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TMI Blog2006 (7) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... a Show Cause Notice alleging that the assessee was holding company and a related person of M/s. Tractors and Farm Equipments Ltd., Chennai (henceforth referred as TAFE) who sourced all its requirement of OE engines for tractors from Simpson and that the value adopted by the assessee for payment of duty on clearances of OE engines and Trade Engines (for spare market) to TAFE had not reflected the correct assessable value (value, henceforth) for the purposes of Section 4 of the Central Excise Act, 1944 (Act). It was proposed to re-determine the value of OE engines under Section 4(1)(a)(iii) of the Act invoking Central Excise Valuation Rules, 1975, and particularly rules 6(c)(ii) and 6(b)(ii). As regards replacement engines sold by TAFE, it was proposed to adopt the sale price of TAFE to their buyers as basis of value. The impugned clearances had been made during August 1998 to January 1999 and the proposed demand was for Rs. 2,02,37,753/-. 3. The Show Cause Notice had cited the following allegations to arrive at the tentative finding that Simpson and TAFE had interest in the business of each other and they were related: (a) TAFE was a subsidiary of Simpson (b) Simp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and the two were dependent on each other and promoted each other s business. The Commissioner decided Simpson and TAFE to be related persons for the purpose of the Act for the reasons proposed in the Show Cause Notice. In addition, it was found that Simpson had filed price lists indicating TAFE as a company related to it. He decided, that it was the generality of the whole situation wherein the behaviour and approach of both the companies towards each other would determine whether the two companies are interdependent to each other . 6. Though the Show Cause Notice had proposed to revise the assessable of OE engines sold to TAFE in terms of Rule 6(b)(ii) of Central Excise Valuation Rules, 1975 read with Rule 6(c) ibid for demand, the Commissioner found that the assessee had already included 20% of the cost of production of OE engines cleared to TAFE to determine value whereas in the corresponding previous financial year (1997-98) TAFE had made a profit of only 16-47% and that the notice had erroneously proposed to add 16-47% of the price for sale of the OE engines to the above price to ascertain value. Accordingly he dropped the proposal to demand the duty on OE engines. He fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which were not comparable to engines supplied to TAFE as OE. The Commissioner had rejected their application for rectification of the mistakes in the order. While agreeing with the appellant that holding company, subsidiary company relationship under the Companies Act did not result in both being related persons under Section 4(4)(c) of the Act, he had decided that controlling interest was enough to hold the companies to be having mutuality of interest in the business ignoring the ratio of Atic Industries case. He ignored the decision in Ralliwolf Limited v. UOI of the Bombay High Court saying that the judgment was a remand order. Therefore he failed to appreciate the ratio of the judgment. The Commissioner had erred in not following CEVR 6(b)(ii) to determine the value when he had found that there was no price of comparable goods available for the OE Engines for the same class of buyers and it was not consistent with the ratio of Ashok Leyland v. CCE [35 (RLT) 748]. They submitted that the Commissioner should have decided the value based on cost of raw material plus conversion cost plus profit. The adjudicating authority erred in adopting Trade Engine value for determining the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the department. 12. The learned SDR, Smt. R. Bhagyadevi argued that both the adjudication orders had been passed almost simultaneously by the two Commissioners. Therefore, in passing the subject order, the adjudicating authority was not bound by that ratio nor res judicata applied. The review and acceptance by CBEC of the order of Commissioner took place much after passing of the subject order. Therefore the principle of res judicata did not apply in passing the subject order. The SDR cited the decision of the Hon ble Supreme Court in the case of CCE, Raipur v. Hira Cement reported in 2006 (194) E.L.T. 257 (S.C.) in support. She submitted that the subject case came up for consideration before the competent Tribunal for the first time. It had the discretion to decide judicially the issues involved and was not shackled by any views of the CBEC on a decision involving the same assessee by another adjudicating authority. 13. She also cited the following observation of the Hon ble Supreme Court in the case reported in 2004 1 SCC 347, cited with approval, in the case of CCE v. Hira Cement [ 2006 (194) E.L.T. 257(S.C.)]. Non-filing of an appeal, in any event, would not be a gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r : Related person means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. 16. Courts and the Tribunal have explained the true sense of the expression Related Person in a large number of decisions. Where a subsidiary company and the holding Company are involved, it has been laid down by the Bombay High Court in CCE C, Mumbai III v. Ralliwolf Ltd. that Section 4(4)(c) is not attracted merely because an assessee and its buyer have a subsidiary company holding company relationship. The High Court held : Reading the section as a whole, it is clear that merely because a company is the subsidiary of holding company, ipso facto, it cannot attract Section 4(4)(c). It must be further established that each has interest in the business of the other. It must be further established that the transaction in question is not based on principal to principal and that extra-commercial considerations have lowered the normal price. It is only then the third proviso to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dabur India Limited against the allegation of their being related persons as decided by Revenue. DIL purchased all the products of BHPL. DIL and its six nominee companies had acquired 60% of the paid up capital of BHPL. DIL stood as guarantor for loans taken by BHPL. DIL extended unsecured loan to BHPL and wrote off outstanding interest of Rs. 9.7 lakhs due from BHPL. Marketing and Distribution Agreement between BHPL and DIL provided flat margins of 25% for sales to DIL irrespective of the fact that BHPL sold some medicines below cost. It was in this background that the allegation of the two entities being related persons was raised. It was decided that in the absence of mutuality of interest between the two entities being proved, Dabur holding 23.89% of the share capital in BHPL did not establish extra commercial relationship between BHPL and DIL. 20. In Rallis India Ltd. v. CCE, Bombay, the dispute involved the two firms Rallis India Ltd. and Rallis Machines Limited. RML was a subsidiary of RIL and had sold their entire products to RIL. RIL held 90% of the share in RML. The adjudicating authority had found the two firms to be related persons. He had not found that the price at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held in various judicial authorities. However, it is seen that the adjudicating authority opted for Rule 6(b)(i) as suggested by the appellants in the adjudication proceedings before the Commissioner in writing. lt is seen from the statement of General Manager, Marketing of TAFE dated 22-1-96 before the Assistant Director, DGAE, Madras Zonal Unit that in 1994-95, total number of OE engines cleared to TAFE were 18000 and same type of replacement engines cleared were 10 and that same would be the case of clearances to replacement market. It is not indicated by the assessee or the adjudicating authority as to what is the total number of the engines cleared during the period covered by the notice, though the OE engines cleared is shown in the Show Cause Notice to be above 21000. It can be inferred that the figure would be insignificant compared to number of OE engines. Sale price of these engines were adopted as basis to ascertain the value of OE engines in the proceedings. 24. The claim regarding errors in quantification cannot be accepted as the appellants had been afforded sufficient opportunity to present their case before the Commissioner and the appellants alone had suggested ..... X X X X Extracts X X X X X X X X Extracts X X X X
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