TMI Blog2023 (11) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner in impugned order in-original has correctly examined whether the Respondent and other buyers are related in terms of sub-clause (iv) of Section 4(3)(b). In the present matter it is rightly pointed out by the Ld. counsel that the argument of the revenue that the respondent and other buyers are related in terms of sub-clause (ii) or (iii) of Section 4(3)(b) would be beyond the scope of show cause notice inasmuch as the same is never alleged in the show cause notice. Hence, the same is also not acceptable at this stage - In the facts of the present case, the relationship is based on the fact that when Sub-Clause (ii) and (iii) were not invoked, the facts related thereto were also neither required to be examined nor the Adjudicating Authority has rightly examined. Therefore, by making ground of Sub-Clause (ii) (iii) holding the appellant and their buyer are related person is completely beyond the SCN as well as the impugned order, which is not permissible. The Hon ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, NAGPUR VERSUS M/S BALLARPUR INDUSTRIES LTD [ 2007 (8) TMI 10 - SUPREME COURT ], has held that the SCN is the foundation in the matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholding of iCi, UK in Atik Industries continued to be 50%). There is no mutuality of interest in the present case between the respondent an the 4 buyers and the relationship is not covered by Sub-Clause (iv) of Section 4(3)(b) of Central Excise Act 1944S but only Sub-Clause (i) of Section 4(3)(b) of Central Excise Act 1944. The transaction value of the goods between respondent and the so-called interconnected undertaking is correct valuation and the same cannot be disturbed, therefore, there are no merits in the appeal of revenue. The impugned order passed by the Adjudicating Authority is correct, legal and the same has no infirmity - appeal of Revenue dismissed. - HON'BLE MEMBER ( JUDICIAL ) , MR. RAMESH NAIR And HON'BLE MEMBER ( TECHNICAL ) , MR. RAJU Shri P K Rameshwaram , Commissioner ( Authorized Representative ) for the Appellant Shri. Anand Nainawati , Advocate for the Respondent ORDER RAMESH NAIR Revenue is in appeal against Order-in-Original No. SIL-EXCUS-000-COM-072-16-17 dtd. 24.01.2017 passed by the Commissioner of Central Excise Service tax, Silvassa. 1.2 The brief facts of the case are that the respondent, M/s. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3)(b)(i) and (iv) of the Central Excise Act, 1944. Therefore, the clearances of the goods i.e. DG sets etc. to their interconnected undertakings M/s SWPPL, M/s SWESPL, M/s SWPL and M/s SWCGSPL could not be considered as sale to independent buyers. As a consequence, it was noticed that the valuation of excisable goods manufactured by the respondent and cleared to their sister concerns were to be arrived on the basis of the value of such goods at which the goods are, in turn, sold by them to buyer not being a related person as per Rule 9 and 10 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Accordingly, show cause notice dtd. 05.05.2016 was issued to M/s SGPL-DTA (Respondent) as well as to the EOU unit of M/s SGPL (M/s SGPL EOU) proposing demand of differential Central Excise duty amounting to Rs. 12,96,25,493/- on finished goods sold by M/s SGPL DTA unit to 4 buyers (SWPPL, SWESPL, SWCGSPL and SWPL) during the period 2011 to October 2014. The show cause notice also proposed to demand differential Central Excise Duty of Rs.1,18,38,887/- on finished goods sold by SGPL-EOU unit to the said 4 units during the period June 2011 to October 2015. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the respondent but are used for consumption by him or on his behalf in the production or manufacturer of other articles, Rule 8 would come into play. In the present case, since admittedly both M/s SWPPL and M/s SWPL are not engaged in either in production or manufacture, but are only engaged in the provision of works contract service and uses the excisable goods in such Turnkey project, Rule 8 would definitely not come into play. Hence, the invocation of the provisions of Rule 9 and 10 the valuation Rules by the department as per the show cause notice is correct, whereas the conclusion arrived by the adjudicating authority that Rule 8 is applicable in this case is incorrect and erroneous. 2.2. He further submits that the investigation have clearly brought on records the evidence, as alleged in the show cause notice that the directors, who are relatives of one another of the respondent company and shareholder are common, hence mutuality of interest between buyer and seller companies is absolute and established. Type or degree of interest in transactions is not necessarily to be brought-out once persons found to be related. The distinct legal nature of companies cannot be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent supported the order of the Commissioner and submits that show cause notice alleges that the Respondent and the 4 buyers are related in terms of sub-clauses (i) and (iv) of Section 4(3)(b) of the Central Excise Act, 1944. Since it is not in dispute by the Respondent that the Respondent and 4 buyers are related in terms of sub-clause (i) of Section 4(3)(b) of the Central Excise Act, 1944 as interconnected undertaking, the Ld. Commissioner in the order has rightly examined whether the Respondent and the 4 buyers are related in terms of sub-clause (iv) of Section 4(3)(b). It would be beyond the scope of show cause notice for the department to contend that the Respondent and the 4 buyers are related in terms of sub-clause (ii) or (iii) of Section 4(3)(b) in as much as the same is never alleged in the show cause notice. It is settled law that the department cannot travel beyond the scope of the show cause notice. He placed reliance on the following decisions: (i) CCE, Nagpur Vs. Ballarpur Industries Ltd. 2007(215) ELT 489(SC) (ii) CC, Customs Vs. Toyo Engineering India Ltd. 2006(201) ELT 513 (SC) 3.1 Without prejudice, he also submits that respondent are not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther sale price to independent buyer cannot be available in the case of SWPL and SWPPL. The Ld. Commissioner has rightly dropped the demand on the ground that Rule 9 read with Rule 10 of the valuation Rules cannot be applied in such a case for demanding differential duty. 3.5. He also argued that with respect to the goods cleared to SWPL and SWPPL, the Ld. Commissioner at para 4.7.2 of the Order-In-Original has also dropped the demand on the ground that the same is a revenue neutral situation since SWPL and SWPPL are using the purchased goods in providing taxable services and would be eligible for credit of duty paid by the Respondent. 