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TMI Blog2020 (9) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... f the goods cleared. Accordingly he/ she have to determine the value and duty payable - in such a case only one of the three show cause notices which as per the understanding of adjudicator are logical and legally sustainable should have been adjudicated and the other two summarily dismissed. Appellants have contended that the value determined by them for payment of duty is the transaction value determined purely on commercial considerations at arm s length. However we find that the documents and evidences suggests that both M/s VWIPL (Appellant) and M/s VWGSIPL do not independently determine the value at which the M/s VWIPL would transfer the cars to M/s VWGSIPL . The transfer value claimed to be the true transaction value is determined by the Planning Round, every year which is headed by M/s VWAG, Germany. Mutuality of Interest and Related Person - HELD THAT:- Undisputedly, Appellant and VWGSIPL are subsidiaries of M/s VWAG, Germany. Appellant is engaged in the manufacture and production of the cars of models Polo and Vento, as per the designs and specifications of M/s VWAG, Germany, and sell them in the territory of India to only and only M/s VWGSIPL, a marketing subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / clearance of goods. In absence of any value under Section 4(1)(a), the only route available for determination of the value will be under Sec.4(1)(b) through Rule 11 of valuation rules and the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act. By application of Rule 11, in case of related person transactions the value needs to be determined by application of Rule 9 of the Central Excise Valuation (determination of Price of Excisable Goods) Rules, 2000. Thus in absence of Section 4(1)(a) value satisfying the criteria laid down by the Apex Court in case of M/s FIAT Industries the value is finally determined in terms of Rule 9 only, on the basis of sale price of M/s VWGSIPL to the dealers. Benefit of Cum Duty Price - HELD THAT:- The Commissioner has in the impugned order not even examined the issue at all. We are in full agreement with this submission of the Appellant that the benefit of cum duty price will be admissible to them if it can be shown that the price which is taken for computation of assessable value and duty demand is inclusive of excise duty and cesses. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is of interpretation of legal provisions and number of contractual agreements and documents. On the merits till the time investigations were undertaken by Director General of Central Excise Intelligence, revenue authorities also held the view akin to held by the Appellants. When revenue authorities also held the same view as the appellant then how can appellants alone be held guilty of contumacious conduct for imposition of penalty - in such case involving complex issues in relation to interpretation of statutory provisions, where revenue also entertained the same view as appellants the penalties imposed under Rule 26 of Central Excise Rules, 2002 cannot be justified and are set aside. The appeals filed by Appellant namely M/s VWIPL, are partially allowed and the matter remanded back to the Commissioner for redetermination of the quantum of duty payable. - Excise Appeal No. 86245 & 86251 of 2016, Excise Appeal No. 86519 & 86542 of 2017, Excise Appeal No. 86543 & 86545 of 2018 and Excise Appeal No. 86595 & 86596 of 2019 - A/85711-85718 / 2020 - Dated:- 27-8-2020 - DR. D.M. MISRA, MEMBER (JUDICIAL) AND MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) Shri V.S. Nankani, Sr. Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Cars (Polo and Vento Variants) shall be determined in terms of Section 4(1) (b) of the Central Excise Act, 1944 read with Rule 10(a), Rule 9 and Rule 11 of the Valuation Rules. iii. I determine and confirm revised demand of Central Excise duty amounting to ₹ 323,65,87,666/- (Rs. Three Hundred Twenty Three Crores Sixty Five Lakhs Eighty Seven Thousand Six Hundred Sixty Six only) (including NCCD, Automobile Cess, Education Cess and Secondary Higher Education Cess), being the duty short paid by them on the vehicles (Polo and Vento Variants) for the period from January 2010 to December 2014, and order the recovery of the same from M/s. VWIPL, under Section 11 A (2)/11A(10) of the Central Excise Act, 1944, as the case may be. iv. I confirm the demand of Interest and order recovery of the same at applicable rates from M/s. VWIPL, on the duty amounts confirmed above at Sr. No. (iii), under Section 11AA (erstwhile Section 11AB) of Central Excise Act, 1944, as the case may be. v. I impose penalty of ₹ 323,65,87,666/- (Rs. Three Hundred Twenty Three Crores Sixty Five Lakhs Eighty Seven Thousand Six Hundred Sixty Six only) upon M/s. VWIPL under Section 11AC/11A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in respect of the clearances made during the period January 2010 to March 2014, three separate show cause notices all dated 06.02.2015 as detailed below were issued by the Additional Director General Central Excise Intelligence. One Show Cause Notice dated 06.05.2015 as consequential demand for the subsequent period has also been issued. 2.3 Show Cause Notice No. DGCEI/ MZU/ I IS C / 30-14/13 dated 06.02.2005 alleges the evasion of duty to the extent of ₹ 402.87 Cr. by failing to determine the correct value of the excisable goods manufactured and cleared by M/s. VWIPL to M/s. VWGSIPL, during the period from January, 2010 to December, 2014, in contravention of Rule 11 read with Rule 10(a) of Valuation Rules, 2000 read with Section 4(1)(b) of the Central Excise Act, 1944, though they were aware that they are Inter-connected Undertakings having mutuality of interest and squarely covered under the provisions of Rule 10(a) of Valuation Rules, 2000. 2.4 Subsequently three more show cause notices as in table below were issued to the appellants on the same ground as the Show Cause Notice referred in para 2.3. Show Cause Notice Period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CER read with Section 11 AC of Central Excise Act, 1944. 2.7 Show Cause Notice No. 11/CKN-I/CKN-RIII/COMMR/ 2015 dated 06.05.2015 for demand of duty of ₹ 38,38,55,306/- pertaining to the period from 01.04.2014 to 06.08.2014, which is a subsequent demand to Show Cause Notice F.NO. DGCEI/MZU/I IS /15 for demand of duty of ₹ 277.01 Crores for the period from January 2010 to March 2014. The Show Cause Notice proposes to recover duty so evaded in terms of provisions of erstwhile Section 11 A(1) (a) of Central Excise Act, 1944 along with interest thereon under Section 11 AA of Central Excise Act, 1944. The Show Cause Notice also proposes for imposition of penalty on M/s. VWIPL under Section 11 AC (1) (b) of Central Excise Act, 1944 and also on M/s. VWGSIPL under provisions of Rule 26 (1) of CER. The Show Cause Notice further proposes for the confiscation of goods removed in contravention of provisions of Central Excise Act, 1944, under Rule 25 of CER and also penalty under Rule 25 (1) of CER read with Section 11 AC of Central Excise Act, 1944. 