2015 (10) TMI 2150 - SC - Central Excise

Valuation of goods - Related person and favoured buyer - mutuality of interest - Determination of transactional value - As far as M/s. Haldyn is concerned, it is owned by the Shetty group and the Mehta group who subscribe 52 per cent and 48 per cent shares respectively in the said company. On the other hand, M/s. Travin, one of the purchasers, is wholly owned by the Shetty group and other three firms are wholly owned by Mehta group. Thus, from the aforesaid, it is argued by Mr. Jaideep Gupta, learned senior counsel appearing for the Revenue, that since M/s. Haldyn on the one hand and the four purchasers on the other hand belong to same group(s), the mutuality test automatically stands satisfied. - where the two companies/firms etc., belong to the same group then the test of mutuality is established and satisfied. In a sense, the Court has torn the corporate veil thereby pointing out that such family concerns would be beneficiaries in the affairs of each other. Held that - CESTAT was not right in holding that there was no mutuality of interest and, therefore, supplier on the one hand and the purchaser on the other hand were not related persons. Insofar as the price manipulation is concerned, i.e., sale of the goods by M/s. Haldyn to the aforesaid purchasers at a depressed price, the same has been established on record on the basis of plethora of evidence tendered by the Revenue which has been discussed in detail in the order of the Commissioner - Impugned order is set aside - Decision in the case of Collector of Central Excise, Ahmedabad v. ITEC (P)Ltd., Bombay 2002 (9) TMI 106 - SUPREME COURT OF INDIA followed - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of "related person" under Section 4 of the Central Excise Act, 1944.
2. Allegations of price manipulation and undervaluation of goods.
3. Validity of penalties imposed by the Commissioner.

Issue-wise Detailed Analysis:

1. Determination of "related person" under Section 4 of the Central Excise Act, 1944:
The primary issue revolves around whether M/s. Haldyn and the four purchasing firms (M/s. J Foundation, M/s. J Traders, M/s. Janata Glass Works, and M/s. Travin Trading & Investment Pvt. Ltd.) are "related persons" as defined under Section 4(4)(c) of the Central Excise Act, 1944. According to the Revenue, M/s. Haldyn, owned by Shetty and Mehta groups, supplied goods to firms controlled by these same groups at lower prices, indicating mutual interest and related person status. The CESTAT, however, held that the mutuality of interest principle was not satisfied, as the Revenue failed to show how the buyers had any interest in the supplier. The Supreme Court disagreed with CESTAT, citing the definition of "related person" and emphasizing that mutual interest is established when firms belong to the same group, as seen in the case of 'Collector of Central Excise, Ahmedabad v. ITEC (P) Ltd., Bombay'.

2. Allegations of price manipulation and undervaluation of goods:
The Revenue alleged that M/s. Haldyn sold goods to the related firms at depressed prices compared to other buyers, resulting in price manipulation. The Commissioner found substantial evidence supporting this claim, including instances where goods sold to outsiders at Rs. 1200 per thousand bottles were sold to related firms at Rs. 840 per thousand bottles, who then resold them at much higher prices. This manipulation was intended to reduce the excise duty liability of M/s. Haldyn while benefiting the related firms. The Supreme Court upheld the Commissioner's findings, confirming that the price manipulation was well-established through detailed evidence.

3. Validity of penalties imposed by the Commissioner:
The Commissioner initially imposed a duty demand of Rs. 96,54,914 and penalties totaling Rs. 41 lakhs on M/s. Haldyn and the related firms. The CESTAT had set aside these penalties, but the Supreme Court reinstated them, agreeing with the Commissioner's assessment. The penalties were justified as the related firms aided and abetted M/s. Haldyn in evading central excise duty, and the profit distribution among the family members of Shetty and Mehta groups confirmed the mutual interest and related person status, warranting the penalties under Rule 209A read with Section 38A of the Central Excise Act, 1944.

Conclusion:
The Supreme Court set aside the CESTAT's order and restored the Commissioner's order, confirming the related person status, price manipulation, and the validity of the penalties imposed. The appeals were disposed of in favor of the Revenue, reinforcing the principles of mutual interest and related person under the Central Excise Act, 1944.