2018 (8) TMI 317 - AT - Central Excise

Scope of SCN - Valuation - related party transaction - Held that - The demand in the show cause notice is only on the ground that PPL and assessee were related parties and therefore the price at which M/s PPL was selling the chairs to the customers should be the assessable value for the purpose of Central Excise duty - There is no demand whatsoever in the show cause notice on the grounds that there is an additional consideration for sale. That being the fact that Order-in-Original has travelled beyond the scope of show cause notice in confirming the demand which is not correct and the same needs to be set aside. Since the demand has been found liable to be set aside the interest and penalties do not survive either. The demand confirmed in the Orderin- Original and the interest and the penalties imposed are liable to be set aside - Appeal allowed.

Summary

Issues Involved:
Appeal against Order-in-Original imposing personal penalties under Rule 209 A of the Central Excise Rules, 1944 based on related party transactions and additional consideration for sale.

Detailed Analysis:

Issue 1: Related Party Transactions
The appellant, a manufacturer of plastic moulded chairs, supplied products to M/s Polyset Plastic Limited (PPL), which then sold them at a higher price. The show cause notice alleged that the transaction between the two entities was not at an arm's length due to their relationship and mutual business interests. The notice highlighted various benefits received by the appellant from PPL, such as payment of insurance premiums, supply of raw materials, and provision of machinery. The Commissioner, after detailed examination, concluded that the agreement was on a principal-to-principal basis and did not fall under the definition of related persons as per Central Excise Law. Consequently, the demand based on the price at which PPL sold chairs to customers was deemed unsustainable.

Issue 2: Additional Consideration for Sale
The show cause notice raised two main allegations: related party status and additional consideration for sale. However, the demand was solely based on the related party aspect, overlooking the claim of additional consideration for sale. The Commissioner, while acknowledging certain benefits received by the appellant from PPL, only considered insurance charges on machinery and the difference between interest on machinery purchase loan and lease charges as additional consideration for sale. This led to a confirmed demand of ?3,77,695 along with penalties on the appellant and individuals associated with both entities.

Judgment and Conclusion
Upon review, the appellate tribunal found that the demand confirmed in the Order-in-Original exceeded the scope of the show cause notice as it did not address the issue of additional consideration for sale. As a result, the tribunal set aside the demand, interest, and penalties imposed. The decision was based on the principle that the Order-in-Original should align with the grounds specified in the show cause notice. Therefore, the appeals were allowed, and the impugned Order-in-Original was overturned, emphasizing the importance of adhering to the scope of allegations in legal proceedings.