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2018 (2) TMI 1231 - AT - Central ExciseValuation - Interpretation of Statute - definition of related person under section 4 of Central Excise Act, 1944, read with definition of interconnected undertakings in Section 2(g) of MRTP Act, 1969 - Valuation - related party transaction - Department harboured the view that appellant and the two firms are related to each other and having mutual interest; that appellants adopted lower prices to these two firms compared to that of other independent customers; that appellants were collecting certain amounts as twisting & straitening charges from these two firms by raising debit notes which are not being included in the assessable value. Whether the shareholding of close relatives of the partners can be added to the shareholding of the partners themselves for the purposes of adjudging whether the partners of each firm hold directly or indirectly, not less than 50% of the share of another entity which is a body corporate? Held that - At the time of introduction of new section 4, the CBEC thought it proper to issue a circular No. 354/81/2000-TRU dated 30.06.2000 which sought to explain the changes brought about. In para 5 of the said circular, CBEC clarified that new section 4 essentially seeks to accept different transaction values which may be charged by the assessee to different customers for assessment purposes, so long as these are based upon purely commercial consideration, where buyer and seller have no relationship and price is the sale consideration for same - Para 24 of the circular clarifies that a new provision has been made in the valuation rules and even if the assessee and the buyer are inter-connected undertakings, the transaction value will be registered only when they are related in terms of clause (ii), (iii), or (iv) of sub section 4(3)(b) or the buyer is a holding company or a subsidiary company of the assessee. In para 25, it was further clarified that notwithstanding the change in the definition of related personin the new section 4 for practical applications, its scope has been restricted and but for small variation, it would not be much different than that covered under the old section 4 definition - post 01.07.2000, assessee and the buyer shall be deemed to be relatedas per section 4(3)(b) of the Act. For the purpose of section 4 of the Central Excise Act, persons shall be deemed relatives, if they both in any of the categories listed in sub section 4 (3) (b) thereof. True, one of these categories is when the persons are relatives, where relative shall have the meaning assigned to it under section 2(41) of the Companies Act, 1956. The list of relatives under the provision includes only members of Hindu Undivided Family (HUF), or husband & wife, or, if they fall in the list of 22 categories of relatives given in schedule 1(a) to Section 6 of the Companies Act, 1956. The relationships like brother-in-law, mother-in-law etc. do not find a place in that list. In any case, the department is not seeking to allege that the impugned entities are related on account of their falling within the ambit of 4(3)(b)(ii) namely they are relatives. On the other hand, the department has only sought to charge these entities as being related for the purpose of section 4(3)(b)(i), that they are inter-connected undertakings. Whether the addition of share holding of close relatives by the adjudicating authority is legally correct or not? - Held that - the answer is resoundingly in the negative. We are unable to find any provision in section 4 of Central Excise Act, 1944 or for that matter, in section 2(g) of MRTP Act, 1969 that allows for such addition of shareholding of close relatives. Secondly the conclusions arrived at by the adjudicating authorities in this regard are against all accepted principles of statutory interpretation. Words in a statute should be interpreted literally and as they stand, and the starting point for interpreting a statue, is the language of the statute itself. When the words of a statute are unambiguous, this first canon is also the last - the attempt of the lower authorities to add the shareholding of the shareholders in Black Gold related to the concerned partners is surely a misconceived interpretation of the relevant statutory provision. The combined shareholding of the partners in each firm, who are also shareholders in the body corporate can alone be added up for the purpose of determining whether they cross the 50% shareholding bench mark. As seen above, this is suddenly not the case in respect of the concerned partners of both AS Steel Traders and Sri Vijayalaxmi Steel Traders - M/s Black Gold and the two firms cannot be considered as related persons for the purpose of section 4(3)(b)(i) of Central Excise Act, 1944. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether the appellant and the two buyer firms are related persons or inter-connected undertakings. 2. Interpretation of Section 4 of the Central Excise Act, 1944, read with Section 2(g) of the MRTP Act, 1969. 3. Applicability of transaction value for the purpose of Section 4 of the Central Excise Act, 1944. 4. Validity of the differential duty demand, interest, and penalties imposed. 5. Consideration of time-bar under Section 11A of the Central Excise Act, 1944. Detailed Analysis: 1. Related Persons or Inter-connected Undertakings: The primary issue was whether the appellant (M/s Black Gold Profiles Pvt. Ltd) and the two buyer firms (M/s A.S. Steel Traders and M/s Sri Vijaylaxmi Steel Traders) are related persons or inter-connected undertakings. The department alleged that the appellant and the two firms are related due to mutual interest and lower prices adopted for these firms compared to independent customers. The adjudicating authority and the lower appellate authority upheld this view, considering the shareholding pattern and the relationship between partners and their close relatives. 2. Interpretation of Section 4 of the Central Excise Act, 1944, and Section 2(g) of the MRTP Act, 1969: The core issue was the interpretation of "related person" under Section 4 of the Central Excise Act, 1944, read with the definition of "inter-connected undertakings" in Section 2(g) of the MRTP Act, 1969. The authorities examined whether the shareholding of close relatives of the partners can be added to the shareholding of the partners themselves to determine if the partners hold not less than 50% of the shares of the body corporate. The adjudicating authorities concluded that the partners and their close relatives together held more than 50% of the share capital, thereby satisfying the criteria of inter-connected undertakings. 3. Applicability of Transaction Value: The appellant argued that the two buyer firms are not related persons or inter-connected undertakings, and therefore, the sale price to these buyers should not have been rejected. The department, however, held that the lower selling prices extended by the appellant to the two related firms could not be accepted as the transaction value. The Tribunal found that the combined shareholding of the concerned partners in each firm did not reach the 50% benchmark required to be considered inter-connected undertakings and related persons under Section 4 of the Central Excise Act. 4. Validity of Differential Duty Demand, Interest, and Penalties: Various show cause notices were issued proposing a demand of differential duty, education cess, interest, and imposition of penalties under different provisions. The adjudicating authority confirmed the proposed demand along with interest and penalties. The Tribunal, however, set aside the impugned orders, concluding that the entities were not related persons, and hence, the differential duty demand, interest, and penalties were not sustainable. 5. Consideration of Time-bar under Section 11A: The appellant contended that the demands were time-barred as they were regularly assessed to duty, filed returns, and corresponded with the authorities. The first show cause notice invoking a larger period did not allege fraud, collusion, wilful misstatement, suppression, or contravention of law. The Tribunal did not specifically address the time-bar issue in the final decision, as the primary ground for setting aside the orders was the incorrect interpretation of related persons. Conclusion: The Tribunal allowed the appeals, setting aside the impugned orders and concluding that M/s Black Gold Profiles Pvt. Ltd and the two buyer firms were not related persons under Section 4 of the Central Excise Act, 1944. Consequently, the differential duty demand, interest, and penalties imposed were not sustainable. The appeals were allowed with consequential benefits as per law.
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