2016 (10) TMI 1191 - AT - Central Excise

Valuation - related party transaction - Rule 8 of Central Excise Valuation Rules, 2000 - Held that - the impugned order held that based on the factual position and applying the provisions of Valuation Rules the transaction value adopted by the respondent cannot be rejected. It was recorded that no extra commercial consideration has been demonstrated. Reliance placed on the decision of Hon ble Supreme Court in Xerographic Ltd. 2006 (3) TMI 308 - SUPREME COURT cannot be faulted only on the ground the concept of related person discussed therein was with reference to earlier Valuation Rules. There is no material difference in the basic principle with reference to valuation of goods when the transaction is between related person. Mutuality of interest and lower price due to extra commercial consideration are relevant factor for consideration. Appeal dismissed - decided against Revenue.

Summary

Issues: Valuation of goods cleared by the respondent to a related party, application of Central Excise Valuation Rules, 2000, determination of transaction value based on cost of production, interpretation of Rule 11 in conjunction with Rule 8 or 10, reliance on the decision of Hon'ble Supreme Court in CCE vs. Xerographic Ltd., examination of the relationship between the respondent and the buyer as related persons, consideration of interconnected undertakings under Section 4(3)(b)(i) of the Act, assessment of common business interests and extra commercial considerations in the transaction.

Analysis:

1. Valuation of Goods and Application of Rules: The appeal concerns the valuation of goods cleared by the respondent to a related party, M/s. M.K. Tubes India Pvt. Limited. The Revenue contends that the transaction value should be determined based on the cost of production, as both entities have common directors. The proceedings initiated by the Revenue led to a demand for differential duty, which was confirmed by the original authority but set aside by the Commissioner (Appeals).

2. Interpretation of Rules and Legal Precedents: The Revenue argued that Rule 11, read with Rule 8 or 10 of the Central Excise Valuation Rules, 2000, should govern the determination of transaction value in this case. Additionally, the Revenue contested the reliance placed by the Commissioner (Appeals) on the decision of the Hon'ble Supreme Court in CCE vs. Xerographic Ltd., emphasizing the correct invocation of Rule 11 for determining the transaction value.

3. Relationship Between Parties: The crux of the matter lies in the relationship between the respondent and the buyer as related persons. The impugned order examined the status of both parties, noting that they are interconnected undertakings as per Section 2(g) of the MRTP Act. The order concluded that the transaction value cannot be rejected solely based on the common directors and that the entities do not qualify as relatives under the Companies Act, 1956.

4. Evaluation of Business Interests and Commercial Considerations: The impugned order delved into the absence of common business interests or extra commercial considerations in the transactions between the respondent and M/s. M.K. Tubes. It emphasized the lack of demonstrated extra commercial considerations and highlighted the relevance of mutuality of interest and lower prices in transactions between related parties.

5. Judicial Decision and Dismissal of Appeal: After considering the legal position and factual aspects of the case, the Tribunal found no grounds to interfere with the findings of the lower authority. Consequently, the appeal filed by the Revenue was dismissed, upholding the transaction value adopted by the respondent in the absence of extraneous commercial considerations or mutual business interests.

In conclusion, the judgment addresses the complex interplay between related party transactions, valuation rules, legal precedents, and the absence of significant commercial considerations in determining the transaction value of goods cleared between interconnected undertakings with common directors.