies was entered into in order to enable them to reduce the duty liability and that M/s Geldhof was a related person. The show cause notice sought to demand duty amounting to Rs. 22,88,530/0 for the period 01.03.1994 to 30.06.1998 and to impose penalty under Section 11AC, 173Q etc. on the company and its director. The show cause notice was adjudicated by the Commissioner who confirmed the duty liability and imposed penalty of equivalent amount on the appellants besides penalty on one of the director Shri Vaibhav Sanghi and a penalty on M/s Geldhof etc.