I.J. Rao, Members (T)

1. These two appeals, involving common question of facts and law were heard together and are being decided together. The appellants, stated to be a limited company, manufacture, inter alia, rickshaw and taxi meters. They appointed M/s. Anand Traders, a partnership concern as their distributors throughout India. The appellants also directly sell their meters to Industrial consumers like Bajaj Auto Limited. Shri U.V. Vaidya, Managing Director of Diamond Clock Manufacturing Co. Pvt. Ltd. thereinafter referred to as Diamond holds about 12% of shares in Diamond and 75% interest in Anand Traders. Shri Vaidya's mother holds nearly 25% of interest in Anand Traders and about 48% shares of Diamond. The sale pattern of Diamond is that 70% of their production is sold to Anand Traders and 30% to others. The prices charged by Diamond to Anand Traders are, on an average, about 9.17% less than the prices to others.

2. The Collector of Central Excise issued a show cause notice to the appellants threatening to cancel the concession of assessment on invoice price under Notification 120/75-CE, which was granted to them and proposing assessment of the goods under S. 4 of the CES Act. This value was to be worked out on the basis of the sale price of Anand Traders to their customers. He alleged that both Diamond and Anand Traders were one and the same unit and that the two units colluded with each other, manufactured and cleared excisable goods without paying duty on the prices charged by Anand Traders to their customers. It was alleged that these deeds were done knowingly and that the appellants suppressed facts deliberately without disclosing them to Central Excise Department.

The Collector besides asking them to show cause why the concession granted under Notification No. 120/75-CE should not be withdrawn, also asked them to show cause why differential Central Excise Duty for the period 1.10.1980 to 30.9.1985 should not be recovered from them and why they should not be penalised.

3. After due process the Collector passed orders confirming the demand for differential duty of Rs. 8,55,457 raised in the show cause notice and imposing penalty of Rs. 1,45,000/- on the appellants. Hence this appeal. In another proceedings in Appeal No. 660/86-A before us the Collector ordered recovery of Rs. 2,04,292/- on certain amounts not included in the value of the goods and also imposed a penalty of one lakh of rupees.

4. We heard Shri N.D. Khosala, learned Consultant for the appellants. Shri. Khosala, after explaining the constitution of the two units submitted that in terms of Section 4(4)(c) of the Central Excises Salt Act these two were not related persons. He submitted that it is entirely wrong to say that the two units are one and the same. He emphasised that three out of the four Directors of Diamond had nothing to do with Anand Traders. They are not related to Shri Vaidya, the Managing Director. He argued that the use of common facilities by two units does not render them related persons and relied on the judgment of Cegat in Hagjivandas Co. Thane v. Collector of Central Excise, Bombay-II reported in MANU/CE/0201/1984 : 1985 (19) ELT 441 (Tribunal) and pleaded that the facts of the present matter are on all fours with that case.

5. Referring to the lower prices at which the meters were sold by Diamond to Anand Traders, Shri Khosala argued that the difference was only 9.17% and was not unduly high. Explaining the difference in prices, he submitted that the meters sold to M/s. Bajaj Auto are used by them directly and they were not incurring selling expenses. In this context, he relied on the judgment of the Government of India in Delton Cables Industries (P) Ltd. reported in 1978 (2) ELT (3 661).

6. Shri Khosala went on to argue that the crucial test to decide whether or not the two units were related persons was that of mutuality of interest. He submitted that there is neither any allegation nor any proof of such mutuality of intere