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2018 (11) TMI 1451 - AT - Central ExciseValuation - related party transaction - Section 4 (1) (b) of Central Excise Act, 1944 read with Rule 9 of Central Excise Valuation (Determination of the Price of Excisable Goods) Rules, 2000 - Shri HJ Rathi is the Managing Director of M/s.RDCPL and the Manager of a Trust, which is partner in M/s.JTC - Over-riding commission paid by the appellants to M/s.JTC - time limitation. Held that - M/s. JTC belongs to a Trust i.e., Smt.Chandravatibai Laddha Trust, in which Shri H.J. Rathi is said to be the Manager. The Trustees are partners in M/s. JTC. Shri HJ Rathi is the Managing Director of M/s. RDCPL. Further for the very reason that Shri HJ Rathi is the Managing Director of M/s.RDCPL and the Manager of a Trust, which is partner in M/s.JTC cannot be the sole reason for holding that the appellants and M/s. JTC are related. It can be seen that the appellants are a private limited company whereas M/s.JTC is a partnership firm. They cannot be held to be related - No element of mutuality of interest and flow back of money from M/s.JTC to the appellants is either alleged or evidenced. M/s.JTC are not also held to be interconnected undertaking. Therefore, the situation enumerated in Section 4 (3) (b) of the Central Excise Act, 1944 are not fulfilled. The only fact that M/s. JTC has a temporary office in the premises of the appellants. Some staff members of M/s. JTC are sitting there, by itself cannot be become a valid ground to hold them to be related. Over-riding commission paid by the appellants to M/s. JTC - Held that - It cannot be by any stretch of imagination leveled to be a flow back of money. Only in case where the appellants have received certain money from their customers influence of such consideration on the price at which the goods are sold can be a thought of. Time Limitation - Held that - The appellants have been regularly filing the required declaration under Rule 173C (iii) (a) giving the details of the marketing pattern and interalia mentioning the fact that M/s.JTC have premises at the appellants. Therefore, no suppression of fact can be alleged - The period covered in the show-cause notice is from October 1999 to March 2003 and show-cause notice has been issued on 20/05/2005. Abinitio also the period further to May 2000 is clearly barred by limitation and further extended the show-cause notice is vitiated - extended period cannot be invoked. The demand confirmed against the appellant, M/s. RDCPL do not survive either on merits or on limitation - interest, penalty, etc. confirmed against the main appellant, i.e., M/s. RDCPL also do not sustain. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether M/s. Jagat Trading Co. (M/s. JTC) is a related person in terms of Section 4 of the Central Excise Act, 1944. 2. Whether the valuation of goods cleared by the appellants to M/s. JTC should be based on the value at which they are further sold by M/s. JTC. 3. Whether the demand for Central Excise duty and penalties imposed on the appellants are sustainable. 4. Whether the show-cause notice is barred by limitation. Issue-Wise Detailed Analysis: 1. Related Person under Section 4 of Central Excise Act, 1944: The core issue was whether M/s. JTC is a related person to the appellant, M/s. RDCPL, under Section 4 of the Central Excise Act, 1944. The department alleged that M/s. JTC, being a related company, necessitated the adoption of the sale price of M/s. JTC to their customers as the assessable value. However, the Tribunal found that M/s. JTC, a partnership firm, and M/s. RDCPL, a private limited company, could not be considered related merely because Shri H.J. Rathi held positions in both entities. The Tribunal emphasized that no mutuality of interest or flow back of money was evidenced, and M/s. JTC was not an interconnected undertaking as per Section 4 (3) (b) of the Central Excise Act, 1944. 2. Valuation of Goods: The department contended that the goods cleared to M/s. JTC should be valued based on the price at which M/s. JTC sold them to their customers. The Tribunal, however, noted that the sales to M/s. JTC constituted a small percentage of the appellant’s overall sales (ranging from 2.86% to 12.97% over the relevant years). Citing various case laws, the Tribunal concluded that Rule 4 of the Valuation Rules, 2000, which prefers the price at which goods are sold to independent customers, should be applied over Rule 9. The Tribunal found that the original and appellate authorities had ignored the quantum of sales and the higher prices at which goods were sold to M/s. JTC compared to other customers. 3. Demand for Central Excise Duty and Penalties: The Tribunal examined the demand for Central Excise duty of ?18,10,443/- on goods cleared to M/s. JTC and ?6,94,924/- on the overriding commission paid to M/s. JTC. It held that the overriding commission could not be considered a flow back of money. The Tribunal found no evidence of any mutual interest or financial benefits flowing back from M/s. JTC to the appellants. Consequently, the demand for duty and the penalties imposed under Section 11AC of the Central Excise Act, 1944, and Rules 173Q and 25 of the Central Excise Rules, 2001/2002, were deemed unsustainable. 4. Limitation: The Tribunal addressed the issue of limitation, noting that the appellants had been regularly filing price marketing declarations under Rule 173C (3a), thus negating any allegations of suppression. The show-cause notice dated 20/05/2005, covering the period from October 1999 to March 2003, was found to be partly barred by limitation. The Tribunal upheld the initial adjudication order which had dropped the proceedings on the grounds of limitation. Conclusion: The Tribunal allowed all four appeals, concluding that the demands and penalties against the appellants were unsustainable both on merits and due to the bar of limitation. Consequently, the interest and penalties imposed were also set aside, providing relief to the appellants.
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