2016 (6) TMI 1092 - AT - Central Excise

Valuation - Related person - nature of clearance - Held that - Commissioner has examined the issue in details and found that the respondent is not a related persons to M/s IAFL. We further observe that in this case the respondent is making clearance in the open market also. As respondent is selling goods in the open market, the prices of the goods at which the goods are sold in the open market should be treated the transaction value but in the show cause notice it was not alleged against the respondent. We have also examined the show cause notice, in the show cause notice also the duty has been demanded on the concept of related person not at the prices on which the goods were sold in the open market. In the circumstances, if it is considered that the respondent as well as M/s. IAML are related person, in that circumstances also, duty cannot be demanded at the price at which M/s IAML has cleared the goods in the open market. In fact, when the price on which the goods are sold to independent buyers is available, the same is to be treated as transaction value. It is not the case of the Revenue that transaction value at which the independent buyers have purchased the goods be the transaction value, therefore, the impugned order having merits, accordingly, the same is upheld. - Decided against revenue

Summary

Issues:
- Whether the respondents are related persons as per Section 4(4)(c) of the Central Excise Act, 1944.
- Valuation of clearances made by the respondents to be based on prices in the open market.

Analysis:

Issue 1: Related Person Determination
The case involved an appeal by the Revenue against an order alleging that the respondent and another company were related persons, leading to undervaluation of clearances. The allegations included common directors, shared premises, inter-company work, shared expenses, and financial transactions. The Tribunal emphasized the need for a clear finding that goods were sold only through a related person for valuation adjustments. Citing a similar case, the Tribunal noted that mere commonalities like directors or premises do not establish relatedness. Without evidence of mutual interest or abnormal pricing, the related person status could not be upheld. The Tribunal found that the respondent was not a related person to the other company, leading to dismissal of the related duty demand.

Issue 2: Valuation Basis
The Tribunal observed that the duty demand was based on related person status rather than open market prices. Despite the possibility of relatedness, the Tribunal clarified that if goods were sold in the open market, those prices should dictate valuation. As the show cause notice did not allege valuation based on open market prices, the Tribunal upheld the order that treated the transaction value as per the open market sales. Since the Revenue failed to establish that independent buyers' prices should determine the transaction value, the Tribunal dismissed the appeal by the Revenue, affirming the valuation based on open market sales.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the order that the respondents were not related persons and that the valuation should be based on open market prices. The judgment emphasized the need for clear evidence of relatedness and proper valuation methods as per the law, ultimately ruling in favor of the respondent.