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2025 (4) TMI 1533 - AT - Central ExciseEvasion of Central Excise Duty by resorting to undervaluation - clearance of finished products through related unit viz. M/s. H.D. Consortium India Ltd. at a price which was lower than the price at which the said product was subsequently sold by M/s. H.D. Consortium India Ltd. to unrelated buyers - revenue neutrality - HELD THAT - In the appellant s own case 2024 (6) TMI 1320 - CESTAT KOLKATA this Tribunal has examined the very same issue and observed that the Appellant has adopted a higher value addition and duty was paid at a higher side. Thus we find that there is no evidence available on record to substantiate the allegation that the appellant has undervalued the finished goods sold to M/s. H.D. Consortium India Ltd. Accordingly we hold that the demand confirmed in the impugned order on the allegation of undervaluation of the final product is without any basis and liable to be set aside. Conclusion - As the issue has already been decided by this Tribunal in the appellant s own case for an earlier period no demand is sustainable against the appellant as also being revenue neutral. Appeal allowed.
The primary legal issues considered by the Tribunal revolve around the determination of the assessable value of excisable goods cleared by the appellant to a related unit, the applicability of the definition of "related persons" under the Central Excise Act, 1944, and the consequent allegation of undervaluation leading to evasion of Central Excise Duty.
Specifically, the core legal questions addressed include:
Issue 1: Determination of "Related Person" Status under Section 4(3)(b) of the Central Excise Act, 1944 The legal framework centers on Section 4(3)(b) of the Central Excise Act, which defines "related persons" as entities that are inter-connected undertakings, relatives, or otherwise so associated that they have direct or indirect interest in each other's business. The Tribunal analyzed whether the appellant, a partnership firm, and M/s. H.D. Consortium India Ltd., a company, meet this definition. The Tribunal emphasized that mere shareholding by partners of the appellant in the related company does not suffice to establish a "related person" relationship. It is essential that both parties have direct or indirect interest in each other's business. The Tribunal noted that while the partners of the appellant hold more than 50% shares in the related company, there was no evidence of mutuality of interest-i.e., the appellant having any interest in the business of the related company. The Tribunal relied heavily on the precedent set by the Apex Court in Union of India & ors. vs. ATIC Industries Ltd., which clarified that for two entities to be "related persons," each must have some interest, direct or indirect, in the business of the other. The mere fact that one entity holds shares in the other does not establish this mutual interest. The Tribunal also cited the Apex Court's decision in Commissioner of Central Excise, Chandigarh vs. Kwality Ice Cream Co., which reinforced that interdependence and reciprocity are required beyond mere distributor-manufacturer relationships to establish relatedness. Applying these principles, the Tribunal concluded that the appellant and M/s. H.D. Consortium India Ltd. cannot be treated as "related persons" under Section 4(3)(b) since mutual interest in each other's business was not established. Issue 2: Whether the Price Declared by the Appellant Constitutes the "Transaction Value" under Section 4(1) of the Central Excise Act, 1944 Section 4(1) prescribes that where duty is chargeable with reference to value, the assessable value shall be the transaction value if the goods are sold by the assessee to an unrelated buyer at the time and place of removal and the price is the sole consideration for sale. Otherwise, the value is to be determined as prescribed. The appellant contended that the price declared in the invoices to M/s. H.D. Consortium India Ltd. was the sole consideration for sale and was determined based on prevailing market prices, thus constituting the transaction value. The Tribunal agreed, observing that the clearance was in the normal course of business and the pricing structure was above cost with reasonable mark-up. The Tribunal held that since the appellant and the related unit are not "related persons," the price declared is the transaction value under Section 4(1)(a). Consequently, there was no need to apply Rule 9 of the Central Excise Valuation Rules, which is invoked when the transaction value cannot be accepted due to related party transactions or other reasons. The Tribunal found the demand confirmed by applying Rules 8 and 9 to be unsustainable and rejected the Revenue's contention that the declared price was undervalued for duty purposes. Issue 3: Alleged Undervaluation and Loss of Revenue The Revenue alleged that the appellant undervalued the finished goods cleared to the related unit, thereby evading Central Excise Duty. The appellant countered that they had been availing the benefit of Notification No. 20/2007-C.E., which entitles them to a refund of the entire excise duty paid, making the transaction revenue neutral. The Tribunal found merit in the appellant's submission, noting that the benefit of the notification ensured no loss of revenue to the exchequer. Further, a detailed year-wise analysis of the appellant's pricing structure revealed that the appellant had consistently applied a markup over cost, sometimes significantly exceeding 10%, thereby negating any claim of undervaluation. The Tribunal observed that the adjudicating authority failed to appreciate these facts and that there was no evidence on record to substantiate the allegation of undervaluation. The demand based on such allegation was held to be without basis and liable to be set aside. Issue 4: Applicability of Precedent and Consistency of Decision The Tribunal noted that the identical issue had been examined in the appellant's own case for an earlier period, where the demand was dropped. The Tribunal relied on the principle of consistency and judicial precedent, holding that the demand for the current period was also not sustainable. Significant Holdings and Core Principles Established The Tribunal's decision articulates several crucial legal principles:
In conclusion, the Tribunal set aside the impugned order, allowing the appeal and holding that no demand for differential duty is sustainable against the appellant. The Tribunal's reasoning underscores the importance of mutual interest for related party valuation adjustments, adherence to the statutory definition of transaction value, and the necessity of evidence substantiating undervaluation claims. The decision reaffirms settled legal principles and applies them consistently to the facts, ensuring that excise duty demands are not imposed without proper legal and factual basis.
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