2019 (2) TMI 1478 - AT - Central Excise

Valuation - interconnected undertakings - related party transaction or not - respondent had been supplying steel ingots to M/s. Orange City Alloys Pvt Ltd - rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Held that - In the present instance, the definition of related person, though including interconnected undertaking, as found by the appellate authority is not admitted and certainly does not extend to the valuation provision invoked in the show cause notice. The reviewing authority appears to have omitted to consider the substantial difference between rule 9, which is applicable in certain conditions of relationship, and rule 10 which is applicable circumstances in which the relationship between the buyer and the seller is solely between the interconnected undertakings. The finding that the two not being interconnected with consequent exclusion from liability to duty under the Rules is legal and proper - appeal of Revenue dismissed.

Issues:
1. Appeal against order-in-appeal confirming differential duty liability.
2. Interpretation of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
3. Definition of 'related person' and 'interconnected undertakings' under Central Excise Act, 1944.
4. Application of rules for valuation in cases of interconnected undertakings.
5. Relevance of transaction value and applicability of Rule 8 for valuation.
6. Comparison with previous judgments on valuation rules.

Analysis:

1. The Revenue appealed against an order confirming differential duty liability arising from goods supplied below cost to a related entity. The Tribunal noted the contention that duty should be discharged based on cost of production plus 10% under rule 8 of the Central Excise Valuation Rules, 2000.

2. The Tribunal considered the applicability of rules in cases of related persons and interconnected undertakings. The decision in Sudarshan Casting Pvt Ltd v. Commissioner of Central Excise highlighted the automatic initiation of valuation rules once parties are established as 'related.'

3. The respondent argued that the provisions of rule 8 apply only when interconnected undertakings are related as per specific criteria under the Central Excise Act, 1944. The absence of direct or indirect interest in each other's business was emphasized.

4. The Tribunal analyzed the concept of 'interconnected undertakings' and 'related person,' emphasizing the need for demonstrable interest in each other's business for rule 8 to apply. Mere material flow between units was deemed insufficient to establish mutual interest.

5. The Revenue contended that waste and scrap generated by one entity were inputs for the other, indicating an interconnected relationship. However, the Tribunal differentiated between rule 9 and rule 10, highlighting the necessity of mutual interest for rule 8 to be invoked.

6. Referring to the judgment in Handy Wires Pvt Ltd v. Commissioner of Central Excise, the Tribunal emphasized that transaction value rejection is only valid when specific relationships exist as per the Central Excise Act. The decision reiterated the primacy of transaction value over notional values like Rule 8, especially when goods are sold to both related and independent buyers.

7. Based on the above analysis, the Tribunal dismissed the Revenue's appeal, affirming that the entities were not 'interconnected' in a manner that warranted the application of Rule 8 for valuation, thus upholding the original order setting aside the duty liability.

*(Operative part pronounced in Court)*

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