2025 (2) TMI 552 - AT - Central Excise

Short payment of duty - clearances to related persons were to be assessed under Rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rule 2000 (CEVR) or in terms of Section 4(1) of the Act read with Rule of CEVR - Mutuality of ineterst - Penalty under Section 11AC - HELD THAT - The Appellant is a Private Limited Company with 2 directors who are siblings holding together 99% shares of the company. The Appellant is reportedly effecting most of the clearances to M/s. Harris and Menuk their main Distributor in which the parents of the 2 directors of the Appellant Company are the Partners. The Appellant and the distributor are related and therefore fall within the ambit of Section 4(3)(b). In terms of Section 4(3)(b) of the Central Excise Act 1944 it is obvious that both the appellant company and the distributor partnership firm are relatives and they are so associated with each other they have interest directly or indirectly in the business of each other. Audit verification has revealed that the price adopted to the distributor was much less than the price adopted at which these goods were sold to ultimate Customers. The pricing pattern itself reveals the mutuality of interest as the Appellant was benefited by reduced tax outflow and benefit to the distributor company was by way of reduction in cost of purchase and payment resulting in the distributor seeking increased supply of goods from the appellant thus resulting in mutual benefit. The Appellant in their reply to Show Cause Notice or in the Grounds of Appeal have never contested the fact that there did exist a different and depressed price for the sales made by the appellant to their parent s distributorship firm and further they have not disputed the differential duty arising out of such undervalued sales which stood paid up. Such payment of short paid duty according to the price difference as suo motu assessed and computed by them itself evidences the differential pricing and the extent of duty evasion. The transaction value on which the duty is required to be paid is the value of the goods at which the distributor has sold the goods. The Appellant Company and the distributor firm are related persons and the clearances have to be valued in terms of Rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000. As such there are no reasons to interfere with the impugned Order-in-Appeal. Demand of interest - HELD THAT - Evidently the duty incidence has been passed on to the end customer. It is only after six months from commencement of differential duty payment by appellant and a month after payment of the final installment of differential duty due upto October 2014 in March 2014 that in May 2014 the SCN came to be issued. The appellant is liable to pay interest on the differential duty suo moto paid by the appellant. Since the duty paid without protest to the exchequer is already merged with the consolidated fund of India any exercise in appropriation is a mere superfluity. Penalty under Section 11AC - HELD THAT - While the Ld. Commissioner (Appeals) has set aside the impugned Original-in-Original of the Adjudicating Authority he has not rendered any finding or discussed about the penalty proposed. The Department too has not filed any cross objection against the non-imposition of penalty. It is a settled principle in law that the appellant cannot be put in an worse off position upon the appellant s preferring of the appeal. Conclusion - i) The transaction value on which the duty is required to be paid is the value of the goods at which the distributor has sold the goods. The Appellant Company and the distributor firm are related persons and the clearances have to be valued in terms of Rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000. ii) The appellant is liable to pay interest on the differential duty suo moto paid by the appellant. iii) The Department too has not filed any cross objection against the non-imposition of penalty. It is a settled principle in law that the appellant cannot be put in an worse off position upon the appellant s preferring of the appeal. Appeal rejected.

Summary

The legal judgment involves an appeal filed by M/s. Beva Silicones Pvt. Ltd. challenging an order that confirmed a demand for differential duty. The core issue is whether the appellant is related to their distributor under Section 4(3)(b) of the Central Excise Act, 1944, and if the demand under Rule 9 of the Central Excise Valuation Rules, 2000 is sustainable.

The appellant, a manufacturer of textile chemicals, was found to have directors who were siblings and sons of the partners of their distributor, M/s. Harris and Menuk. The department argued that this relationship required the valuation of goods under Rule 9, leading to a demand for differential duty. Initially, the adjudicating authority dropped the proceedings, but the appellate authority reversed this decision, prompting the current appeal.

The appellant contended that the impugned order failed to establish mutuality of interest and misinterpreted legal precedents, particularly concerning the definition of "relatives" as applicable only to natural persons. They argued that the corporate veil should not be lifted without evidence of mala fides and that the relationship between shareholders and partners did not constitute a related party transaction.

The department maintained that the appellant undervalued goods by selling through related persons, contravening the Act and CEVR, and thus the demand was justified. They argued that the appellant's actions indicated an intent to evade duty.

The tribunal examined whether the appellant and distributor were related under Section 4(3)(b). The directors of the appellant company were siblings, and their parents were partners in the distributor firm. This familial relationship suggested a direct or indirect interest in each other's business, fulfilling the criteria for related persons under the Act.

The tribunal referenced several legal precedents. In Dhanesh Textile Industries Pvt. Ltd. vs. CCE, it was held that a company and partnership firm were distinct entities unless financial flowback was evident. In Reliance Industrial Product vs. CCE, it was noted that the concept of "relative" did not apply to impersonal bodies like corporations. However, in the current case, the tribunal found that the familial relationship and business arrangements indicated mutual interest and interdependence.

The tribunal concluded that the appellant and distributor were related persons under Section 4(3)(b), and the valuation should be based on the distributor's sale price as per Rule 9. The tribunal noted that the appellant had paid the differential duty without protest, indicating acceptance of the valuation method.

The tribunal upheld the appellate authority's decision, finding no reason to interfere with the order. The appellant's payment of duty without protest and the absence of a cross-objection from the department regarding penalties led the tribunal to reject the appeal. The tribunal refrained from remanding the matter for penalty consideration, aiming to conclude the prolonged litigation.

The judgment emphasizes the importance of examining the totality of relationships and transactions to determine related party status and the appropriate valuation method for excise duty purposes. The tribunal's decision reinforces the principle that familial relationships and business arrangements can establish mutual interest, warranting the application of related party valuation rules.