2.8 Four show cause notices as per para 2.3, 2.5, 2.6 2.7 were considered simultaneously by the Commissioner. After conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A'/30-17/463 dated 06.02.2015, as explained in Para 108 above. vi. I revise the demand of Central Excise duty of ₹ 38,38,55,306/- to ₹ 13,04,85,264/- in respect of SCN No. 11/CKN-I/CKN-R III/COMMR/2015 dated 06.05.2015, as explained in Para 108 above. vii. There is no change in the demand raised of ₹ 183.28 Crores in respect of SCN F.No. DGCEI/MZU/I IS 'A'/30- 18/15/471 dated 06.02.2015, as explained in Para 115 above. viii. Further, as mentioned in the SCN Fine. DGCEI/MZU/I IS 'C'/30 14/13/455 dated 06.02.2015, the total demand of Central Excise duty recoverable from M/s. VWIPL in respect of all the issues covered under all the SCNs under discussion is ₹ 402,87,28,268/which is revised and confirmed to ₹ 323,65,87,666/-, being the duty short paid by them on the vehicles (Polo and Vento Variants) for the period from January 2010 to December 2014, under the provisions of Section 11A(1)/11A(4) of the Central Excise Act, 1944, as the case may be, as discussed and explained in Para 121 above. ix. Interest at applicable rate(s) on the aforesaid demand confirmed above is - recoverable from M/s. VWIPL, under the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is barred by limitation, considering the department was specifically informed about the related party transactions by the Appellant through various correspondences? Whether the present case is a fit case for imposition of penalty under Section 11AC of the Central Excise Act, 1944? Whether the demand is required to be re-quantified by granting cum-duty benefit to the Appellant, as the demand has been calculated in the Impugned Order on the basis of final sale price to dealers which already includes excise duty and cesses Volkswagen AG is a company incorporated in Germany and is engaged in manufacture, sale and distribution of various Volkswagen Branded Vehicles across the globe. Volkswagen Group Sales India Private Limited ( VWGSIPL ) was incorporated in 2007 as a National Sales Company (NSC) for Volkswagen Group in India and is a fully owned subsidiary of Volkswagen AG. Thus, since 2007, the import, trading and brand promotion for Volkswagen branded Cars in India was carried out by VWGSIPL and has since developed a distribution network and specializes in sale, marketing, distribution and after sale support services. Importantly, this company was incorporated much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has been calculated simply on the differential between VWGSIPL's sale price to dealers and VWIPL's sale price to VWGSIPL. This has led to incorrect demand as VWGSIPL's sale price already includes excise duty and cesses (which is more than margin of VWGSIPL). Materials and/or evidence and/or factors relied to allege mutuality of interest against them are- an email dated January 28, 2010 written on behalf of VWAG to VWGSIPL and the Appellant regarding sale price of Polo cars when launched in India'; Planning Rounds held annually, which are discussions held between VWAG, the Appellant and VWGSIPL for planning production and sale for the next year based on market research and/or analysis and/or projection including analysis of the competition, Statements of Mr. Puneet Sabharwal, Mr. Rabenstein, (Head Finance Controller, VWGSIPL) and Mr. Peter Pajunk (Head Central Control, of the Appellant) Marketing Assistance Agreement dated 18th May, 2007 between VWAG and VWGSIPL; Finance Assistance Agreement dated 7th July, 2008 between VWAG and VWGSIPL Disbursing Agent Agreement dated 16th July, 2008 between the Appellant and VWAG; Purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market share for VW branded vehicles and nowhere indicates that the prices have been influenced by the relationship between the parties. As regards Agreements, all of the agreements show that the relationship between the parties was at an arm's length. The Supply Agreement shows that the price of imported goods was to be determined having regard to the market forces. Significantly, the import price has been accepted as the true and correct assessable value under Section 14 of the Customs Act, 1962. The Appellant, as the manufacturer, is not a party to the marketing and financial agreements between VWAG and VWGSIPL. The business of both VWAG and VWGSIPL is bigger and independent of the Appellant's business, which is limited to only manufacture of Polo and Vento. None of the agreements show that the selling price of Appellant was influenced by the relationship between the interconnected undertakings. There is no flow back from VWGSIPL to the Appellant. The financial assistance rendered by VWAG in the two years 2011-12 and 2012-13 has also not influenced the price. In any case, VWAG is not the buyer of the goods manufactured in India by the Appellant, and therefore, fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 10, there is no other rule in Valuation Rules dealing with interconnected undertakings, and therefore, it will amount to adding words into Rule 9 which is not permissible. Rule 10(a) is divided into two parts. The first part deals with an interconnected undertaking, which is also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of Section 4 of the Act. The second part deals with a case where the buyer is a holding or subsidiary company of the Assessee. Admittedly, the second part does not apply in the present case, since VWGSIPL is neither a holding company, nor a subsidiary company of the Appellant (Assessee). In the first part of Rule 10(a), the key word is the word 'also'. The presence of the word 'also' in Rule 10(a) shows that mere inter-connection, as defined in Section 4(3) (b) of the Act, is not sufficient. Thus, having a common parent company, or being part of the same group or same management, or both buyer and the seller being controlled by a common third company by itself cannot be a ground to reject the transaction value, and apply Rule 9 through Rule 10(a). Consequently, Rule 10(a) mandates that notwithstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Attic Industries (supra). That fact merely proves that Appellant and VWGSIPL are inter-connected undertakings. In terms of Rule 10(b) of the Valuation Rules, the transaction value cannot be rejected if the companies are merely related as interconnected undertakings . There is no cross-shareholding between the Appellant and VWGSIPL. There is no common management person in Appellant and VWGSIPL. The commercial decisions of both the companies are taken by the distinct board of directors of respective companies. Each company enjoys autonomy in relation to its operations and carries business in a way that furthers its own commercial interests. There is no profit sharing between the Appellant and VWGSIPL. There is no flow back of any financial interest between the Appellant and VWGSIPL. The main business objectives of the two companies are different. The 2 entities are separate profit centers. While VWIPL is focusing on manufacturing vehicles, VWGSIPL is engaged in trading and sales promotion of vehicles. Appellant and VWGSIPL are not interested in the business of each other. The sale price of cars is mutually agreed between the VWIPL and VWGSIPL. Entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et Chemicals, 2007 (216) ELT3 (SC), Anand Nishikawa 2005 (188) ELT 149 (SC), Neyveli Lignite Corp. 2007 (209) ELT 310 (T), Bentex Industries, 2004 (173) ELT A079 (SC)] Extended period cannot be invoked in case of bona fide belief on part of the assessee, as in the present case. [NRC Ltd 2007 (5) STR 308 (T), Uniworth Textiles Ltd. 2013 (288) ELT 161 (SC), Larson Toubro Ltd. 2007 (211) ELT 513 (SC)] Judgments relied upon by Departmental Representative are not applicable. The department has demanded duty at the price at which the goods are sold by VWGSIPL to dealers. For arriving at the differential duty, the department has simply calculated the duty on the difference between VWGSIPL's sale price and VWIPL's sale price. However, the department has failed to recognise that VWGSIPL's sale price to dealer includes the excise duty and cesses charged at the time of sale by VWIPL. It is humbly submitted that the said excise duty and cesses are significant and even more than margins earned by VWGSIPL. Thus, even if the submissions of the department