2019 (4) TMI 1064 - AT - Central Excise

Related party transaction or not - goods sold from the factory gate of the appellant during the said period were sold to/through firms which were related persons - Section 4(4)(c) of the provisions of the Central Excise Act - Mutuality of Interest - HELD THAT - The issue is no more res-integra as this stands settled by the decision of Hon ble Supreme Court in UNION OF INDIA OTHERS VERSUS ATIC INDUSTRIES LTD. 1984 (6) TMI 51 - SUPREME COURT OF INDIA , where it was held that It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other. In the instant case, there is no evidence disclosed in either the show cause notice or the impugned order which establishes that the requirement as stated above, laid down by Hon ble Supreme Court that both the Appellant and the parties to whom it sold the goods, had interest in the business of each other. The evidence on record discloses that the Appellant did not have any interest in the business of its buyers. Hence, there was one way interest .Whereas the pre-requisite is that of mutual interest, which has not been satisfied. Therefore, it cannot be said that the Appellant and its buyers were related persons and that the sale of the goods were to or through related persons, as envisaged under Section 4(4)(c) of the Central Excise Act - The contrary finding of the Commissioner is thus not sustainable. Valuation - goods sold from depots/selling agent s places - whether the factory gate sale price or the depot sale price is to be considered or not? - HELD THAT - In the impugned order of the Commissioner, it is acknowledged that the Appellant Company sold small quantity of their goods at the factory gate and that such goods were cleared ex-factory to the independent buyers . It is, therefore, established that the Appellant had factory gate sales, though of small quantity, which were cleared to independent buyers - These are all post manufacturing expenses and there is no evidence that any part of the said expenses were incurred within the factory premises prior to clearance of the goods from the factory gate. Hence, these charges are not to be included in determining the assessable value of the goods cleared ex-factory by the Appellant. There has been no under-valuation of the goods sold by the appellant during the material period and hence, there has been no short payment of Central Excise duty payable - demand of duty and interest, confirmed by the impugned order, is thus unsustainable - penalty also not sustainable. Extended period of limitation - HELD THAT - Since we have decided the issue on merits, in favour of the Appellant, we refrain from dealing with this issue. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the goods sold from the factory gate were sold to/through "related persons" within the meaning of the Act.
2. Whether the factory gate sales should be the basis for determining the assessable value and excise duty for goods sold from depots/selling agents.
3. Whether the demand of duty is barred by limitation.
4. Whether the duty demand is sustainable.
5. Whether the penalty imposed under Rule 173Q is legally valid and tenable.

Issue-wise Detailed Analysis:

1. Related Persons:
The first issue was whether the goods sold from the factory gate during the specified period were sold to "related persons" as defined under Section 4(4)(c) of the Central Excise Act. The appellant argued that the goods were sold to independent wholesale buyers at arm's length and on a principal-to-principal basis. The Tribunal referred to the Supreme Court's decisions in Union of India Vs. Atic Industries Limited and CCE Vs. Goodyear South Asia Tyres Private Limited, which clarified that "related persons" must have mutual interest in each other's business. The Tribunal found no evidence that the appellant and its buyers had mutual business interests, thus ruling that the sales were not to related persons.

2. Assessable Value:
The second issue was whether the assessable value of goods sold from depots should be based on factory gate sales. The Tribunal noted that the appellant had factory gate sales to independent buyers, albeit in small quantities. Referring to the Supreme Court's decision in Indian Oxygen Limited Vs. CCE, it was held that the ex-factory price should be the basis for determining the assessable value, even if the quantity sold at the factory gate was small. The Tribunal also cited other cases, including Southern Bottlers Private Limited Vs. CCE and CCE Vs. Falcon Tyres Limited, which supported this view.

3. Limitation:
The third issue was whether the demand of duty was barred by limitation. The appellant argued that the demand was time-barred. However, since the Tribunal decided the case on merits in favor of the appellant, it refrained from addressing this issue.

4. Duty Demand:
The fourth issue was whether there was any short payment or short levy of Central Excise Duty. The Tribunal found that the additional charges collected by the appellant were post-manufacturing expenses and not includable in the assessable value. Consequently, there was no under-valuation or short payment of duty.

5. Penalty:
The fifth issue was the validity of the penalty imposed under Rule 173Q. Given that there was no under-valuation or short payment of duty, the Tribunal ruled that the penalty imposed was unsustainable.

Conclusion:
The Tribunal set aside the impugned order of the Commissioner, ruling in favor of the appellant on all issues. The appeal was allowed with consequential relief, and the order was pronounced in the open court on 15/11/2018.

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