2023 (3) TMI 1010 - SC - Central Excise

Valuation - related party transaction - price at which the appellant M/s Bilag Industries Ltd. Vapi (BIL) sold its products to the buyer should be treated as a transaction with a related person under Section 4(4)(c) of the Central Excise Act 1944 or not? HELD THAT - The decision in COMMISSIONER OF CENTRAL EXCISE AURANGABAD VERSUS M/S. GOODYEAR SOUTH ASIA TYRES P.L. OTHERS 2015 (8) TMI 61 - SUPREME COURT is instructive. The assessee a JV entity of Goodyear and CEAT (both of whom had equal share in it) had borrowed substantial sums of money from both Goodyear and CEAT. Later CEAT transferred its entire shareholding to Goodyear. The revenue alleged that the assessee and Goodyear were related persons which was negatived by this court holding that the order of the Member Judicial that only on the ground that the two companies had given a loan of Rs. 85.66 crores to the Assessee company was treated as sufficient to establish the relationship between the Assessee and the buyers. That only shows one way traffic whereas requirement is that of two way traffic. The other Member in our opinion aptly held that this cannot be the factor which would show the mutuality of interest. In the present case undoubtedly AgrEvo SA/ Aventis CropScience SA holds the entire shareholding in Aventis CropScience (India) Ltd. (the buyer). It also is a shareholder in BIL. All of the latter s products are sold to Aventis CropScience (India) Ltd. However this does not show that BIL has any business interest or interest in the affairs of Aventis CropScience (India) Ltd. nor conversely that Aventis CropScience (India) Ltd has any such interest direct or indirectly in BIL. The revenue s concern in examining whether the parties were related might be justified; however it could not have concluded that such relationship as is contemplated by Section 4(4)(c) could have been inferred without applying the proper test. Additionally the revenue had the materials before it in the form of documents which indicated the mark up towards profit margin and other objective evidence to compare if indeed the cost of the goods sold were depressed or were comparable to the market price of the same or similar goods. There is no finding that the price of the goods was lower than what was the price of those goods in the market. Thus it has to be concluded that the revenue s decision in rejecting the value at which the goods were sold by treating the assessee as a related person was erroneous - appeal allowed.

Summary

Issues Involved:
1. Whether the price at which the appellant M/s Bilag Industries Ltd. (BIL) sold its products to the buyer should be treated as a transaction with a "related person" under Section 4(4)(c) of the Central Excise Act, 1944.

Summary of Judgment:

Issue 1: Definition and Application of "Related Person" under Section 4(4)(c) of the Central Excise Act, 1944
The central question was whether BIL's transactions with Aventis CropScience (India) Ltd. should be treated as transactions with a "related person" under Section 4(4)(c) of the Central Excise Act, 1944. The Supreme Court examined the statutory definition and relevant case law to determine the applicability of the term "related person."

Analysis and Reasoning:
- Legal Framework: Section 4(4)(c) of the Central Excise Act defines "related person" as someone so associated with the assessee that they have an interest, directly or indirectly, in the business of each other, including holding companies, subsidiary companies, and relatives.

- Precedents: The court referred to several precedents, including Union of India & Others v. Atic Industries Ltd., Union Of India & Ors v. Hind Lamp Ltd., Commissioner of Central Excise, Hyderabad v. Detergents India Ltd., and Commissioner of Central Excise, Chandigarh v. M/s Kwality Ice Cream Co., which emphasized mutual interest in each other's business as a criterion for determining "related person."

- Facts of the Case: BIL, initially Mitsu Industries Ltd. (MIL), entered into a joint venture with AgrEvo GmbH and AgrEvo SA, leading to the formation of BIL. AgrEvo SA held 51% of BIL's share capital, later increased to 74%, making BIL a subsidiary of AgrEvo SA. BIL sold its products to various buyers, including Aventis CropScience (India) Ltd., another subsidiary of AgrEvo SA.

- CESTAT's Findings: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that BIL's transactions with Aventis CropScience (India) Ltd. were with a "related person" due to the interconnected business interests and benefits derived from the joint venture.

- Supreme Court's Conclusion: The Supreme Court found that although AgrEvo SA held shares in both BIL and Aventis CropScience (India) Ltd., there was no evidence of mutual interest in each other's business. The court noted that BIL's products were sold at prices based on actual cost plus profit margin, and there was no finding that these prices were lower than market prices.

Decision:
The Supreme Court concluded that the revenue's decision to treat BIL's transactions as those with a "related person" was erroneous. The impugned order of the CESTAT was set aside, and the appeals were allowed without any order on costs.