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TMI Blog2020 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... dwar, Pune, Manesar and Jamshedpur, also for 5 branches located all over the country. There are also two associate companies namely M/s SKF Technologies Ltd. and M/s Lincoln Helios India Ltd. Among these organisations, M/s SKFIL has identified the departments where they share the cost incurred on staff. It is found that these are purely business transaction and cost sharing cannot be treated as transaction creating interest in business of each other. Had it been the case that M/s SKFIL were providing such services free of cost or at subsidised rates to the other, then one could have asserted that there was an interest in business of each other. In this case, the costs of staff are charged to each other. Therefore, it can only be treated as business transaction. The mere fact that the entire production of M/S SKFTIL is sold through M/s SKFIL is not sufficient to make them related parties. There has to be positive evidence of them having interest in the business of each other - Since the two cannot be treated as related parties, the transaction value between SKFIL and SKFTIL has to be accepted for the purpose of assessment. The appeal on this count is allowed. Admissibility of notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the end customer. The same is elaborated as under:- Wind customer:- The price at which goods are sold by SKF Tech depends up on the end customer price of SKF India. In wind segment generally SKF Tech, Ahmedabad unit sells the goods at a price which is 8% to 15% less than SKF India sales price. I understand SKF Tech is aware of the end selling price of SKF India at the time of invoicing. In support of this I here with submit two sets of documents duly signed by me, containing end use certificate from the customer, PO issued by the customer of SKF India, invoice issued by SKF Tech on SKF India & Invoice issued by SKF India on the customer. Indian Railways:- The Price at which goods are sold by SKF Tech depends upon the end customer price of SKF India. In Indian Railways segment generally SKF Tech, Ahmedabad unit sells the goods at a price which is 8% less then SKF India at the time of invoicing. In support of this I here with submit two sets of documents duly signed by me, containing, PO issued by the Customer on SKF India, invoice issued by SF Tech on SKF India & invoice issued by SKF India on the customer. Q.6 what are the criteria for variation of prices 8-15%? A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made this submission and referred to various judgments before the authority. There is no finding given by the Commissioner to substantiate the mutuality of interest between the appellants and M/s SKF India Ltd. 7.2. Learned Counsel submitted that the Commissioner in para 41.11 has concluded that the appellants and M/s SKF India Ltd. are inter-connected units. Further in para 42 it is concluded that M/s SKF India Ltd. and M/s SKF India Technology India Ltd. are inter-connected units in terms of Section 4(3)(b)(i) of Central Excise Act, 1944. He argued in the same para a statement has been made without any basis that they have interest in each other. 7.3. Learned Counsel submitted that in absence of mutuality of interest, that the appellants and M/s SKF India Ltd. are not related persons. The appellants also rely upon the following judgments: M/s S.M. Chemicals & Electronics & Another 1980-(6)-ELT-197 (Bom.) M/s. New India Industries Ltd. 1988-(37)-ELT-547 (Bom) M/s. Goodyear South Asia Tyres Pvt. Ltd. 2015-(322)-ELT-389 (SC) M/s. Lloyds Metals & Engineers Ltd 2008-(222)-ELT-84 (Tri. Mum.) 7.4. Learned Counsel submitted that the show cause notice has alleged that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot use the know-how given by & M/s. AB SKF to design, produce, assemble or market any product which is in competition with the product of & M/s. AB SKF. He submitted that this is a standard clause in most of the royalty agreements to make sure that there is no misuse of the know-how granted. He also stated that these agreements were never part of the investigation carried out by the department on the basis of which SCN has been issued. He also pointed out that royalty amount has been paid and service tax payable thereon under reverse charge has also been paid. There is no query from service tax department in this regard. 7.8 Learned Counsel submitted that loan agreement dt. 8th Dec 2008 between SKF India & SKF Tech prescribes that 9% rate of interest. Further, it has been specified that the rate will be revised every half yearly depending upon deposit rate of lenders bank and shall not be lesser than prevailing bank rate u/s 49 of RBI Act, 1934. The repayment schedule has also specified in clause 5 of the agreement. 