2023 (7) TMI 880 - AT - Central Excise

Method of valuation of goods - Rule 8 of the Central Excise Valuation Rules, 2000 or not - related person - mutuality of interest exists or not - extended period of limitation - HELD THAT - Though, the Department holds that the two units are related, they fail to show the mutuality of interest. Also, the fact that the appellants do not sell 100% of their production, to the related person, so as to invite assessment at the rate of 115% of the cost of production, is completely ignored. That the appellants have correctly relied the case of SOUTH ASIA TYRES PVT. LTD. VERSUS COMMR. OF C. EX., AURANGABAD 2002 (11) TMI 167 - CEGAT, MUMBAI where the Tribunal finds that In the face of the language of the relevant rules, viz. 9 and 10, we accept the plea of the appellants that the department's method of valuation of goods sold by them to M/s. Goodyear India Ltd. on the basis of M/s. Goodyear India Ltd.'s sale price to its customers is not correct and that the price at which the appellants have sold the goods to M/s. Goodyear India Ltd. is the correct basis for determination of assessable value of goods manufactured and cleared by the appellants to M/s. Goodyear India Ltd. Extended period of limitation - HELD THAT - Looking into the fact that the appellants have deposited the duty demanded well five years before the issuance of show-cause notice there too on a debatable issue, the extended period could not have been invoked and show-cause notice should not have been issued for longer period. The appellants have a strong case in their favour, both on merits and on limitation. Accordingly, appeal allowed partly by setting aside the penalty and interest.

Summary

Issues:
The issues involved in the judgment are related to the valuation of goods under Rule 8 of the Central Excise Valuation Rules, 2000, for clearances made by a limited company to a related person. The Department contended that the appellant and the related person are connected under Section 4 of the Central Excise Act, 1944, due to common Directors, thus necessitating valuation at 115% of the cost of production.

Valuation of Goods:
The Department alleged that the appellant and the related person were inter-connected under Section 4 of the Act, justifying valuation at 115% of the cost of production. However, the appellant argued that there was no mutuality of interest between them, as they did not sell their entire production to the related person. The Tribunal found merit in the appellant's argument, citing a similar case where the parties were not considered related due to lack of mutual interest.

Interpretation of Rules:
The appellant contended that Rule 9 of the Valuation Rules did not apply since they were not related to the buyer in the specified manner. They argued that Rule 10(b) should be applied, where the value is determined as if they are not related persons for the purpose of Section 4 of the Act. The Tribunal agreed with this interpretation, emphasizing that the appellant and the related person did not meet the criteria for valuation under Rule 9.

Penalty and Interest:
The appellant challenged the imposition of penalty and interest under Sections 11AC and 11AB of the Act, asserting that there was no contravention of the Valuation Rules. They highlighted that the duty demanded had been paid promptly, and there was no intent to evade payment. The Tribunal agreed with the appellant, setting aside the penalty and interest due to the lack of mutual interest between the parties and the timely payment of duty.

Conclusion:
The Tribunal ruled in favor of the appellant, finding that the Department failed to establish mutual interest between the appellant and the related person as required under the Valuation Rules. As a result, the penalty and interest imposed were set aside, and the appellant's appeal was partly allowed. The judgment was pronounced on 20/07/2023.