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TMI Blog2024 (8) TMI 1526X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rules 2002. All the dues so adjudged to be paid forthwith" 2.1 Appellant having Central Excise Registration No.AABCC1435FXM001 is engaged in the manufacture of Alternator Assembly, Starter Assembly, Wiper Assembly, Magneto/CDI/FLY WH, Fan/Vent/Blower, and Spares of Motor Vehicles falling under sub heading No 85115000, 85114000, 85124000, 85112090, 87089900 and 8708.00 respectively of the First Schedule to the Central Excise Tariff Act, 1985. They are also availing the facility of Cenvat Credit in respect of Capital Goods, Inputs and Input Services. 2.2 During course of audit it was observed that Maruti Udyog Ltd. and appellant are related person/ parties, as per the Excise Act, for the following reasons : ⮚ M/s Maruti Udyog Ltd. is an Indian promoter of the appellant; ⮚ one Director of M/s Maruti Udyog Ltd. is on the Board of Directors of the appellant; and ⮚ appellant is selling maximum of their product to Ms Maruti Udyog Ltd. The Auditors therefore, were of the view that appellant should have paid duty as per Valuation Rules (Cost + 10% as notional profit) and that the party was accordingly required to pay the differential duty, with interest. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Show cause notice has been adjudicated as per the impugned order. Aggrieved appellant have filed this appeal. 3.1 We have heard Shri Atul Gupta Advocate for the appellant and Shri A K Choudhury, Authorized Representative for the revenue. 3.2 Arguing for the appellant learned counsel submits that : ⮚ The goods were not sold exclusively to the alleged related person, the provisiosn of Rule 9 and accordingly proviso to Rule 9 is not applicable. ⮚ Cost of goods sold has not been computed but arbitrarily the actual clearance value loaded with notional profit attempted to be assessed under Rule 9 read with Rule 8. ⮚ Rule 8 is applicable only when the goods are exclusively sold to the related person. ⮚ Valuation of goods sold as spare parts under Section 4A of the Central Excise Act cannot be disputed. ⮚ No specific provision invoked in the show cause notice to allege that appellant and M/s Maruti Udyog Limited are interconnected undertaking. ⮚ Appellant and M/s Maruti Suzuki are not related parties as per Section 4 (3)(b) of the Excise Act nor are they interconnected undertakings. ⮚ Rule 9 is not applicable even if two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of Excisable Goods) Rules, 2000. According to the department/ show cause notice, the party is related in terms of clause (i)& (iv) of Section 4(3)(b) of the said Act and both the units (party & buyer) are inter-connected undertakings' within the meaning of this provision/Section. The relevant portion of Section 4 of the Central Excise Act, 1944, which deals with the valuation of excisable goods for the purpose of charging of duty of excise, reads as under: "Section 4: Valuation 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 their value, then, on each removal of the goods, such value shall: (a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value. (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. I also consider the SCN's allegation that the assessees are related and "inter- con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble CESTAT, New Delhi in the case of Sudarshan Castings Vs. CCE, 2007 (217) ELT 428 (Tri.- Delhi). In this case, the Hon'ble CESTAT upheld the adjudicating authority's stand of resorting valuation of goods under Rules 8 & 9 of the said rules (valuation taking value @ one hundred and ten per cent of total cost of production) and held the units as 'inter-connected undertakings' under the above provisions of Section 4 of the Central Excise Act, 1944 In the present case, apart from common Director in both the units, it is also apparent that M/s Maruti Udyog Ltd. were holding 10% equity shares in M/s Denso India Ltd. and a major part of the party's sale was made to M/s Maruti Udyog Ltd. (sale ranges from 33.74% to 43.6% during the relevant period) In this regard, reliance is also placed on the judgement of the Hon'ble CESTAT, Mumbai in the case of Sanjay Bahadur Vs. CCE Belapur, 2009 (240) E.L.T. 282 (Tri. - Mumbai), wherein the CESTAT held that "Valuation (Central Excise) - Related person - Inter-connected undertakings - Shri Sanjay Bahadur is MD of UPL and simultaneously Director of UTL - Shri Ramesh Chandra Director in UPL and UTL - Both persons a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly, both the companies have to be treated as 'related person' within the meaning of erstwhile Section 4(4)(c) of Central Excise Act, 1944 [pari materi to the present Section 4(3)(b) of Central Excise Act, 1944]. I also find that the Hon'ble High Court of Gujrat at Ahmedabad in the case of Alambic Glass Industries Vs. UOI, 