are correct, the excise duty and cesses must be excluded for the purpose of calculating the excise duty. [Sri Chakra Tyr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period of next five years each year. This PR shall be completed in line with the scheduled dates for the VW Group As per the Marketing Assistance Agreement dated 18/5/2007 between VWAG and VWGSIPL, VWGSIPL undertakes promotion, advertising and marketing activities on its own behalf which are intended to promote its sales of VW products in India. VWAG will bear the portion of costs of advertising and promotional activities relating to brand building campaigns as mutually agreed upon between the parties. Other marketing and promotional expenses in connection with sales activities will be incurred and borne by VWGSIPL. VWGSIPL incurs the expenses on account of advertisement or publicity, sales promotional activities, etc. Portion of these expenses is borne by VWAG as evidenced by the Debit Notes (Pg. Nos. 1527, 1529, 1581 1592 of Vol. V) raised by VWGSIPL on VWAG from time to time. Based on the above facts and the investigation conducted, proceedings were initiated by issue of various Show Cause Notices/ Statements of Demands The show cause notices have demanded differential duty from the assessee, VWIPL based on the sale price of VWGSIPL (r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, the vehicles would be purchased by VWGSIPL from VWIPL. Such price cannot, be accepted as the true transaction value. The definition of transaction value clearly provides that expenses on account of advertising or publicity, marketing and selling organization expenses, etc. are normally to be borne by the manufacturer and if the buyer is made to bear the same, such expenses shall be included in the price to arrive at the assessable value. In the present case, admittedly such expenses are borne by the Marketing Company, VWGSIPL. Therefore, these expenses have to be included in the assessable value of the goods. It may be noted that by not including the expenses on account of advertising or publicity, marketing and selling organization expenses, etc., VWIPL is selling the contractual vehicles at a reduced price to VWGSPL and thereby evading duty. Thus, both VWIPL and VWGSIPL stand benefitted. VWIPL is saving Central Excise duty by selling the entire production to VWGSIPL who is undertaking the sales promotion activities of the contractual vehicles, while VWGSIPL is getting the entire production from VWIPL at a reduced price. Therefore, both VWIPL and VWGSIPL have direct int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1131, Vol. IV), letter dated 16/24 th March 2011 (pg No.1138, Vol. IV), letter dtd. 28.11.2011 (pg No.1146, Vol. IV), letter dtd.09.07.2013 (Pg. No.1150, Vol. IV), and letter dtd. 14.11.2013 (pg.No.1152, Vol. IV) and contended that the demand subsequent to 26.09.2011 is not sustainable because by that date the method of valuation of motor cars was already known to the Department. These contention are not acceptable for the reasons as follows: In the present case, it is not correct to say that there was no suppression of any fact and that the method of valuation was known to the Department. It is only during the investigation that the Department. found that the valuation of the cars was being determined by the holding Company in Germany (i.e. VWAG) and the same was being communicated to the marketing company and the manufacturing company. Email dated 28th January 2010 along with the worksheet, showing the valuation of the cars was found during the course of investigation. The email showed that the value of the cars was done on the basis of retail minus method. This email dated 28/1/2010 may be seen at pg. No. 513 in Volume II. Letter dated 28.02.2013 (pg No.244 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mutually agreed. The PR for the supplies of contractual parts and deliveries of contractual vehicles for the period of next five years were completed in line with the scheduled date of VW Group. But for the extensive investigation conducted by the then DGCEI, the aforementioned documents would not have come to the hands of the Department. Therefore, it cannot be contended that the demand subsequent to September 2011 cannot be sustained. It may not be out of place to mention that the demand has to be raised (whether for the normal period or for the extended period) from the relevant date. The relevant date has been specified in Section 11A of the Central Excise Act, 1944. The date of knowledge is not one of the relevant dates. Even assuming that the Department. had the knowledge of their activities, that knowledge will not obliterate the suppression of facts on the part of the Appellant as held by the Hon'ble High Court of Gujarat in Commissioner of Central Excise, Surat-1 versus Neminath Fabrics Pvt. Ltd., reported in 2010 (256) E.L.T. 369 (Guj.). In the same way, the Hon'ble Rajasthan High Court in the case of Vodafone Digilink Ltd., vs. CCE, Jaipur-II reported in 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal person and hence penalty can be imposed on it. During the last day of hearing, a grievance was made on behalf of the Appellants that the Learned Commissioner has not considered the Appellants' submission regarding cum-duty benefit. This grievance is not genuine. The Learned Commissioner has considered this submission in paras 87.1 to 87.3 in the impugned Order. Further, the Appellants' stand is contradictory and inconsistent. In their reply to the Show Cause Notice, vide para H.3 (Pg. No.754 of Vol.III), the Appellants have stated that the proposed duty demand, if calculated correctly, comes to INR 323,65,87,666/- and not INR 402,87,28,269/-, as mentioned in the SCN. Again in para H.6 (Pg. No.755 of Vol.III), it has been stated that total duty demand after cum-duty benefit comes to INR 267,06,98,402/-. However during the hearing, a chart was tendered before the Hon'ble Bench showing actual differential duty on cum-duty calculation comes to INR 245,14,70,975/- (vide Sl.No.1 of the Chart) for the period from January 2010 to December 2014. From this, it would appear that the Appellants themselves are not clear about their stand. Therefore the duty confirmed is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of issues, demand, and different Valuation Rules invoked under the three SCNs for valuation of the very same cars (Polo and Vento Variants) for the very same period. They have contended that the SCNs under reference are arbitrary and conflicting and with overlapping demands; that the department have raised different yardsticks to demand duty on the same transactions, and that, based on the ratio of a number of court decisions, there is a strong case for setting aside the SCNs on this ground alone. 66.4 In this regard, I have seen from the SCNs and replies thereto that there are number of complexiti es involved in the arrangements and transactions adopted by the assessee and their group companies among themselves, which are unearthed after extensive investigation by the officers of DGCEI i.e. the arrangement of sale of entire production of VW brand cars through fellow subsidiary company, M/s VWGSIPL, who also bears the marketing and product promotional expenses; conditional waiver of license fees by parent holding company; financial assistance by the parent holding company to both the fellow subsidiary companies; waiver of payment against supply of raw materials by the holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verlapping of issues, time and demand can be addressed judiciously. It would be a travesty of the entire process to summarily dismiss the demands only on this count. Further, I also find that it would be appropriate to decide the fourth SCN dated 06.05.2015 along with the three SCN's dated 06-02-2015, being related to the same category of vehicles and issues. 