7.9 Learned Counsel submitted that M/s. SKF India Ltd. (hereinafter referred to as "M/s. SKF India") have factories located at Bangalore, Haridwar, Pune, Manesar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce corporation and other labour laws etc. However, the central human resource department of M/s. SKF India Ltd. advises on employees" Wages/salaries, training and other policy matters. He argued that there is no mutuality of interest and therefore, they cannot be treated as related persons under section 4(3)(b) of CEA, 1944 8.1 Learned Counsel submitted that the appellants have availed the benefit of Notification No. 6/2006- CE dated 01/03/2006. The item No.13 of list 5 under which the benefit is availed reads as follows: "Wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller." All the components and parts of wind operated electricity generator including rotor and turbine controller are exempt under this notification. This entry has been interpreted by Larger Bench of Tribunal and also by Hon"ble Supreme Court in the following cases/Circulars: Notification No. 6/2006 - CE dated 01/03/2006 M/s. Rakhoh Enterprises 2016 ( 338 )-Elt-449 ( Tri.-LB) M/s. Hyundai Unitech Electrical Transmission Ltd. 2005- (187)- ELT-312 ( Tri.-Mum) and affirmed by Hon. Supereme Court in 2015-(323)- ELT-220 (SC) M/s Fag Bearings In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. This belief has been vindicated by the judgment of the Supreme court in the case of M/s. M/s. Hyundai Unitech Electrical Transmission Ltd. reported in 2015-(323)- ELT-220 (SC) as well as circular No.1008/15/2015- CX dated 20/10/2015. Hence in any event the demand for the extended period cannot be invoked. (ii) There is no mutuality of interest between the appellant and M/s. SKF India Ltd. as there is not flow back of funds. Further, the relationship has not influenced the price in as much as the margin is maximum of 15% which is very reasonable, comparing to the nature of work undertaken by M/s. SKF India Ltd. Therefore, the extended period of five years cannot be invoked. 8.4 Learned Counsel submitted that the penalty u/s. 11AC of the Central Excise Act, 1944 has been levied. It is submitted that in view of the above submissions, the penalty u/s. 11AC of the said Act should not be levied. 8.5 Learned Counsel submitted that the personal penalty under Rule 26(1) of the Central Excise Rules, 2002 is leviable when the person deals with the goods in a manner specified in the rule, with a reason to believe that the goods are liable for confiscation. In this case as it will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave common Umbrella ERP package for all the units of SKF in India, developed by AB SKF, Sweden, such as I.T. cost was shared and paid independently by both the units i.e. SKF India and SKF Technologies of AB SKF, Sweden. 9.3 Learned AR submitted that the Audited Balance Sheet for the year - 2010-2011 of SKF Technologies finds mention of M/s. SKF India as "parties under common control" at Clause 17.17 forming part of Notes to Accounts pertaining to "Related party disclosures". This fact has also been admitted by Shri Vijendra Patwari, General Manager Taxation with SKF India Limited, Mumbai, in his statement dated 04.09.2014 and he has also deposed that AB SKF, Sweden was the ultimate holding company of both these two companies viz. SKF India & SKF Technologies and hence transactions between these two companies were reported under the related party disclosure of the balance sheet. 9.4 Learned AR submitted that the Audited Balance Sheet for the year- 2010-11 of SKF Technologies reported transaction with SKF India totalling to ₹ 45,10,25,51/- under the head of "particulars of related party transactions" at clause 17.17 (2) in revenue from operation. This fact was admitted by Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . SKF Technologies in not at a liberty to decide the price of their goods as per cost valuation / cost manufacture basis. Rather, the price is decided by applying the backward calculation method of 8% to 15% of the order rate accepted by M/s. SKF India to the ultimate buyer. Keeping in view the PO issued by the ultimate Customer on SKF India, the invoice is raised by SKF Technologies on SKF India. In the preset case M/s. SKF Technologies has sold their entire goods exclusively to or through related person. 