TMI Blog2020 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s SKFIL has identified the departments where they share the cost incurred on staff. It is found that these are purely business transaction and cost sharing cannot be treated as transaction creating interest in business of each other. Had it been the case that M/s SKFIL were providing such services free of cost or at subsidised rates to the other, then one could have asserted that there was an interest in business of each other. In this case, the costs of staff are charged to each other. Therefore, it can only be treated as business transaction. The mere fact that the entire production of M/S SKFTIL is sold through M/s SKFIL is not sufficient to make them related parties. There has to be positive evidence of them having interest in the business of each other - Since the two cannot be treated as related parties, the transaction value between SKFIL and SKFTIL has to be accepted for the purpose of assessment. The appeal on this count is allowed. Admissibility of notifications of 06/2006 to the bearings manufactured by the M/s SKFTL and ultimately sold for use in the wind operated electricity generators as parts - HELD THAT:- The term wind operated electricity generator appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer. The same is elaborated as under:- Wind customer:- The price at which goods are sold by SKF Tech depends up on the end customer price of SKF India. In wind segment generally SKF Tech, Ahmedabad unit sells the goods at a price which is 8% to 15% less than SKF India sales price. I understand SKF Tech is aware of the end selling price of SKF India at the time of invoicing. In support of this I here with submit two sets of documents duly signed by me, containing end use certificate from the customer, PO issued by the customer of SKF India, invoice issued by SKF Tech on SKF India Invoice issued by SKF India on the customer. Indian Railways:- The Price at which goods are sold by SKF Tech depends upon the end customer price of SKF India. In Indian Railways segment generally SKF Tech, Ahmedabad unit sells the goods at a price which is 8% less then SKF India at the time of invoicing. In support of this I here with submit two sets of documents duly signed by me, containing, PO issued by the Customer on SKF India, invoice issued by SF Tech on SKF India invoice issued by SKF India on the customer. Q.6 what are the criteria for variation of prices 8-15%? A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated person . The appellants made this submission and referred to various judgments before the authority. There is no finding given by the Commissioner to substantiate the mutuality of interest between the appellants and M/s SKF India Ltd. 7.2. Learned Counsel submitted that the Commissioner in para 41.11 has concluded that the appellants and M/s SKF India Ltd. are inter-connected units. Further in para 42 it is concluded that M/s SKF India Ltd. and M/s SKF India Technology India Ltd. are inter-connected units in terms of Section 4(3)(b)(i) of Central Excise Act, 1944. He argued in the same para a statement has been made without any basis that they have interest in each other. 7.3. Learned Counsel submitted that in absence of mutuality of interest, that the appellants and M/s SKF India Ltd. are not related persons. The appellants also rely upon the following judgments: M/s S.M. Chemicals Electronics Another 1980-(6)-ELT-197 (Bom.) M/s. New India Industries Ltd. 1988-(37)-ELT-547 (Bom) M/s. Goodyear South Asia Tyres Pvt. Ltd. 2015-(322)-ELT-389 (SC) M/s. Lloyds Metals Engineers Ltd 2008-(222)-ELT-84 (Tri. Mum.) 7.4. Learned Counsel submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 11 of the agreement for the period 2008 to 2012 it is stated that the appellant cannot use the know-how given by M/s. AB SKF to design, produce, assemble or market any product which is in competition with the product of M/s. AB SKF. He submitted that this is a standard clause in most of the royalty agreements to make sure that there is no misuse of the know-how granted. He also stated that these agreements were never part of the investigation carried out by the department on the basis of which SCN has been issued. He also pointed out that royalty amount has been paid and service tax payable thereon under reverse charge has also been paid. There is no query from service tax department in this regard. 7.8 Learned Counsel submitted that loan agreement dt. 8th Dec 2008 between SKF India SKF Tech prescribes that 9% rate of interest. Further, it has been specified that the rate will be revised every half yearly depending upon deposit rate of lenders bank and shall not be lesser than prevailing bank rate u/s 49 of RBI Act, 1934. The repayment schedule has also specified in clause 5 of the agreement. 