67. As explained above, I therefore find that it would be more appropriate to adjudge the issue involved in all these SCNs i.e. valuation of cars with reference to Central Excise duty liability under best judgment assessment as laid down in Rule 11 of the Valuation Rules, traversing through each SCN, discussing the allegations in the SCN and replies thereto with reference to relevant Valuation Rules invoked, SCN wise. 119. After my detailed discussion in respect of each of the SCNs under discussion, I find that the issues are inter-linked and pertain to clearance of same vehicles i.e. Polo and Vento Variant Cars of VW brand during the material period. Further, I also find that M/s. VWIPL in their reply to each SCN have contended that different yardsticks have been adopted by the department to demand excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove duty component. . 121.3 In view of the above, it is clear the total duty confirmed of ₹ 323,65,87,666/- in respect of SCN F. No. DGCEI/MZU/I IS'C'/30-14/13/455 dated 06-02-2015, covering the period from July 2010 to December 2014, includes the other duty demands confirmed above in respect of remaining other two SCNs for ₹ 106,01,33,547/- pertaining to the period from January 2010 to March 2014 in respect of SCN F.No. DGCEI/MZU/I IS A /30-17/15/460 dated 06-02-2015 and for ₹ 183.28 Cr pertaining to the period from January 2010 to March 2014 in respect of SCN F.No. DGCEI/MZU/I IS 'A'/30-18/15/468 dated 06-02-2015. We cannot agree with the method adopted by the Commissioner while dealing with the three Show Cause Notice dated 06.02.2015. Commissioner could not have determined three different methods for valuation of the same goods simultaneously. Commissioner while adjudicating has to be judicious enough to determine what is the correct approach to determine the value of the goods cleared. Accordingly he/ she have to determine the value and duty payable. In our view in such a case only one of the three show cause notices which as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cumduty, excluding sales tax and other taxes, if any, actually paid, u shall be deemed to include the duty payable on such goods. (3) For the purpose of this section, - a. assessee means the person who is liable to pay the duty of excise under this Act and includes his agent; 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. c. Explanation. - In this clause - i. inter-connected undertakings shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969); and ii. relative shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956); (c)........................; (cc) ....................; d. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9. Explanation. - In this clause holding company and subsidiary company shall have the same meanings as in the Companies Act, 1956 (1 of 1956). (b) in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of section 4.' Rule 11 - 'If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act.' 4.5 Meaning of Transaction Value and Value under Section 4 (1) (a) Interpreting Section 4, Hon ble Supreme Court has in case of FIAT India [2012 (283) ELT 161 (SC)]after noting all the decisions rendered in past has observed as under: 26. Section 4 of the Act lays down the valuation of excisable goods chargeable to duty of excise. The duty of excise is with reference to value and such value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be interpolated. 29. Section 4 of the Act, as we have already noticed, speaks of valuation of excisable goods, with reference to their value. The `value subject to other stipulation in Section 4 is deemed to be the `normal price at which the goods are ordinarily sold to the buyer in the course of wholesale trade where the buyer is not `related person and the `price is the `sole consideration for the sale. Against this background, for the purpose of this case, we have now to consider the meaning of the words value , normal price , ordinarily sold and sole consideration , as used in Section 4(1) (a) of the Act. 30. The `value in relation to excisable commodity means normal price or the price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade at the time and place of removal where the buyer is not a related person and price is the sole consideration for sale. Stated another way, the Central Excise duty is payable on the basis of the value. The assessable value is arrived on the basis of Section 4 of the Act and the Central Excise Valuation Rules. 31. Section 4(1) (a) deems the `normal price of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it the power to determine the true value of the excisable article, after taking into account any concession shown to a special or favoured buyer because of extra-commercial considerations, in order that the price be ascertained only on the basis that it is a transaction at arm s length. That requirement is emphasized by the provision in the new Section 4(l)(a) that the price should be the sole consideration for the sale. In every such case, it will be for the Revenue to determine on the evidence before it whether the transaction is one where extra-commercial considerations have entered and, if so, what should be the price to be taken as the value of the excisable article for the purpose of excise duty. 36. In Metal Box India Ltd. v. CCE (1995) 2 SCC 90, this Court held: 10. ... It has been laid down by Section 4(1)(a) that normal price would be price which must be the sole consideration for the sale of goods and there could not be other consideration except the price for the sale of the goods and only under such a situation sub-section (l)(a) would come into play. 37. In Calcutta Chromotype Ltd. v. CCE, (1998) 3 SCC 681, it is held: 14. ... Law is specific th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a), value in relation to any excisable goods is a function of the price. In other words, value is derived from the normal price at the factory gate charged to an unrelated person on wholesale basis and at the time and place of removal. 11. It is for the Department to examine the entire evidence on record in order to determine whether the transaction is one prompted by extra- commercial considerations. It is well settled that under Section 4 of the said Act, as it stood at the material time, price is adopted as a measure or a yardstick for assessing the tax. The said measure or yardstick is not conclusive of the nature of the tax. Under Section 4, price and sale are related concepts. The value of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with Section 4. In every case, it will be for the Revenue to determine on evidence whether the transaction is one where extra-commercial considerations have entered and, if so, what should be the price to be taken into account as the value of the excisable article for the purpose of excise duty. These principles have been laid down in the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, as stated above, we are concerned with valuation and not with excisability. In the present case, there is no dispute that AMS came under Sub-Heading 3402.90 of the Tariff. There is no dispute in the present case that AMS was dutiable under Section 3 of the Act. In Union of India v. Bombay Tyre International Ltd., this Court observed that the measure of levy did not conclusively determine the nature of the levy. It was held that the fundamental criterion for computing the value of an excisable article was the price at which the excisable article was sold or was capable of being sold by the manufacturer. It was further held that the price of an article was related to its value and in that value, we have several components, including those components which enhance the commercial value of the article and which give to the article its marketability in the trade. Therefore, the expenses incurred on such factors inter alia have to be included in the assessable value of the article up to the date of the sale, which was the date of delivery. 