9.7 Learned AR submitted that a substantial loan amounting to ₹ 240 Crore has been extended to M/s. SKF Technologies by M/s. SKF India. The re-payment terms have been kept as per convenience of both. The Supplementary agreement indicates that the terms of re-payment kept on changing whereby relief was extended to SKF Technologies in repayment schedule. As per clause (d) of the agreement Cost sharing and Service Agreement dated 6th April, 2010 between SKF Technologies and SKF India, both the parties were pooling and combining their respective manpower and other resources for the purpose. The types of services rendered and availed were specifically mentioned in their annexur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e management and hence both are inter-connected undertakings within the meaning of Section 2(g) of the MRTP Act, 1969. The roles played by Shri Sanjay Bahadur in his dual capacity is pivotal because he executed the policies of both the units. Similarly, Shri Ramesh Chandra executed the policies of both the companies. All these factors indicate that UTL controls UPL and being inter-connected undertakings having direct or indirect interest in the business of each other are related in terms of the provisions of Section 4(3)(b) of the Central Excise Act, 1944. The ratio of the case law M/s. South Asia Tyres P. Ltd. v. CCE, Aurangabad reported in 2003 (152) E.L.T. 434 (Tri.) cited by the appellants is not applicable to the present case as in the case of M/s. South Asia Tyres P. Ltd. although M/s. South Asia Tyres P. Ltd. and M/s. Goodyear India Lt. were interconnected undertakings yet they did not have interest in the business of each other whereas in the instant case the appellants and UTL have interest in the business of each other." 9.10 Learned AR submitted that in the instant case it can also be seen that there are key managerial personnel at senior levels for example, Mr. Chandr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter" of the said first schedule were exempted from the whole of the duty leviable thereon without any condition serial No. (13) of list 4 in respect of the said entry reads as follows: "Windmills, parts of windmills and any special designed devises which run on windmills." Learned AR submitted that the above indicates that description of the goods entitled for exemption was changed from " windmills, parts of windmills and any special designed devices which run on windmills" to " wind operator electricity generator, its components and parts thereof including rotor and wind turbine controller." These facts clearly indicate that the intention of legislature while amending exemption was to restrict the exemption to the part of wind operated electricity generator instead of allowing exemption to entire wind mill and parts thereof. The entry at Sr. No. (13) of list 5 covers only the generator and its parts and its scope cannot be extended to include the entire wind mill and parts thereof. 9.16 Learned AR submitted that M/s SKF Technologies manufactures bearings for windmills as per the diagram/ picture given in SCN, the generator is a part of wind mill and exemption is available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods in the market and the entire marketing is looked after by the SKFIL. Similarly, M/s SKFIL does not have manufacturing capabilities and they are dependent on M/s SKFTIL for manufacturing of goods. On the basis of assertions, Revenue has sought to treat M/s SKFIL and M/s SKFTIL as related parties under clause (iv) section 4(3)(b) of the Central Excise Act, 1944. The said section 4 reads as under: (b) "persons shall be deemed to be "related" if- (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other." Clause (iv) has been involved in present facts. 10.1 We find that so far as loan granted by M/S SKFIL to M/s SKFTIL is concerned interest at the rate of 9% has been fixed. It has also been specified that the rate of interest would be revised regularly at half yearly basis and shall not be less than the prevailing bank rate under section 49 of RBI Act, 1934. In view of above, it is apparent that this a purely business transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "windmills, parts of windmills and any special designed devises which run on windmills" to "wind operator electricity generator, its components and parts thereof including rotor and wind turbine controller." 11.1 It has been argued that only parts of "generators" are exempted and not parts of wind mill. The crux of the argument being that only the generator used in the wind mill is windmill generators and balance, that is, blades and the towers are not parts of the generators. It is seen that circular no. 1008/15/52015-CX dated 20/10/2015 of the Board clearly specifiesd that the following items used by wind operated electricity generator, will be exempt from payment of excise duty: (i) "Tower: which supports the nacelle and rotor assembly of a wing operated electricity generator. (ii) Nacelle: which contains of gearbox, generator, yaw components, flexible couplings, brake hydraulic, brake callipers, sensors, nacelle plate, nacelle cover and other smaller components. (iii) Rotor: consists of blades, hub, nosecone, main shaft, special bearings. (iv) Wind turbine controller, nacelle controller, main shaft, special bearings." From the above, it is clear that the CBIC trea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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