2009 (6) TMI 562 - AT - Central Excise

Valuation related person section 4 supply to dummy units and sister concerns Held that - From the records we find that the show cause notice itself indicates the price of which the goods sold to the so called related persons and to the independent buyers. We find that the goods which are sold to the independent buyers are of same or lower value than the value of the goods sold to the so called related person. - the judgment of the Hon ble Supreme Court in the case of Saci Allied Products Ltd. v. CCE (2008 -TMI - 47295 - SUPREME COURT OF INDIA) will cover the issue in favour of the appellant. - as long as it is not in dispute that 2% of the goods were sold by the assessee to independent buyers at the same price there cannot be any reason to believe that the said transaction in these cases is tainted decided in favor of assessee

Issues Involved:
1. Independent findings by the first appellate authority.
2. Violation of the Principles of Natural Justice.
3. Consideration of invoices showing sales to unrelated persons.
4. Applicability of Supreme Court decisions.
5. Sales to unrelated buyers at the factory gate.
6. Charges of clandestine clearance and suppression.
7. Mutuality of interest between the appellant and related firms.
8. Evidence of mutuality of interest.
9. Computation of differential duty.
10. Interpretation of Section 4(4)(c) and Section 4(3)(b).
11. Definition of "related person."
12. Flow-back of money on account of salary and advertisement.
13. Relevance of advertisement/publicity expenses.
14. Applicability of judicial decisions regarding related persons.
15. Financial flow-back from the appellant to other units.

Detailed Analysis:

1. Independent Findings by the First Appellate Authority:
The appellants argued that the first appellate authority erred by not recording independent findings and merely relying on the original order's reasoning. This approach was deemed contrary to principles of quasi-judicial scrutiny, rendering the proceedings before the appellate authority an empty formality.

2. Violation of the Principles of Natural Justice:
The appellants contended that the first appellate authority violated the Principles of Natural Justice by not applying his mind to the case's facts and addressing the contentions advanced by the appellant. Instead, he relied on the adjudication order's findings without independent consideration.

3. Consideration of Invoices Showing Sales to Unrelated Persons:
The appellants submitted copies of invoices showing sales to unrelated persons from the factory gate, which were not considered by the first appellate authority. The authority discarded these invoices, stating they were not produced before the adjudicating authority and could not be entertained at this stage.

4. Applicability of Supreme Court Decisions:
The impugned order was opposed to the decisions of the Supreme Court in Travancore Rayons v. U.O.I. and Siemens Engg. & Mfg. Co. Ltd. v. U.O.I. The appellants argued that every quasi-judicial order should be supported by reasons, a principle not observed in this case.

5. Sales to Unrelated Buyers at the Factory Gate:
The appellants claimed that there were sales to unrelated buyers at the factory gate during the period in question, making the orders of both lower authorities legally untenable.

6. Charges of Clandestine Clearance and Suppression:
The appellants contested the findings upheld by the first appellate authority, arguing that charges of clandestine clearance and suppression were dropped by the adjudicator. They asserted that prior show cause notices issued to them absolved them of suppression, willful misstatement, and fraud charges.

7. Mutuality of Interest Between the Appellant and Related Firms:
The appellants argued that there was no mutuality of interest between them and the purportedly related firms. They contended that the demands confirmed against them were without substance and confirmed as a matter of course.

8. Evidence of Mutuality of Interest:
The appellants submitted that there was no evidence proving mutuality of interest between the firms purported to be related and the appellant. They argued that an admission by the assessee would not absolve the department of proving mutuality of interest.

9. Computation of Differential Duty:
The appellants argued that the adjudicator confirmed the demand of differential duty without notifying the appellant of the computation method or providing the mathematical models used. They contended that the machinery provided for valuation under Section 4 of the Central Excise Act, 1944, was brushed aside.

10. Interpretation of Section 4(4)(c) and Section 4(3)(b):
The appellants argued that the first appellate authority failed to consider the purport and significance of Section 4(4)(c) before its amendment and new Section 4(3)(b) after the amendment. They claimed that the order was untenable.

11. Definition of "Related Person":
The appellants contended that none of the concerns purportedly stated to be related were related persons under Section 4 of the Act. They argued that the definition of "related person" was not appreciated, making the order arbitrary.

12. Flow-back of Money on Account of Salary and Advertisement:
The appellants argued that advertising a product and paying salaries to employees did not amount to flow-back of money from one unit to another. They contended that the order was illegal as it was not the department's case that the appellant recovered some portion of payment made to the employees.

13. Relevance of Advertisement/Publicity Expenses:
The appellants relied on the decision in Moon Beverages Ltd. v. CCE, where it was held that advertisement/publicity expenses, even if shared, would not amount to flow-back of additional consideration. They argued that the impugned order was bereft of merit.

14. Applicability of Judicial Decisions Regarding Related Persons:
The appellants relied on decisions in Atic Industries Ltd. v. Astt. Coll. and Saci Allied Products Ltd. v. CCE, arguing that both lower authorities did not address the issue that the value taken for discharge of duty liability for clearance of goods to related persons was the same as for other customers.

15. Financial Flow-back from the Appellant to Other Units:
The appellants argued that the decision in Murkumbi Manufacturing v. CCE covered the issue of financial flow-back in their favor. They contended that the cost of advertisement and promotional expenses were not required to be added to the assessable value as the appellant and related units were independent.

Conclusion:
The Tribunal found that the lower authorities did not address the appellant's submission regarding the value of goods sold to sister concerns being the same as to independent buyers. The Tribunal held that the impugned order was not sustainable and set it aside, allowing the appeals with consequential relief.

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