TMI Blog2022 (2) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been placed on record by either side but if the cost auditor report had concluded that the Appellants were not related then definitely Commissioner should have recorded the reasons for rejecting the said report. Since the appeal are decided on merits, the issue on limitation and imposition of penalties need not be discussed. Appeal allowed - decided in favor of appellant. - Excise Appeal No. 1146 of 2012 - A/85098-85099/2022 - Dated:- 9-2-2022 - MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Shri V. Sridharan, Senior Advocate, with Shri Prakash Shah, Advocate, for the Appellant Shri Sydney D Silva, Additional Commissioner, Authorised Representative for the Respondent ORDER These appeals by Appellant 1 (M/s EWAC Alloys Limited) and Appellant 2 (M/s. Larsen Toubro Limited) are directed against the order in original No 01/Commr/M-II/2012 dated 11.05.2012 of the Commissioner of Central Excise, Mumbai- II. By the impugned order Commissioner has held as follows: ORDER 1. I confirm the demand of ₹ 21,47,35,943/- demanded for period from July, 2006 to March, 2010 and the demand of ₹ 3,64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct investigation, issue show cause notice and adjudicate the matter as per law. 2.6 Investigations were thus undertaken by the jurisdictional officers and revenue was of the view that: Appellant 1 and Appellant 2 are interconnected undertakings as per Monopolies and Restrictive Trade Practices Act, 1969. They are having mutuality of interest in business of each other as per Hon ble Supreme Court decision in case of Atic Industries Ltd [1984 (17) ELT 323 (SC)], therefore they are related persons within the meaning of sub-clause (iv) of clause (b) of sub-section (3) of section 4 of the Central Excise Act, 1944. The Selling Agency Agreements between them also establishes the mutality of interest as Appellant 2 is under contractual obligation to use its best endeavors to foster the interest and trade of the Appellant 1 and barred in engaging in any business of the same nature. Thus, the Appellant 2 has interest in the business of Appellant 1. They share expenses in respect of advertisements, trade fairs exhibitions amongst others. Here, though the transaction may be on principal to principal basis, the wholesale price charged is not the sole consideration. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction value as under sub-section (a) of section 1 of section 4 of the Central Excise Act, 1944. The assessable value thus needs to be determined in terms of sub-clause (iv) of clause (b) of sub-section (3) of Section 4 of the Central Excise Act, 1944 read with the provisions of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Appellant 1 have intentionally and willfully suppressed the facts that they and Appellant 2 are related having mutuality of interest in the business of each other in spite of their being inter connecting undertaking, therefore being their related person in terms of Sub- Section (3)(b) (iv) of Section 4 of the Central Excise Act, 1944 read with Rule 10 (a) and Rule 9 of Central Excise ( Valuation ) Rules, 2000, instead of paying duty on the basis of sale price/transaction value of the Appellant 2 they paid central excise duty based on their sale value to the Appellant 2 during the period July, 2006 to 13.12.2010 with intention to evade the Central Excise duty in as much as; Appellant 2 have actively involved themselves in acquiring, possessing, keeping and purchasing of the goods on which Central Excise Duty was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are interconnected undertaking with Appellant 2 having 50% share in the Appellant 1, as per MRTP Act and Section 4 of the Central Excise Act, 1944. However the mere fact of them being interconnected undertaking cannot be a reason for rejection of the transaction value between them and determining the assessable value on the basis of the sale price of the Appellant 2 to their customers; Section 4 of The Central Excise Act, 1944 was amended and substituted by new section 4. Also Central Excise Valuation Rules, 2000 replaced the earlier valuation rules. Explaining the changes so made Board has vide its Circular dated 30.06.2000, vide para 24 clarified that even if they were interconnected undertakings they could be held as related only if they were: Holding and Subsidiary Companies; or They are related as per (ii), (iii) or (iv) of Section 4 (3)(b) Thus even if they are interconnected they can be held as related only if there is mutuality of interest in business of each other. In absence of mutuality of interest they cannot be said to be related and the transaction value between them cannot be rejected. It has been throughout held by various authorities th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue needs to be determined on the basis of the sale price of the Appellant 2 to their customers. On the issue of limitation the issue needs to be decided taking into account the decision of Hon ble Supreme Court in the case of Mehta Co [2011 (254) ELT 481 (SC)] 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments. 