2019 (9) TMI 1522 - AT - Central Excise

Valuation - related party or not - requirement to pay duty on transaction value at which the said goods have been sold by the related person - suppression of material facts regarding sale of excisable goods to related person - extended period of limitation - HELD THAT - The Court below have ignored the fact that there are also sales to unrelated parties at same prices or even lower price, as compared to the transaction value for clearance to M/s P. K. Industries. Further, classification of M/s P. K. Industries as related person of the appellant as per Accounting Standard AS(18) issued by the Institute of Chartered Accountants of India, is not equal to the definition of related person under Section 4(3)(b) of the Central Excise Act - Admittedly, in the facts of these appeals, the appellant is a Private Limited company whereas the said M/s P. K. Industries is a partnership firm and thus they are not interconnected undertakings. Another coordinate Bench of this Tribunal in M/S. PHILIPS ELECTRONIC INDIA LTD. AND PHILIPS ELECTRONICS NY. THE NETHERLANDS VERSUS CCE-CHANDIGARH 2015 (11) TMI 1161 - CESTAT NEW DELHI under the fact that 97-98% of the goods were sold to related person and balance 2-3% to independent buyer, there being no allegation that independent buyer is also a related person and the transaction value of independent buyer was similar to sale price of alleged related person, there is no allegation that the transaction value that the independent buyer is not genuine. It was held that when assessee has sales on regular basis to independent buyers, it cannot be said that assessee has so arranged that goods manufactured by him are generally sold by him to or through a related person. These appeals by way of remand to the adjudicating authority to determine the show cause notice denovo in accordance with law - Appeal allowed by way of remand.

Summary

Issues:
1. Central Excise duty valuation on goods sold to related person.
2. Allegations of suppression of material facts and extended period of limitation.
3. Challenge to the classification of a firm as a related person.
4. Time-barred demand for a specific period.
5. Inclusion of additional charges in the valuation of goods.
6. Applicability of Service Tax on freight charges.
7. Interpretation of related person under the Central Excise Act.

Analysis:
1. The case involved the valuation of goods under Rule 9 of the Central Excise Valuation Rules, where the appellant was alleged to have sold goods to a related person at a lower value, resulting in short payment of duty. The Tribunal found that the appellant also sold goods to unrelated parties at similar or lower prices, questioning the classification of the related person as per the Central Excise Act.

2. Allegations of suppression of material facts and invocation of extended period of limitation were made due to the appellant's failure to disclose sales to the related person. The Tribunal noted that the mere inclusion of a firm as a related person in the balance sheet may not establish the required financial flow back for the firm to be considered related under the Act.

3. The appellant challenged the classification of the firm as a related person, arguing that being a private limited company while the related firm was a partnership did not meet the criteria of related persons under the Act. The Tribunal cited precedent cases to support the argument that without evidence of financial flow back, the mere association of parties may not establish a related person relationship.

4. The demand for a specific period was challenged as time-barred, with the appellant contending that the extended period of limitation was not applicable. The Tribunal directed a remand to the adjudicating authority to determine the matter in accordance with the law and the findings of the Tribunal.

5. The inclusion of additional charges like freight, loading, unloading, and discounts in the valuation of goods was disputed by the appellant. The Tribunal highlighted that Service Tax and Central Excise duty are mutually exclusive and cannot be levied on the same transaction or value.

6. The appellant argued against the applicability of Service Tax on freight charges, emphasizing the exclusion of such charges from the valuation for Central Excise duty. The Tribunal's decision to remand the case indicated a need for a reevaluation of the show cause notice in light of the legal provisions and findings.

7. The interpretation of related person under the Central Excise Act was a crucial aspect of the case, with the Tribunal emphasizing the specific criteria for entities to be considered related persons. The Tribunal's decision to allow the appeals by way of remand reflected the need for a thorough review of the case based on legal principles and precedents cited during the proceedings.