2016 (10) TMI 614 - AT - Central Excise

Valuation - interconnected undertakings u/s 2(g) of MRTP Act, 1969 - related party transaction - Valuation Rules, 2000 - demand of differential duty - imposition of penalties u/r 26 of Central Excise Rules, 2001/2002 - Held that - there is financial flow back or mutuality of interest among the legal entities. It is apparent that when the affairs of these 3 units were managed by overall control, the benefit accrue to the closely connected family member. There is no need to show, demonstratively, cash flow or a specific monetary consideration from one entity to another entity. The arrangements are so, that ultimately the monetary benefit should accrue to a closed group of people in a family. The arrangement is beneficial to the persons while adversely affected the proper valuation and duty payment by the manufacturing unit. The issue whether the transaction value adopted by the main appellant is acceptable or not has been decided after detailed verification by the Department. The investigation brought out facts which have direct bearing on the valuation. The declarations filed by the main appellant, as claimed, does not throw light on any of these aspects. The extended period is rightly invoked - demand of duty and penalty rightly imposed - appeal rejected - decided against assessee.

Summary

Issues Involved:
1. Correctness of the value on which duty has been paid by the appellant.
2. Relationship and interconnection among the entities KEPL, DDIL, and DDSC.
3. Validity of the valuation method adopted by the Department.
4. Applicability of trade and cash discounts in determining the assessable value.
5. Legitimacy of invoking the extended period for demand.
6. Justification of penalties imposed.

Detailed Analysis:

1. Correctness of the Value on Which Duty Has Been Paid:
The main issue revolves around whether the duty paid by KEPL on the motor vehicle parts was correctly valued. The Department argued that KEPL, DDIL, and DDSC were interconnected entities controlled by the Gambhir family, and thus, the transaction value should be reassessed under the Central Excise Valuation Rules, 2000. The Commissioner concluded that KEPL’s transactions were with a related person and recalculated the value, resulting in a confirmed differential duty of ?1,33,00,542/- for the period March 2002 to May 2006.

2. Relationship and Interconnection Among the Entities:
The investigation revealed that KEPL, DDIL, and DDSC had significant interconnections and were controlled by the Gambhir family. Statements from various directors and employees indicated that KEPL’s directors were essentially dummy directors related to the Gambhir family, and many were employed by DDIL or DDSC without receiving remuneration from KEPL. The original authority found that KEPL was effectively controlled by DDIL, which had significant influence over DDSC and Daulat Leasing and Finance Company, the parent company of KEPL.

3. Validity of the Valuation Method Adopted by the Department:
The appellants contested the valuation method, arguing that there was no mutuality of interest or financial flow back among the entities. However, the Tribunal upheld the Department’s valuation method, noting that the management and policy decisions were made to benefit the family members involved in all three entities. The Tribunal found no merit in the appellant's plea, emphasizing that the arrangement was designed to benefit a closed group of people while adversely affecting proper valuation and duty payment.

4. Applicability of Trade and Cash Discounts in Determining the Assessable Value:
The appellants argued that the sale price of DDSC should not be used for goods captively consumed by DDIL and that discounts allowed by DDSC should be considered. The Tribunal found that the original authority had examined the issues of trade and cash discounts and concluded that only a 34.5% discount was non-refundable. Discounts decided after the sale were not considered valid. The Tribunal upheld the original authority’s findings on this matter.

5. Legitimacy of Invoking the Extended Period for Demand:
The appellants contested the demand on the grounds of time bar, arguing that they had filed declarations under Rule 173(C). However, the Tribunal found that the declarations did not reveal the full facts and that the extended period was rightly invoked due to the detailed investigation required to uncover the interconnections and control among the entities.

6. Justification of Penalties Imposed:
Penalties equivalent to the differential duty were imposed on KEPL, with additional penalties of ?25 Lakhs each on DDIL and DDSC under Rule 26 of the Central Excise Rules, 2001/2002. The Tribunal found no reason to interfere with the penalties, concluding that the interconnected nature of the entities and the resulting undervaluation justified the penalties imposed.

Conclusion:
The Tribunal found no merit in the appeals and upheld the original order, confirming the differential duty, penalties, and the valuation method adopted by the Department. The appeals were rejected.