MUKUT PIPES LTD. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) In these three appeals, the issue involved is whether M/s. Mukut Pipes Ltd. and M/s. Surindra Engg. Co. Ltd. are related persons in terms of Section 4 of the Central Excise Act.

(2.) Shri K.K. Anand, learned Advocate, mentioned that M/s. Mukut Pipes Ltd., appellants No. 1 manufacture ERW/SAW/MS Pipes and M/s. Surindra Engg. Co. Ltd., Appellant No. 2, manufacture MS Pipe with - - location units; that the Central Excise officers searched the premises of the Appellants No. 1 on 16 -1 -2001 and found that they were clearing MS Pipes of various dimensions to the various sites of M/s. Maharashtra Jeevan Pradhikaran and Pimpri Chinch -wad Municipal Corporation in the account of the Appellant No. 2, on the basis of purchase Order raised by the Appellant No. 2 from their Head Office at Mumbai; that it is the case of the Revenue that Appellant No. 2 had raised purchased Orders in favour of the Appellant No. 1 at a lesser price than the original contracted price and that both the Appellants have cross share holdings, have common directors, common authorized signatory for operation of bank accounts, common funding, common marketing and common management control; that they are related persons having interest directly or indirectly in the business of each other attracting provisions of Proviso (iii) to Section 4(l)(a) of the Central Excise Act; that consequently the correct price would be the price at which the goods are ordinarily sold by the Appellants No. 2; that it is also the case of the Revenue that they had paid duty on base pipes whereas the contract was for gunited, epoxy painted or tapecoated MS Pipes and no duty had been paid on subsequent value additions on account of epoxy painting and guniting.

(3.) 1 The learned Advocate submitted that both the Appellants No. 1 and 2 are not related person as companies are independent legal entities; that in terms of Section 4 (4) (c) of the Central Excise Act, Related person means : (i) There should be mutuality of interest between two persons, whether direct or indirect, in the business of each other. The interest does not necessarily mean that there should be a possibility of only pecuniary advantage, it may equally be the livelihood of a pecuniary loss. (ii) The relationship between them should not be at arms length or on principal to principal basis and there should be some extra commercial considerations. 3.2 He mentioned that in the present matter, there is no shareholding of each other; that the mere fact that some directors are having shares can not be made the basis for treating both the Appellant No. 2 as the related person of the Appellant No. 1; that the directors are separate from the companies and their shareholding in independent capacity can not have any bearing on the independent nature of the company. He, further, mentioned that the transaction between the Appellants No. 1 and 2 were on principal to principal basis; that the instances of various payments made by one in other company's account were commercial transactions and were duly accounted for in the books of account. 3.3 The learned Advocate submitted that Proviso (iii) to Section 4(1) (a) of the Central Excise Act is not attracted since the Proviso applies to the situation where "the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except through a related person"; that during the relevant period [May, 1996 to June, 2000], the Appellant No. 1 had sold the goods worth Rs. 23.48 crores to the Appellant No. 2 as against the total turnover during four financial years was Rs. 151 crores approx.; that the Appellant No. 1 had thus sold only 18% of their total sale to Appellant No. 2 and as such Appellant No. 2 can not be their related person. He relied upon the decision in the case of Cosmos (India) Rubber Works v. Union of India, 1988 (36) E.L.T. 102 (Bom.) wherein the Bombay High Court has held that the language of this Proviso clearly shows that it applies only where all the goods are sold through a related person. If some of the goods are sold to persons or entities other than the related persons, naturally the proviso would not come into operation. Reliance has also been placed on the following decisions : (i) CCE, v. Vikrama Engineering Co. -1989 (39) E.L.T. 143. (ii) Kirloskar Cummins Ltd. v. Union of India -1991 (51) E.L.T. 325 (Bom.) wherein the Bombay High Court has held that proviso (iii) is not attracted because the goods are generally not sold by the assessee except to or through related person. 3.3 He also contended that their case is squarely covered by the law laid down by the Supreme Court in the case of Alembic Glass Industries Ltd. v. CCE and Cus., 2002 (143) E.L.T. 244 (S.C.) in which the assessee and its purchaser were holding some share in each other and having common Chairman and the three Directors, the Supreme Court 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 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." Reliance has been placed upon the decision in Renowned Auto Products Mfrs Ltd. v. CCE, Chennai - 2003 (157) E.L.T. 172 (T) and Mahabir Industries (RMD). v. CCE, BBSR II, 2004 (170) E.L.T. 27 (T) wherein it has been held by the Tribunal that "Commonness of some of the partners or their being close relations, having common facilities etc. can not be made the basis for holding the buyer unit as a related person of the manufacturing unit unless there is a mutuality of interest between the two and a financial flow back from the buying unit to the manufacturing unit". He submitted that there is no mutuality of interest which is necessary to treat the buyer as a related person as held by the Supreme Court in Union of India v. Atic Industries Ltd., 1984 (17) E.L.T. 323 (S.C.).