2019 (3) TMI 1224 - AT - Central Excise

Valuation - related party transaction - scope of meaning of related in terms of section 4(4)(c) of Central Excise Act, 1944 - Held that - The judicial interpretation of rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is that it is applicable only when there is exclusive supply to a related person . That is not so in the present instance - Hence without going into the issue of whether the finding of being related is contestable and whether demand is barred by limitation, the impugned order is set aside - appeal allowed.

Summary

Issues:
Valuation of goods cleared to related entities, applicability of rule 9 of Central Excise Valuation Rules, 2000, interpretation of judicial precedents on related party transactions, duty liability, penalties under Central Excise Act, 1944.

Analysis:

Valuation Dispute:
The core issue in this case revolves around the valuation of goods cleared by the assessees to a related entity. The central excise authorities contended that the natural familial relationship among directors of buyer and seller companies falls within the scope of 'related' as per section 4(4)(c) of the Central Excise Act, 1944. The appellants argued that the correctness of the value on which duty liability was discharged needed verification, especially in transactions with entities other than the related party. The Tribunal referred to the decision in Collector of Central Excise v. ITEC (P) Ltd to establish the criteria for determining related party transactions.

Rule 9 of Central Excise Valuation Rules:
The Tribunal examined the applicability of rule 9 of the Central Excise Valuation Rules, 2000, which states that the value of goods sold to related persons should be the normal transaction value at which these goods are sold to buyers who are not related persons. The Tribunal cited precedents such as Pepsico India Holdings (P) Ltd v. Commissioner of Central Excise, Mumbai and Philips Electronic India Ltd v. Commissioner of Central Excise, Chandigarh to interpret the provisions of rule 9. These cases emphasized that the special provision under rule 9 is triggered only when goods are exclusively sold to related persons, which was not the case here.

Judicial Interpretations on Related Party Transactions:
The Tribunal further analyzed the judicial interpretations on related party transactions. It highlighted that the third proviso to Section 4(1)(a) of the Central Excise Act applies when goods are not generally sold to or through related persons exclusively. The Tribunal referred to the decision in Philips Electronic India Ltd case to emphasize that the normal price at which goods are sold to independent buyers should be the assessable value even in transactions with related parties, provided regular sales to independent buyers exist.

Conclusion:
Based on the legal analysis and interpretation of relevant provisions and precedents, the Tribunal concluded that rule 9 of the Central Excise Valuation Rules applies only to exclusive supplies to related persons. Since this was not the scenario in the present case, the order was set aside, and the appeals were allowed. The judgment focused on the correct application of valuation rules in related party transactions and emphasized the need for exclusivity in such dealings to trigger specific provisions.