2007 (6) TMI 95 - AT - Central Excise

Valuation (Central Excise) Alleged that the price charged by the appellant(Noticee 1) from Noticee 2 and 3 is influenced by relationship and accordingly demand were made along with interest and penalty Held that allegation was correct and demand interest and penalty sustained

Issues Involved:
1. Determination of "related person" under excise law.
2. Valuation of goods for excise purposes.
3. Applicability of extended period for issuing show cause notices.
4. Impact of Notification No. 56/2002 on the demands.
5. Revenue neutrality argument.

Detailed Analysis:

1. Determination of "Related Person" under Excise Law:
The main issue was whether Noticee 1 (Sudershan Castings Pvt. Ltd.) was a "related person" to Noticees 2 (Sudershan Steels Pvt. Ltd.) and 3 (Trikuta Steel Rolling Mills) under the excise law. The Commissioner concluded that Noticee 1 was a "related person" to Noticees 2 and 3, leading to valuation under Rule 8 read with Rules 9 and 10 of the Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The Commissioner relied on the declaration filed by Noticee 1 under sub-rule (3A) of Rule 173C for the financial year 2000-01, which contained contradictory information. The definition of "related person" was examined under the amended law effective from 1-7-2000, which has a broader scope compared to the earlier definition. The appellants' argument that "relative" should mean only "relative by blood or marriage" was rejected, as the law now includes "inter-connected undertakings" and entities with mutual business interests.

2. Valuation of Goods for Excise Purposes:
The valuation of steel ingots was a crucial point. The Commissioner determined that the valuation should be at 110% (or 115%) of the cost of production, as per the applicable rules. The appellants contended that the prices charged by Noticee 1 were higher than the market price in Mandi Gobindgarh and that common premises, computers, and employees alone cannot establish a relationship. However, the Commissioner found that the common directors and partners among the noticees, along with the misleading declarations, substantiated the related person status, thus justifying the valuation method used.

3. Applicability of Extended Period for Issuing Show Cause Notices:
The appellants argued that the show cause notices issued in August and September 2005 could not invoke the extended period since the Department knew of the relationship by 19-9-2002. The Tribunal rejected this argument, clarifying that the relevant date for raising demands should be based on the filing of periodical returns as per Section 11A of the Central Excise Act. The first show cause notice issued on 4-8-2005 covered the period from 1-7-2000 to 30-9-2004 and was within the prescribed five-year period. The second show cause notice dated 15-9-2005, covering 1-10-2004 to 31-8-2005, had no dispute regarding its timeliness.

4. Impact of Notification No. 56/2002 on the Demands:
The appellants claimed that Notification No. 56/2002, which provides excise duty exemptions for units in Jammu & Kashmir, should negate the demands. However, this argument was not raised before the lower authorities and required a detailed examination of facts. The Tribunal noted that the appellants were pursuing the benefits under this notification before the concerned authorities, and thus, it did not warrant further consideration at this stage.

5. Revenue Neutrality Argument:
The appellants argued that the entire exercise was revenue neutral, as any duty paid would have been absorbed as credit by the buyers. The Tribunal dismissed this argument, stating that the appellants failed to demonstrate how this theory applied to their case with concrete facts and figures. The Tribunal emphasized that once the parties are established as "related," the valuation rules automatically apply, making market price comparisons irrelevant.

Conclusion:
The Tribunal upheld the findings of the Commissioner, confirming that Noticee 1 was a "related person" to Noticees 2 and 3 under the amended excise law. The valuation method used was justified, and the extended period for issuing show cause notices was correctly applied. The arguments regarding Notification No. 56/2002 and revenue neutrality were rejected. Consequently, all appeals were dismissed.

← Previous Next →