2018 (4) TMI 753 - AT - Central Excise

Valuation - related party transaction - Whether appellant and EJIPL are related persons in terms of Section 4(4)(c) of the Central Excise Act and whether the sale price of EJIPL is to be adopted for determination of duty on the appellant? - Held that - Related person as given in Section 4(4)(c) must be a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other - it cannot be said that there was mutuality of interest in the business of each other. EJIPL, making payment for goods supplied by the appellant, on account ‟basis cannot be a reason to allege financial inter-dependence - there is no justification to hold that the two entities are related persons in terms of Section 4(4)(c) of the Central Excise Act. Since the sale of goods by the appellant to EJIPL is on principal to principal basis, there is no justification to adopt the price at which EJIPL sell s the goods as value for such clearance. Clandestine removal - Whether charges of clandestine clearance is sustainable on the basis of the outward gate register as w ell as inward gate register? - Held that - the allegation of clandestine clearance is exclusively is based on the register and the explanation offered by the Security Guard who has also maintained such register. The Security Guard, Sh. Azimuddin, in his statement has explained about some motors having been received for repairs. But the Revenue has not been taken cognizance of this fact. The allegation of clandestine removal cannot be upheld only on the basis of mere entries made in certain private record recovered from the security - the charges of clandestine clearance are not established. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant and EJIPL are related persons under Section 4(4)(c) of the Central Excise Act, and if EJIPL's sale price should determine duty on the appellant?
2. Whether the charges of clandestine clearance are sustainable based on the outward and inward gate registers?

Analysis:

Issue 1: Related Persons and Duty Determination
The Department alleged that EJIPL and the appellant were related persons, citing financial interdependence and control by EJIPL's Managing Director over both entities. The Department re-determined the value of clearances based on EJIPL's sale price. The appellant challenged this, asserting independent existence, separate registrations, and principal-to-principal transactions. The Tribunal found no mutuality of interest and no justification to consider them related persons. As the sale was on a principal-to-principal basis, adopting EJIPL's sale price for duty calculation was unwarranted.

Issue 2: Clandestine Clearance Allegations
The Department claimed clandestine clearances based on discrepancies in the outward and inward gate registers maintained by the Security Guard. The appellant contended that rejected motors returned for repairs were not accounted for. The Tribunal noted the allegations were solely based on the Security Guard's records, with no additional evidence. The Security Guard's explanation of returned motors was disregarded by the Revenue. Given the lack of substantial evidence and the return of a significant number of motors, the Tribunal concluded that the charges of clandestine clearance were not proven.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal on 14.03.2018.