2009 (10) TMI 345 - AT - Central Excise

Valuation- The appellant-company is a manufacturer of motor vehicle parts and they are selling tailor-made goods to industrial buyers; they are also exporting goods to Nepal under special procedure meant for Nepal export. They were selling motor vehicle parts for replacement market through four distributors. The dispute relates to sales made through distributors. Enterprises were related persons to the appellant-company and they were getting discount of 48% in respect of sales made to them and accordingly, show cause notice was issued proposing to adopt the sale prices of the said distributors to independent parties and proposing demand of duty and imposition of penalties. Commissioner by his impugned order accepted the valuation for the period 17-8-2001 to 31-3-2005 noting that other non-related parties were also getting the discount of 48%. In addition, he imposed penalty of Rs. 40 lakhs each on Shri Rajiv Gambhir and Shri Sanjay Gambhir under Rule 26 of Central Excise Rules, 2001 and Rule 26 of Central Excise Rules, 2002. Held that- (a) The appellant-company and the partnership firm M/s. D.D. Sales Corporation are related persons and the sale prices of D.D. Sales Corporation is to be taken for the purpose of assessment and differential duty and interest on this ground is sustainable within the normal period of limitation. However, the Commissioner while determining the differential duty due, shall consider the claim for abatement of cash discount, turnover discount and issue a speaking order after granting reasonable opportunity of hearing to the appellants. (b) The penalties on the appellant-company and the Directors are set aside. The appeals of the appellant-company is allowed partly as above and the appeals of the appellant-Directors allowed with consequential relief as per law.

Summary

Issues: Valuation of goods sold through distributors, related party determination, application of Rule 9 of Central Excise Valuation Rules, extended period of limitation, penalties imposition.

The judgment by the Appellate Tribunal CESTAT, New Delhi involved three appeals against the order of Commissioner No. 6/2006 dated 31-1-2006. The dispute revolved around the valuation of goods sold through distributors, particularly D.D. Sales Corporation (D.D.S.C.), with whom the appellant-company was alleged to have a related party relationship. The Department contended that D.D.S.C. and another distributor received a 48% discount, leading to a demand for duty payment and penalties. The appellant argued that they sold goods to various distributors at the same price, including those in Nepal, and thus Rule 9 of the Central Excise Valuation Rules should not apply. They also disputed the related party status with D.D.S.C. and the imposition of penalties.

The first issue addressed was whether Rule 9 of the Central Excise Valuation Rules applied to sales made through D.D.S.C. The Tribunal held that even if goods were exported to Nepal with duty payment, Central Excise valuation rules did not govern such exports. The mere absence of clearances for home consumption in the Central Excise Act did not imply the applicability of Central Excise valuation rules to export consignments. Thus, the argument that Rule 9 did not apply was rejected.

The second issue focused on determining whether D.D.S.C. should be considered a related party of the appellant-company. The Commissioner's findings on the shareholding, control, and mutual business interests between the two entities supported the conclusion that they were related persons. The Tribunal upheld this decision, emphasizing the factual evidence presented and the mutual interest in each other's business.

Regarding the extended period of limitation and penalties imposition, the Tribunal found that the Department's conclusion of related party status did not automatically imply willful suppression of details by the appellant. The lack of specific requirements for furnishing shareholding details meant that demands beyond the normal limitation period and penalties were not justified. Consequently, the penalties on the appellant-company and Directors were set aside.

In conclusion, the Tribunal partially allowed the appeals by determining D.D.S.C. as a related party for assessment purposes, while directing the Commissioner to consider abatement claims for discounts. The penalties on the appellant-company and Directors were revoked, providing consequential relief as per the law.