2024 (8) TMI 261 - AT - Central Excise

Method of valuation - respondents and M/s Everest Flavours Ltd. are related to each other in terms of Section 4 (3) (b) of the Central Excise Act, 1944 or not - Inter-connected Undertakings - mutuality of interest - valuation to be done under proviso to Rule 9 read with Rule 8 of the Valuation Rules i.e 110% of cost of production? - Extended period of limitation - penalties. HELD THAT - It is found that no effort seems to have been made by the Revenue to ascertain the actual price of the goods, except alleging that the goods cleared by the respondents are over-valued to avail additional refund. While the Show Cause Notice does not give the constitution of both the respondent and M/s Everest Flavours Ltd., the Review Order lists out Directors in each of the companies. The grounds taken in Review are beyond the scope of the Show Cause Notice and the same cannot be taken in view of the finding of the Hon ble Apex Court in the case of COMMISSIONER OF CENTRAL EXCISE, SURAT VERSUS BESTA COSMETIC LTD. 2005 (3) TMI 130 - SUPREME COURT where it was held that 'Additionally, before us, a ground was sought to be raised that BHPL bears the entire advertisement cost of the product of the assessee. This was not a ground which was urged on behalf of the Revenue at any stage of the proceedings and we do not permit them to raise it now. This appeal is accordingly dismissed without any order as to costs.' Extended period of limitation - penalties - HELD THAT - The respondents have not indulged in any suppression, mis-declaration etc. with intent to evade payment of duty; they have been not only filing the Returns but also availing refund/ credit of duty paid in terms of Notification No.56/2002 which was scrutinized by the Revenue from time to time; the respondents would be eligible for refund of duty paid by them and as such, the issue is revenue neutral to themselves; therefore, under the circumstances, extended period cannot be invoked and no penalty can be levied. The appeal filed by the Revenue cannot be sustained both on merits and limitation - there are no reason whatsoever to interfere with the impugned order - appeal of Revenue dismissed.

Issues Involved:
1. Whether the respondent and M/s Everest Flavours Ltd. are related persons.
2. Applicability of Rule 8 and Rule 9 of the Valuation Rules, 2000.
3. Determination of mutuality of interest.
4. Validity of the Show Cause Notice and Review Order.
5. Invocation of the extended period for recovery.
6. Imposition of penalty under Section 11AC.

Issue-wise Detailed Analysis:

1. Relationship Between Respondent and M/s Everest Flavours Ltd.:
The core issue was whether the respondent and M/s Everest Flavours Ltd. were related persons under Section 4(3)(b) of the Central Excise Act, 1944. The Commissioner concluded they were not related, as the Show Cause Notice did not establish mutuality of interest. The Tribunal upheld this, noting that mere interconnection or common shareholding does not suffice to establish a related person relationship without mutuality of interest.

2. Applicability of Rule 8 and Rule 9 of the Valuation Rules, 2000:
The Department argued that valuation should be done under Rule 8 and Rule 9, which pertain to related persons and captive consumption. However, the Commissioner and the Tribunal found that Rule 8 was inapplicable as the goods were not consumed captively by the manufacturer or on his behalf. Rule 9 was also ruled out since M/s Everest Flavours Ltd. was not a sub-distributor but a separate entity.

3. Determination of Mutuality of Interest:
The Tribunal emphasized that mutuality of interest requires both parties to have a direct or indirect interest in each other's business. The Department failed to provide evidence of such mutuality. The Tribunal cited previous judgments, including the case of Kanchan Industries, to support the view that selling the entire production to one buyer does not establish mutuality of interest.

4. Validity of the Show Cause Notice and Review Order:
The Review Order was found to be at variance with the Show Cause Notice, introducing new grounds not originally stated. The Tribunal noted that new grounds cannot be raised at later stages, citing the Supreme Court's decision in Besta Cosmetic Ltd. The Show Cause Notice lacked detailed evidence of mutuality of interest and did not compare market prices, weakening the Department's case.

5. Invocation of the Extended Period for Recovery:
The Tribunal concluded that the extended period could not be invoked as there was no suppression or mis-declaration by the respondents. The respondents had consistently followed the same pattern of sales and had been transparent in their returns and claims, which were verified by the Department. The Tribunal referenced multiple judgments to support the view that extended periods require clear evidence of intent to evade duty.

6. Imposition of Penalty Under Section 11AC:
Given the absence of suppression or intent to evade duty, the Tribunal found no grounds for imposing a penalty under Section 11AC. The Tribunal reiterated that penalties require clear evidence of wrongdoing, which was not present in this case.

Conclusion:
The Tribunal dismissed the Department's appeal, affirming the Commissioner's order. The valuation should be done under Rule 10(b), and there was no mutuality of interest between the respondent and M/s Everest Flavours Ltd. The extended period for recovery and penalties under Section 11AC were deemed inapplicable. The Tribunal emphasized the importance of detailed evidence and adherence to procedural fairness in such cases.

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