43. What can be construed from the plain reading of Section 4 of the Act and the interpretation that is given by this Court on the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or woman and in the present case, a company is expected to act with discretion to seek reasonable income, preserve capital and, in general, avoid speculative investments. This court in the case of Union of India v. Hindalco Industries 2003 (153) ELT 481, has observed that, `if there is anything to suggest to doubt the normal price of the wholesale trade, then recourse to clause (b) of sub-section(1) of Section 4 of the Act could be made . That the price is not the normal price, is established from the following three circumstances which the assessees themselves have admitted; that the price of the cars was not based on the manufacturing cost and manufacturing profit, but have fixed at a lower price to penetrate the market; though the normal price for their cars is higher, they are selling the cars at a lower price to compete with the other manufacturers of similar cars. This is certainly a factor in depressing the sale price to an artificial level; and, lastly, the full commercial cost of manufacturing and selling the cars was not reflected in the lower price. Therefore, merely because the assessee has not sold the cars to the related person and the element of flow back directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration before this Court while construing the said expression under the Customs Act. This Court in Eicher Tractors Ltd., Haryana v. Commissioner of Customs, Mumbai (2001) 1 SCC 315 has held: 6. Under the Act customs duty is chargeable on goods. According to Section 14(1) of the Act, the assessment of duty is to be made on the value of the goods. The value may be fixed by the Central Government under Section 14(2). Where the value is not so fixed, the value has to be determined under Section 14(1). The value, according to Section 14(1), shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation - in the course of international trade. The word ordinarily necessarily implies the exclusion of extraordinary or special circumstances. This is clarified by the last phrase in Section 14 which describes an ordinary sale as one where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale .... . Subject to these three conditions laid down in Section 14(1) of time, place and absence of special circumstances, the price o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14(1), thus, provides that the value has to be assessed on the basis of price attached to such or like goods ordinarily sold or offered for sale in the ordinary course of events in international trade at the time and place of transportation. 48. In Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs, Bombay (1998) 3 SCC 163, at page 165, it is held: 7. ... The words ordinarily sold or offered for sale do not refer to the contract between the supplier and the importer, but to the prevailing price in the market on the date of importation or exportation. 49. In Ashok Leyland Ltd. v. Collector of Central Excise, Madras, (2002) 10 SCC 344, at page 348, it is held : The price of that commodity will remain the normal price at which those goods are ordinarily sold by the assessee to the public, in other words, the price at which they are sold in the market. 50. In the context of Section 4(1)(a) of the Act, the word ordinarily does not mean majority of the sales; what it means is that price should not be exceptional. In our considered opinion, the word ordinarily , by no stretch of imagination, can include extra-ordinary or unusual. In the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prevailing price in the market on the date of importation and exportation. Excise duty is leviable on the value of goods as manufactured. That takes into account manufacturing cost and manufacturing profit. 51. Excise is a tax on the production and manufacture of goods and Section 4 of the Act provides for arriving at the real value of such goods. When there is fair and reasonable price stipulated between the manufacturer and the wholesale dealer in respect of the goods purely on commercial basis that should necessarily reflect a dealing in the usual course of business, and it is not possible to characterize it as not arising out of agreement made at arm s length. In contrast, if there is an extra-ordinary or unusual price, specially low price, charged because of extra commercial considerations, the price charged could not be taken to be fair and reasonable, arrived at on purely commercial basis, as to be counted as the wholesale cash price for levying excise duty under Section 4(1)(a) of the Act. 52. The next submission of Shri Bhattacharya, learned ASG, is that the price at which the cars sold by the assessees is not the sole consideration as envisaged under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act not under seal requires a consideration to support it, that is, as shown in the definition above, some benefit to the promisor, or some detriment to the promisee. 56. In Salmond on Jurisprudence, the word consideration has been explained in the following words. A consideration in its widest sense is the reason, motive or inducement, by which a man is moved to bind himself by an agreement. It is for nothing that he consents to impose an obligation upon himself, or to abandon or transfer a right. It is in consideration of such and such a fact that he agrees to bear new burdens or to forego the benefits which the law already allows him. 57. The gist of the term consideration and its legal significance has been clearly summed up in Section 2(d) of the Indian Contract Act which defines consideration thus: When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration to the promise. 58. From a conspectus of decisions and dictionary meaning, the inescapable conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d this will constitute extra commercial consideration and not the sole consideration. As we have already noticed, the duty of excise is chargeable on the goods with reference to its value then the normal price on which the goods are sold shall be deemed to be the value, provided: (1) the buyer is not a related person and (2) the price is the sole consideration. These twin conditions have to be satisfied for the case to fall under Section 4(1)(a) of the Act. We have demonstrated in the instant cases, the price is not the sole consideration when the assessees sold their cars in the wholesale trade. Therefore, the assessing authority was justified in invoking clause(b) of Section 4(1) to arrive at the value of the exercisable goods for the purpose of levy of duty of excise, since the proper price could not be ascertained. Since, Section 4(1)(b) of the Act applies, the valuation requires to be done on the basis of the 1975 Valuation Rules. 61. After amendment of Section 4 :- Section 4 lays down that the valuation of excisable goods chargeable to duty of excises on ad-valorem would be based upon the concept of transaction value for levy of duty. `Transaction value means the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Central Excise Act, despite being interlinked, operate in different fields and what is their real scope and ambit? 