2016 (2) TMI 683 - AT - Central Excise

Valuation - Short payment of central excise duty on the goods cleared to related buyers - Differential duty with interest - Revenue asserted in the appeal that in terms of MRTP Act two body corporates will be treated as under the same management if one or more Directors constitute 1/4th of the Directors of the other thus all the buyers are inter-connected with the respondent - Held that - The provisions of MRTP Act talks about inter-connectivity between two body corporates. Here it is an admitted fact that four out of the five buyers are proprietory concerns. The respondent is a Public Limited Company. The Revenue also relied on the provisions of Rule 9 without specifically alleging that all the goods manufactured by the respondent are sold to or through these purported related persons. Further we find that the Revenue s assertion that a jurisdic person also can have a relative in terms of Section 2(41) of the Companies Act is totally untenable. The relative as defined under Section 2(41) should be in such way as specified in Section 6 of the Companies Act. In terms of Section 6 a person shall be deemed to be a relative of other if and only if they are members of a HUF or husband and wife or one is related to other in a manner like father mother daughter brother etc. A corporate entity the respondent being a Public Limited Company cannot fit into being called a relative in this context. It is apparent that the understanding by Revenue is due to mixing up of related person with relative . Further the submission that the profit accruing from sale through related persons goes to same family or relative is without any factual support and in any case the respondent being Public Limited Company the profit if any should flow to all the share holders. - Decided against revenue

Summary

Issues: Appeal against order for short payment of central excise duty on goods cleared to related buyers.

Analysis:
1. Interpretation of Legal Provisions:
The case involved a dispute regarding the correct payment of central excise duty by the respondent for the sale of final products to related buyers. The Original Authority and the Commissioner (Appeals) examined various legal provisions, including Section 4(1)(b) of the Central Excise Act, 1944, and the MRTP Act to determine the relationship between the respondent and the buyers. The key question was whether the declared sale value was accurate or if the sales were vitiated due to relationships between the parties.

2. Identification of Related Parties:
The respondent, a Public Limited Company, had five buyers, four of which were proprietary concerns and one a Private Limited Company. The Original Authority found that the respondent and M/s. Cosmos Ispat Pvt. Ltd. were 'inter-connected undertakings' under the MRTP Act but rejected the notion that the respondent and the other buyers were 'relatives' under the Central Excise Act. The lower Appellate Authority also determined that the transaction value under Section 4(1)(a) applied, as there was no evidence of additional consideration flowing from the buyers to the respondent.

3. Soundness of Legal Arguments:
The Revenue contended that all buyers were inter-connected with the respondent based on the MRTP Act provisions. However, the Tribunal found this argument legally untenable as it applied to inter-connectivity between two body corporates, not between a Public Limited Company and proprietary concerns. The Revenue's reliance on Rule 9 without proving that all goods were sold to or through related persons was also deemed insufficient. Additionally, the Revenue's interpretation of 'relative' under the Companies Act was criticized for misunderstanding the distinction between 'related person' and 'relative.'

4. Conclusion:
After a thorough examination of the impugned order and the Revenue's grounds of appeal, the Tribunal dismissed the appeal, finding no legal basis to interfere with the lower Appellate Authority's decision. The judgment emphasized the importance of sound legal principles and proper interpretation of relevant legal provisions in tax disputes involving related parties to ensure a fair and just outcome.