2015 (1) TMI 451 - AT - Central Excise

Waiver of pre deposit - Valuation - sale of related period - mutual interest - Demand of differential duty on the basis of the conclusion that the QSP had not been paying any hiring charges for the machinery worth more than ₹ 1.06 crores provided to QSP by Philips. - Issuance of two show cause notice covering the same period - Held that - we find that appellants has made a prima facie case about relationship and mutuality of interest between the two to determine the value taking a view that both are related parties. Just because there is supervision, in our opinion, it cannot be said that the persons are to be considered as related persons. Other points considered by the learned Commissioner also, in our opinion, do not exactly facilitate the conclusion that they are related persons. On both these issues, there is no supporting evidence cited by the Commissioner in the impugned order; the Commissioner has taken a view that prices are mutually agreed upon also contributes to his observations. - Appellants have made out a prima facie case in their favour for complete waiver of pre-deposit. Accordingly, the requirement of pre-deposit is waived and stay against recovery is granted. - Stay granted.

Summary

Issues:
Central excise duty demand on the ground of related party status between Philips and QSP, determination of normal price for goods, non-payment of machinery hire charges, effective control of operation by Philips over QSP, consideration of relationship and mutuality of interest between the parties.

Analysis:
The judgment by the Appellate Tribunal CESTAT Bangalore involved a case where M/s. Quad Electronic Solutions (India) Pvt. Ltd. (QSP) was engaged in manufacturing electronic products for various sectors, including consumers, with Philips Electronics India Ltd. being one of their customers. The impugned order demanded a differential duty from QSP, along with penalties imposed on QSP, Philips, and the Managing Director. The central issue was the determination of related party status between QSP and Philips based on the agreement terms and non-payment of machinery hire charges exceeding &8377; 1.06 crores.

Upon reviewing the agreement between QSP and Philips, the Commissioner concluded that the price at which QSP cleared goods was abnormal compared to the open market, leading to value determination under Rule 9 of Valuation Rules, 2000. The Commissioner also noted the absence of evidence of QSP paying hire charges to Philips for machinery provided, indicating a mutuality of interest between the parties. However, the Tribunal found the Commissioner's conclusions not entirely factual and supported by evidence, especially regarding the control of operations by Philips over QSP.

The Tribunal disagreed with the Commissioner's view that the agreement was not merely for sale and purchase, emphasizing that control and supervision by a marketing company over a manufacturer does not necessarily establish related party status. The Tribunal highlighted discrepancies in the Commissioner's observations, such as unsupported claims of Philips providing goods free of cost and lack of evidence for certain events specified in the agreement. Ultimately, the Tribunal found that QSP had made a prima facie case in their favor, leading to a waiver of pre-deposit and granting a stay against recovery.

In conclusion, the Tribunal's detailed analysis focused on the agreement terms, control of operations, and the relationship between QSP and Philips to determine the related party status and the obligation to pay central excise duty. The judgment highlighted the importance of factual evidence and proper interpretation of contractual clauses in assessing the mutual interests and responsibilities of the parties involved in the manufacturing and supply chain process.