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TMI Blog2005 (8) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... basic liquid resins in India by PAPL with the technical know-how to be supplied by the Swiss Company and the basic raw material (ECH) to be supplied by the assessee. The assessee held 24% share of equity in the Joint Venture Company and the rest was held by CIBA. The assessee was the lone manufacturer of ECH in India. According to the Supply Agreement dated 22-1-1998 entered into between the assessee and M/s. PAPL, the entire raw material (ECH) required by the latter had to be supplied by the former. Certain other agreements such as Plant Technology Transfer Agreement, Process Technology Transfer Agreement and Service Agreement were also entered into between the parties. Upon all the agreements having been carried into effect, 86% of the assessee s ECH production was supplied to M/s. PAPL at a price agreed to between them. The remaining 14% was supplied to other buyers in India at prices higher than the price charged to M/s. PAPL. While so, there came to be a constitutional change in the JV Company. CIBA walked out and M/s. Vantico Performance Polymers Private Limited (USA) substituted them. However, the essential terms and conditions of the various agreements remained unaltered. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing demand of duty of Rs. 1,40,12,749/- (along with demand of Education Cess of Rs. 1,56,856/-) against the assessee and imposing on them a penalty of Rs. 30 lakhs. This order (Order-in-Original No. 44/05 dated 30-4-2005) of the Commissioner is under challenge in the assessee s appeal No. E/402/05. 3. The adjudicating Commissioner found that there was mutuality of interest between the assessee and M/s. PAPL and hence they were related in terms of Section 4(3)(b)(iv) of the Central Excise Act. Ld. Commissioner relied on a legal opinion tendered by Additional Legal Advisor to the Government of India, Ministry of Law, Branch Secretariat, Chennai and also took the view that the Apex Court s judgement in U.O.I. v. Atic Industries Ltd. [1984 (17) E.L.T. 323 (S.C.)] and the Tribunal s decisions cited by the assessee were not applicable to the facts of the case. In the result, ld. Commissioner upheld the Department s stand that the assessable value of ECH sold by the assessee to M/s. PAPL should be determined in terms of Section 4(1)(b) of the Act read with Rules 8, 9 and 10 of the Valuation Rules, 2000. On the other hand, the appellate Commissioner did not find any mutuality of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i [1996 (81) E.L.T. 290 (T)] affirmed by the Supreme Court in CCE, New Delhi v. Guru Nanak Refrigeration Corpn. [2003 (153) E.L.T. 249 (S.C.)]. The payment of US $ 13,500,002 (Rs. 63,02,48,000/-) by M/s. Ciba India (P) Ltd. (Mumbai) to the assessee as part of the package in which CIBA went out of the Joint Venture in favour of Vantico was not to be treated as monetary flowback to the assessee inasmuch as the said amount was only the compensation received by the assessee for premature termination of contract by CIBA. This amount was shown as capital receipt in Profit Loss Account and was transferred to General Reserve (Annual Report 2000-2001 of M/s. Tamil Nadu Petroproducts Ltd. was referred to by their Counsel in this connection). Any relationship in terms of Section 4(3)(1)(iv) was not to be found between the assessee and M/s. PAPL on account of the above payment of compensation. [In this context, reliance was placed on the Tribunal s decision in CCE v. Hawk Engines - 2001 (134) E.L.T. 496]. All the facilities provided by the assessee to M/s. PAPL under the Service Agreement were at the cost of the latter. None of these services was free. [In this connection, reference was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PAPL was not to be treated as a different class of buyer vis-a-vis other buyers of ECH by reason of the fact that a different price was charged from them. [In this connection, reference was made to the Supreme Court s judgment in CCE v. Tisco Ltd. [2004 (174) E.L.T. 307 (S.C.)]. According to ld. SDR, M/s. PAPL and other domestic resin manufacturers belonged to the same class of buyers for the assessee and, therefore, the highest price charged from them could be adopted as assessable value of the goods under Section 4(1)(b). 6. We have carefully considered the submissions. According to the assessee, the price charged by them from M/s. PAPL should be the assessable value of ECH sold to the latter in terms of Section 4(1)(a) of the Central Excise Act. According to the Revenue, the assessee and M/s. PAPL are related in terms of Section 4(3)(b)(iv) of the Act, and therefore, valuation of the goods has to be done in terms of Section 4(1)(b) of the Act. Section 4(1) reads as under : Section 4 : Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements, they were to manufacture ECH by making use of technology provided by their co-promoters and to meet the entire ECH requirement of M/s. PAPL. 86% of their ECH production was sold to M/s. PAPL. Only 14% was sold to other buyers. PAPL was given a preferred customer status under the Supply Agreement entered into between them and the assessee. It was argued by ld. Counsel that this preference was given on account of the fact that a major part of the assessee s production of ECH was purchased by M/s. PAPL. We have not found anything in any of the agreements to support this submission. On the other hand, it was clearly laid down under clause 4.2 of the Supply Agreement that PAPL was to be given preferred customer status. The question now arises as to why this preferential treatment was given to M/s. PAPL by the assessee. Clause 4.2 itself would answer this question. This clause reads as under : 4.2. ECH-Price for domestic epoxy market : Based on current commercial practices in place the reference price for ECH for the domestic epoxy market will be calculated based on the price under 4.1 plus the customs duty on imports of ECH into India. This pricing mechanism is valid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... netheless, we find, their lordships following observations will be relevant to the instant case : The assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of each other. The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct, while the interest of the latter in the business of the former may be indirect. That would not make any difference, so long as each has got some interest, direct or indirect, in the business of each other. We have already discerned the mutual interest of the assessee and PAPL in the business of each other and our finding of relation between them in terms of Section 4(3)(b)(iv) must pass the test laid down in Atic Industries. We have also noticed that the facts of the present case are almost unique and clearly distinguishable from those of all cases cited by ld. Counsel in his endeavour to show that the assessee was not related to PAPL. 8. As already noted, Section 4(1)(b) will govern valuation in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ECH not only to PAPL (related buyer) but to unrelated customers also. The CBEC has correctly clarified this position in Circular No. 643/34/2002-CX dated 1-7-2002. Point No. 12 discussed in this Circular is extracted below :- How will valuation be done when goods are sold partly to related persons and partly to independent buyers? There is no specific rule covering such a contingency. Transaction value in respect of sales to unrelated buyers cannot be adopted for sales to related buyers since as per Section 4(1) transaction value is to be determined for each removal. For sales to unrelated buyers valuation will be done as per Section 4(1)(a) and for sale of the same goods to related buyers recourse will have to be taken to the residuary Rule 11 read with Rule 9 (or 10). Rule 9 cannot be applied in such cases directly since it covers only those cases where all the sales are to related buyers only. The Revenue s case as made out in the show cause notices is that the assessee is related to M/s. PAPL in terms of sub-clause (iv) of clause (b) of sub-section (3) of Section 4 of the Act. They have no case that the assessee and M/s. PAPL are interconnected undertakings. Hence Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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