2019 (5) TMI 504 - AT - Central Excise

Valuation - related entities - related party transaction - Rule 8 of the Central Excise Valuations Rules - revenue neutrality - allegation is based on the relationship of the directors among each other - whether the appellant are related to the buyers of the goods namely, Quartz Metal Industries (QMI) and Balbir Rolling Metal Pvt. Ltd (BRML)? HELD THAT - A perusal of the SCN shows the entire foundation of allegation is based on the relationship of the directors among each other and not about the appellant and BRML being related persons. The allegations are essetially that the directors and investors in these two entities are related to each other that the relatives of directors own up to 85% of the equity shares in the said group of companies. We find that the above allegation is totally misrepresentation of the statute. The statute requires that the assessee and buyers should be related and not that the directors of the two entities should be related. It is seen that the allegations of relationship between the two is based on the admission of the directors that they are relatives and that 100% of the product of the unit are being transferred to the Balbeer group of companies , namely QMI and BRML. It has also been asserted that the directors are members of Hindu Undivided Family. These factors are immaterial in so far as relationship between two companies is concerned. The relationship of directors has no relevance whatsoever. Another allegation made in the SCN is that they are using common basic infrastructure and staff. We find that no specific instances have been pointed out. There are no evidences in support of the allegation that M/s VDI and M/s BRML are related in terms of Section 4(3)(b) of the Central Excise Act. Consequently, the demand of duty made against VDI for clearance made to BRML cannot be sustained - In the instant case it is not in dispute that part of the sales during 2010-11 and 2012-13 were to independent buyers. Moreover BRML is not a related entity. Thus, under these circumstances rule 8 can not be invoked - In respect of clearances made by VDI to QMI also Rule 8 of the Central Excise Valuation Rules cannot be invoked as during this entire period part of the clearances were being made to BRML which has been held to be not a related person. Invocation of Rule 8 requires that no clearance should have been made to any independent entity. The appeals of the M/s VDI and Sh. Sharma are allowed - decided in favor of appellant.

Issues Involved:
1. Relationship between Vishesh Dhatu Industries (VDI) and Balbir Rolling Mills Pvt. Ltd. (BRML)
2. Applicability of Rule 8 of the Central Excise Valuation Rules
3. Revenue neutrality and extended period of limitation
4. Benefit under Notification No. 67/1995-CE

Detailed Analysis:

1. Relationship between Vishesh Dhatu Industries (VDI) and Balbir Rolling Mills Pvt. Ltd. (BRML):
The appellants argued that VDI and BRML are not related entities under Section 4(3)(b) of the Central Excise Act. The section defines "related" persons in specific terms, including inter-connected undertakings, relatives, and those with mutual interest in each other’s businesses. The tribunal found that the relationship between VDI and BRML, based on common directors and mutual investments, did not meet the criteria set forth in Section 4(3)(b). The tribunal concluded that the relationship of directors and common infrastructure usage are immaterial in determining the relationship between the two companies.

2. Applicability of Rule 8 of the Central Excise Valuation Rules:
The Revenue sought to revalue goods cleared by VDI to BRML and QMI under Rule 8, treating them as related entities. However, the tribunal noted that Rule 8 can only be invoked if the entire sales are made to related persons. Since VDI also sold to independent buyers from 2010-2011 to 2012-2013, Rule 8 could not be applied. Additionally, the tribunal found that BRML is not a related entity, further invalidating the application of Rule 8.

3. Revenue Neutrality and Extended Period of Limitation:
The appellants argued that the transactions with QMI were revenue-neutral as QMI, being a division of the same parent company BMPPL, would have availed the credit of the duty paid by VDI. The tribunal supported this view, citing previous decisions that extended periods of limitation cannot be invoked in revenue-neutral situations. Consequently, the demand for duty in respect of clearances to QMI was unsustainable on the grounds of limitation.

4. Benefit under Notification No. 67/1995-CE:
The appellants claimed entitlement to the benefit under Notification No. 67/1995-CE for clearances made to QMI, arguing that both units are part of the same legal entity and located in adjacent premises. The tribunal agreed, referencing the definition of "factory" under Section 2(e) of the Central Excise Act and previous tribunal decisions. Since VDI and QMI are essentially one factory despite separate registrations, the benefit of Notification No. 67/1995-CE was applicable, and no duty could be demanded on such clearances.

Conclusion:
The tribunal concluded that the demands made against VDI for clearances to BRML and QMI were unsustainable. The appeals filed by VDI and Sh. Sharma were allowed, and the appeal by the Revenue was dismissed. The tribunal emphasized that Rule 8 of the Central Excise Valuation Rules could not be invoked as the sales were not exclusively to related persons, and the transactions were revenue-neutral. The appellants were also entitled to the benefit under Notification No. 67/1995-CE.

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