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Commissioner of Central Excise, Aurangabad Versus M/s. Goodyear South Asia Tyres P.L. & Others

2015 (8) TMI 61 - SUPREME COURT

Valuation of goods - related person - mutuality of interest - interest free loan - suppression of facts - willful mis-declaration of Assessable value - Evasion of duty - Held that:- The expression 'in the business of each other' clearly denotes that interest of the two persons have to be mutual, i.e., in each other, in order to treat them as related persons. We find from the order of the Member Judicial that only on the ground that the two companies had given a loan of ₹ 85.66 crores to th .....

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uisite under section 4(4)(c) of the Act does not get satisfied. The matter is squarely covered by the decisions of this Court in the case of Atic Industries Ltd. We have gone through the judgment in the case of Atic Industries Ltd. [1984 (6) TMI 51 - SUPREME COURT OF INDIA] wherein this court categorically held that there should be mutuality of interest in the business of each other.

No doubt, the two buyers had given ₹ 85.66 crores interest free loan to the assessee. However, t .....

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hich position is difficult to comprehend having regard to the principle laid down in Atic Industries Ltd's case.

After taking over of the assessee company by Goodyear, more than 70 per cent of the sales by the assessee company are to the third parties. That apart, there was another contention of the assessee, viz., that the goods sold to the outsiders are at a lesser rates than sold to Goodyear. These two contentions have not been refuted by the Revenue - Decided against Revenue. - Ci .....

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common judgment. However, keeping in view some distinct feature in the second appeal, viz., Civil Appeal No. 4370 of 2003, the same shall be taken up for discussion separately to address the distinct features. The respondent (hereinafter referred to as the 'assessee') holds Central Excise Registration for the manufacture of Tyres, Tubes, Flaps, Bladders, etc., falling under Chapter 40 of the Central Excise Tariff Act, 1985. In the first appeal, the period involved for the purposes of ex .....

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ia on one side and RPG CEAT on the other were holding 50:50 equity each in the assessee, and were exclusive buyers of goods manufactured by the assessee. In the said Joint Venture Agreement, various other stipulations were mentioned showing interest of both Goodyear as well as CEAT in the assessee. As per the said agreement, the assessee also received unsecured interest free loan of ₹ 85.66 crores from CEAT and Goodyear. Some moulds and other equipments worth ₹ 10 crores free of cost .....

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lleged as to why the additional consideration flowing back to the assessee should not be added in their present selling price in terms of Rule 5 of the Central Excise (Valuation) Rules, 1975 r/w Section 4 of the Act. In this way a Demand cum Show Cause Notice was issued to the assessee demanding differential duty of ₹ 8,76,85,385/- for the period from 01.03.1997 to 16.04.1998 for under valuation of the goods. Contravention of Section 4 of the Act read with Rules 9, 9(2), 52, 173C, 173F, 17 .....

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the aforesaid allegations in the show cause notice by putting up the defence to the effect that the assessee on the one hand and the CEAT and Goodyear on the other hand, were not related persons as there was no mutuality of interest and that no extra commercial considerations were pointed out regarding price fixation. It was contended that the sale of goods by assessee to these two companies was on principal to principal basis and at arm's length. The Commissioner heard the matter and therea .....

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ferred to a third member, who heard the appeals. By her order dated 26.07.2002, she concurred with the view that the appeals were to be allowed. Accordingly, the order of CEGAT was recorded on 31.07.2002 allowing the appeals. This order of CEGAT is the subject matter of Civil Appeal Nos. 1947-1950 of 2003. Mr. K. Radhakrishnan, learned senior counsel appearing for the Department, has extensively read the contents of the show cause notice as well as the Order of the Commissioner and from there he .....

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ssary is to prove mutuality of interest, viz., interest both ways, i.e., of the two companies in the assessee as well as of the assessee in the said two companies. This legal requirement is necessary in view of the definition of related persons contained in clause (c) of Sub-Section (4) of Section 4 of the Central Excise Act (hereinafter referred to as 'Act') which reads as under: - (c) related person means a person who is so associated with the assessee that they have interest, directly .....

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hem as related persons. We find from the order of the Member Judicial that only on the ground that the two companies had given a loan of ₹ 85.66 crores to the assessee company, was treated as sufficient to establish the relationship between the assessee and the buyers. That only shows one way traffic whereas requirement is that of two way traffic. The other Member, in our opinion, aptly held that this cannot be the factor which would show the mutuality of interest. For this purpose, he ref .....

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ecisions of this Court in the case of Atic Industries Ltd. We have gone through the judgment in the case of Atic Industries Ltd. wherein this court categorically held that there should be mutuality of interest in the business of each other. After referring to the definition of 'related persons', the aforesaid essential feature occurring therein which needs to be satisfied is elaborated in the following manner:- What the first part of the definition requires is that the person who is soug .....

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rt of the definition that the assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of the other. The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct, while the interest of the latter in the business of the former may be indirect. That would not make .....

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of view from which the relationship between the assessee and Atul Products Limited may be considered. First, it may be noted that Atul Products Limited is a shareholder of the assessee to the extent of 50 per cent of the share capital. But we fail to see how it can be said that a limited company has any interest, direct or indirect, in the business carried on by one of its shareholders, even though the shareholding of such shareholder may be 50 per cent. Secondly, Atul Products Limited is a whol .....

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mited sells or does not sell the dyes purchased by it from the assessee nor is it concerned whether Atul Products Limited sells such dyes at a profit or at a loss. It is impossible to contend that the assessee has any direct or indirect interest in the business of a wholesale dealer who purchases dyes from it on principal to principal basis. No doubt, the two buyers had given ₹ 85.66 crores interest free loan to the assessee. However, that by itself may not be a reason to hold them as rela .....

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o the principle laid down in Atic Industries Ltd's case. We thus, do not find any fault or error in the impugned judgment. These appeals are, accordingly, dismissed. Civil Appeal No. 4370 of 2003 The period involved in Civil Appeal No. 4370 of 2003 is from 01.07.2000 to 26.09.2000. It so happened that the joint venture agreement between the parties was terminated and the CEAT transferred its entire shareholding in the Goodyear group of which 97 percent is held by Goodyear USA and 3 per cent .....

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the Act which provides that the person would be deemed to be related if: i. they are inter-connected undertakings, ii. they are relatives, iii. Amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor, or iv. they are so associated they have interest, directly or indirectly, in the business of each other. This position was not denied even by the assessee. However, their submission was that provisions of Rule 9 of the Valuation Rules are no .....

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and therefore, clauses (ii) and (iii) are not applicable on the basis of it. Insofar as clause (iv) is concerned, what is to be shown is that they have interest, directly or indirectly, in the business of each other. The expression each other would signify the element of mutuality and we have already held above that this mutuality principle has not been satisfied in the instant case. Apart from the above, it would be significant to mention that after taking over of the assessee company by Goodye .....

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