2022 (2) TMI 952 - AT - Central Excise

Valuation- inter-connected undertaking - related parties or not - applicability of doctrine of mutuality of interest - Section 4 (3)(b)(iv) of the Central Excise Act, 1944 read with Section 2(g) of the Monopolies and Restrictive Trade Practices Act, 1969 - extended period of limitation - HELD THAT - Appellants do not dispute that they are inter connected undertaking as defined by the MRTP Act and Central Excise Act, 1944 but they state that they being not holding and subsidiary companies cannot be said to related in terms of Section 4, ibid as they do not have mutuality of interest in the business of each other - for the reason common director and 50 % share holding of the Appellant 2 in the Appellant 1 cannot be reason for establishing the appellants as related person. The fact that Appellant 1 and Appellant 2 were not related person has been brought out in the cost auditor report received by the department on 31.12.2007, as recorded while recording the submissions of the appellant in the impugned order - this cost auditor report has not been placed on record by either side but if the cost auditor report had concluded that the Appellants were not related then definitely Commissioner should have recorded the reasons for rejecting the said report. Since the appeal are decided on merits, the issue on limitation and imposition of penalties need not be discussed. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Determination of whether Appellant 1 and Appellant 2 are "related persons" under Section 4 of the Central Excise Act, 1944.
2. Validity of the transaction value between Appellant 1 and Appellant 2.
3. Applicability of mutuality of interest between Appellant 1 and Appellant 2.
4. Legitimacy of the demand for differential duty and imposition of penalties.

Issue-wise Detailed Analysis:

1. Determination of Whether Appellant 1 and Appellant 2 are "Related Persons":

The Commissioner held that Appellant 1 and Appellant 2 are related persons within the meaning of sub-section 3(b) of Section 4 of the Central Excise Act, 1944. The Commissioner noted that both appellants are interconnected undertakings as per the Monopolies and Restrictive Trade Practices Act, 1969, and under the same management. The relationship was further supported by the Selling Agency Agreements, which indicated mutual obligations and shared interests between the two entities.

2. Validity of the Transaction Value Between Appellant 1 and Appellant 2:

The Commissioner concluded that the transaction value between Appellant 1 and Appellant 2 could not be accepted as the assessable value for excise duty purposes. This decision was based on the finding that the appellants are related persons and have mutual interests in each other's business, thus necessitating the use of Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, for valuation purposes.

3. Applicability of Mutuality of Interest Between Appellant 1 and Appellant 2:

The Commissioner found that mutuality of interest existed between the appellants, citing various factors such as shared expenses for advertisements, trade fairs, and exhibitions, and the contractual obligation of Appellant 2 to foster the interests of Appellant 1. However, the Tribunal disagreed, stating that the reasons provided do not establish mutuality of interest. The Tribunal referred to several judicial precedents, including the Atic Industries case, which clarified that mutuality of interest requires both parties to have a direct or indirect interest in each other's business.

4. Legitimacy of the Demand for Differential Duty and Imposition of Penalties:

The Commissioner confirmed the demand for differential duty amounting to ?25,12,27,613/- for the period from July 2006 to December 2010 and imposed equivalent penalties under Section 11AC of the Central Excise Act, 1944, along with interest under Section 11AB. The Tribunal, however, set aside the impugned order on merits, concluding that the appellants were not related persons and that the transaction value should be accepted for excise duty purposes. Consequently, the Tribunal did not find it necessary to discuss the issues of limitation and penalties.

Conclusion:

The Tribunal allowed the appeals, setting aside the impugned order. The Tribunal's decision was based on the finding that the appellants were not related persons within the meaning of Section 4 of the Central Excise Act, 1944, and that there was no mutuality of interest in the business of each other. The transaction value between the appellants was deemed valid for the determination of assessable value, leading to the dismissal of the demand for differential duty and the associated penalties.

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