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2015 (11) TMI 1161 - CESTAT NEW DELHI

2015 (11) TMI 1161 - CESTAT NEW DELHI - 2015 (328) E.L.T. 600 (Tri. - Del.) - Valuation of goods - section 4 - Related person - Held that:- When, the assessee, in addition to sale of the goods produced by him to related person on regular basis, also sells the same goods on regular basis to independent buyers, the third proviso to section 4 (1) (a) would not apply and in that case the normal price at which the assessee was selling the goods to independent buyers which would be the assessable valu .....

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ace of removal, where the buyer is not related person and price is the sole consideration for sale.

It is assumed that PALI and Philips India Limited were related persons within the meaning of this term as defined in the section 4 (4) (c), the assessable value of the goods sold by PALI to Philips India Limited would be the price at which the similar goods were being sold by PALI to Bajaj Electricals Limited and in this regard, the department has not refuted the plea of PALI that the .....

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Electricals Limited were related person within the meaning of this term as defined in section 4 (4) (c), the department cannot invoke 3rd proviso to section 4 (1) (a) and charge duty in respect of the sales of PALI to Philips India Limited at the sale price of Philips India Limited to its dealers.

Therefore, irrespective of whether PALI and Philips India Limited were related persons or not, the impugned duty demand against PALI and imposition of penalty on them and Philips India Limi .....

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dia Limited [hereinafter referred to as PEIL and earlier named Philips India Ltd. (PIL)] is a company incorporated under Indian Companies Act having its factory at Phase-IX, SAS Nagar, Mohali, District Ropar. This factory was earlier owned by M/s. Punjab Anand Lamp Industries Limited (referred to as PALI) against whom the order-in-original dated 24/4/2006 had been passed confirming the duty demand and imposing penalty on them. PALI was taken over by and merged with PEIL w.e.f. 26.4.2003, consequ .....

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e trading in these items. PEIL in addition to manufacturing the lamps, tube lights, electronic products and electrical appliances, were also purchasing lamps from various other parties for sale under the brand name - Philips. In the year, 1983, PALI was incorporated as a Joint-Venture between Punjab State Industrial Development Corporation (PSIDC), a fully owned Punjab Government undertaking, M/s. Punjab Anand Batteries Limited (PABL) and Philips, Netherlands. An agreement dated 19/12/1983 was s .....

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ome profit margin to PALI. Subsequently, on 17/4/1991, the agreement dated 19/12/1983 was superseded by another agreement between Philips Netherlands and M/s. PEICO electronics (now PEIL), PABL and PSIDC and this agreement provided for sale of shares in PALI by PSIDC and PABL to PEICO electronics. Accordingly, PEICO electronics and electricals held about 24.82 per cent shares in PALI besides the share holding of Philips Netherland in PALI. 1.3 The dispute in the present case pertains to the peri .....

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tronics India Limited (PEIL). The department s allegation is that PEICO electronics and Electricals Limited (now PEIL) and PALI are related persons, as PEICO Electronics and Electricals Limited and Philips, Netherland had combined share holding of more than 50 per cent in PALI and besides this, in terms of their agreement with PALI, Philips, Netherland had powers to appoint the majority of the Directors in PALI. The department was, therefore, of the view the in respect of the sales of PALI to PE .....

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IL) and Philips, Netherland, the Commissioner vide order-in-original no. 14-16/CE/CHD/06 dated 17/4/2006 confirmed the duty demand of ₹ 5,13,78,778/- against PALI under proviso to section 11A (1) of Central Excise Act, 1944 along with interest on it under section 11AB and besides this, while imposed penalty of equal amount on PALI under Rule 173Q (1) AND Rule 9 (2) of Central Excise Rules, 1944 read with section 11AC of Central Excise Act, 1944, penalty under Rule 209A of Central Excise Ac .....