3. Whether the concept of transaction value makes any material departure from the deemed normal price concept of the erstwhile Section 4(1)(a) of the Act? 23. Accordingly, we answer the reference by holding that the measure of the levy contemplated in Section 4 of the Act will not be controlled by the nature of the levy. So long a reasonable nexus is discernible between the measure and the nature of the levy both Section 3 and 4 would operate in their respective fields as indicated above. The view expressed in Bombay Tyre International Ltd.(supra) is the correct exposition of the law in this regard. Further, we hold that transaction value as defined in Section 4(3)(d) brought into force by the Amendment Act, 2000, statutorily engrafts the additions to the normal price under the old Section 4 as held to be permissible in Bombay Tyre International Ltd. (supra) besides giving effect to the changed description of the levy of excise introduced in Section 3 of the Act by the Amendment of 2000. Infect, we are of the view that there is no discernible di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re governed by independent Board of Directors; v. The Appellant manufactures Polo and Vento Cars, which are sold in India only to VWGSIPL; vi. The Appellant also manufactures to other cars, viz., Rapid and Fabia which at the relevant time, pre-merger, were sold to the then existing Skoda Auto India Pvt. Ltd.; vii. There is no dispute with regard to the price at which the Appellant sold the two cars Rapid and Fabia to Skoda Auto India Pvt. Ltd.; viii. VWGSIPL is a marketing company, which distributed and sold not only Polo and Vento, but also other brands (various models of Audi, Skoda, Lamorghini and Porche) of the Volkswagen Group, some of which were imported as completely built cars by VWGSIPL and also purchased from other manufacturers such as erstwhile Skoda Auto India cars like Jetta, Passat, Audi A6, Audi A8 etc., which had nothing to do with the Appellant; ix. VWGSIPL conducted market research, and promoted and marketed Volkswagen brand of cars and its business extended to various other brands of Volkswagen Group, over and beyond Polo and Vento manufactured by the Appellant x. VWGSIPL received reimbursement of part of the marketing and sales promotion expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we note that appellant was suffering losses that were made good by M/s VWAG Germany. The data as made available by the appellant counsel in his written submissions at page 7 8 shows as follows:- 2010-11 2011-12 2012-13 2013-14 2014-15 Installed Normal Capacity Nos 2,00,000 2,00,000 2,00,000 2,00,000 Total Production 62,025 1,07,515 94,131 99,583 Capacity Utilization (%) 41 54 47 50 Market Share (%) 1.37 3.11 2.42 2.37 1.68 Assessable Value - Polo 3,82,168 3,51,975 4,23,880 4,37,813 4,59,985 Assessable Value Vento 5,16,879 5,53,292 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 From these documents, I find that: (i) As per the Memorandum of Association, M/s VWIPL was established for the manufacture of automobiles and undertake various sales promotion marketing activities for sale of automobiles manufactured by them. The objective listed out for marketing is either to establish its own shops, agencies or marketing organizations or to appoint, selling or buying agents or distributors or both (whether individuals, firms or bodies corporate) in any place in or outside India. (ii) As per the Memorandum of Association and Articles of Association of VWGSIPL dated. 07.03.2007 under the Companies Act, 1956, M/s VWGSIPL does brand building support, advertisement, tactical support, dealers target based incentives for VW brand cars manufactured by M/s VWIPL. (iii) From the aforementioned agreements, it is clear that M/s VWIPL have appointed M/s VWGSIPL as their sole selling agent (SSA) and the cars so manufactured by M/s VWIPL are exclusively sold through the said SSA; (iv) As per two agreements made between M/s VWAG and M/s VWGSIPL viz., i) Financial Assistance Agreement - 07.07.2008 and ii) Marketing Assistance Agreement - 18.05.07, the rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time during the duration of this agreement contractual vehicles (i.e. Polo and Vento Variant of Cars) from M/s VWIPL. Further M/s VWGSIPL shall buy the entire production of VW vehicles from M/S VWIPL. The terms of sale of vehicles by M/s VWIPL to M/s VWGSIPL are governed by service and distribution agreement dated 09.03.2009 and pricing terms are provided under Clause 3 of Schedule 1 of this agreement. According to it, the price for contractual vehicles at which it will be purchased by VWGSIPL from VWIPL would be agreed upon by both the parties. (viii) Supply Agreement dated 14.03.2011 (w.e.f. January 2010) between VW AG. VWIPL shows that the said agreement between M/s VWIPL and M/s VW AG is for an unlimited period and it specifically relates to VW250 (Polo-HB) and VW251 NB (Polo- NB/Vento); that VWIPL has know how in manufacture of automobiles and would import parts for manufacture sale of VW brand of contractual vehicles i.e., VW 250 (POLO HB) VB- 251 NB (POLO NB); that VWIPL, as directed/agreed/instructed by VWAG to sell the entire products manufactured to VWGSIPL; that VWAG will assign the vehicle identification numbers on vehicles manufactured by VWIPL; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, only with the intention to reduce the sale price of VWIPL, which has bearing on the amount of Central Excise Duty. 73.5 So far as the above facts/agreements are concerned, I find that the holding company, M/s. VWAG has a very deciding role in entire business structure in respect of manufacture and sale of contractual vehicles (Polo and Vento Variants of cars). It clearly emerges that M/s. VWAG has got an interest in the business of its subsidiary companies, M/s. VWIPL and M/s. VWGSIPL. I also find that these agreements are more of the nature of arrangements of routing the sale of the VW cars manufactured by M/s. VWIPL through M/s. VWGSIPL only. The reason for my said observations is based on the fact that VWAG has entered into an agreement with VWIPL for manufacturing cars and VWGSIPL is the sole distributor of VW vehicles in India, as per independent agreements between VWAG VWIPL and VWIPL VWGSIPL. In such a scenario, VWGSIPL would automatically buy all the VW cars manufactured by VWIPL. 74.1 I further find that, M/s. VWGSIPL has raised debit notes on M/s. VWAG for reimbursement of the expenses towards marketing, brand building and other sales related activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other is quite apparent. 75.1 One more aspect that leads to mutuality of interest, is the procedure or system adopted in pricing of the subject contractual cars. I have gone through the allegations made in the SCN on the aspect of pricing and assessee's contention in this regard. In this regard, I find from the Schedule 1 of the Service and Distribution Agreement dated 09.03.2009 (between M/s. VWGSIPL and M/s. VWIPL), wherein it is stipulated that M/s. VWGSIPL M/s. VWIPL shall prepare the Planning Rounds for the supplies/deliveries of the contractual vehicles. Further M/s. VWAG in its Supply Agreement with VWIPL dated 14.03.2011 while stating that the entire sale of VW brand cars would be through VWGSIPL., also stipulated that there would be a Planning Round between VWAG VWIPL for supply and delivery of contractual parts for production. I find it worth mentioning here that the provision of planning round, as mentioned in the Service and Distribution Agreement dated 09.03.2009 is very peculiar in the manner in which it provides a deciding role to M/s. VWAG in the agreement that is actually between M/s. VWIPL and M/s. VWGSIPL. It is already explained above that M/s. VWAG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguished the order relied upon by the appellants stating as follows: 80.1 As regards M/s. VWIPL's contention that M/s. VWAG role does not indicate any mutuality of interest between the companies, I find that as already brought in