2020 (2) TMI 1055 - AT - Central Excise

Valuation - related party transaction - sister concerns - SCN was issued to the appellant wherein it was contended that the appellant is a private limited company and SSI is a partnership firm some of the Directors of the appellant company or their relatives are either partners of SSI or relatives of such partners - whether the appellant s transaction value is acceptable in a case when goods were sold to partnership firm wherein one of the partner is Director in the appellant s company? HELD THAT - The entire case was made out only on the limited facts that in the buyer partnership firm one of the partner is Director in the appellant s company, therefore, both the concern are interconnected undertaking. Except this so called relationship there is no other allegation of mutual interest between both the concern, therefore, the matter is examined in terms of the statutory provision as provided under Section 4 (3) (b) and Rule 8/9 of Central Excise Valuation Rules, 2000. From Rule 9, it can be seen that though in Section 4 (3) (b) (i) interconnected undertaking are deemed to be related, however, in Rule 9 only the relationship mentioned under sub-clauses (ii), (iii) or (iv) of clause (b) of sub-Section (3) of Section 4 are considered for the purpose of related person, therefore, even though the seller and buyer are interconnected undertaking, if not related person in terms of sub-clauses (ii), (iii) or (iv) of clause (b) sub-Section (3) of Section 4, the same cannot be qualify as related person. Therefore, merely for the reasons that the partners of the buyer partnership firm are Director or relative of Director, the partnership firm and the appellant which is a private limited company cannot become related person for the purpose of Section 4 (3) (b). In an identical facts where the supplier is a private limited company and buyer is a partnership firm in the case of M/s Surabh Tubes Pvt. Ltd. versus Commissioner of Central Excise, Indore 1770009 , a coordinate bench of this Tribunal having identical facts of the present case the supplies made by a private limited company to a partnership firm it was held that both are not related. Accordingly, the appeal was allowed - In another case of RELIANCE INDUSTRIAL PRODUCTS VERSUS COMMISSIONER OF CENTRAL EXCISE, THANE-II 2011 (3) TMI 704 - CESTAT, MUMBAI , the Tribunal has held that a partnership firm and a public limited company having Director who are also partner in the partnership firm, the partnership firm and public limited company cannot be held related person. The appellant and the buyer partnership firm cannot be treated as related person. The Adjudicating Authority mainly contended that the partnership of the buyer partnership firm are either Director in the appellant s company or relative of Director of the appellant company. The relationship has to be seen between a partnership firm and a private limited company both are artificial juristic person. Only on the basis of natural relationship between the partner of a partnership firm and Director of private limited company, it cannot be a criteria to decide the relationship between a partnership firm and private limited company. The appellant and M/s Sunshine Steel Industries, buyer in the present case, do not fall under the term related person in terms of Section 4 (3) (b) of Central Excise Act, 1944. Therefore, the transaction value on which the goods were sold by the appellant is a correct and legal, hence a deemed value in terms of Rule 8 of Central Excise Valuation Rules, 2000 is not applicable - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Determination of whether the appellant and the buyer are "related persons" under Section 4(3)(b) of the Central Excise Act, 1944.
2. Applicability of Rule 8/9 of the Central Excise Valuation Rules, 2000 for valuation of goods.
3. Revenue neutrality due to Cenvat credit availability.

Issue-Wise Detailed Analysis:

1. Determination of "Related Persons" Status:
The primary issue was whether the appellant, a private limited company, and the buyer, a partnership firm, could be considered "related persons" under Section 4(3)(b) of the Central Excise Act, 1944. The Revenue argued that they were related because some directors of the appellant company or their relatives were partners in the buyer firm, M/s Sunshine Steel Industries. The appellant contended that a private limited company, being an artificial person, cannot be related to a natural person or a partnership firm. The Tribunal examined Section 4(3)(b) and concluded that merely having common directors or relatives does not suffice to establish a "related person" relationship. The Tribunal referred to previous judgments, such as the case of Panipat Woolen Mills vs. Commissioner of Central Excise, Ludhiana, which clarified that interconnected undertakings are not automatically treated as related persons unless specified conditions are met.

2. Applicability of Rule 8/9 of the Central Excise Valuation Rules, 2000:
The Revenue invoked Rule 8/9 of the Central Excise Valuation Rules, 2000, arguing that the supplies should be valued at 110% of the cost of production due to the alleged relationship. The Tribunal noted that Rule 9 applies when goods are sold to or through a related person as defined under sub-clauses (ii), (iii), or (iv) of Section 4(3)(b). Since the appellant and the buyer did not meet these criteria, Rule 9 was deemed inapplicable. The Tribunal reiterated that even if the entities are interconnected undertakings, they are not related persons for valuation purposes unless specific conditions are met, as stated in the case of M/s Surabh Tubes Pvt. Ltd. vs. Commissioner of Central Excise, Indore.

3. Revenue Neutrality:
The appellant argued that any excise duty payable would be available as Cenvat credit to the buyer, making the entire exercise revenue neutral. Although this point was raised, the Tribunal primarily focused on the determination of the "related person" status and the applicability of valuation rules. The Tribunal's decision to set aside the impugned orders was based on the legal interpretation of "related persons" and the inapplicability of Rule 8/9, rather than on the revenue neutrality argument.

Conclusion:
The Tribunal concluded that the appellant and the buyer were not "related persons" under Section 4(3)(b) of the Central Excise Act, 1944. Consequently, the valuation of goods could not be done under Rule 8/9 of the Central Excise Valuation Rules, 2000. The transaction value declared by the appellant was deemed correct and legal. The Tribunal set aside the impugned orders and allowed the appeals, emphasizing that the relationship between a partnership firm and a private limited company cannot be established solely on the basis of natural relationships between their partners and directors.