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ion of duty demand against PALI, PALI stands merged with Philips India Limited w.e.f. 26/4/2003 and the name of Philips India Limited was subsequently changed to Philips Electronics India Limited (PEIL), it is PEIL which has filed the appeal along with Philips, Netherland. Against the above mentioned order passed by the Commissioner, PEIL and Philips, Neitherlands have filed their appeals. 2. Heard both the sides. 3. Shri Prakash Shah, Advocate, ld. Counsel for the appellant, made oral submissio .....

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Excise Act, 1944, as the same stood during the period of dispute, in as much as PALI was a subsidiary of Philips India Limited. It is on this basis that in respect of the sales of PALI to Philips India Limited, the department seeks to determine the assessable value on the basis of the sales price of the Philips India Limited and not on the basis of the sales price of PALI to Philips India Limited. The 3rd proviso to section 4 (1) (a) read with section 4 (4) (c) can be invoked and applied only wh .....

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ls Limited were about 2% to 3% of the total sales and it is not the allegation of the department that these sales to Bajaj Electricals Limited were bogus transactions. Since, the sales to Bajaj Electricals Limited are the sales to unrelated buyers, the sale price to Bajaj Electrical Limited represents the normal price and that price was more or less, the same as the price at which the same goods were being sold to Philips India Limited. In view of this, even if it is assumed that PALI and Philip .....

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s. Vs. Unions of India reported in 1988 (36) ELT 102 BOM. (2). In the present case, admittedly, goods are sold by PALI to Philips India Limited as well as Bajaj Electricals Limited and Bajaj Electricals Limited is admittedly an unrelated buyer. No dispute has been raised with regard to the price at which the goods were sold to Bajaj Electricals Limited. The goods were being sold to M/s. Bajaj Electrical Limited on regular basis during the period of dispute. In view of this, the sale price of the .....

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ting that the similar goods were being sold to Bajaj Electricals Limited at more or less, the same price, has in para 55 of the impugned order dismissed the sales to M/s. Bajaj Electricals Limited as sales made by the appellant in meager quantity with intent to circumvent the situation of facing any Central Excise obligations and that it is Philips India Limited who were purchasing nearly the whole of the production of the appellant. This finding of the Commissioner is totally wrong, as even if .....

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of Philips India Limited in the appellant company was only about 25 per cent. Moreover, the PALI had no shareholding in Philips India Limited and hence, the mutuality of interest did not exist. The Tribunal in the case of Beacon Nevyrpic Limited reported in 2001 (133) ELT 590 has held that the price cannot be rejected even if 100 per cent of the production is sold to the holding company in absence of mutuality of interest of the assessee being proved in the business of the holding company. This .....

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rther established that transaction, in question, is not based on principal to principal basis and extra commercial considerations have lowered the normal price, it is only then the 3rd proviso to section 4 (1) (a) would be attracted. This judgment of the Tribunal has been relied upon by the Honble Madras High Court in the case of Ragger Die Cutting Vs. CCE-Chennai-II reported in 2010 (255) ELT 3 MAD. In the present case, if the appellant company is treated as subsidiary company of Philips Indi .....

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g the same period, Philips India Limited were also buying similar bulbs and tube lights from other manufacturers at about the same price at which the appellant were supplying the same goods to Philips India Limited. (5). In any event, the appellant company and PALI cannot be treated as subsidiary of Philips India Limited, as the shareholding of Philips India Limited in the appellant company was about 25 per cent. Just because the Philips, Netherlands had shareholding in the appellant company and .....

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the appellant company is a subsidiary of Philips India Limited. Honble Allahabad High Court in the case of Unit Lamps Limited reported in 1977 (1) ELT J1 (ALL) in para 33 of the judgment has held that the contention of the Chief Standing Counsel that the meaning of the expression holding company in section 4 of the companies Act, would permit treating several companies as together constituting a holding company in relation to the another company is not acceptable. Moreover, Philips India Limi .....

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ot be said to have any interest in the business of Philips India Limited, as it neither holds any share in Philips India Limited nor has any other interest. It is, thus, clear that the PALI and Philips India Limited do not have interest in the business of other and In absence of mutuality of interest in the business of each other the two cannot be treated as related persons. (7). It has been alleged that transactions of sale of lamps by the PALI to Philips India Limited during the period of disp .....