my discussions above that all the agreements between M/s. VWAG, M/s. VWGSIPL and M/s. VWIPL have been arranged in this manner so that M/s. VWAG has an absolute control over manufacturing, production, sale and pricing pattern of the vehicles to maximize the benefit of the Volkswagen Group by avoiding Central Excise duty in the sale routed through M/s. VWGSIPL. The Planning Round itself shows that the entire price structure is artificially designed by adopting retail minus' model, as also the Service and Distribution Agreement dated 09.03.2009, which was executed between M/s. VWIPL and M/s. VWGSIPL, but M/s. VWAG has arranged and kept the deciding role to itself only. The detailed investigation of DGCEI has also revealed the amplitude of the role of M/s. VWAG in the entire set up and pricing policy. The entire set up and arrangement of transactions among these companies, as summarized below, gives a clear picture of mutuality of interest in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f evading the legitimate taxes due to the Govt. Exchequer, by artificially lowering the prices at the stage of payment of taxes and inflating the prices subsequently at the marketing level, in order to garner maximum profit on the sale of subject cars. xiv. All these facts clearly establishes that any benefit from subject cars, directly or indirectly, benefits all of them, which undoubtedly shows the existence of mutuality of interest in the business of each other i.e. between VWIPL and VWGSIPL. 80.2 As it emerges from the above discussions, the ultimate aim and objective of VW AG is to sell VW brand cars in Indian market both its subsidiaries have played an effective role in accepting the price structure as dictated in the Planning Rounds and working in connivance to enable the parent company in achieving its goal in the business. Therefore it is apparent that both the subsidiaries i.e. VWIPL VWGSIPL have got an interest in the business of each other as they have a common interest in selling VW cars in India, by way of VWIPL manufacturing them and VWGSIPL distributing them. Hence, in view of overall scenario discussed above, it is very much clear that M/s. VWIPL and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The same has been discussed herein above. 81.2 In this context, it has been discussed earlier that there is a system of Planning Round for determination of price of cars to be sold by VWIPL to VWGSIPL, who sells to and dealers to ultimate customers. The prices fixed for each car is arrived on the basis of Retail Minus model. Such price planning is given to all the subsidiaries and accordingly the sale and purchase is affected. Individually any subsidiary has got a little say over the pricing as the whole pricing structure is driven by the price at which the cars will be sold in the market. While fixing of price for VWIPL for the cars to be sold by it to VWGSIPL, the expenditure on account of several heads including promotional expenses were kept out of assessable value for computation of duty as a portion of promotional expenses were borne by VW AG who has got an interest in the sale of the cars in the market. 81.3 As established above, in the instant case, price at which contractual vehicles were sold by VWIPL to VWGSIPL was not the sole consideration for sale as expenses on account of sales promotion and advertising were borne by M/s VWGSIPL, portion of which was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imate brand owner, VW AG would bear a part of the expenses incurred by VWGSIPL. These marketing and promotional expenses were not included while arriving the price of sale from VWIPL. But such components are liable to be included in the value in terms of transaction value as defined under Section 4 (3) (d) of the Act. Hence, such an arrangement was mainly to evade the central excise duty, by manipulating and suppressing correct commercial values on these transactions. As such, it is a deliberate move with the sole objective of reducing the sale value of cars and thereby evading the duty, to keep the car prices at low in the market. 81.7 Since the brand owners are VWAG and have got interest in selling the cars, all the expenses like promotional expenses incurred which ultimately enriched the prospects of sale of the excisable goods should be a part of the assessable value for the purpose of levy of Central Excise duty. The logic will not be defeated, even if such expenses are incurred by a subsidiary company VWGSIPL as the ultimate aim is to effectively sell the manufactured products (cars). If seen from a proper perspective, it may be appreciated that the amount reimbursed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reverse method: first they claim themselves as related being interconnected undertakings, and came out of the purview of Section 4(1) (a) of the Act; and then followed Section 4(1)(b) of the Act read with Rule 10 9 of the Valuation Rules; but as they claimed having no mutuality of interest in the business of each other, they treated themselves as unrelated and reverted to Section 4(1)(a) via Rule 10(b) of the Valuation Rules. 82.2 In this regard, I find that M/s. VWIPL, for the purpose of Central Excise duty, the practice of presenting themselves and M/s. VWGSIPL as independent parties having no interest in the business of each other. They have tried to legalize their transactions, by covering the same under Section 4(1)(a) of the Central Excise Act, 1944, read with Rule 10(b) of the Valuation Rules, 2000. However, it is clearly brought out in my findings above, that M/s. VWIPL and M/s. VWGSIPL are related under the provisions of Section 4(3)(b) of the Central Excise Act, 1944 being the inter-connected undertakings, which is an undisputed fact and also they are so associated that they have interest directly or indirectly in the business of each other, as provided under claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained above, M/s. VWIPL to M/s. VWGSIPL are so associated that they have interest, directly or indirectly, in the business of each other in these transactions and therefore these undertakings are also related in terms of the sub-clause (iv) of clause (b) of sub-section (3) of section 4 of the Act (they) in as much as M/s. VWIPL and M/s. VWGSIPL has got mutual interest in the business of each other both directly and indirectly. Though, this ground of mutuality of interest alone is sufficient for attracting the provisions of Rule 9 of the Valuation Rules, since the concept of inter-connected undertakings is put forth in the SCN and the reply thereto, I hold that in terms of provisions of Rule 10 (a) of the Valuation Rules, the provisions of Rule 9 of the Valuation Rules are also required to be applied for valuation of subject goods i.e. the price at which the related person i.e. M/s. VWGSIPL sells the goods to the dealers is to be treated as the value for the purpose of levy of Central Excise duty. 83.1 Now coming to decisions quoted by M/s. VWIPL in favour of their submission in respect of related party issue. M/s. VWIPL have mainly relied upon the decisions of UOI v Attic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to or through the related person - in mathematical terms, sales that are to or through a related person must consist of at least 50% of the goods that are manufactured and sold. The expression to or through a related person again goes back to the arrangement and is another way of saying that such sale can be effected directly to or indirectly through such related person. It is only when all three considerations are cumulatively met that proviso (iii) can be said to be attracted. On the basis of the said decision, the Hon'ble Supreme Court in the case of M/s. Goodyear (supra) has held that the assessee and its owners are not related. 