4.2 Commissioner has in the impugned order while confirming the demand observed as follows: I have carefully gone through the case records and submissions made by the assessee. The basic issue before me for consideration is whether M/s EWAC Alloys Ltd.,(Noticee No.1) and M/s L T Ltd., (Noticee No. 2) are related persons within the meaning of sub section 3(b) of the section 4 of the Central Excise Act, 1944. As per terms of the sub-section 3(b) of the Section 4 of the Act, 1944 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, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9. Explanation. - In this clause holding company and subsidiary company shall have the same meanings as in the Companies Act, 1956 (1 of 1956), in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of section 4. (b) Thus, to assess and collect the Central Excise duty under Rule 9 of the Valuation Rules, 2000, it is essential that the exc sable goods under assessment are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii). (iii) or (iv) of clause (b) of sub section (3) of section 4 of the Act, or the buyer is a holding company or subsidiary company of the assessee. In such cases only the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In such cases, the valuation of transacted goods between two interconnected undertakings has to be done in terms of the provisions of Rule 10 of the valuation Rules, 2000. However, as per the provisions of the Rule 10 to assess the goods and to collect the duty in terms of Rule 9, it is not sufficient that the persons are interconnected undertakings and under the same management but they should also be related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in Rule 9. As such I proceed to examine the case on the other remaining/surviving condition i.e. as to whether M/s L T Ltd., and M/s EWAC are so associated that they have interest, directly or indirectly, in the business of each other. As discussed above it is clearly seen that M/s L T Ltd., and M/s EWAC are interconnected undertakings and under the same management. Accordingly the valuation of the transacted goods between them need to be done under the Rule 10 of the Central Excise valuation Rules, 2000. The question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractual obligation to foster the interest and trade of M/s. EWAC. The conditions stipulated in the Selling Agency Agreement - Domestic Sales dated 28.12.1998 are as follows: a) M/S, L T Ltd has been appointed as M/s EWAC's Selling Agents within the territory of India, Nepal and Bhutan for sale of the products for a period of 5 years from 01.10.1998; b) M/S. L T LTD has to purchase the products from M/s. EWAC at the list price, c) M/S. L T LTD shall use its best endeavors to foster the interests and trade of M/s. EWAC and except with the prior consent of M/s. EWAC (which consent shall not be unreasonably withheld), will not directly or indirectly be concerned or engaged in any business of the same nature as that of M/s. EWAC and competing therewith other than products of companies entitled to use the EUTECTIC / CASTOLIN' trade mark; d) The cost of advertisements in the technical press or elsewhere, cost of preparation of product industrial films/slides, and participation in trade fairs and exhibitions in India shall be borne equally by Ms EWAC and M/S. L T LTD. The amount of such advertising and other expenses shall be decided in advance by mutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bligation, under the Domestic Sales dated 28.12.1998 and Selling Agency Agreement for Exports dated 28.12.1998, M/S. L T Ltd., was also under contractual obligation to foster the interest and trade of M/s. EWAC. As per the conditions stipulated in the Selling Agency Agreement - Domestic Sales dated 28.12.1998,M/S. L T LTD has to purchase the products from M/s. EWAC at the list price and M/S. L T LTD shall use its best endeavors to foster the interests and trade of M/s. EWAC and except with the prior consent of M/s. EWAC (which consent shall not be unreasonably withheld), will not directly or indirectly be concerned or engaged in any business of the same nature as that of M/s. EWAC and competing therewith other than products of companies entitled to use the EUTECTIC , CASTOLIN trade mark. M/S. L T Ltd shall employ and remunerate suitably qualified persons to conduct training courses at EWAC Institute in Mumbai. The commission/discount of 45% on the Export price to be paid to selling agent by EWAC, M/S. L T LTD shall use its best endeavors to foster the interests and trade of the Company and, except with the prior consent of the Company (which consent shall not be unreasonably with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall apply with reference to facts and circumstances of each case. While deciding the aspect of related persons, the whole facts and circumstances has to be taken into the consideration and the scenario emerges thereof and cannot/should not be in isolation as it is likely that the issue or the concept of related person may not be properly addressed or appreciated . It is explicit from the annual financial report that M/s L T Ltd. is a related party as associated Company. They are interconnected undertakings in terms of MRTP Act. The terms and condition of the sale agreements and arrangement of sale there under indicate that M/s L T Ltd. should ensure to foster the interests and trade of M/s EWAC and, except with the prior consent of M/s EWAC (which consent shall not be unreasonably withheld), will not directly or indirectly be concerned or engaged in any business of the same nature as that of the company and competing therewith other than products of companies entitled to use the Eutectic / Castolin trade mark. Further, the statements of the various officials of M/S EWAC and M/S L T Ltd., also strengthen the fact that M/s EWAC and M/s L T are having interest in