2018 (4) TMI 762 - AT - Central Excise

Valuation - motor vehicle parts - related party transaction - goods cleared by the appellant to M/s Maruti Suzuki India Ltd, who were holding shares to the extent of 39% in the appellant s company - it was alleged that the valuation of goods cleared by the appellant to M/s Maruti Suzuki should be on the basis of Rules 8 & 9 of the Central Excise Valuation Rules, 2000 - whether the two parties are related persons as per Section 4(3) (d) of the Act? Held that - there is no evidence on record of the fact that such alleged mutuality of interest has resulted in lower price due to extra commercial considerations - it cannot be said that the two companies are related persons in terms of sub-clause (ii), (iii) or (iv) of Section 4(3) (b) of the Act. Valuation of goods as per Rule 9 read with Rule 8 of the Central Excise Valuation Rules, is applicable only in a case where goods are sold to or through a person who is related. Rule 10 of the Valuation Rules deals with the valuation of goods sold to or through inter-connected undertaking . Since the two companies are not related in terms of sub-clause (ii), (iii) or (iv) of Section 4(3)(b) of the Act, the valuation is required to be done in terms of Rule 10 (b) of the Rules which provides the valuation to be done as if they are not related persons. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Valuation of goods cleared by the appellant to M/s Maruti Suzuki India Ltd under Central Excise Valuation Rules based on their relationship and shareholding.

Analysis:
1. The appeal challenged an Order-in-Appeal alleging that the appellant and M/s Maruti Suzuki India Ltd were related persons under Section 4(3)(b) of the Central Excise Act, 1994. The department contended that due to M/s Maruti Suzuki holding 39% share in the appellant company and nominating a director, the valuation of goods should follow Rules 8 & 9 of the Central Excise Valuation Rules, leading to a demand for differential duty. The appellant argued that they did not meet the criteria of "related persons" as per the Act, citing lack of direct interest in each other's business. They also emphasized the applicability of Rule 10 over Rule 9 for valuation.

2. The Tribunal examined the definition of "related persons" under Section 4(3)(b) and noted the absence of evidence showing a mutual business interest resulting in price influence due to extra-commercial considerations between the appellant and M/s Maruti Suzuki. It was observed that mere shareholding and director nomination did not establish related person status under sub-clauses (ii), (iii), or (iv) of Section 4(3)(b). Consequently, the Tribunal held that valuation under Rule 9 of the Valuation Rules applies only when dealing with related persons in the specified manner.

3. Referring to Rule 10 of the Valuation Rules for inter-connected undertakings, the Tribunal emphasized that since the companies did not meet the related person criteria, valuation should be as if they were not related, per Rule 10(b). Citing precedents like Commissioner CE Vs M/s Oriental Steel Re-Rolling Mills, the Tribunal reiterated the need for satisfying the conditions of Rule 10 and Section 4(3)(b) for related person classification. As the appellant and M/s Maruti Suzuki did not fulfill these requirements, the Tribunal set aside the impugned order, allowing the appeal.

4. The judgment highlighted the importance of establishing a substantial business interest connection for related person classification under the Central Excise Act. It emphasized the necessity of meeting specific criteria outlined in the Act for applying valuation rules, ensuring fair treatment and adherence to legal provisions in determining duty liabilities.