2018 (8) TMI 530 - AT - Central Excise

Valuation - related party transaction - whether the appellants herein namely; M/s L. G. & M/s Onida are related to the appellant - M/s VPIPL as per the provisions of Section 4(3)(b) of the Act? - If they are so related, whether the goods cleared by M/s VPIPL to the other appellants are liable to be valued in the light of Rules 8 & 9 read with Central Excise Valuation Rules, 2000 for the purpose of payment of duty on such goods? - whether penalties have been rightly imposed on M/s VPIPL under Rule 173Q of the Central Excise Rules, 1944 along with penalty under Rule 26 of the Central Excise Rules, 2001/2002 on M/s L. G. & M/s Onida? Held that - It is clear that M/s VPIPL was manufacturing Plastic Molded Components for and on their own behalf. Such observation is also corroborated on looking to the Terms & Conditions with M/s L. G., laying down about M/s L. G. having right of rejection, where the goods supplied by M/s VPIPL were not found in accordance with the Specifications and Quality. In such eventuality, it is M/s VPIPL who have to make arrangement for the transportation of the rejected goods from the premises of M/s L. G. to their own factory. The order passed by the Commissioner of Central Excise, Noida, does not provide any evidence which could nullify the Terms of the Agreement, referred to above. The Terms of the Agreement goes on to establish that such terms could only be where the Transactions between the Buyer & Seller are on Principle-to-Principle basis. - There is not an iota of evidence which could establish about M/s L. G./M/s Onida having any Managerial, Administrative and Financial control on M/s VPIPL or vice-versa. M/s VPIPL has Share-Holding of the members of Batra family M/s L.G/ M/s Onida being Multi-National-Companies. In no way they can be considered under the Term Related as per Section- 4 (3) (b) of Central Excise Act. The Transactions between M/s VPIPL with M/s L.G/M/s Onida are on Principal-to-Principal basis and the price charged for sale of Plastic-Molded-Components to M/s LG/M/s Onida is the sole consideration of the Sale. They are not covered also by the expression Related as defined under Section 4 (3) (b) of the Central Excise Act. Accordingly, the provision of Section 4(3)(b) (iv) of the Central Excise Act cannot be invoked in the present case. The demand confirmed along with interest and penalty imposed on M/s VPIPL needs to be set aside - as the case is decided on merits, the another plea of time bar is not discussed. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Whether the appellants, M/s LG and M/s Onida, are related to M/s VPIPL as per Section 4(3)(b) of the Central Excise Act.
2. Whether the goods cleared by M/s VPIPL to M/s LG and M/s Onida are liable to be revalued under Rules 8 & 9 of the Central Excise Valuation Rules, 2000.
3. Whether penalties imposed on M/s VPIPL under Rule 173Q of the Central Excise Rules, 1944, and on M/s LG and M/s Onida under Rule 26 of the Central Excise Rules, 2001/2002, are justified.

Issue-wise Detailed Analysis:

1. Relationship under Section 4(3)(b):

The Tribunal examined whether M/s LG and M/s Onida are related to M/s VPIPL under Section 4(3)(b) of the Central Excise Act. M/s VPIPL is an independent entity with its own factory, machinery, and workers. The shareholding of M/s VPIPL is entirely within the Batra family, with no shareholding overlap with M/s LG or M/s Onida. The agreements between M/s VPIPL and its customers, including M/s LG and M/s Onida, explicitly state that the transactions are on a principal-to-principal basis, with no employer-employee relationship. There is no managerial, administrative, or financial control exerted by M/s LG or M/s Onida over M/s VPIPL. Therefore, the Tribunal concluded that M/s LG and M/s Onida are not related to M/s VPIPL as per Section 4(3)(b) of the Central Excise Act.

2. Valuation under Rules 8 & 9:

The Tribunal evaluated whether the goods cleared by M/s VPIPL to M/s LG and M/s Onida should be revalued under Rules 8 & 9 of the Central Excise Valuation Rules, 2000. M/s VPIPL added the amortizing cost of the moulds supplied by M/s LG and M/s Onida to the transaction value of the plastic moulded components, as required by Rule 6 of the Valuation Rules. The Tribunal found that the transactions were conducted on a principal-to-principal basis, with prices settled between M/s VPIPL and its customers. The Tribunal noted that M/s VPIPL also supplied goods to other companies like Panasonic, Moser Baer, and Samsung under similar arrangements without any objections from the Department. Hence, the Tribunal held that the valuation method adopted by M/s VPIPL was correct and did not warrant revaluation under Rules 8 & 9.

3. Justification of Penalties:

The Tribunal assessed the imposition of penalties on M/s VPIPL under Rule 173Q of the Central Excise Rules, 1944, and on M/s LG and M/s Onida under Rule 26 of the Central Excise Rules, 2001/2002. Given that the Tribunal found no evidence of related party transactions or any mutual interest between M/s VPIPL and M/s LG/M/s Onida, the basis for imposing penalties was invalid. The Tribunal noted that the transactions were purely commercial and conducted on a principal-to-principal basis. Consequently, the penalties imposed on M/s VPIPL, M/s LG, and M/s Onida were set aside.

Conclusion:

The Tribunal allowed the appeals, set aside the impugned order, and ruled that M/s LG and M/s Onida are not related to M/s VPIPL under Section 4(3)(b) of the Central Excise Act. The valuation method used by M/s VPIPL was upheld, and the penalties imposed were deemed unjustified and were accordingly annulled.