the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding company or a subsidiary company of the assessee. In other words, while dealing with transactions between inter-connected undertakings, if the relationship as described in clauses (ii), (iii) or (iv) does not exist and the buyer is also not a holding company or a subsidiary company, then for assessment purposes, they will not be considered related. Transaction value could then form the basis of valuation provided other two conditions, namely, price is for delivery at the time and place of removal and the price is the sole consideration for sale are satisfied. If any of the two aforesaid conditions are not satisfied then, quite obviously, value in such cases will be determined under the relevant rule. In case of South Asia Tyres Pvt Ltd. [2015 (322) ELT 389 (SC)] Hon ble Apex Court has in respect of the amended Section 4, observed as follows: Civil Appeal No. 4370 of 2003 13. The period involved in Civil Appeal No. 4370 of 2003 is from 1-7-2000 to 26-9-2000. 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 per cent is held by Goodyear U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 1, however the sale price of the Appellant 2 is the price which is determined by the Appellant 2 in consultation with appellant 1, though Appellant 2 can sell the goods at price less than the price so determined. c) Appellant 1 sells his entire goods to Appellant 2 and has not appointed any other distributor. d) Appellant 1 and Appellant 2 equally participate in the promotion of the sale of the goods of Appellant 1 to the customers of Appellant 2. They contribute equally by the way of sharing the expenses towards such sale promotion. e) Expenditure incurred by Appellant 2 on the advertisement of the goods of Appellant 1, clearly show the interest of Appellant 2 in the business of Appellant 1, as this promotes the brand of Appellant 1. f) Appellant 2 conducts training programs for its employees from the training institute of Appellant 1. g) Appellant 2 is not permitted to undertake the business of trading of the same/ similar goods of competitors, without prior consent of Appellant 1. 4.6 We do not find that any of such reasons will establish mutuality of interest. In case of Atic Industries [1984 (17) ELT 323 (SC)] Hon ble Apex Court has clearly laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the person who is sought to be branded as a related person must be a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part 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 any difference, so long as each has got some interest, direct or indirect, in the business of the other. Now, in the present case, Atul Products Limited has undoubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city as a shareholder, but how can Crescent Dyes and Chemicals Limited of which 40 per cent of the shares are held by Imperial Chemical Industries Limited, London which in its turn is a shareholder of the assessee, can be said to have any interest, direct or indirect, in the business of the assessee. Equally the assessee has no interest direct or indirect in the business of Crescent Dyes and Chemicals Limited, which is just a wholesale dealer purchasing dyes from the assessee in wholesale on principal to principal basis. It is obvious that for the same reasons which have prevailed with us while discussing the case of Atul Products Limited, the assessee has no direct or indirect interest in the business of Crescent Dyes and Chemicals Limited. The first part of the definition of related person in clause (c) of sub-section (4) of section 4 of the amended Act is, therefore, clearly not satisfied both in relation to Atul Products Limited as also in relation to Crescent Dyes and Chemicals Limited and neither of them can be said to be a related person vis-a-vis the assessee within the meaning of the definition of that term in clause (c) of sub-section (4) of section 4 of the amended Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r there is inter se between the first petitioner and M/s. Philips India Ltd. any interest, directly or indirectly, in the business of each other proved on the record. There is none. The mere purchase of goods by M/s. Philips India Ltd. from the first petitioner or manufacture of goods by the first petitioner for M/s. Philips India Ltd. does not create inter se interest between the two companies, directly or indirectly in the business of each other. The only interest that M/s. Philips India Ltd. has is to ensure that it gets the goods it has ordered in time and of the specifications required. The only interest in the transaction which the first petitioner has is to get the price of the goods it manufactures for M/s. Philips India Ltd. It is a pure transaction of sale. The interest in the business of each other contemplated by the section is something more than the fulfilment of one single commercial transaction entered into between the parties. M/s. Philips India Ltd. are not concerned whether the first petitioner makes a profit or loss in the transaction covered by the contract between the two. Likewise, the first petitioner is not interested as to whether M/s. Philips India Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Treasurers, firms having related partners, companies having common shareholders in the majority and the like. It is very difficult to say that a mere purchase or even a sole selling agent (if Usha could be said to be one) would be a related person within the meaning of the first part of the definition. We are, therefore, unable to accept the contention of learned counsel for the respondents that Usha will be a related person under the above portion of the definition clause. Certain judicial decisions to which we shall be referring later also touch upon this aspect of the matter and reinforce our conclusion. 