1992 (59) E.L.T. 207 (Gujrat), took a similar view and held that "Valuation - Related person - Assessee company and buyer company having reciprocal interest in the business of each other - Chairman and three directors of the twa companies also common - Buyer company is a related person and also a favoured buyer - Section 4(4) (c) of Central Excises and Salt Act, 1944". In this case, the Hon'ble High Court observed/held that the petitioner's company has shareholding to the extent of 34,152 equity shares of Rs. 100/- each in Alembic Chemical Works Company Ltd., while the Alembic Chemical Works Company Ltd., holds 37,428 equity shares in Alembic Glass, i.e. the petitioner company; thus, both have reciprocal interest in the business of each other,; moreover three of the directors are common, Chairman of both he companies is also common; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y clear and applicable to the facts of the present case, In view of the above facts and the statutory provisions, the case laws/ judgements as cited by the party in this regard are not applicable to the present case. I therefore, hold that the interest at appropriate rate is recoverable from the party. On the issue of the extended period of limitation in raising the impugned demand of duty, I also find that the fact of erroneous/non-payment of excise duty in respect of the clearance of goods made by them to M/s Maruti Udyog Ltd. for the relevant period came in the notice of the department only during the audit of the party's records (audit conducted by the Audit Team of Central Excise Commissionerate, Noida) i.e. the above fact was not disclosed by the party at their own. The party's such act amounts to suppression of facts with intent to evade payment of duty. Therefore, the extended period of limitation in the case under the provisions of Section 11A(4) of the Central Excise Act, 1944 has been rightly invoked. Therefore, the case laws as cited by the party in this regard are not applicable to the present case. On the issue of the imposition of a penalty upon the party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Rule 25 of the Central Excise Rules 2002 is imposable upon the party." 4.3 From the findings as recorded in the impugned order it is evident that the entire issue has been decided by the adjudicating authority by holding that the appellant and M/s Maruti Udyog Limited are interconnected undertakings and hence related parties. Therefore the value of the goods cleared by them need to be determined by application of Rule 9 read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. 4.4 The demand has been made in respect of the two categories of goods, namely I. which were valued by the party in terms of Section 4 (1) of the Central Excise Act, 1944, on the basis transaction value: II. which were valued in terms of Section 4A of the Central Excise Act, 1944 on the basis of abated MRP. 4.5 Even if we agree with the findings recorded in the impugned in respect of the appellant and M/s Maruti Udyog Limited being interconnected unit with the valuation of the goods could not have been done in the manner suggested by the show cause notice and upheld by the impugned order. 4.6 During the entire period of dispute it is not even the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) E.L.T. A197 (S.C.); (iv) Bharat Petroleum Corporation Ltd. v. CCE - 2010 (261) E.L.T. 695 (Tri.-Chennai); 9. On the other hand, ld. AR for Revenue relies on the following decisions :- (i) Calcutta Chromotype Ltd. v. CCE - 1998 (99) E.L.T. 202 (S.C.). (ii) Poornalaya Electricals v. CCE - 1999 (107) E.L.T. 660 (Tribunal); (iii) CCE v. I. T. E. C. (P) Ltd. - 2002 (145) E.L.T. (S.C.); 280 (iv) CCE v. Fiat India Pvt. Ltd. - 2012 (283) E.L.T. (S.C.). 161 10. We have considered arguments on both sides. We find that the issue as to whether Rule 9 will apply in situation where an assessee is selling part of the goods to others and part to related party is no longer res-integra as can be seen from the various decisions quoted by the Counsel for appellants. Out of the four decisions quoted by ld. AR for Revenue, the first three relate to the old valuation Rules and is not quite relevant in the context of the new Rules notified in 2000. The decision of the Apex Court is in the context of an assessee who has been selling goods at prices substantially lower than cost price to capture the market. In this case, no case is made out that the price at which goods are sold to M/s. Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that provisions of Rule 8 would apply only in a case where its entire production of a particular commodity is captively consumed. This is evident on a plain reading of Rule 8 of the valuation rules, which reads as under "Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods" (emphasis supplied). If the intention was not to restrict the applicability of Rule 8 to cases where the entire production was being captively consumed, the Rule would have simply stated "where excisable goods are consumed by an assessee himself or on his behalf in the manufacture of other articles" instead of preceding the above expression with the words "where the excisable goods are not sold". This view is also supported by the judgment of the jurisdictional High Court in the case of Indian Drug Manufacturers Association v. Union of India, wherein the Court held that Rule 8 applies in a situation where goods are not sold but are cleared 'exclusively' to be used in consumption or for manufacture o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that we are drawing in the present case would lead to determination of a value which, in our view, will not only be reasonable but also consistent with the provisions of Section 4 of the Central Excise Act. We would, at this stage, draw support from the judgment of the Supreme Court in the assessee's own case, as reported in 2006 (202) E.L.T. 561, wherein the Court applied "The Gunapradhan Principle" in interpreting the Customs Valuation Rules. We have kept in mind the following observations of the Court in coming to our above conclusion : "26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act. 27.................. 36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant had valued the products cleared by them to their sister concern on the value which is charged by them to independent buyers. 7. Admittedly, the clearance made to their sister concern would fall under the provisions of Section 4(i)(b) of the Central Excise Act, 1944, as the clearance to their sister concern is not a sale. We find that for determining the correct value under Section 4(i)(b) of the Central Excise Act, 1944, provisions of Central Excise Valuation Rules, 2000 needs to be followed. In the said provisions, Rule 4 of the Valuation Rules clearly indicates that the value of excisable goods shall be based on such goods sold by the assessee. In order to appreciate the correct position of law, we reproduce the said Rule." 3. Rule 8 of valuation Rules provides the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods. In the present case, the appellants sold the goods partly and therefore, Rule 8 as it stood during the relevant period would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount charged from independent buyers can form the benchmark to calculate the appropriate assessable value of the goods sold to the related parties. This approach is of great assistance keeping in view the similarity between the facts and issues that arose in SACI Allied Products (Supra) and in the dispute before us. 33. The conclusion we reach from this is that the principles under Section 4(1) of the CEA are geared toward determination of the 'value' of goods. Under Section 4(1)(a), the value of goods for the purposes of excise duty, is deemed to be the 'normal price' of the goods that are 'ordinarily sold' in the course of business, and where the price is the 'sole consideration' for the transaction. It is only when this cannot be gleaned from the set of transactions available on record that we resort to Section 4(1)(b). 34. The presumption under Section 4(1)(a) is that the sale from an Assessee to an independent party is the proper valuation to be used for determining excise duty. Conversely, a rebuttable presumption can be drawn regarding related party transactions and the value at which goods are sold in such situations. Rule 9 would be sufficient to resolve this issue wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed parties. The conclusion reached through this process may very well be in consonance with our analysis. 37. Regardless of the value the Revenue finally settles upon, we do not find the Circular itself to be contrary to any statutory provisions. To do so would essentially render Point No. 12 ineffective and such an outcome should, ideally, be avoided as far as possible. In fact, the Commissioner's order proceeds to determine the value of the sales made by the Respondent-Assessee to its sister concerns on the basis of the value of its sales to independent parties. In our considered view, this is entirely consistent with the actual intent of the Circular dated 01.07.2002, which we have already held is not in contravention with either the CEA or the CEVR." 4.14 Further we also find that in the present case the demand has been determined by application of Rule 9 read with Rule 8, in a unique manner whereby 10% notional profit has been added to the assessable value determined either on the basis of transaction value or in terms of Section 4A. The logic behind the same is not understood as the said rule itself lays down that assessable value shall be 110% percent of the Cost of Produ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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