2024 (8) TMI 1526 - AT - Central Excise

Valuation of goods cleared by the appellant - related persons under Section 4(3)(b) of the Central Excise Act 1944 - Applicability of Rule 9 read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 - HELD THAT - During the entire period of dispute it is not even the case of the revenue that entire goods cleared by the appellant were cleared by the appellant to M/s Maruti Udyog Limited - Rule 9 of the Valuation Rules 2000 as it existed during the relevant time clearly stated When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clause (i) (ii) or (iv) of Clause (b) of sub-section (3) of Section 4 of the Act . Thus in terms of the above rule it is evident that the said rule applies only in case were the assessee was selling the entire goods through the related person. In the present case when the appellant had sold the goods to unrelated buyers and also to related buyers then the said rule would not apply. Even if the appellant and M/s Maruti Udyog Ltd. are held to be interconnected undertaking and hence related in terms of Section 4 (3) (b) of the Central Excise Act 1944 then also Rule 9 cannot be invoked for determination of the value in the present case. In the present case the demand has been determined by application of Rule 9 read with Rule 8 in a unique manner whereby 10% notional profit has been added to the assessable value determined either on the basis of transaction value or in terms of Section 4A. The logic behind the same is not understood as the said rule itself lays down that assessable value shall be 110% percent of the Cost of Production - there are no legal provision which supports the manner of determination of assessable value by just adding 10% notional profit to the value of clearances as per Section 4 (1) (a) or assessable value determined as per Section 4A of the Central Excise Act 1944. Conclusion - i) The impugned SCN rightly alleges that the party i.e. M/s Denso India Ltd. Ms Maruti Udyog Ltd. are inter-connected undertakings and have mutual business interest and therefore they qualify as related parties / related person under Section 4(3)(b) of the Central Excises and Salt Act 1944. ii) There are no legal provision which supports the manner of determination of assessable value by just adding 10% notional profit to the value of clearances as per Section 4 (1) (a) or assessable value determined as per Section 4A of the Central Excise Act 1944. The impugned order set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the appellant and M/s Maruti Udyog Ltd. are related persons under Section 4(3)(b) of the Central Excise Act, 1944, and if so, whether the valuation of goods cleared by the appellant to M/s Maruti Udyog Ltd. should be determined under Rule 9 read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
• Whether the demand for excise duty, interest, and penalty is justified under the provisions of the Central Excise Act, 1944, and the Central Excise Rules, 2002.
• Whether the extended period of limitation for demanding duty under Section 11A(4) of the Central Excise Act, 1944, is applicable in this case.
• Whether the method of valuation adopted by the department, adding 10% notional profit to the transaction value or assessable value under Section 4A, is legally valid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Related Person and Valuation under Rule 9 and Rule 8

• Relevant legal framework and precedents: The determination of whether the appellant and M/s Maruti Udyog Ltd. are related persons hinges on Section 4(3)(b) of the Central Excise Act, 1944. The relevant provisions of Rule 9 and Rule 8 of the Central Excise Valuation Rules, 2000, dictate that goods sold to related persons should be valued at 110% of the cost of production.
• Court's interpretation and reasoning: The Tribunal found that the appellant and M/s Maruti Udyog Ltd. are interconnected undertakings, thus qualifying as related persons. However, it was noted that Rule 9 applies only when goods are sold exclusively to related persons, which was not the case here.
• Key evidence and findings: The appellant sold a significant portion of its goods to unrelated parties, which was not disputed by the revenue. This fact was crucial in determining the inapplicability of Rule 9.
• Application of law to facts: The Tribunal applied the principle that Rule 9 and Rule 8 cannot be invoked when goods are also sold to unrelated parties, as established in various precedents.
• Treatment of competing arguments: The Tribunal considered the department's argument that the appellant and M/s Maruti Udyog Ltd. were related but found that the valuation method adopted was incorrect due to the sales to unrelated parties.
• Conclusions: The Tribunal concluded that the valuation should not have been done under Rule 9 read with Rule 8, given the sales to unrelated parties.

Issue 2: Demand for Duty, Interest, and Penalty

• Relevant legal framework and precedents: The demand for duty, interest, and penalty was based on Sections 11A(4), 11AA, and 11AC of the Central Excise Act, 1944, alongside Rule 25 of the Central Excise Rules, 2002.
• Court's interpretation and reasoning: The Tribunal found that the demand for duty was not sustainable as the valuation method was incorrect. Consequently, the interest and penalty demands were also unjustified.
• Key evidence and findings: The Tribunal noted that the appellant had informed the department of sales to unrelated parties, undermining the basis for the demand.
• Application of law to facts: The Tribunal applied established legal principles to determine that the demand for duty, interest, and penalty could not stand without a proper valuation basis.
• Treatment of competing arguments: The Tribunal rejected the department's arguments for penalty and interest, citing the incorrect valuation method.
• Conclusions: The Tribunal set aside the demands for duty, interest, and penalty.

Issue 3: Extended Period of Limitation

• Relevant legal framework and precedents: The applicability of the extended period of limitation is governed by Section 11A(4) of the Central Excise Act, 1944.
• Court's interpretation and reasoning: The Tribunal did not delve deeply into this issue, as it set aside the demand on merits.
• Key evidence and findings: The Tribunal noted that the department discovered the valuation issue during an audit, implying no suppression by the appellant.
• Application of law to facts: The Tribunal's decision to set aside the demand on merits rendered the discussion on limitation moot.
• Conclusions: The Tribunal did not apply the extended period of limitation.

3. SIGNIFICANT HOLDINGS

• Core principles established: The Tribunal reinforced the principle that Rule 9 of the Central Excise Valuation Rules, 2000, applies only when goods are sold exclusively to related persons. It also emphasized that valuation should be based on actual transaction values when sales to unrelated parties exist.
• Final determinations on each issue: The Tribunal set aside the demands for duty, interest, and penalty, finding the valuation method adopted by the department incorrect.
• Verbatim quotes of crucial legal reasoning: "The above facts indicate that the impugned SCN rightly alleges that the party i.e. M/s Denso India Ltd. & Ms Maruti Udyog Ltd. are inter-connected undertakings and have mutual business interest and therefore, they qualify as 'related parties'/ related person under Section 4(3)(b) of the Central Excises and Salt Act, 1944." However, the Tribunal found that the method of valuation was flawed due to sales to unrelated parties.