2018 (4) TMI 1225 - AT - Central Excise

Valuation - related party transaction - Held that - two of the buyers were private limited companies. As juristic person they cannot be held to be relative of the respondent firm - the original authority did not examine as to the category in which these two private limited companies can be considered as interconnected to the respondent firm. The overreaching control, mutuality of interest, financial control by way of share holding pattern etc., has never been discussed. The respondent all along submitted that the value of their sale is based on commercial consideration. These are normal transaction value as per the market conditions. There is no question of rejection as there are no value reduction by any extraneous situation. Appeal dismissed - decided against Revenue.

Summary

Issues: Valuation of excisable goods based on relationship between parties, application of Central Excise Valuation Rules, 2000, interconnection between buyers and respondent firm, commercial consideration for sale value, reliance on legal precedents.

In this case, the main issue revolves around the valuation of excisable goods by the Revenue based on the relationship between the parties involved. The investigation revealed that the main respondent, a partnership firm, was clearing goods to related parties without discharging Central Excise duty on proper value. The original authority applied Rule 10 read with Rule 8 of Central Excise Valuation Rules, 2000, to determine the value of the goods at cost + 10%. However, the Commissioner (Appeals) set aside this order, stating that there was no evidence of tainted transactions due to relationships, lack of flow back evidence, or suppression of value. The Commissioner found that the sale transactions were normal commercial transactions and allowed the appeals of the respondents, leading to the Revenue's appeal.

The next issue addressed was the interconnection between the buyers and the respondent firm. While four buyers were partnership firms with close family members as partners, two were private limited companies. The Revenue argued that all buyers were closely held by family members, indicating interconnection. However, the Tribunal found that as juristic persons, the private limited companies could not be considered relatives of the respondent firm. The original authority failed to analyze the specific category in which these companies could be deemed interconnected to the respondent firm, lacking legal basis for holding all buyers as interconnected firms. The Tribunal agreed with the impugned order's conclusion that the original authority did not provide legal support for this assertion.

The issue of the commercial consideration for the sale value was also crucial. The respondent consistently maintained that the value of their sales was based on commercial considerations and reflected normal market conditions. The Tribunal noted that there was no evidence of value reduction due to external factors, and the original proceedings did not address this aspect adequately, possibly due to the assumption of automatic taint in transactions involving interconnected buyers. The Tribunal referenced legal precedents, specifically the decisions in R.B. Agarwalla & Co. Pvt. Ltd. Vs. CCE, Bhubaneswar and South Asia Tyres Pvt. Ltd. Vs. CCE, Aurangabad, affirmed by the Supreme Court, to support the argument that normal commercial transactions should not be rejected solely based on interconnection between parties.

Ultimately, after thorough discussions and analysis, the Tribunal found no merit in the Revenue's appeals and dismissed them, upholding the impugned order. The judgment highlights the importance of establishing a legal basis for determining interconnected relationships between parties for valuation purposes and emphasizes the consideration of commercial factors in assessing the value of transactions.