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2013 (11) TMI 1549 - AT - CustomsValuation of goods - MRP based valuation - Related companies - Held that - 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 2005 (3) TMI 268 - CESTAT NEW DELHI ; Playworld Electronics Pvt. Ltd. 1989 (5) TMI 57 - SUPREME Court ; Sanghi Organization 2006 (12) TMI 489 - SUPREME COURT ; Alembic Glass 2006 (8) TMI 180 - SUPREME COURT OF INDIA and Kaira Dist. Co-Op. Milk Producers Union (2002 (11) TMI 97 - SUPREME COURT OF INDIA) would not help them as all of them dealt with a situation in respect of Section 4 as it stood prior to 1-7-2000. In view of the amended definition of related person so as to include inter-connected undertakings within the purview of related person these decisions have no relevance. - findings of the adjudicating authority that they are not related is unsustainable in law. As per the definition of inter-connected undertakings mutuality of interest in the business of each other is not required. As per item (d) of sub-clause (iii) of clause (g) if one body corporate exercises control over the other body corporate in any manner would suffice to hold them as inter-connected. From the annual audited accounts of DIPL for the years 2000-01 to 2003-04 it has been found that DIPL had sold its products to Legrand below its cost of production and during the span of four years it has sold the products at an average loss of Rs. 12 lakhs per year. Paras 7.10 to 7.13 of the show cause notice dated 2-8-2005 refers. Therefore the question is when an assessee continuously sells its products at a loss over a period of time can it be said that price is the sole consideration for sale. - M/s. DIPL and M/s. Legrand are related as they are inter-connected undertakings and hence related as defined in law. Further since DIPL has been selling its products to Legrand at a price lower than its manufacturing cost the sale price cannot be held to be the sole consideration for sale. Therefore the Central Excise Valuation Rules 2000 would come into play. Since both DIPL and Legrand are inter-connected undertakings Rule 10 of Central Excise (Valuation) Rules 2000 would be relevant. Sale value is below the cost of production of DIPL and does not include the cost of tools dies moulds drawings etc. used in the production of the goods sold and the sale value also does not include the cost of R&D work undertaken by Legrand for the goods manufactured by DIPL and the staff cost of Legrand deputed to DIPL for supervising the operations and providing technical assistance. These are additional considerations flowing from Legrand to DIPL. Therefore the provisions of Rule 6 of the Central Excise Valuation Rules would come into play and the ratio of the decision of the Hon ble Apex Court in the Fiat India case (2012 (8) TMI 791 - SUPREME COURT) would squarely apply - money value of goods and services whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods to the extent that such value has not been included in the price actually paid or payable has to be included under the provisions of Rule 11 read with Rule 6 of the Valuation Rules. Since in the present case the money value of additional consideration received has not been included the matter has to go back to the adjudicating authority for fresh consideration of these issues and we order accordingly. Agreement has not been intimated to the Revenue and the basis of the transactions were not made known to the Revenue the charge of suppression is clearly sustainable and accordingly extended period of time has been rightly invoked. It is further noted that the price at which the respondents were selling the goods to M/s. Legrand during the entire period was far less than the cost of production. Nobody with ordinary business prudence would like to sell products below the cost of production. Therefore the ratio of the decision of the Hon ble Apex Court in the case of Fiat India Pvt. Ltd. (supra) would come into play and therefore in the present case the transaction value as declared to the department cannot be considered as the sole consideration for the sale of the goods. - Remanded back - Decided in favour of Revenue.
Issues Involved:
1. Whether M/s. DIPL and M/s. Legrand are related persons under Section 4(3)(b)(iv) of the Central Excise Act, 1944. 2. Whether the transaction value between M/s. DIPL and M/s. Legrand can be accepted as genuine. 3. Whether the extended period of time for demand of differential duty is justified. 4. Whether penalties imposed on co-appellants are sustainable. Issue-wise Detailed Analysis: 1. Relationship Between M/s. DIPL and M/s. Legrand: The primary issue was whether M/s. DIPL and M/s. Legrand are related persons under Section 4(3)(b)(iv) of the Central Excise Act, 1944. The Revenue argued that both companies are inter-connected undertakings as defined in Section 2(g) of the MRTP Act, 1969. Evidence showed that Mrs. U.D. Morarji was the Chairperson and Managing Director of M/s. DIPL and also the Chairperson of M/s. Legrand. M/s. Legrand controlled various aspects of M/s. DIPL's operations, including production, pricing, technical assistance, and R&D activities. The Tribunal concluded that M/s. Legrand exercised control over M/s. DIPL, satisfying the criteria for being inter-connected undertakings. Consequently, M/s. DIPL and M/s. Legrand were deemed related persons under the amended Section 4 of the Central Excise Act, 1944. 2. Genuine Transaction Value: The Tribunal examined whether the transaction value between M/s. DIPL and M/s. Legrand could be accepted as genuine. The sale price from M/s. DIPL to M/s. Legrand was found to be less than the cost of production. The Tribunal referenced the Supreme Court's decision in Commissioner of Central Excise v. Fiat India Ltd., which held that prices influenced by extra-commercial considerations cannot be considered normal prices. Given that M/s. DIPL sold its products at a loss, the Tribunal concluded that the sale price was not the sole consideration for the sale. Therefore, the transaction value declared by M/s. DIPL was not accepted as genuine, and the valuation had to be determined under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. 3. Extended Period of Time for Demand: The Tribunal addressed whether the extended period for demanding differential duty was justified. The Revenue argued that M/s. DIPL did not disclose the share purchase agreement or the basis of transactions, amounting to suppression of facts. The Tribunal agreed, noting that the transactions were not at arm's length and the sale price was below the cost of production. The Tribunal upheld the invocation of the extended period for demand, citing suppression of facts with intent to evade duty. 4. Penalties on Co-appellants: The Tribunal considered the penalties imposed on co-appellants, including Mrs. U.D. Morarji, Mr. A.P. Subedar, and Mr. J.C. Tharud. The Revenue did not provide clear evidence of the co-noticees' roles in the alleged undervaluation. Additionally, there was no authorisation from the Committee of Chief Commissioners to pursue penalties against the co-appellants. The Tribunal referenced the decision in Commissioner of Customs & Central Excise v. Rohit Industries, which required specific authorisation for penalty proceedings. Consequently, the penalties imposed on the co-appellants were not sustainable. Conclusion: The Tribunal set aside the impugned order and remanded the matter back to the adjudicating authority for fresh consideration. The re-determination of value was to be conducted in accordance with Rule 11 read with Rule 6 of the Central Excise Valuation Rules, 2000. The appeals were allowed by way of remand.
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