2018 (10) TMI 1006 - AT - Central Excise

Valuation - sister concern was captively consuming the goods - inter-connected units - related person - applicability of Rule 9 or Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000? Held that - There appears to be no dispute that the supplier and recipients are inter-connected undertakings and hence are related in terms of clause (i) of said sub-section and not clauses (ii), (iii) and (iv) - Since the appellants and their sister concerns are related persons in term of clause (i) and not in terms of clause (ii), (iii) or (iv), for the purpose of valuation of goods cleared to sister concern the valuation cannot be done in terms of Rule 9 as the said rule is applicable only in cases where the units are held to be related person in terms of (ii), (iii) or (iv). Hon ble Supreme Court has in case Commr. Of C. Ex., Aurangabad Versus Goodyear South Asia Tyres Pvt. Ltd 2015 (8) TMI 61 - SUPREME COURT , where it was held that Once we come to the conclusion that Rule 8 is not applicable in the case of the respondent, it is Rule 11 only which becomes applicable as that is residuary provision for arriving at the value of any excisable goods which are not determined under any other rule. In view of the specific decisions of the Hon ble Supreme Court on the issue, the decision of Commissioner (Appeal) cannot be sustained - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Applicability of Rule 9 or Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
2. Determination of related person status under Section 4(3)(b) of the Central Excise Act, 1944.
3. Justification for the imposition of differential duty, penalty, and interest.
4. Consideration of quantity discounts and pricing to related and independent buyers.
5. Invocation of the extended period of limitation.

Detailed Analysis:

1. Applicability of Rule 9 or Rule 10:
The primary issue revolves around whether the valuation of goods cleared to the appellant's sister concern should be determined under Rule 9 or Rule 10 of the Central Excise Valuation Rules, 2000. The appellant argued that since only 18% of the clearances were made to their sister concern and 82% to independent buyers, Rule 10 should apply. The Tribunal noted that Rule 9 is applicable only when transactions are between related persons as defined under clauses (ii), (iii), or (iv) of Section 4(3)(b) of the Central Excise Act, 1944. Since the appellant and their sister concern are interconnected undertakings (clause (i)), Rule 10 should apply, not Rule 9.

2. Determination of Related Person Status:
The Tribunal examined the definition of "related persons" under Section 4(3)(b) of the Central Excise Act, 1944. It was undisputed that the appellant and their sister concern are interconnected undertakings, thereby related under clause (i). However, Rule 9 applies only to relationships defined under clauses (ii), (iii), or (iv). The Tribunal cited precedents, including the Supreme Court's judgment in Goodyear South Asia Tyres Pvt. Ltd., to support that Rule 9 is inapplicable when the relationship is only under clause (i).

3. Justification for Imposition of Differential Duty, Penalty, and Interest:
The Tribunal found that the Commissioner (Appeals) incorrectly upheld the application of Rule 9, leading to the confirmation of differential duty, penalty, and interest. Since Rule 10 should apply, the valuation should be as if the parties are not related, negating the basis for the differential duty demand. Consequently, the penalty under Section 11AC and interest under Section 11AB were also unjustified.

4. Consideration of Quantity Discounts and Pricing:
The appellant contended that quantity discounts were given to both their sister concern and independent buyers, such as Marico Limited, indicating no preferential pricing. The Tribunal accepted this argument, noting the absence of evidence for favored pricing or extra commercial considerations. The Tribunal emphasized that the valuation should reflect transactions with independent buyers, supporting the appellant's position.

5. Invocation of Extended Period of Limitation:
The appellant argued that their long-standing practice and bona fide belief that Rule 8 was inapplicable negated any intention to evade duty, rendering the extended period of limitation inapplicable. The Tribunal agreed, noting the absence of intent to evade duty and the incorrect application of Rule 9, thus invalidating the extended period's invocation.

Conclusion:
The Tribunal concluded that the valuation of goods cleared to the sister concern should be determined under Rule 10, not Rule 9. The orders of the lower authorities were set aside, and the appeal was allowed with consequential reliefs. The Tribunal's decision aligns with established legal precedents, ensuring the correct application of valuation rules and related person definitions under the Central Excise Act, 1944.

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