2019 (7) TMI 1794 - AT - Central Excise

Valuation of goods - Deemed CENVAT Credit - job-work - related party or not - Mutuality of interest - N/N. 6/2002-CE (MT) dated 01.03.2002 - Revenue s argument is that since the appellants and the other two Units for whom they undertake the processing of fabrics on job work basis being related to them the principles of job work valuation laid down by the Hon ble Supreme Court in UJAGAR PRINTS ETC. ETC. VERSUS UNION OF INDIA OTHERS 1989 (1) TMI 124 - SUPREME COURT is inapplicable - time limitation - HELD THAT - In the impugned order learned Commissioner while analyzing the evidence on record held that since all Units belongs to the same management and separate Balance Sheets are not prepared for individual units the transactions between the appellant and other two Units are not on principal to principle basis and price is not the sole consideration they are inter-connected undertakings and accordingly are related within the meaning and definition of related persons prescribed under Section 4(3)(b) of Central Excise Act 1944. The appellants in the course of argument have fairly submitted that all these three Units could be termed as interconnected undertakings. However there is no mutuality of interest and hence the definition of related person as prescribed under Section 4(3)(b)(iv) of Central Excise Act 1944 is not satisfied. Related persons or not - HELD THAT - It is difficult to appreciate the arguments of the appellant in as much as the Profit Loss Accounts maintained by all the three Units are not separate but common and also the Balance Sheets prepared is common for all these Units. Besides all these three Units are particularly functioning as single Unit and hence cannot be called as independent to each other and the transactions between them are on principal to principal basis. Therefore the findings of the learned Commissioner that three Units are related persons within the Section 4 (3) (b) of Central Excise Act 1944 is correct and sustainable. Extended period of limitation - HELD THAT - The department was fully aware of the fact that M/s Mandhana Dyeing the Appellant is a Division of MIPL who undertake processing of goods for MIPL on job work basis and supplied the same to the said after completion of the processing of fabrics supplied to them. The communications between the Appellant and the department commencing from 04.06.1998 clearly indicate that while responding to the objections on valuation of job work of fabrics for their other units the appellant had clearly mentioned that M/s Mandhana Dyeing is a Division of MIPL. In these circumstances invoking the extended period of limitation cannot be sustained. Thus even though on merit it is found that M/s Mandhana Dyeing the Appellant are related to MIPL and MFP (Export Division) and the valuation of processed goods on job work cannot be determined. However the demand confirmed invoking the extended period of limitation cannot be sustained - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants are related to M/s Mandhana Industries Pvt. Ltd. (MIPL) and M/s Mandhana Fashion Port (Export Division) (MFP) for whom they undertake the job work.
2. Whether the appellants are entitled to deemed CENVAT Credit under Notification No. 6/2002-CE (MT) dated 01.03.2002.
3. Whether the demand is barred by limitation.

Analysis:
1. The Revenue argued that since the appellants and the other two Units are related, the principles of job work valuation in Ujagar Print's case do not apply. The Commissioner found that since all units belong to the same management, transactions were not on a principal-to-principal basis, making them related persons. The appellants agreed that the units were interconnected but argued against mutuality of interest. The Tribunal upheld the Commissioner's decision, stating that the units were related persons under the Central Excise Act.

2. The appellants contended that the demand was time-barred as they had informed the department about their relationship with MIPL and MFP in various communications. They argued that the department was aware of their status as a division of MIPL. The Tribunal agreed that the extended period of limitation could not be sustained due to the department's knowledge of the relationship, setting aside the demand on this ground.

3. While finding the appellants related to MIPL and MFP, the Tribunal concluded that the valuation of processed goods on job work could not follow the principles of the Empire Industries case. However, due to the limitation issue, the demand confirmed was set aside, and the appeal was allowed. The Tribunal highlighted the importance of mutual interest in determining related persons under the Central Excise Act and the significance of timely communication in limitation cases.