2018 (2) TMI 478 - AT - Central Excise

Valuation - paper board - related party transaction - Department took the view that when Wimco Ltd. became a subsidiary of assessee, it no longer cannot be said as retaining its independence; that assessee has become holding company of Wimco Ltd. and they are related persons within the meaning of Section 4 (1) (b) of Central Excise Act, 1944 read with Section Central Excise Valuation Rules, 2000 w.e.f. 1.7.2005. Held that - Discernably, as per Section 4 (1) (a) of the Central Excise Act, the transaction value would be the price adopted for assessment subject to the condition inter alia that assessee and the buyer are not related and the price is sole consideration for the sale. The term related person is defined in Section 4 (3) (b) according to which, the person should be deemed to be related if, inter alia, they are interconnected undertaking within the meaning of Section 2(g) of the M.R.T.P, 1969 - There is no dispute that assessee and Wimco are interconnected undertakings and hence are related for the purpose of Section 4 of the Act. No allegation has been made by the department that there has been any flow back from Wimco to the assessee towards the allegedly lower pricing adopted by the assessee. We do not find any attempt by the adjudicating authority to prove with irresistible evidence that the relationship between assessee and Wimco has in fact influenced the price of the goods sold to Wimco or otherwise. As already discussed above, the sole attempt made by the de novo adjudicating authority was only to compare 2% of the transactions during the period which has also been done in a very flawed manner. The conclusions reached on such threadbare sampling by the Commissioner cannot be sustained. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Whether the relationship between the assessee and M/s. Wimco Ltd. influenced the price of goods sold.
2. Applicability of Rule 8 of the Central Excise Valuation Rules, 2000 for valuation.
3. Validity of the demand for differential duty and penalties imposed.

Issue-wise Detailed Analysis:

1. Influence of Relationship on Price:
The primary issue was whether the relationship between the assessee and M/s. Wimco Ltd. influenced the price of goods sold. The Tribunal noted that the assessee and Wimco Ltd. were interconnected undertakings and hence related under Section 4 of the Central Excise Act. However, it was crucial to establish if this relationship influenced the price. The Tribunal observed that the Commissioner failed to prove with concrete evidence that the relationship influenced the price. The Tribunal emphasized that the comparison of only 2% of the transactions (235 out of 10,128 invoices) was insufficient and flawed. The Tribunal reiterated that the relationship alone does not justify the rejection of transaction value unless it is shown that the price was influenced by the relationship.

2. Applicability of Rule 8 of the Central Excise Valuation Rules, 2000:
The Tribunal examined the applicability of Rule 8, which prescribes the valuation method when goods are not sold but are used for consumption by the assessee or on their behalf. The Commissioner had invoked Rule 8 based on the finding that prices charged to Wimco were lower in 88% of the cases compared to independent buyers. However, the Tribunal found that Rule 8 was misapplied. Rule 9, which deals with sales to related persons, should only be invoked if all goods are sold to or through the related person, which was not the case here. The Tribunal highlighted that the assessee sold goods to both Wimco and independent buyers, thus Rule 8 was not applicable. The Tribunal referred to the Larger Bench decision in Ispat Industries Ltd. and the Supreme Court’s judgment in Bharti Telecom, which supported that Rule 8 does not apply when goods are also sold to independent buyers.

3. Validity of Differential Duty Demand and Penalties:
The Tribunal critically examined the Commissioner’s order confirming the differential duty demand of ?98,11,438/- and found it flawed. The Tribunal noted that the Commissioner did not follow the Tribunal’s remand order, which required a proper comparison of prices charged to Wimco and independent buyers. The Tribunal found that the Commissioner’s analysis was based on incorrect comparisons and did not consider the larger volume of transactions. Consequently, the Tribunal set aside the demand and penalties imposed on the assessee. Similarly, for subsequent periods, the Tribunal upheld the Commissioner (Appeals) orders that correctly applied the principles from the Ispat Industries and Bharti Telecom cases, dismissing the department’s appeals.

Conclusion:
The Tribunal set aside the impugned Order-in-Original dated 28.10.2009 and allowed the assessee’s appeal with consequential relief. The Tribunal upheld the Orders-in-Appeal dated 29.06.2009 and 27.08.2009, dismissing the department’s appeals. The Tribunal emphasized the correct application of valuation rules and the necessity to prove that the relationship influenced the price to reject the transaction value.