2022 (7) TMI 976 - AT - Central Excise

Valuation of goods - interconnected undertakings - undervaluation of goods cleared to their interconnected undertakings or related persons - mutuality of Interest - penalty - HELD THAT - On going through the new definition of the related person after amendment and the facts of the case, it is found that amendment in the definition is of no much consequence having regard to the facts of the case as the case of the Department is not that the respondents are selling their entire goods through related person nor interconnected undertakings - Having gone through the findings of the commissioner, it is opined that when the respondents are selling their goods at the same price to the unrelated independent buyers and the alleged related buyers or undertakings, the question of going in to valuation Rules does not arise. Such value can be adopted as a transaction value. Moreover, it has been held by the adjudicating authority that if the supplementary invoices are taken into consideration, the price at which the goods sold to related person is same as the price at which the goods are sold to unrelated independent buyers. Therefore, it is found that the case heavily hinges on the fact of the issuance of supplementary invoices by the respondent to their related buyers. The learned AR submits during the course of hearing that in view of the Letter F. No. TC/KOP/372/12 dated 10.03.2022, it was informed that no supplementary invoices had been issued by the assessee during the period 2004 to 2008. However, this letter was neither before the adjudicating authority for consideration nor the respondents have not been given any opportunity to represent themselves and to show the evidence of issuance of supplementary invoices. Thus, reasonable opportunity should be given to either parties in the interest of justice. Therefore, the issue needs to go back to the adjudicating authority to verify the claims of the respondents with documentary evidence. Penalties - HELD THAT - The show-cause notice has not substantiated with any evidence to levy penalty on Shri Chandrakant Vasudev Deshpande, partner of M/s Fie Spherotech except stating that they are actively participated in contraventions. Similarly, it was alleged that Shri Rajendra Krishanji Pujari, Excise Incharge of the respondent has willfully not paid the applicable Central Excise duty. However, his role also has not been established with evidence. It is also not brought on record as to whom was a pecuniary or any other benefits obtained by these two persons in the alleged undervaluation by the respondent company. Therefore, it is found that appeals as far as penalties on these two persons are concerned do not merit consideration. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:

1. Whether the respondents have undervalued the goods cleared to their interconnected undertakings or related persons.
2. Whether the adjudicating authority erred in not examining the interconnected undertakings and related persons.
3. Whether the value adopted for related persons was comparable to the value adopted for independent buyers.
4. Whether the penalties imposed on the partners and Excise Incharge of the respondent were substantiated with evidence.

Issue-wise Detailed Analysis:

1. Undervaluation of Goods to Interconnected Undertakings or Related Persons:

The primary issue revolves around the allegation that the respondents cleared goods to their related persons without discharging duty based on the CAS-4 certificate or 110% of the cost of manufacture. The Department contended that the interconnected nature of the companies involved necessitated the application of Rule 8 and Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The adjudicating authority, however, discharged the show-cause notice, leading to the Revenue's appeal.

2. Examination of Interconnected Undertakings and Related Persons:

The Department argued that the adjudicating authority erred by not properly examining the interconnected undertakings and related persons. It was emphasized that the interconnected nature of the companies and the commonality of directors and partners suggested a mutuality of interest, thereby qualifying them as related persons under the amended definition post-01.07.2000. The adjudicating authority, however, relied on the old definition and previous judgments, leading to a potential oversight in evaluating the interconnected undertakings.

3. Comparison of Value Adopted for Related Persons and Independent Buyers:

The adjudicating authority accepted the respondent's submission that the value adopted for related persons was comparable to the value adopted for independent buyers. The Department contested this, arguing that the adjudicating authority did not provide an opportunity to verify the respondent's claim regarding supplementary invoices. The Tribunal found that the issue hinged on the issuance of supplementary invoices, which needed verification. Consequently, the matter was remanded to the adjudicating authority to ascertain the claims with documentary evidence.

4. Penalties on Partners and Excise Incharge:

The show-cause notice proposed penalties on the partner and Excise Incharge of the respondent for their alleged active participation in contraventions. However, the Tribunal found that the show-cause notice lacked substantive evidence to levy penalties on these individuals. There was no proof of pecuniary or other benefits obtained by them from the alleged undervaluation. Therefore, the appeals concerning penalties on these individuals were set aside.

Conclusion:

The Tribunal partly allowed the appeal by remanding the issue of supplementary invoices to the adjudicating authority for verification. The duty liability on the respondent would be determined after such verification, with reasonable opportunity provided to the appellants to produce evidence in their favor. The appeals regarding penalties on the partner and Excise Incharge were dismissed due to lack of substantiated evidence.