7.9 Learned Counsel submitted that M/s. SKF India Ltd. (hereinafter referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rries out the functions of compliance of various statutory provisions like provident fund, employees state insurance corporation and other labour laws etc. However, the central human resource department of M/s. SKF India Ltd. advises on employees Wages/salaries, training and other policy matters. He argued that there is no mutuality of interest and therefore, they cannot be treated as related persons under section 4(3)(b) of CEA, 1944 8.1 Learned Counsel submitted that the appellants have availed the benefit of Notification No. 6/2006- CE dated 01/03/2006. The item No.13 of list 5 under which the benefit is availed reads as follows: Wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller. All the components and parts of wind operated electricity generator including rotor and turbine controller are exempt under this notification. This entry has been interpreted by Larger Bench of Tribunal and also by Hon ble Supreme Court in the following cases/Circulars: Notification No. 6/2006 CE dated 01/03/2006 M/s. Rakhoh Enterprises 2016 ( 338 )-Elt-449 ( Tri.-LB) M/s. Hyundai Unitech Electrical Transmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng table, blade pitch revolving seat and hydraulic pump. Therefore, there was a bonafide belied that these are components of wing operated electricity generator. This belief has been vindicated by the judgment of the Supreme court in the case of M/s. M/s. Hyundai Unitech Electrical Transmission Ltd. reported in 2015-(323)- ELT-220 (SC) as well as circular No.1008/15/2015- CX dated 20/10/2015. Hence in any event the demand for the extended period cannot be invoked. (ii) There is no mutuality of interest between the appellant and M/s. SKF India Ltd. as there is not flow back of funds. Further, the relationship has not influenced the price in as much as the margin is maximum of 15% which is very reasonable, comparing to the nature of work undertaken by M/s. SKF India Ltd. Therefore, the extended period of five years cannot be invoked. 8.4 Learned Counsel submitted that the penalty u/s. 11AC of the Central Excise Act, 1944 has been levied. It is submitted that in view of the above submissions, the penalty u/s. 11AC of the said Act should not be levied. 8.5 Learned Counsel submitted that the personal penalty under Rule 26(1) of the Central Excise Rules, 2002 is leviable wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dated 23.04.2012 that all the actions and directions undertaken by the SKF India and SKF Technologies were within the purview of the cost sharing agreement. Further, they have common Umbrella ERP package for all the units of SKF in India, developed by AB SKF, Sweden, such as I.T. cost was shared and paid independently by both the units i.e. SKF India and SKF Technologies of AB SKF, Sweden. 9.3 Learned AR submitted that the Audited Balance Sheet for the year 2010-2011 of SKF Technologies finds mention of M/s. SKF India as parties under common control at Clause 17.17 forming part of Notes to Accounts pertaining to Related party disclosures . This fact has also been admitted by Shri Vijendra Patwari, General Manager Taxation with SKF India Limited, Mumbai, in his statement dated 04.09.2014 and he has also deposed that AB SKF, Sweden was the ultimate holding company of both these two companies viz. SKF India SKF Technologies and hence transactions between these two companies were reported under the related party disclosure of the balance sheet. 9.4 Learned AR submitted that the Audited Balance Sheet for the year- 2010-11 of SKF Technologies reported transaction with SKF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to M/s. SKF India. By way of this arrangement M/s. SKF Technologies gets the stable market and M/s. SKF India secures the technical know-how from their competitors. Learned AR Submitted that M/s. SKF Technologies in not at a liberty to decide the price of their goods as per cost valuation / cost manufacture basis. Rather, the price is decided by applying the backward calculation method of 8% to 15% of the order rate accepted by M/s. SKF India to the ultimate buyer. Keeping in view the PO issued by the ultimate Customer on SKF India, the invoice is raised by SKF Technologies on SKF India. In the preset case M/s. SKF Technologies has sold their entire goods exclusively to or through related person. 