2016 (10) TMI 644 - AT - Central Excise

Valuation - related person u/s 4 (4) (c) of Central Excise Act, 1944 - assessable value - extended period of limitation - demand of duty with interest - imposition of penalty - constitution of firm referred - Held that - constitutions of the firms states that the appellant M/s.Glory Hitech is company and M/s.Countech Systems is partnership firm and the trading company is also private limited company. From the constitution, it is clear that the appellants and the trading company are not related to each other in terms 4 (4) (c) of Central Excise Act, 1944. The decision in the case of Reliance Industries Products vs. CCE 2011 (3) TMI 704 - CESTAT, MUMBAI relied upon where it was held that The three conditions are to be satisfied before it can be inferred the existing relationship namely, (i) there should be mutuality of interest, (ii) alleged related person should be related to the assessee as per Section 4(4)(e) even in the Act and (iii) importantly the price charged from the related person was not the normal price but a price lower than the normal price and because of extra commercial consideration, the price charged was less than the normal value - the appellants are not related persons in terms 4 (4) (c) of Central Excise Act, 1944 Certain advances given by trading company to the appellants - Held that - it is routine practice in the business that buyers of the goods give certain advances to the suppliers, therefore, it cannot be said that by giving mere advances to the suppliers are having interest in the business of others. Appellants have sold the goods to the trading company at lower price and the trading company has sold the goods on a higher price - Held that - the appellants are selling the goods to the trading company at a agreed price and no additional benefit has been provided by the appellants to trading company. On the other hand while the goods were sold by the trading company to various banks, the additional benefits were given on the goods such as warranty, installation, commissioning, testing, after sale services, maintenance, etc. The price charged by the trading company includes these services charges, their profit and cost alongwith machines, in that circumstance, it cannot be said that the price of trading company is the influenced price of the goods sold by the appellant. Appellant and trading company not related to each other - demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Determining whether the appellants and the trading company are related persons under section 4 (4) (c) of the Central Excise Act, 1944.

Analysis:
The appellants, engaged in manufacturing currency counting machines, supplied their products to a trading company, which then sold them to banks. The dispute arose over whether the appellants and the trading company were related persons, impacting the assessable value of the goods. The appellants argued that there was no mutuality of interest between them and the trading company, citing legal precedents and emphasizing that the higher price charged to banks included additional services not provided by the appellants. On the other hand, the revenue contended that the directors of the appellants and the trading company were related, influencing the selling price.

The Tribunal examined the constitution of the firms involved, revealing relationships between directors and partners. The Tribunal found that the directors of the appellants and the trading company, as well as the partners of Countech Systems and the trading company, were not related persons under section 4 (4) (c) of the Central Excise Act, 1944. Referring to legal precedents, the Tribunal emphasized the need for mutuality of interest and concluded that the appellants and the trading company did not meet the criteria to be considered related persons. The Tribunal also noted that advances given by the trading company to the appellants were part of general business practices and that the price charged by the trading company to banks included additional services, justifying the price difference. Consequently, the demand against the appellants was deemed unsustainable, and the impugned orders were set aside, allowing the appeals with any consequential relief.

In conclusion, the Tribunal ruled in favor of the appellants, holding that they were not related persons under the Central Excise Act, 1944. The decision was based on the absence of mutuality of interest and the commercial practices observed in the transactions between the parties. The judgment provided a detailed analysis of the relationships between the firms involved and emphasized the legal requirements for establishing related person status.