45. This decision was again followed by the Delhi High Court in its subsequent judgment in Straw Products Ltd. (supra) and the Court observed that mere commercial contract between two independent parties for the purchase and sale of the goods manufactured by one party cannot ipso facto lead to the conclusion that the two of them are so associated as to have interest in the business of each other. This association, the Court observed, has to be of financial or managerial interest in the business of each other and not mere business connection between two persons. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a related person must be a person who is so associated with the assessee that they have interest directly or indirectly, in the business of each other. It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person nor is it enough that such person has an interest, direct or indirect, in the business of the assessee. In the case of UOI . v. Atic Industries Ltd., 1984 (17) E.L.T. 323 (S.C.), the Supreme Court has held that each of them must have direct or indirect interest in the business of each other. In the present matters, the mutuality of interest has been presumed by Revenue on the basis of sale of entire production by the manufacturing units to M/s. Meghal Enterprises on the basis of mutually agreed price, the goods were known in the market to be those of Kanchan Industries, price list was circulated on the letter head of Kanchan Industries and the entire responsibilities of advertisement and publicity rested with Meghal Enterprises. These grounds do not satisfy the first part of the definition of related person as given in Section 4(4)(c) of the Central Excise Act, that is, all these factors do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed on any of the Appellants are left to be decided by the Adjudicating Authority in accordance with law and after following the principles of natural justice. 4.8 In the case of Dipareena Investment Pvt Ltd [2014 (314) ELT 571 (T-Mum)], it has been held as under: 5.4 The definition of related person has undergone substantial change w.e.f. 1-7-2000 when the new Section 4 came into existence. As per the definition of related person in the new Section 4, a person shall be deemed to be related if they are (i) 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. As per the new Section 4, if two persons are inter-connected undertakings, they would be deemed to be related persons. In the instant case, M/s. Legrand and M/s. DIPL are inter-connected as per sub-clauses (c), (d) and (g) of Section 2 of the MRTP Act. Therefore, the decisions relied upon by the respondent in the case of Kanchan Industries; Playworld Electronics Pvt. Ltd.; Sanghi Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this clause holding company and subsidiary company shall have the meanings as in the Companies Act, 1956. (b) in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of Section 4. Sub-clauses (ii), (iii) and (iv) of clause (b) deals with when they are relatives, amongst them the buyer is a relative and distributor of the assessee; or they are so associated that they have interest, directly or indirectly in the business of each other. In the present case M/s DIPL and Legrand are not relatives as defined in the Companies Act nor is there any distributor relationship between the two. While Legrand has interest in the business of DIPL as discussed in the preceding paragraphs, there is no evidence available on record to show that DIPL has interest in the business of Legrand except that between a seller and buyer. Therefore, mutuality of interest in the business of each other is not established and therefore, the provisions of clause (b) of Rule 10 shall apply and the valuation has to be done by treating them as not related persons. Therefore, the selling price of Legrand cannot be taken as the assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other consideration that the sale price was below the cost of production they have rejected the transaction value as claimed. In present case there is not even whisper of such a thing. Hence this decision does not advance the case of revenue. 4.9 In the case of Karan Engineers {2017 (357) ELT 241 (T- Del)] relied upon by the authorized representative following has been held: 10 . On careful consideration of the facts and findings recorded by the original authority, we find no reason to come to a different conclusion than the one arrived at by the original authority. We find no merit in appellant s plea that there is no financial flow back or mutuality of interest among the legal entities. It is apparent that when the affairs of these 3 units were managed by overall control, the benefit accrue to the closely connected family member . There is no need to show, demonstratively, cash flow or a specific monetary consideration from one entity to another entity. The arrangements are so, that ultimately the monetary benefit should accrue to a closed group of people in a family. The arrangement is beneficial to the persons while adversely affected the proper valuation and duty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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