2020 (3) TMI 1184 - AT - Central Excise

Valuation - 3MM Stranded Ply wire - related party transaction - applicability of Section 4 (1) (b) of CEA, 1944 - to be valued at 110% of the cost of production of such goods as per CAS-4 as envisaged in Rule 10 (a) read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 or not? - HELD THAT - The authorities below have concluded that valuation under Section 4 (1) (b) has to be adopted and not the transaction value mainly on account of the fact that the six units are inter-connected undertakings. However, from the Order-in-Original or the impugned order there is no discussion how the buyers are related persons. As per Rule 10 (a) of the Valuation Rules only if the buyers and seller are related in the manner specified under the sub-clause (ii), (iii), (iv) of Clause-(b) of Sub-section (3) of Section 4 of the Central Excise Act, 1944, the valuation as alleged in the SCNs will come into application. In the present case, apart from the units being inter-connected undertakings there is nothing to show that the buyers and seller are related persons. There is no mutuality of interest or fund flow brought out by evidence on the part of the department. Demand do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Valuation of excisable goods based on related persons under Section 4 (1) (b) of CEA, 1944.

Analysis:
The case involved the appellant, engaged in manufacturing 3MM Stranded Ply wire, facing a dispute regarding the valuation of goods cleared to buyers during a specific period. The central issue was whether the appellant and the buyers could be considered "related persons" under Section 4 (1) (b) of CEA, 1944, impacting the valuation method to be applied. The department contended that the buyers being related persons, the appellant should have determined the assessable value based on 110% of the cost of production as per CAS-4, rather than the transaction value adopted by the appellant. Two Show Cause Notices were issued, leading to the demand for short paid Central Excise duty, interest, and penalties.

The appellant argued that the buyers were distinct legal entities and not related persons for valuation purposes. They emphasized that the buyers, although interconnected, did not meet the criteria of being related persons as per the law. The appellant also presented evidence of selling goods to other parties at the same value during the same period, supporting their stance on adopting transaction value. Reference was made to a previous tribunal order in a similar case where the demand based on valuation rules was set aside, strengthening the appellant's argument.

The Tribunal analyzed the definition of "related persons" under Section 4 (3) of the Central Excise Act, focusing on the criteria for inter-connected undertakings and relatives among buyers and sellers. It was noted that while the units were considered inter-connected undertakings, there was a lack of evidence establishing the buyers and seller as related persons as per Rule 10 (a) of the Valuation Rules. The absence of mutual interest or fund flow between the parties raised doubts on the department's assertion of related person status.

In a previous case involving the appellant, the Tribunal had ruled that buyers being interconnected did not automatically make them related persons. The decision highlighted the importance of examining the legal basis for such categorizations and emphasized the need for evidence supporting the interconnected nature of the entities. The Tribunal concluded that the demand based on the valuation rules could not be upheld, setting aside the impugned orders and allowing the appeal with consequential reliefs.

In summary, the judgment delved into the intricacies of determining related persons for the valuation of excisable goods under Section 4 (1) (b) of the Central Excise Act. It underscored the significance of establishing a legal basis and evidence for considering entities as related persons, ultimately leading to the dismissal of the department's demand based on valuation rules in the absence of concrete proof of such a relationship.