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2018 (8) TMI 13 - AT - Central ExciseValuation - related party transaction - whether the appellant and WDPL are related persons within the ambit of Section 4(4)(c)/4(3)(b) of Central Excise Act, 1944 so as to necessitate the rejection of the transaction value under Section 4(1)(a) and to re-determine the value in terms of Rule 6 of Central Excise Valuation (Determination of the Price of Excisable Goods) Rules, 2000 and as to whether Rule 9 and Rule 10 of Valuation Rules are invokable? Held that - The only mention in the show-cause notice is about the appellant and WDPL being related and other than that it has not been shown as to how they are related. As rightly observed by the original adjudicating authority, mere fact of sharing common premises and services of employees do not make the two entities related in terms of Section 4(4)(c)/4(3)(b) of Central Excise Act, 1944. No discussion or proof regarding any flow-back of funds or consideration from WDPL to the appellant has been brought forth. Mutuality of interest in one another is also not established - the allegation that WDPL have been put in place only with an intention to depress or suppress the value is not tenable. Once there is no ground for rejection of transaction value, recourse to re-determination of the value in terms of Central Excise Valuation Rules, is not warranted. Time limitation - Held that - The appellants have given a clear declaration that they will be clearing their entire goods to WDPL who are their sole distributors. The appellants were audited by the departmental officers in 2000 and 2002 and there was no positive act of suppression shown to have been done by the appellants with an intent to evade payment of duty - the department is not free to invoke the extended period for issue of show-cause notice - the issue is barred by limitation. Penalty not leviable either on the appellant or their Director. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether the appellant and WDPL are 'related persons' under Section 4(3)(b) of the Central Excise Act, 1944. 2. Validity of the transaction value between the appellant and WDPL. 3. Applicability of Rule 9 and Rule 10 of the Central Excise Valuation Rules, 2000. 4. Invocation of the extended period for issuing the show-cause notice. 5. Justification for the imposition of personal penalty on the Director. Detailed Analysis: 1. Related Persons: The primary issue was whether the appellant and WDPL are 'related persons' within the meaning of Section 4(3)(b) of the Central Excise Act, 1944. The Additional Commissioner found that the appellant and WDPL are not related persons and do not have any direct or indirect interest in each other's business. There was no financial flow-back from WDPL to the appellant, and it could not be argued that WDPL was created to evade duty. The Commissioner (A) did not dispute these findings but reiterated the show-cause notice's allegations without providing specific evidence. The Tribunal agreed with the Additional Commissioner's findings, emphasizing that mere sharing of premises and employees does not establish a related person relationship without mutual interest and financial flow-back. 2. Transaction Value: The show-cause notice alleged that the appellants cleared goods to WDPL at a lower value, who then sold them to KSPL at a higher price, thus contravening Section 4 of the Central Excise Act, 1944. The Tribunal found that the transactions between the appellant and WDPL were on a principal-to-principal basis, and the sale was complete when the goods were transferred to WDPL. The Commissioner (A) failed to prove that the transaction value was depressed or that WDPL was a ruse to depress the value. The Tribunal emphasized that the transaction value could not be dismissed based on surmises and that there was no evidence of additional consideration flowing from WDPL to the appellant. 3. Applicability of Rule 9 and Rule 10: The Commissioner (A) adopted the price at which WDPL sold the goods to KSPL for determining the value. However, the Tribunal noted that to invoke Rule 9 or Rule 10, there must be a clear finding that the appellant and WDPL are 'related persons' under Section 4(3)(b). Since no such finding was established, the determination of value under these rules was deemed legally unsustainable. 4. Invocation of Extended Period: The appellants argued that the issue was barred by limitation since they had disclosed the sale pattern to the department, and their accounts were audited in 2000 and 2002 without adverse observations. The Tribunal agreed, finding that the department had knowledge of the transactions and there was no suppression of facts by the appellants. Therefore, the extended period for issuing the show-cause notice was not invokable. 5. Personal Penalty on the Director: The Tribunal did not find it necessary to discuss the issue of personal penalty on the Director, as the main issue was not sustainable on merits. The imposition of personal penalty under Rule 26 of the Central Excise Rules, 2002, was deemed unjustified since there was no confiscation of goods. Conclusion: The Tribunal allowed the appeals, setting aside the impugned order and granting consequential relief to the appellants. The order was pronounced in open court on 27/07/2018.
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