2016 (9) TMI 731 - AT - Central Excise

Valuation - interconnected / related parties - allegation of evasion of duty of excise by undervaluation where goods are sold through related persons - Held that - there is nothing on record to show that PSML had interest in the business of KBX. PSML had no interest in the business of KBX but for selling of the products to them. The loans advanced by KBX to PSML were also on an interest which was higher than the bank rate, the fact undisputed in the proceedings before the lower authorities; moulds which have been given by KBX to PSML cannot be a reason to state that they had interest in the business of each other. - Demand set aside - Decided against the revenue.

Summary

Issues:
Undervaluation of goods manufactured by PSML and cleared to KBX.

Analysis:
The case revolves around the undervaluation of goods manufactured by PSML and sold to KBX. The Revenue alleged that PSML and KBX were related parties, and the duty should be based on the prices of KBX. The adjudicating authority found mutuality of interest between the two companies based on various factors, including shareholding, provision of technical assistance, and free supply of moulds by KBX. However, the first appellate authority disagreed, stating that the mutuality of interest was not established as PSML did not have any interest in the business of KBX. The appellate authority cited various decisions, including those of the Supreme Court, to support its conclusion. It emphasized that mutual business interest is essential to establish a relationship between parties. The loans given by KBX to PSML and the supply of moulds were not sufficient to prove mutual interest.

The first appellate authority's decision was supported by the Tribunal, which found that PSML and KBX cannot be treated as related parties due to the lack of mutual business interest. The Tribunal rejected the Revenue's appeal, stating that it lacked merit. The cross objections filed by the respondents were also disposed of in favor of the respondents. The Tribunal upheld the decision of the first appellate authority and concluded that there was no basis to consider PSML and KBX as related parties, thereby rejecting the Revenue's appeal.

In conclusion, the Tribunal held that the appeals filed by the Revenue lacked merit, and the decision of the first appellate authority, which found no mutuality of interest between PSML and KBX, was upheld. The case highlights the importance of establishing mutual business interest to determine related party status for the purpose of excise duty valuation.