2014 (2) TMI 697 - AT - Central Excise

Valuation of goods - interconnected undertakings but not related - Revenue held that prices at which the appellant had sold the goods to independent buyers should be taken as the basis in terms of the rule 4 of the valuation Rules, 2000 - Held that - Though the appellant and the buyer are interconnected undertakings as defined in Section 2(g) of the MRTP Act and hence, related in terms of the provisions of Section 4 (3)(b), they are not related as defined in the Companies Act. Therefore, in terms of Rule 10 of the Central Excise Valuation Rules, 2000 as the appellant is not related to the buyer as defined in the sub-clause (ii) (iii) & (iv) of the sub-rule (3) of Section 4, valuation has to be done by treating both the parties as if they are not related persons for the purposes of sub-section (1) of Section 4. No evidence has been adduced by the revenue to show these two firms are related as provided for in the Companies Act or they have mutuality in the business of each other. As regards the application of Rule 4 to the transactions, the said Rule envisages making of adjustments on account of difference in the dates of delivery of such goods and of the excisable goods under assessment as may appear reasonable. There is a variation in the dates of delivery but also the quantities lifted by JSW Steel are substantial and regular when compared to the quantities sold to other independent buyers. In these circumstances, there is merit in the contention of the appellant that the discount of about 2% in the prices when compared to those sold to independent buyers cannot be considered as unreasonable. This factor has not been considered by the adjudicating authority. Therefore, we are of the considered view that the matter has to go back to the adjudicating authority for fresh consideration - Decided in favour of assessee.

Summary

Issues:
Valuation of goods sold to interconnected undertaking under Central Excise valuation Rules, 2000.

Analysis:
The case involved an appeal against an Order-in-Original passed by the Commissioner of Central Excise regarding the valuation of goods sold by the appellant, a manufacturer of iron and steel products, to an interconnected undertaking. The department contended that the goods sold to the interconnected undertaking should be valued as per the Central Excise valuation Rules, 2000, due to the relationship between the two companies. A show-cause notice was issued demanding differential Central Excise duty, interest, and penalties. The appellant argued that the valuation should be done as per Rule 10 of the Central Excise valuation Rules, 2000, treating both parties as not related persons. They cited precedents to support their contention that direct or indirect interest in each other's business is necessary to be considered as related persons. The appellant also explained the discounts offered to the interconnected undertaking based on the quantity of goods purchased, normal business practices, and differences in prices compared to sales to independent buyers.

The Tribunal noted that while the appellant and the buyer were interconnected undertakings as per the MRTP Act, they were not related as defined in the Companies Act. Therefore, valuation had to be done treating both parties as not related persons under Rule 10 of the Central Excise Valuation Rules, 2000. The Tribunal observed that the revenue had not provided evidence to establish the companies as related under the Companies Act or having mutual business interests. Regarding Rule 4 of the valuation Rules, the Tribunal found merit in the appellant's argument that the discounts offered were reasonable due to substantial and regular quantities purchased by the interconnected undertaking compared to independent buyers. The Tribunal concluded that the matter needed to be remanded back to the adjudicating authority for fresh consideration, directing the appellant to provide evidence supporting their contention during the hearing.

In conclusion, the appeal was allowed by way of remand, and the stay application was disposed of. The Tribunal emphasized the need for a fresh consideration of the valuation issue by the adjudicating authority, taking into account the lack of evidence of relatedness between the parties and the reasonableness of the discounts offered.