2025 (3) TMI 568 - AT - Central Excise

Method of valuation - to be valued under Rule 8 9 or Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000? - clearance of goods to inter-connected undertakings - HELD THAT - The appellants had mentioned the name of the inter-connected undertaking M/s Shree Vaishnav Ispat Private Limited in the Form 3CD of Income Tax return for the year 2008-09 at Sl. No.18 being the person specified in terms of the requirement of Section 40A(2)(b) of the Income Tax Act 1961. Therefore the appellants and M/s Shree Vaishnav Ispat Private Limited have become related persons and the value for the purpose of central excise duty is 110% of the cost of production as per Rule 8 9 of the Rules of 2000. In this regard we find that Section 40A of the Act of 1961 deals with Expenses or payments not deductible in certain circumstances . This sub-section (1) to Section 40 ibid provides the powers for the Assessing officer when he determines that any expenditure is excessive or unreasonable and beyond the legitimate needs of the business or profession of the assessee then he may disallow such deduction - There is no provision under which mention of a name of a legal person under the Income Tax Act would enable such persons to be treated as related person under the Central Excise law. In the absence of specific determination of the relationship between the appellants and the interconnected undertaking being related to each other in terms of Section 4(3) of the Central Excise Act 1944 there are no merits in the impugned order insofar as it has treated the transaction between these two as related party transaction. It is nowhere discussed in the impugned order or any evidence produced by the authorities below to state that the appellants and their interconnected undertaking are related in terms of the above provisions of the Central Excise statute. Therefore on this ground alone the impugned order is liable to be set aside and it does not stand the scrutiny of law. In the case of Gajra Gears Private Limited 2015 (2) TMI 1090 - CESTAT NEW DELHI the Co-ordinate Bench of the Tribunal has held that valuation of goods between inter-connected undertaking shall be determined as prescribed under Rule 10. In the case of Ramsons Casting Private Limited 2016 (12) TMI 908 - CESTAT MUMBAI the Co-ordinate Bench of the Tribunal has held that in the absence of evidence even if two companies are operated as interconnected undertakings they cannot be treated as related person for valuation purpose and the transaction value cannot be rejected. Conclusion - i) The inter-connected undertakings are not automatically related persons for valuation purposes unless they meet the specific criteria outlined in the Central Excise Act. ii) The valuation of goods between inter-connected undertaking shall be determined as prescribed under Rule 10. The impugned order is set aside - appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment was whether the clearance of excisable goods by the appellants to M/s Shree Vaishnav Ispat Private Limited, an 'inter-connected undertaking', should be valued under Rule 8 & 9 or Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. This determination hinges on whether the transactions between the appellants and the associated company constitute related party transactions under the Central Excise Act, 1944.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The valuation of excisable goods is governed by the Central Excise Act, 1944, and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Section 4 of the Central Excise Act specifies how excisable goods should be valued for duty purposes, particularly distinguishing between related and unrelated parties. Rule 8 applies when goods are captively consumed, while Rule 9 applies to transactions with related persons as defined in Section 4(3)(b) of the Act. Rule 10 pertains to sales to inter-connected undertakings that are not related persons.

Court's Interpretation and Reasoning

The Tribunal examined whether the appellants and M/s Shree Vaishnav Ispat Private Limited were related persons under Section 4(3)(b) of the Central Excise Act. The Tribunal noted that while inter-connected undertakings can be related persons, Rule 9 requires specific relationships outlined in sub-clauses (ii), (iii), or (iv) of Section 4(3)(b) to apply. The Tribunal found no evidence that these specific relationships existed between the appellants and their associated company.

Key Evidence and Findings

The Tribunal considered the appellants' income tax records, which listed M/s Shree Vaishnav Ispat Private Limited as an associated company. However, the Tribunal noted that the mere mention of an entity in income tax records does not automatically establish a related person relationship under the Central Excise law. The Tribunal emphasized the absence of evidence demonstrating that the appellants and their associated company were related in the manner required by Section 4(3)(b).

Application of Law to Facts

The Tribunal applied the relevant provisions of the Central Excise Act and the Valuation Rules to the facts, concluding that the transactions between the appellants and their associated company did not meet the criteria for related party transactions under Rule 9. Consequently, Rule 10, which applies to inter-connected undertakings that are not related persons, was deemed applicable.

Treatment of Competing Arguments

The appellants argued that their transactions with M/s Shree Vaishnav Ispat Private Limited should be valued under Rule 10, as they were inter-connected undertakings but not related persons. They cited precedents from the Tribunal supporting this interpretation. The Revenue, however, maintained that the transactions were related party transactions and should be valued under Rule 8 & 9. The Tribunal found the appellants' arguments more persuasive, noting the lack of evidence supporting the Revenue's position.

Conclusions

The Tribunal concluded that the transactions between the appellants and M/s Shree Vaishnav Ispat Private Limited should be valued under Rule 10, as the parties were inter-connected undertakings but not related persons under the specific criteria of Section 4(3)(b).

SIGNIFICANT HOLDINGS

The Tribunal emphasized that "Merely because the assessee and his buyers are interconnected undertakings... for the purpose of valuation, the two cannot be treated as 'related person' and the transaction value cannot be rejected merely on this basis." This holding underscores the necessity for specific relationships under Section 4(3)(b) to apply Rule 9.

The Tribunal established the core principle that inter-connected undertakings are not automatically related persons for valuation purposes unless they meet the specific criteria outlined in the Central Excise Act.

The Tribunal's final determination was to set aside the impugned order, allowing the appeal in favor of the appellants. The Tribunal found that the impugned order did not legally sustain due to the lack of evidence supporting the classification of the transactions as related party transactions.

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