2019 (12) TMI 1126 - AT - Central Excise

Valuation - related party transaction or not - Mutuality of interest - Section 4(3)(b)(iv) of Central Excise Act, 1944 - price at which the P P medicines sold by them to sub-distributor be considered as the transaction value for the purpose of determination of duty or not? - HELD THAT - It is not in dispute that the Appellants are manufacturing P P medicaments on job work basis for M/s Adelphi Pharmaceuticals and M/s Heilen Lab under loan licence agreement. It is also not in dispute that the entire quantity of the goods manufactured on job work basis are sold to the Appellant being appointed as sole selling Agent of M/s Adelphi Pharmaceuticals and M/s Heilen Lab at a price 30% less than the price at which the Appellant M/s Sigma Laboratories sold to the sub-distributors. It is the responsibility of the Appellant M/s Sigma Laboratories, to arrive at and fix the MRP of the P P medicines bearing the brand name of M/s Adelphi Pharmaceuticals and M/s Heilen Lab - Also, it is not in dispute that majority share holding in the Appellant s company is held by Shri Dilip S. Coulagi in association with his family members and only minor portion is held by the Financial Institution i.e.IDBI. In the present case, the mutuality of interest between the Appellant M/s Sigma Laboratories and other two proprietary-ship concerns viz. Adelphi Pharmaceuticals and M/s Heilen Laboratories is apparent inasmuch as the proprietors of these two companies are also the Managing Director and Director of the Appellant company, the family as a whole control the shareholding of the Appellant Company. Besides, the important factor to note is that the P P medicine manufactured on job work basis using the brand names of loan licensors viz. M/s Adelphi Pharmaceuticals and M/s Heilen Laboratories are sold to the Appellant at a price which is fixed by the Appellantafter extending 30% discount from the said price. The said discounted price is considered in arriving at the transaction value between the Appellant and the loan licensors viz. M/s Adelphi Pharmaceuticals and M/s Heilen Laboratories. This itself shows that the quantum of profit and benefit had been mutually shared by the two companies viz. M/s Adelphi Pharmaceuticals and M/s Heilen Laboratories with that of the Appellant. Therefore, the price at which the Appellant sold the manufactured goods to the subdistributor be considered as a transaction value as per Sec.4(1)(b) of CEA,1944 read with Rule 9 of The Central Excise Valuation Rules,2000. Therefore, the learned Commissioner has rightly confirmed the differential duty short paid by the Appellant. Extended period of limitation - Penalty - HELD THAT - The Appellant could not show that the agreement between them and M/s Adelphi Pharmaceuticals and M/s Heilen Laboratories had been disclosed to the Department indicating that the fixation of price for the sellers M/s Adelphi Pharmaceuticals and M/s Heilen Laboratories was within the domain of the Appellant. Thus, invoking of extended period in confirming duty is justified - the penalty imposed on the Managing Director is reduced to ₹ 25,000/-. Appeal allowed in part.

Summary

Issues Involved:
1. Whether the Appellant is related to M/s Adelphi Pharmaceuticals and M/s Heilen Lab under Section 4(3)(b)(iv) of the Central Excise Act, 1944.
2. Whether the price at which the P&P medicines were sold by the Appellant to sub-distributors should be considered as the transaction value for determining duty under Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 9 of the Central Excise Valuation Rules, 2000.
3. Justification of invoking the extended period for confirming duty.
4. Justification of imposing penalties on the company and its directors.

Detailed Analysis:

1. Relationship under Section 4(3)(b)(iv) of the Central Excise Act, 1944:
The Appellant argued that M/s Adelphi Pharmaceuticals and M/s Heilen Lab are independent loan licensors and not 'related' within the meaning of 'related person' under Section 4(3)(b) of the Central Excise Act, 1944. However, the adjudicating authority found that the Appellant and the two firms were related due to the mutual interest in each other’s business. The Managing Director of the Appellant was also the proprietor of M/s Adelphi Pharmaceuticals, and his wife, a director of the Appellant, was the proprietor of M/s Heilen Lab. The family controlled the majority shareholding of the Appellant. The Tribunal upheld this view, citing the Supreme Court decision in the case of M/s I.T.E.C. (P) Ltd., where mutual interest and family control established a related party transaction.

2. Transaction Value for Duty Determination:
The Appellant contended that the transactions were at arm's length and the 30% discount was commercially justified. However, the adjudicating authority found that the Appellant had the right to fix the MRP of the medicines and that the discounted price was used to determine the transaction value between the Appellant and the loan licensors. The Tribunal agreed, stating that the price at which the Appellant sold the goods to sub-distributors should be considered the transaction value as per Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 9 of the Central Excise Valuation Rules, 2000. The Tribunal noted that the mutual benefit and profit-sharing indicated a related-party transaction.

3. Invoking Extended Period for Confirming Duty:
The Tribunal found that the Appellant did not disclose the agreement with M/s Adelphi Pharmaceuticals and M/s Heilen Laboratories to the Department, which indicated the fixation of price was within the Appellant's domain. This justified the invocation of the extended period for confirming the duty.

4. Imposing Penalties:
The Tribunal upheld the imposition of penalties on the company and the Managing Director, who was involved in price fixation and duty discharge. However, the penalty on the Managing Director was reduced to ?25,000, and the penalty on Mrs. Nayana D. Culogi was removed, considering the overall circumstances.

Conclusion:
The appeals resulted in a partial allowance for the Managing Director and full allowance for Mrs. Nayana D. Culogi, while the appeal by the Appellant Company was rejected. The Tribunal modified the impugned order accordingly, confirming the differential duty and penalties with specified adjustments.