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2015 (11) TMI 1161 - AT - Central ExciseValuation of goods - section 4 - Related person - Held that - When, the assessee, in addition to sale of the goods produced by him to related person on regular basis, also sells the same goods on regular basis to independent buyers, the third proviso to section 4 (1) (a) would not apply and in that case the normal price at which the assessee was selling the goods to independent buyers which would be the assessable value even in respect of the sales to related persons. The reason for this is that in terms of provisions of section 4 (1) (a), as the same stood during the period of dispute, when the goods manufactured by an assessee attracted duty at an ad-valorem rate, the value of the goods for the assessment of duty was deemed to be the normal price which was defined as the price at which such goods are ordinarily sold by the assessee to the buyer in course of the wholesale trade for delivery at the time of place of removal, where the buyer is not related person and price is the sole consideration for sale. It is assumed that PALI and Philips India Limited were related persons within the meaning of this term as defined in the section 4 (4) (c), the assessable value of the goods sold by PALI to Philips India Limited would be the price at which the similar goods were being sold by PALI to Bajaj Electricals Limited and in this regard, the department has not refuted the plea of PALI that the sale price of the goods manufactured by them to PIL was more or less same as the sale price of similar goods to Bajaj Electricals Limited. In view of this, it cannot be said that the PALI, in respect of their sales to Philips India Limited have not paid duty on the normal price. When undisputedly 2 to 3 per cent of the sales of PALI were to Bajaj Electricals Limited and neither the genuineness of these transactions is disputed by the department nor the department has alleged that PALI and Bajaj Electricals Limited were related person within the meaning of this term as defined in section 4 (4) (c), the department cannot invoke 3rd proviso to section 4 (1) (a) and charge duty in respect of the sales of PALI to Philips India Limited at the sale price of Philips India Limited to its dealers. Therefore, irrespective of whether PALI and Philips India Limited were related persons or not, the impugned duty demand against PALI and imposition of penalty on them and Philips India Limited and Philips, Netherlands is not sustainable. - Decided in favour of assessee.
Issues Involved:
1. Determination of assessable value for charging duty. 2. Relationship between PALI and Philips India Limited. 3. Applicability of the third proviso to Section 4(1)(a) of the Central Excise Act, 1944. 4. Validity of sales to Bajaj Electricals Limited. 5. Mutuality of interest between PALI and Philips India Limited. 6. Invocation of extended limitation period and imposition of penalties. Issue-wise Detailed Analysis: 1. Determination of Assessable Value for Charging Duty: The core issue is whether the assessable value for charging duty should be based on the sale price of PALI to Philips India Limited or the sale price of Philips India Limited to its wholesale buyers. The department alleged that PALI and Philips India Limited are related persons, thus necessitating the use of the latter's sale price for duty assessment. 2. Relationship Between PALI and Philips India Limited: The department contended that PALI and Philips India Limited are related persons within the meaning of Section 4(4)(c) of the Central Excise Act, 1944, due to combined shareholding and control over the appointment of directors. However, the appellant argued that PALI was not a wholly-owned subsidiary and lacked mutual interest in each other's business, as required by the definition of related persons. 3. Applicability of the Third Proviso to Section 4(1)(a): The third proviso to Section 4(1)(a) is applicable only when the entire sales are to or through a related person. The appellant argued that since PALI also sold goods to Bajaj Electricals Limited (an unrelated buyer) at similar prices, the proviso could not be invoked. The Tribunal upheld this view, citing precedents like Pepsico Holding India Private Limited and Cosmos India Rubber Works Private Limited, which state that the proviso applies only if sales are exclusively through related persons. 4. Validity of Sales to Bajaj Electricals Limited: The appellant maintained that sales to Bajaj Electricals Limited, constituting 2-3% of total sales, were genuine and at prices similar to those charged to Philips India Limited. The Tribunal found no evidence to dispute the genuineness of these transactions or to suggest that Bajaj Electricals Limited was a related person. Thus, the sale price to Bajaj Electricals Limited was deemed the normal price. 5. Mutuality of Interest Between PALI and Philips India Limited: The Tribunal emphasized that mutuality of interest in each other's business is essential to establish a related person relationship. The appellant demonstrated that PALI had no shareholding in Philips India Limited and vice versa, negating mutual interest. The Tribunal referenced judgments like Beacon Nevyrpic Limited and Ralli Wolf Limited to support this conclusion. 6. Invocation of Extended Limitation Period and Imposition of Penalties: The appellant contended that the extended limitation period and penalties were unjustified due to the absence of fraud, wilful misstatement, or suppression of facts. The Tribunal agreed, noting that the sales to Bajaj Electricals Limited were genuine and at normal prices, thus invalidating the department's basis for invoking the extended period and imposing penalties. Conclusion: The Tribunal concluded that the impugned order was unsustainable. It set aside the duty demand and penalties imposed on PALI, Philips India Limited, and Philips Netherlands, allowing the appeals. The Tribunal's decision was based on the genuine nature of sales to Bajaj Electricals Limited, the lack of mutual interest between PALI and Philips India Limited, and the inapplicability of the third proviso to Section 4(1)(a). Order Pronounced on 17/6/15.
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