2016 (12) TMI 908 - AT - Central Excise

Valuation - rejection of transaction value - related party transaction - interconnected undertaking - Section 4 of the Central Excise Act - Held that - From rule 9 it is very clear that only in cases where goods are sold through the person as specified under clause (ii), (iii) or (iv) of clause (b) of Section 4 the transaction value at which the goods are sold by the said person shall apply and not the sale price at which goods are sold to these three category of person are made. Provision of rule 9 also suggests that merely because buyer is interconnected undertaking that alone is not sufficient for holding as related person. The show cause notice or original order have not brought any material to establish that the relationship between respondent and buyers company are one of the relationship as prescribed under sub clause (ii), (iii) or (iv) of Section 4(3)(b) of Central Excise Act therefore in our considered view even if it is accepted that the buyers company are interconnected undertaking of the appellant company it can not be treated as related person in terms of Section 4(3)(b). In absence of relationship as specified under sub clause (ii), (iii) or (iv) of Section 4 (3) (b). In this position, the transaction value of the goods between respondent and the so called interconnected undertaking is correct valuation and the same can not be disturbed, therefore value as provided under Rule 8 is not applicable in the present case - appeal rejected - decided against Revenue.

Summary

Issues:
Interconnected undertakings as related persons under Section 4 of Central Excise Act, 1944; Application of Rule 8 of Central Excise Valuation Rules, 2000 for valuation of excisable goods sold between interconnected undertakings; Interpretation of Rule 9 in relation to transactions between related persons.

Analysis:
The case involved the valuation of Hot Rolled Products of Non-alloy Steel by an appellant who was also selling goods to another company, referred to as "Rajaram." The department contended that both companies were interconnected undertakings, making them related persons under Section 4(3)(b) of the Central Excise Act. The department proposed to reject the transaction value between the appellant and Rajaram and apply Rule 8 of the Central Excise Valuation Rules, 2000 for valuation.

The appellate tribunal considered the arguments presented by both sides. It noted that while interconnected undertakings are considered related persons under Section 4(3)(b), Rule 9 of the Valuation Rules specifies that it applies only when goods are sold through specified persons as mentioned in the Act. The tribunal emphasized that the mere fact of being interconnected undertakings is not sufficient to establish a related person relationship under Rule 9.

The tribunal clarified that the transaction value can only be rejected if the buyers are related as per the specific clauses of Section 4(3)(b) or if the buyer is a holding or subsidiary company. In this case, the tribunal found that the relationship between the appellant and Rajaram did not meet the criteria specified in the Act for being considered related persons. Therefore, the valuation based on the cost construction method under Rule 8 was not applicable.

The tribunal distinguished the case from the judgment cited by the appellant, as it involved a partnership firm, unlike the present scenario of two independent private limited companies. Ultimately, the tribunal upheld the valuation of goods sold to Rajaram by the appellant, concluding that the impugned order was sustainable and rejecting the appeal of the Revenue.

In conclusion, the tribunal's decision highlighted the specific requirements under the Central Excise Act and Valuation Rules for considering entities as related persons, emphasizing the need for a clear relationship as defined in the law to apply valuation rules between interconnected undertakings.