2018 (6) TMI 913 - AT - Central Excise

Valuation - clearances made to related units/ interconnected units - whether the sale by the appellant to PSSTL and BAI can be treated as sales to Related Person and if so whether invoking of extended period by the Department which has been confirmed in the impugned order, is justified? Held that - Audited Balance Sheet and tax audit report itself discloses that all the three firms including the appellant are related parties and all the Directors/ partners for the said three firms are relatives among themselves and holding key managerial position. Therefore there is no doubt left that the appellant and PSSTL and BAI are interconnected undertakings and it has been admitted also - Although a company, Partnership firm, Body Corporate, HUF, trust cannot be a relative of the others, but since the three companies in the present case are run/ managed by clause relatives, therefore the concept of Related Person of Clause of Section 4 (3)(b) is satisfied. It is establish that all the three companies falls under the ambit Related Persons . Therefore, the contention of the ld. Advocate for the appellant that their transaction with PSSTL and BAI are not sales to Related Person is rejected - In the present case the price charged by the appellant from PSSTL and BAI was lower then the price charged from un-related buyers, and therefore, the appellant is liable to pay the demand on the basis of price charged to un-related buyers by resorting to Rule 11 read with Rules 4 of Valuation Rules. Extended period of limitation - Held that - Since the unit has been subjected to audit periodically, the price declaration have been extensively scrutinized with the related documents and therefore the Department could not allege any suppression on the part of the Appellant and could not have invoked extended period of limitation for demanding duty - The malafide intention to evade payment or suppression also cannot be attributed to the Appellant - extended period of limitation cannot be invoked. The matter is remanded to the Adjudicating Authority for the limited purpose of re-calculating the demand for the period which is within limitation alongwith interest and penalty, if any, after hearing the appellant on this limited aspect - appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether the sale by the appellant to PSSTL and BAI can be treated as sales to “Related Person.”
2. Whether invoking of the extended period by the Department is justified.

Issue-Wise Detailed Analysis:

1. Sales to “Related Person”:
The core issue is whether the appellant's sales to PSSTL and BAI can be classified as sales to “Related Person” under Section 4(3)(b) of the Central Excise Act, 1944. The appellant did not disclose their relationship with PSSTL and BAI to the Central Excise Department, leading to an incorrect determination and discharge of duty liability. The Department discovered during an audit that the appellant sold goods to PSSTL and BAI at lower rates compared to sales to unrelated buyers. The adjudicating authority confirmed that the appellant and the buyers were interconnected undertakings, thus falling within the definition of "Related Person" under Section 4(3)(b).

The Tribunal examined the audited balance sheets and tax audit reports, which disclosed that the appellant, PSSTL, and BAI were related parties with key managerial personnel being close relatives. The balance sheets showed mutual interest and key managerial positions held by relatives, thus satisfying the conditions of being “Related Persons” under Section 4(3)(b). Consequently, the Tribunal rejected the appellant's contention that their transactions with PSSTL and BAI were not sales to “Related Person.”

2. Justification of Invoking Extended Period:
The Tribunal then considered whether the extended period for demanding duty under Section 11A(1) and 11A(4) of the Central Excise Act, 1944, was justified. The Department issued a Show Cause Notice on 05.03.2014 for the period from February 2009 to August 2013. The Tribunal noted that the audited balance sheets and tax audit reports disclosed the relationship between the parties, and the unit was subjected to periodic audits.

Since the Department was aware of the relationship through these audits, the Tribunal found no evidence of suppression, willful misstatement, or intent to evade duty by the appellant. Therefore, the extended period of five years could not be invoked. The Tribunal concluded that the appellant was liable to pay central excise duty only for the period within the one-year limitation prescribed under Section 11A(1).

Conclusion:
The Tribunal set aside the impugned demand, interest, and penalty for the extended period and remanded the matter to the Adjudicating Authority to recalculate the demand for the period within the one-year limitation, along with applicable interest and penalty, after hearing the appellant on this limited aspect.