2015 (11) TMI 1241 - AT - Central Excise

Valuation - sale to interconnected units - Discharge of excise duty under Rule 8 and 9 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 - Penalty u/s 11AC - Held that - Appellant have admitted that the three buyers companies are their interconnected undertakings. However merely because buyers are interconnected undertakings it is not sufficient to hold that the companies are related persons. - transaction value can be rejected only when the buyers are related in the sense in clause (ii), (iii) or (iv) of Section of 4(3) (b) or buyer is holding company or subsidiary company of the assessee. It was made further clear that while dealing with transaction between interconnected undertaking, if the relationship as described in clause (ii), (iii) or (iv) does not exist and buyers also not holding or subsidiary then for assessment purpose they will not be considered related. Transaction value of the goods between appellant and these three interconnected undertaking is correct valuation and the same cannot be disturbed, therefore value as provided under Rule 8 is not applicable in the present case. - When for the same goods transaction value is available i.e. transaction value at which the goods are sold to independent buyers, then there is no scope of any notional value such as valuation in terms of Rule 8 or otherwise. For this reason also valuation of Rule 8 cannot be applied in the present case. - appellant have correctly valued their goods sold to their three interconnected undertakings, therefore the impugned order is not sustainable and deserve to be set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the interconnected undertakings are considered "related persons" under Section 4 of the Central Excise Act, 1944.
2. Applicability of Rule 8 and 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
3. Correctness of the valuation method adopted for excise duty calculation.

Issue-wise Detailed Analysis:

1. Whether the interconnected undertakings are considered "related persons" under Section 4 of the Central Excise Act, 1944:

The appellant admitted that the three buyer companies are interconnected undertakings. However, merely being interconnected undertakings does not automatically make them "related persons" under Section 4(3)(b) of the Central Excise Act, 1944. According to the definition, persons are deemed related if they fall under any of the following categories:
- They are inter-connected undertakings.
- They are relatives.
- The buyer is a relative and distributor of the assessee or a sub-distributor of such distributor.
- They are so associated that they have an interest, directly or indirectly, in the business of each other.

The Tribunal emphasized that interconnected undertakings alone do not suffice to classify them as related persons unless they also meet one of the specified relationships under sub-clauses (ii), (iii), or (iv).

2. Applicability of Rule 8 and 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000:

Rule 9 applies only when goods are sold through a person related in the manner specified under sub-clauses (ii), (iii), or (iv) of clause (b) of Section 4(3) of the Act. The Tribunal referred to a Board Circular clarifying that transaction value can be rejected only when buyers are related as per the specified sub-clauses or if the buyer is a holding or subsidiary company of the assessee. Since the buyers in this case do not fall under these specified relationships, Rule 9 is not applicable.

3. Correctness of the valuation method adopted for excise duty calculation:

The Tribunal found that the Commissioner erroneously applied Rule 8 of the Central Excise Valuation Rules, 2000, which involves the cost construction method. The appellant argued that the sale prices to the interconnected undertakings were often higher than those to independent buyers. The Tribunal upheld the principle established by the Larger Bench in Ispat Industries Ltd. vs. CCE Raigad, which states that when goods are sold to both related and independent buyers, the transaction value for independent buyers should apply to related buyers as well.

The Tribunal concluded that the appellant's valuation method, which used the transaction value of goods sold to independent buyers, was correct. The valuation under Rule 8 was deemed inapplicable, and the impugned order was set aside.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order and confirming that the correct valuation method was the transaction value of goods sold to independent buyers, not the cost construction method under Rule 8. The interconnected undertakings were not considered related persons as per the specified sub-clauses of Section 4(3)(b), and thus, Rule 9 was also inapplicable.