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2018 (10) TMI 532 - AT - Central ExciseValuation - related person or not - Rule 9 of Valuation Rules, 2000 - M/s Hindustan is a partnership firm and M/s Malkoh is a Private Limited Company - under-valuation - case of the Revenue is that both the appellants are related to each other, therefore, valuation of the goods cleared to M/s Malkoh is to be determined in terms of Rule 9 of the Central Excise Valuation Rules, 2000 Held that - In terms of section 4(3)(b)(ii), if the person is relative then he should be relative in terms of Section 2(41) of Companies Act, 1956, which defines that relative means with reference to any person who is related to such person in anyway specified section 6 of and no others - as the Private Limited Company is not a living person and partnership firm is consist on various partners but the private limited company/partnership firm find no mention in schedule of 1(A) of section 6 of the Companies Act, 1956, therefore, the Revenue s case fails on this ground only. The appellants are not related person in terms of Section 4(3)(b)(ii) of the Central Excise Act, 1944. Applicability of Rule 9 of Central Excise Valuation Rules, 2000 - Held that - Admittedly, whole of the goods are not sold by the M/s Hindustan through M/s Malkoh. In fact, M/s Hindustan is selling goods to Government Department as well as for exports. In that circumstances, the provisions of Rule 9 of Central Excise Valuation Rules, 2000, are not applicable to the facts of this case. Therefore, on that ground also, the charge of Revenue of under valuation is not sustainable. Thus, the appellant are not related persons in terms of section 4(3)(b)(ii) of Central Excise Act,1944 and provisions of Rule 9 of the Central Excise Valuation Rules, 2000, are not applicable to the facts of this case, therefore, the impugned orders are not sustainable in the eyes of law - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Determination of whether M/s Hindustan Pumps & Electricals Engineering Pvt. Ltd. (M/s Hindustan) and M/s Malkoh Marketing Pvt. Ltd. (M/s Malkoh) are "related persons" under Section 4(3)(b) of the Central Excise Act, 1944. 2. Applicability of Rule 9 of the Central Excise Valuation Rules, 2000 for valuation of goods sold between M/s Hindustan and M/s Malkoh. 3. Legitimacy of the duty demand along with interest and penalties imposed on both appellants. Issue-Wise Detailed Analysis: 1. Determination of Relationship: The primary issue was whether M/s Hindustan and M/s Malkoh are "related persons" as per Section 4(3)(b) of the Central Excise Act, 1944. The Revenue alleged that the partners and directors of both entities were related by family ties, thus necessitating the valuation of goods under Rule 9 of the Central Excise Valuation Rules, 2000. The appellants argued that merely having common family members as partners and directors does not suffice to establish them as related entities under the law. The Tribunal examined the definitions under Section 4(3)(b)(ii) and Section 2(41) of the Companies Act, 1956, which specify relationships in a detailed manner. It was concluded that neither a Private Limited Company nor a partnership firm is a "living person" and thus cannot be considered "related" as per the specified relationships in Schedule IA of Section 6 of the Companies Act, 1956. 2. Applicability of Rule 9 of the Central Excise Valuation Rules, 2000: The Tribunal further analyzed whether Rule 9 of the Central Excise Valuation Rules, 2000, which applies when goods are sold exclusively through a related person, was applicable. The Tribunal noted that M/s Hindustan sold goods not only to M/s Malkoh but also directly to government departments and for export purposes. Therefore, the condition of exclusive sales through a related person was not met. Consequently, Rule 9 was deemed inapplicable. 3. Legitimacy of Duty Demand and Penalties: Given the findings on the first two issues, the Tribunal concluded that the duty demand, along with interest and penalties imposed on M/s Hindustan and M/s Malkoh, was unsustainable. The Tribunal held that the appellants were not related persons under the relevant legal provisions, and the valuation method prescribed under Rule 9 could not be applied. Thus, the impugned orders demanding duty and imposing penalties were set aside. Conclusion: The Tribunal ruled that M/s Hindustan and M/s Malkoh are not related persons under Section 4(3)(b)(ii) of the Central Excise Act, 1944. Consequently, Rule 9 of the Central Excise Valuation Rules, 2000, does not apply to their transactions. The duty demand and penalties imposed on the appellants were deemed unsustainable and were thus set aside. The appeals were allowed with consequential relief. Order: (A) The demand against M/s Hindustan was set aside. (B) No penalties were imposable on both appellants. The appeals were allowed with consequential relief.
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