3.6 He also submits that there is no mutuality of interest between the respondent and the 4 buyers. The respondent and the 4 buyers are not related in terms of sub-clause (iv) of Section 4(3)(b) of the Central Excise Act. He placed reliance on the following decisions. (i) UOI Vs. Atic Industries 1984 (17) ELT 323(SC) (ii) UOI Vs. Hind Lamps 1989(41) ELT 161(SC) (iii) Marc Pharmaceuticals Vs. CCE 2005 (183) ELT 145(T) (iv) CCE Vs. Goodyear South Asia Tyres Pvt. Ltd. 2015(322) ELT 389 (SC) (v) CCE Vs. Dynamic Elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustan Trust Ltd. 1998(97) ELT 361(T) (ii) CCE Vs. Indofil Chemical Co.- 2001(45) RLT 1068(T) (iii) CCE Vs. Mahindra Mahindra Ltd. 2001 (43) RLT 514(T) (iv) Saharia Krishi Van Prathistha Vs. CCE 2003(58) RLT 308(T) (v) CCE Vs. Spade Elektro (P) Ltd. 2004 (175) ELT 319(T) 3.10 Without prejudice he also submits that the demand for the period prior to 01.12.2013 is not sustainable as the provisions of Rule 9 and 10 of the valuation Rules, as they existed prior to 01.12.2013 are not applicable when a part of the goods manufactured by the respondent are admittedly cleared to independent buyers as well as the entire production is not sold to alleged related person. 3.11 He also argued that the demand beyond the normal period of limitation is not maintainable. The Ld. Commissioner has rightly held that extended period of limitation is not invokable in view of audit and inquiry conducted against the respondent on the same issue in 2009. 3.12 He further submits that Ld. Commissioner rightly dropped the proposal of demand of excise duty of Rs. 1,18,39,887/- against the EOU unit of SGPL on the ground that the same ab inito void and not permissible in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected with each other in any of the following manner, namely :- (i) if one owns or controls the other, (ii) where the undertakings are owned by firm, if such firms have one or more common partners, (iii) where the undertakings are owned by bodies corporate, - (a) if one body corporate manages the other body corporate, or (b) if one body corporate is a subsidiary of the other body corporate, or (c) if the bodies corporate are under the same management, or (d) if one body corporate exercises control over the other body corporate in any other manner; (iv) Where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm, - (a) hold, directly or indirectly, not less than fifty per cent of the shares, whether preference or equity, of the body corporate, or (b) exercise control, directly or indirectly, whether as director or otherwise, over the body corporate, (v) if one is owned by a body corporate and the other is owned by firm having bodies corporate as its partners, if such bodies corporate are under the same management, (vi) if the undertakings are owned or controlled b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised or controlled by the same individuals belonging to a group or by the same bodies corporate belonging to a group, or jointly by such individual or individuals and one or more of such bodies corporate; or (ix) if the directors of the one such body corporate are accustomed to act in accordance with the directions or instructions of one or more of the directors of the other, or if the directors of both the bodies corporate are accustomed to act in accordance with the directions or instructions of an individual, whether belonging to a group or not. Explanation II. - If a group exercises control over a body corporate, that body corporate and every other body corporate, which is a constituent of or controlled by, the group shall be deemed to be under the same management. Explanation III. - If two or more bodies corporate under the same management hold, in the aggregate, not less than (one-fourth) equity share in any other body corporate, such other body corporate shall be deemed to be under the same management as the first mentioned bodies corporate. Explanation IV. - In determining whether or not two or more bodies corporate are under the same management, the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be much different from that covered under the old Section 4 definition. The Commissioners may, however, examine carefully whether any other situation described in the definition of inter-connected undertakings need to be excluded for satisfying the qualification of mutuality of interest. The actual revenue potential in such situations may be estimated and a report sent in due course. 