2008 (11) TMI 216 - AT - Central Excise

Valuation Related persons Inter Connected Undertakings (ICU) Held that - two companies can be considered as Inter-connected undertakings , if one owns or controls the other, if one body corporate manages the other body corporate etc. - special provision (rule 9) is to be invoked only in cases where goods are sold exclusively to or through related persons. It is not in dispute that such a case does not exist here - merely because of shareholdings pattern or common directors, the units cannot be considered as related persons Cost of the goods by the Asstt. Director (Cost) in respect of goods can not be questioned costing by the assessee is not reliable - in the case of the sales effected by UPL through the related person UTL, additional consideration of Rs. 295.50 is flowing from Senorita to UTL. There is thus evidence that the higher value has been collected through the related person demand of duty confirmed however penalty amount reduced or waived in certain cases

Issues Involved:
1. Interconnected Undertakings and Related Persons
2. Applicability of Rule 10 of the Central Excise Valuation Rules, 2000
3. Validity of Assistant Director (Cost) Report
4. Sale Below Cost Price
5. Limitation and Extended Period for Demand
6. Issuance of Corrigendum by Commissioner
7. Imposition of Penalties

Detailed Analysis:

1. Interconnected Undertakings and Related Persons:
The appellants argued that merely having common directors or shareholding does not establish that two companies are interconnected undertakings or related persons. They cited several case laws to support their claim. However, the Tribunal noted that the case laws cited pertain to periods before the amendment to Section 4 of the Central Excise Act, 1944. Under the amended Section 4(3)(b), persons are deemed related if they are interconnected undertakings as defined by the Monopolies and Restrictive Trade Practices Act, 1969. The Tribunal found that UPL and UTL were interconnected undertakings because UTL held 40% shares in UPL and had common directors, thus satisfying the conditions under Section 2(g) of the MRTP Act, 1969.

2. Applicability of Rule 10 of the Central Excise Valuation Rules, 2000:
The Tribunal examined whether Rule 10, which applies when goods are sold exclusively to or through an interconnected undertaking, was applicable. It was found that UPL also sold goods to other customers, not just UTL. Therefore, invoking Rule 10 was deemed improper. The Tribunal relied on the case of Pepsico India Holdings (P) Ltd. v. CCE, Mumbai, which held that special valuation provisions apply only when goods are exclusively sold to or through related persons. Consequently, the demand of Rs. 34,62,462.86 was set aside.

3. Validity of Assistant Director (Cost) Report:
The appellants questioned the engagement of the Assistant Director (Cost) for valuation, arguing that he was not a practicing cost accountant. The Tribunal dismissed this objection, stating that the Assistant Director (Cost) is a qualified professional and an employee of the department, and his services can be requisitioned by the department. The appellants did not contest the report on its merits, and there was no allegation of bias or ulterior motive.

4. Sale Below Cost Price:
The appellants argued that selling below cost is permissible under Section 4 of the Central Excise Act, 1944, and cited case laws to support their claim. However, the Tribunal found that in this case, additional consideration was flowing from Senorita to UTL, indicating that the declared sale price was not genuine. The report by the Assistant Director (Cost) corroborated that the declared value was substantially lower than the actual cost. Thus, the sale price was not considered genuine, and the demand based on the differential cost was upheld.

5. Limitation and Extended Period for Demand:
The appellants contended that the demand was barred by limitation as the show cause notice was issued on 4-7-2005 for the period 1999-2000 to 2003-04. They argued that there was no suppression of facts or intent to evade duty. However, the Tribunal found that the appellants had suppressed the true assessable value with intent to evade duty, justifying the invocation of the extended period of five years under the proviso to Section 11A(1) of the Central Excise Act, 1944.

6. Issuance of Corrigendum by Commissioner:
The appellants argued that the Commissioner became functus officio after passing the order dated 28-2-2006 and could not issue a corrigendum on 1-5-2006. They cited case laws where significant changes made by corrigendum were held unsustainable. However, the Tribunal found that the corrigendum only rectified clerical mistakes and did not change the order's complexion. The penalty amounts were initially omitted due to oversight and were later included by the corrigendum.

7. Imposition of Penalties:
The Tribunal upheld the demand of Rs. 90,89,480.56 along with interest and an equivalent penalty. However, it set aside the penalty of Rs. 25,00,000/- imposed under Rule 25 of the Central Excise Rules, 2002, as per CBEC's Excise Manual of Supplementary Instructions, 2005, which states that if a penalty is imposed under Section 11AC, a penalty under Rule 25 should not be imposed. The penalty on Shri Sanjay Bahadur was reduced to Rs. 1,00,000/- to meet the ends of justice.

Conclusion:
The impugned order was modified to the extent indicated above, and the appeals filed by the appellants were partially allowed. The Tribunal provided a detailed analysis of each issue, ensuring that the legal principles and significant phrases from the original judgment were preserved.

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