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lips India Limited to Shri C,L. Anand was on the basis of understanding between Philips Netherland and Mr. Anand and ₹ 1.5 crore did not relate to the sale of lamps by PALI to Philips India Limited. In any case, the said document is ten years prior to period of dispute and did not relate to the period involved in the present proceedings from 1/3/1994 to 31/5/1998. (8). In any case, the extended limitation period of five years is not invokable for recovery of allegedly short paid duty and f .....

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in PALI was more than 50 per cent, PALI has to be treated as a subsidiary of Philips India. It was pleaded that in terms of agreement between PALI and Philips India Limited, the sale price of the lamps being manufactured by the PALI and supplied to Philips India Limited was to be determined by a formula on the basis of sale price of Philips India Limited to their dealers show as to ensure 15% profit margin to PALI and thus, the transactions between PALI and Philips India Limited cannot be said t .....

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free advance of ₹ 1.5 crore from PEICO to Shri C.L. Anand which will be written off after 10 years, PEICO had right to buy the entire production of PALI. Shri Pramod Kumar, pleaded that the amount of ₹ 1.5 crore received by PABL was reflected in the balance sheet of PABL for 1984-85 as advance against supplies to be made. The secret understanding indicated that Shri C.L. Ananad, one of the promoters of PALI, had diluted his powers over the business and management of PALI. He pleaded .....

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to 98 per cent of the production of PALI was being sold to Philips India Limited and balance 2 to 3 per cent of the sale was to M/s. Bajaj Electricals Limited. The departments allegations is that PALI and Philips India Limited are related persons within the meaning of this term as defined in the section 4 (4) (c) of section 4, and therefore, in terms of 3rd proviso to section 4 (1) (a) the price at which Philips India Limited sold, the goods to independent buyers which would be the assessable .....

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tricals Limited was more or less same as the sale price of the same goods to Philips India Limited. It is also not the allegation of the Department that sales of similar goods to Bajaj Electricals Ltd. were not genuine transactions. Therefore, the sale price of the similar goods to Bajaj Electricals Ltd. has to be treated as the normal price. The Commissioner, however, in para 55 of the impugned order observing that the practically PEIL was lifting nearly the whole of the PALIs production and .....

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ation of Excisable goods for purposes of charging of duty of excise.- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related p .....

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h goods are ordinarily sold by the assessee is different for different places of removal, each such price shall, subject to the existence of other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such place of removal; (ii) Where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed .....

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e the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail; 7.1. The definition of related person as given in the sub-section (4) (c) of section 4 is also reproduced below: (c) related person means a person who is so associated with the assessee that they have interest, directly .....

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tuation the normal price of the goods for the purpose of calculation of duty shall be deemed to be price at which the goods are ordinarily sold by the related person in course of whole sale trade at the time and place of removal to independent buyers. When, the assessee, in addition to sale of the goods produced by him to related person on regular basis, also sells the same goods on regular basis to independent buyers, the third proviso to section 4 (1) (a) would not apply and in that case the n .....

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s are ordinarily sold by the assessee to the buyer in course of the wholesale trade for delivery at the time of place of removal, where the buyer is not related person and price is the sole consideration for sale. When such a price was available, it is that price which would be the assessment value and only in a situation where the entire sales are generally to or through related person, there was need to invoke third proviso to section 4 (1) (a). In this regard, the word generally in 3rd provis .....

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e judgment has held that 3rd proviso to section 4 (1) (a) can be invoked only in the cases where the goods are sold exclusively through related persons and 3rd proviso would not be applicable when 2 to 3 per cent sales are to independent buyers even though 97 to 98 per cent sales were to related persons. The same view has been taken by Honble Bombay High Court in the case of Cosmos India Rubber Works Private Limited Vs. Union of India (Supra). Applying the ratio of these judgments of the Tribun .....

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