4.2 From the above cited provisions and the clarification, it is clear that only if the parties are related in terms of Clause (ii), (iii), (iv) of Section 4(3)(b) of Central Excise Act, they would be treated as related persons. In the present matter we find that show cause notice alleges that the Respondent and buyers are related in terms of sub-clause (i) and (iv) of Section 4(3)(b) of the Central Excise Act, 1944. Before we proceed to examine whether valuation needs to be arrived under the valuation Rules as proposed in the show cause notices, it would be appropriate to go thru the relevant rules which are given herein below for ease of reference: RULE 8. (w.e.f. 01.12.2013) - Where whole or part of the excisable goods are not sold by the assessee but are used for consumption by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms 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. Explanation. - In this clause holding company and subsidiary company shall have the same meanings as in the Companies Act, 1956 (1 of 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. RULE 10. (as existing upto 01.12.2013)-Where the excisable goods are sold by the assessee to or through an inter-connected undertaking, the value of such goods shall be determined in the following manner, namely :- (a) If the undertakings are so connected that they are also 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. Explanation. - In this clause holding company and subsidiary company shall have the same meanings as in the Companies Act, 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of duty, penalty and interest. 4.5 In the case of C.C, Customs Vs. Toyo Engineering India Ltd-2006 (201) ELT 513 (SC), the Hon ble Supreme Court has held that the ground did not find in the SCN, the department cannot travel beyond SCN. 4.6 Therefore, since the revenue s appeal is based on alleged relationship in terms of Sub-Clause (ii) (iii) of Section 4 (3)(b), the same cannot be sustained only on this settled legal position by the Apex Court. 4.7 Without prejudice to the above, even if it is considered that the relationship is under Clause (ii), (iii) or (iv), we find that from the plain reading of the above provisions it appears that interconnected undertakings are also related person. However, as per Rule 9 and 10 of Central Excise Valuation Rules, 2000 it is clear that Rules shall apply only when the goods are sold through person who are related in terms of sub-clause (ii), (iii) or (iv) of clause (b) of Section 4 (3) of the Act. Further the provisions of Rules also suggest that merely because buyer is interconnected undertaking that alone is not sufficient for holding as related person. We find that the show cause notice and revenue have not brought any material t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also not fulfilled in the present case. As regard the allegation in the SCN and grounds of appeal that the appellant and the respondents are related in terms of Sub-Clause (iv) of Section 4 (3)(b), we find that as per Sub-Clause (iv) the seller and buyer should be so associated that they have interest directly or indirectly in the business of each other. As per the undisputed fact of the present case, as regard the transactions which was disputed by the revenue there is a pure relationship of seller and buyer of the goods between the respondent and their buyers. The revenue neither in the SCN nor in the grounds of appeal brought any material to establish that the respondent and the buyers have interest directly or indirectly in the business of each other except the sale and purchase the goods, between the respondent and the buyers there is no other interest. Therefore, the Clause (iv) is clearly not applicable in the present case. 4.9 This issue has been considered time and again in various judgments. The Hon ble Supreme Court has considered the issue similar in the present case in UOI Vs. Atic Industries- 1984 (17) ELT 323 (SC). In this case, M/s Atik Industries was manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and hold that the assessable value of the dyes manufactured by the assessee cannot be determined with reference to the selling price charged by Atul Products Limited and Crescent Dyes and Chemicals Limited to their purchasers but must be determined on the basis of the wholesale cash price charged by the assessee to Atul Products Limited and Crescent Dyes and Chemicals Limited. The demand made by the Assistant Collector for differential duty must, therefore, be held to be rightly quashed by the High Court. 4.11 Similar view has also been taken by the Hon ble Supreme Court in M/s. Union of indis Vs. 1989 (43) ELT 161 (SC) by affirming the decision of Hon ble Allahabad High Court reported in 1977 (1) ELT J1 (All.), in this case the share capital of Hind Lamps was held by the following shareholders: Bajaj Electricals Ltd: (50%) Crompton Parkinson Ltd., London: (6.88%) N.V. Philips, Holland: (17.67%) General Electric Co. Ltd., London: (10.59%), and Mazda Lamp Co. Ltd., England: (14.86%) 4.12 The entire production of Hind lamps was sold M/s. Bajaj Electricals Ltd subsidiary companies of the remaining 4 foreign shareholders. Thus, the entire producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal to principal basis and to a share holding company and to another company, which was initially a subsidiary of the foreign share holding company and to which subsequently became associate company of the foreign shareholding company. In the instant case also, it was on principal to principal basis and to a shareholding company (Bajaj Electricals Ltd.) and so called to associate companies of the foreign shareholding companies. Goods were supplied to customers in their brand name in the case of Atic Industries as in the instant case. In Atic Industries' case, there was no allegation of extra commercial consideration and in the instant case also there was no allegation of extra commercial consideration. In Atic Industries' case, same prices were charged from all the customers; similar is the position in the instant case. 8. In the aforesaid view of the matter and in view of the ratio of the said decision, Shri Sibal sought to urge that the High Court was right in the facts mentioned hereunder. 4.14 In the case of CCE Vs. Goodyear South Asia Tyres Pvt Ltd- 2015 (322) ELT 389 (SC), the Hon ble Supreme Court has held that when there is only one-way interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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