2016 (10) TMI 304 - AT - Central Excise

Demand of differential duty - Valuation - interconnected undertakings u/s 2 (9) of MRTP Act 1969 - rule 9 of the Central Excise valuation Rules 2000 - related persons - sale of goods - Holding-Subsidiary relationship - valuation - Transaction Value as per Section 4 of the Central Excise Act, 1944 - Held that - The law is well settled in as much the transaction value can be rejected only if both the units have mutual interest in business of each other. While holding company may have an interest in the subsidiary company, subsidiary company may not have any interest in the holding company. The rule contemplates that entire production needs to be sold through the holding Company. The appellants sells 98% of his finished goods to outsiders/independent buyers, and only 2% of the finished goods manufactured are sold to the holding company - provisions of rule 9 are not invokable - demand of duty, interest and penalties not justified - appeal allowed - decided in favor of appellant.

Summary

Issues: Valuation of goods sold to holding and subsidiary company under Central Excise Act, 1944.

In the case, the appellant, a subsidiary company of M/s Mahindra and Mahindra Ltd., was engaged in manufacturing Sintered Products. The appellant supplied components to M/s Mahindra and Mahindra Ltd. for the manufacture of Motor Vehicles. The prices charged were negotiated on a principal to principal basis. The sales to M/s Mahindra and Mahindra Ltd. were below 2% of total sales. The appellant paid Central Excise duty on goods sold to M/s Mahindra and Mahindra Ltd. based on the 'Transaction Value' per Section 4 of the Central Excise Act, 1944. A Show Cause Notice alleged that the goods were sold at rates lower than cost construction without adding a profit margin, treating the companies as related persons under the MRTP Act, 1969. Both lower authorities erred in valuing the goods sold to the holding and subsidiary company. The law states that transaction value can only be rejected if both units have mutual interest in each other's business. The rule invoked, Rule 9 of Central Excise Valuation Rules 2000, applies when goods are sold only to related persons. However, since the appellant sold 98% of goods to independent buyers and only 2% to the holding company, the rule was inapplicable. The impugned order was set aside, and the appeal was allowed with consequential relief.