9.7 Learned AR submitted that a substantial loan amounting to ₹ 240 Crore has been extended to M/s. SKF Technologies by M/s. SKF India. The re-payment terms have been kept as per convenience of both. The Supplementary agreement indicates that the terms of re-payment kept on changing whereby relief was extended to SKF Technologies in repayment schedule. As per clause (d) of the agreement Cost sharing and Service Agreement dated 6th April, 2010 between SKF Technologies and SKF Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and UTL. They are no mere managers. Hence, the condition of clause (ii) referred to above is satisfied. We find that UTL holds 40% shares of UPL i.e., more than 33 1/3% which means that UPL and UTL are under the same management and hence both are inter-connected undertakings within the meaning of Section 2(g) of the MRTP Act, 1969. The roles played by Shri Sanjay Bahadur in his dual capacity is pivotal because he executed the policies of both the units. Similarly, Shri Ramesh Chandra executed the policies of both the companies. All these factors indicate that UTL controls UPL and being inter-connected undertakings having direct or indirect interest in the business of each other are related in terms of the provisions of Section 4(3)(b) of the Central Excise Act, 1944. The ratio of the case law M/s. South Asia Tyres P. Ltd. v. CCE, Aurangabad reported in 2003 (152) E.L.T. 434 (Tri.) cited by the appellants is not applicable to the present case as in the case of M/s. South Asia Tyres P. Ltd. although M/s. South Asia Tyres P. Ltd. and M/s. Goodyear India Lt. were interconnected undertakings yet they did not have interest in the business of each other whereas in the instant case the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgy devices/ system. Earlier such exemption was governed under the provisions of notification No.5/1999 dated. 28.02.1999. Under SI. No. 265 Non- conventional energy devices / systems specified in list 4 falling under any chapter of the said first schedule were exempted from the whole of the duty leviable thereon without any condition serial No. (13) of list 4 in respect of the said entry reads as follows: Windmills, parts of windmills and any special designed devises which run on windmills. Learned AR submitted that the above indicates that description of the goods entitled for exemption was changed from windmills, parts of windmills and any special designed devices which run on windmills to wind operator electricity generator, its components and parts thereof including rotor and wind turbine controller. These facts clearly indicate that the intention of legislature while amending exemption was to restrict the exemption to the part of wind operated electricity generator instead of allowing exemption to entire wind mill and parts thereof. The entry at Sr. No. (13) of list 5 covers only the generator and its parts and its scope cannot be extended to include th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is a loan agreement dated 08/12/2008 between M/s SKFIL and M/s SKFTIL under which M/s SKFIL has extended significant amount of loan to M/s SKFTIL. It has also been asserted by Revenue that SKFTIL does not have any backup for selling goods in the market and the entire marketing is looked after by the SKFIL. Similarly, M/s SKFIL does not have manufacturing capabilities and they are dependent on M/s SKFTIL for manufacturing of goods. On the basis of assertions, Revenue has sought to treat M/s SKFIL and M/s SKFTIL as related parties under clause (iv) section 4(3)(b) of the Central Excise Act, 1944. The said section 4 reads as under: (b) persons shall 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 that they have interest, directly or indirectly, in the business of each other. Clause (iv) has been involved in present facts. 10.1 We find that so far as loan granted by M/S SKFIL to M/s SKFTIL is concerned interest at the rate of 9% has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by asserting that the earlier notification no. 05/99 dated 28/02/1999 exempted the following in serial no. 13 of list 4: Windmills parts of windmills and any special designed devises which run on windmills Revenue has asserted that the description was changed from windmills, parts of windmills and any special designed devises which run on windmills to wind operator electricity generator, its components and parts thereof including rotor and wind turbine controller. 11.1 It has been argued that only parts of generators are exempted and not parts of wind mill. The crux of the argument being that only the generator used in the wind mill is windmill generators and balance, that is, blades and the towers are not parts of the generators. It is seen that circular no. 1008/15/52015-CX dated 20/10/2015 of the Board clearly specifiesd that the following items used by wind operated electricity generator, will be exempt from payment of excise duty: (i) Tower: which supports the nacelle and rotor assembly of a wing operated electricity generator. (ii) Nacelle: which contains of gearbox, generator, yaw components, flexible couplings, brake hydraulic, brake callip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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