ORDER
G.A. Brahma Deva, Member (J)
1. These two appeals are filed by the Revenue and the issue involved in appeal No. 121/86-A is inter linked and connected with the main issue in appeal No. 2113/85-A, hence both are clubbed together and are disposed of by this common order.
2. The respondents M/s. Weikfield Products Co. (India) Pvt. Ltd., are manufacturers of Prepared and Preserved Foods which fall under Tariff Item Nos. 1A and 1B of Central Excise Tariff. During the relevant period their pattern of sales in the course of wholesale trade through different channels was in the following order viz., (i) Distributor CMO 70%, (ii) Canteen Stores Department – 20%, and (iii) Exports 10%. They submitted price list in part IV from time to time in respect of their major sales i.e., through M/s. Weikfield Central Marketing Organisation claiming trade discount of 20% for goods sold in consumer packs and 17% for goods in bulk packs. The said pattern of sales and price lists were approved by the Department. The Superintendent, Central Excise issued a show cause-cum-demand notice on 17-9-1983 for Rs. 67,590.83 under T.I. 1A and Rs. 12,37,767.04 under Tariff Item IB for the period from 1-8-1978 to 31-7-1983 under Section 11A of the Central Excises and Salt Act for the trade discount alleged to be retained by the CMO on the ground that CMO did not pass on the full discount to the wholesale dealers as claimed in the price lists, but retained a part for themselves. The Assistant Collector confirmed the demands under Section 11A on the ground that the respondents did not produce the invoices of CMO to ascertain the quantity of discount passed on by them to the wholesale dealers and found that CMO is the related person of respondents as most of the partners of CMO are close relatives of the Directors of respondent Company, and respondents according to him suppressed the facts. This matter was agitated by the respondents before the Collector of Central Excise (Appeals), Bombay who in his impugned order held that CMO is not a related person of the respondents and invoking larger period was not justified as there was no suppression of facts or misdeclaration. Not satisfied with the findings given by the first Appellate Authority the Department has come before us by way of these two appeals.
3. Shri S. Krishnamurthy, learned S.D.R. appeared for the Revenue submitted that the Collector of Appeals erred in deciding the issue of related person as that issue was not raised in the show cause notice issued by the Department and contended that notwithstanding the validity of deciding that issue the first Appellate authority grossly erred in deciding the issue that CMO is not a related person of the respondents but on facts the respondents themselves have accepted by filing the price lists in form IV and majority of the partners of CMO are the wives of directors of the respondent company, as the respondent company have arranged major sales through the partnership firm CMO and hence CMO is a related person and a favoured buyer in view of the ratio of the Bombay Tyres International case and the transaction between these two concerns cannot be treated as a sales at arm’s length and Assistant Collector was justified in demanding by disallowing the discount allowed by the respondent company to the CMO. Further he submitted that in view of the agreement between the respondent Company and the CMO that CMO will market entire products of the respondent company and the debts shown against in the balance sheet of the respondent company is sufficient to show that CMO is not an independent buyer and the transaction is not at arm’s length.
4. Shri N.D. Khosla, learned Consultant appeared for the respondent company and submitted that filing price list in form IV is only a procedure which cannot be taken as basis for the determination of issue of related person as the facts are otherwise. He urged that Department’s contention that the issue of related person was not before the Adjudicating Authority is not correct as that issue was very much before him and on the basis of these two grounds viz., CMO is a related person and it is a case of suppression of facts, he raised the demand. He submitted that the Respondent is a Public Limited Company incorporated under the Companies Act, whereas the CMO is a registered partnership firm and the two concerns are having separate and distinct legal entities. CMO cannot be considered as a related person under Section 4(4)(c) of the Act even if the partners and Directors in these two concerns are close relatives in view of the ruling given by the Allahabad High Court in the case of Hind Lamps Ltd. v. Union of India, 1977 (1) E.L.T. (J 1) (All.) and same principle was followed by this Tribunal in various cases. He submitted that the CMO cannot be treated as a favoured buyer as the price of the goods sold to CMO for the same price of the goods supplied to the other distributor CSD. He contended that it is not the case of Department that price charged by the related person should be taken while determining the price and it is not even the case of the Department that the respondents have charged an unduly low price from CMO. He submitted that Department erred in disallowing discount on the ground that the respondent company could not produce the invoices of CMO for getting that CMO is altogether a different concern. He pointed out that CMO had been appointed as their Distributors since 1963 prior to the introduction of levy of duty on the goods in question which was introduced only on 1-3-1970. Hence a stigma of colourful device of corporate veil created to evade central excise duty cannot be attached to this transaction in view of the decision of this Tribunal in the case of Aroma Apparel v. Collector of Central Excise, Bombay, reported in 1986 (25) E.L.T. 90. He stated that the debts shown in the balance sheet on account of goods sold to CMO on one month’s credit in the course of normal trade cannot be taken as basis for considering CMO as favoured buyer as no mutuality of interest passed on between the two concerns. As the price was fair and reasonable and the transaction was at arm’s length the Collector was right in allowing the appeal on the admissibility of allowing the discount after considering all the facts. Further he contended that larger period cannot be invoked under Section 11A of the Act as there was neither misdeclaration nor the suppression of the fact in view of the clear ruling by the Supreme Court which has held that mere inaction on the part of the assessee is not sufficient unless positive proof of substantial suppression is required to invoke the larger period under Section 11A or the Act in case of Collector of Central Excise v. Chemphar Drugs, reported in 1989 (40) E.L.T. 276 (S.C.).
5. We have considered the rival submissions and perused the records. The issues to be decided in these cases are (i) whether CMO is a related person or a favoured buyer, (ii) whether the discount allowed by the respondent company to CMO is permissible and whether the demand is time-barred. We had an occasion to consider all these issues in Appeal No. E/608/81-A filed by the respondents as appellants against the order of the Collector (Appeals), wherein we have taken a view that CMO is neither a related person nor a favoured buyer and discount allowed by the respondents to CMO is just and reasonable. Accordingly the discount is to be deducted out of the assessable value on facts and circumstances by following the ratio of the decisions cited above. As the facts and issues are similar in these two appeals, we uphold the same view by treating that CMO is neither a related person nor a favoured buyer and discount claimed by the respondent is just and reasonable. As the respondents succeed on these two issues, it is unnecessary to go into the question of time barring aspect under Section 11A of the Act.
6. Appeal No. E/121/86-A is only concerned with the consequential relief of refund claimed by the respondents which was allowed by the Collector of Appeals in pursuance to his impugned order in the above appeal No. E/2113/85-A and in view of our upholding the impugned order in favour of the respondents, the respondents are entitled to get consequential relief in Appeal No. E/121/86-A.
7. In the result, for the foregoing conclusions, we uphold both the impugned orders and accordingly, two appeals filed by the Revenue are hereby dismissed.