83.3 On comparing the facts and circumstances of this case, I find that the ratio of Hon'ble Supreme Court decision in the case of M/s. Goodyear is not applicable in this case as the facts are entirely different. Here, in the instant case, it is established the transaction have been arranged in such a manner that all the contractual vehicles (Polo and Vento Variants) are sold only through M/s. VWGSIPL and the prices were artificially reduced by adopting 'Retail Minus model' and other fundings. The goods were cleared by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courts on related party and mutuality of interest, are based on the facts and circumstances prevailed in each case. Hence, each case is required to be examined on its own merits. When we come to the definition of related person the legislature has used a well-known technique, It first employs the expression means and states that persons who are associated with the assessee so that they have a direct or indirect interest in the business of each other would get covered. The necessity for arriving at the aspect of mutuality of interest is to lift the corporate veil in order to get to the economic realities of the transaction. In the present case, what emerges from the record is that as far as M/s. VWIPL M/S VWGSIPL are concerned, their ultimate parent company is M/s VWAG who has an abiding interest in the entire business spheres of both the fellow subsidiaries. Further, the set-up of these three companies being two fellow subsidiaries of one parent holding company' and entire arrangement of production, marketing and selling strategies, through various agreements coupled with various concessions and benefits extended to subsidiary companies by parent holding company, in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal to unearth and determine the real transaction, which should be taxed. Hon ble Justice O Chinnapa Reddy has in case of McDowell Company Ltd., [1985 SCC (3) 230] observed as follows: We think that time has come for us to depart from the Westminister principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare state like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of blackmoney, directly causing inflation. Then there is the large hidden loss to the community (as pointed out by Master Sheatcraft in 18 Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful, advisers on the other side. Then again there is the 'sense of injustice and inequality which tax avoidance arouses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VWIPL and VWGSIPL are interconnected but the clearance made from VWIPL to VWGSIPL are not covered by Rule 10, as they are not holding and subsidiary company. We examined the concerned report of CAG and the submissions made by the appellants in accordance with the binding judicial precedences. In the Performance Audit Report 33 of 2014, of the CAG, on page 22 after examining the facts and law on the provisions of law on the issue, in the present case, stated as follows: Further, rule 9 envisages that where excisable goods are sold by an assessee only to or through a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of Section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal to buyers (not being related person). In this case, we observed that the seller and buyer are interconnected undertakings.They could also be seen to fulfil subͲclause (iv) of Section 4 (3) viz. they are so associated that they have interest, directly or indirectly, in the business of each other.Even though the two companies do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of assessable value. We are not in position to accept the submissions made by the appellants, for the reason that in its reply the Ministry has not outrightly rejected the contentions of the audit but have clearly referred to the investigations in the case of under-valuation under process. The points made by the audit have been made the part of that investigation. The opinion of the Ministry referred in the Audit Reports is not conclusive and also is not the statement of law. It is also not a binding judicial precedent. Hon ble Supreme Court has in case of Doypack Systems Pvt Ltd [1988 (36) ELT 201 (SC)] Internal aids of construction are definitions, exceptions, explanations, fictions, deeming provisions, headings, marginal notes, preamble, provisos, punctuations, saving clauses, non-obstante clauses etc. The notings in the files of various officials do not fall in the category of internal aids for consideration. Dictionaries, earlier acts, history of legislation, Parliamentary history, parliamentary proceedings, state of law as it existed when the Act was passed, the mischief sought to be suppressed and the remedy sought to be advanced by the Act are external aids. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the doctrine is to be applied only to the construction of ambiguous language in the very old statutes. It is therefore well to remember what Lord Watson said in Clyde Navigation Trustees v. Laird, [1983] 8 A.C. 658 that contemporanea expositio could have no application to a modern Act. We, therefore, reject the attempt on the part of the petitioners to lead us to this forbidden track by referring to various extraneous matters which we have indicated before. Furthermore those external aids sought before us do not support the petitioners' approach to this question at all. Further Hon ble Supreme Court has in case of WIPRO Ltd. [2015 (319) ELT 177 (SC)] clearly laid down as follows: 32) We find that the High Court, instead of examining the matter from the aforesaid angle, has simply gone by the powers of the rule making authority to make Rules. No doubt, rule making authority has the power to make Rules but such power has to be exercised by making the rules which are consistent with the scheme of the Act and not repugnant to the main provisions of the statute itself. Such a provision would be valid and 1% F.O.B. value in determining handling charges etc. could be ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of sale price of M/s VWGSIPL to the dealers. 4.15 Benefit of Cum Duty Price Appellants have contended that the sale price of M/s VWGSIPL to the dealers is inclusive of excise duty and cesses hence should be treated as cum duty price. They have relied upon the decision of larger bench of tribunal in case of Sri Chakra Tyres which has been upheld by the Apex Court and also the decision of Apex Court in case of M/s Maruti. Interestingly in the impugned order the benefit of cum duty price has been decided stating as follows: 87.1 As regards M/s. VWIPL's contentions on calculation of duty demand, I find that they have challenged the calculation of duty demand on the following grounds: i. In the Annexure A to the SCN, the total sale price figures (adjusted net of excise duty) at which vehicles are sold by M/s. VWGSIPL is shown as 41,08,52,00,000/- in place of actual figures as 33,12,80,81,960/-. Accordingly, M/s. VWIPL have claimed that the correct duty demand will come out to be ₹ 323,65,87,666/- in place of ₹ 402,87,28,269/- as demanded in the subject SCN. ii. Cum-duty-benefit. iii. Discounts offered by M/s. VWGSIPL ought to be reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise duty and cesses. Since the Commissioner has not even examined this aspect, the matters need to be remanded back to the Commissioner for re-determining the value of clearances after allowing the benefit of cum duty price. Thus the demand for duty needs to be recomputed after allowing the benefit of cum duty price from the sale price to dealers. 4.16 Extended Period of Limitation Appellants have contended that the matter in respect of valuation of Polo and Vento model of cars was in constant correspondence between them and the department. This issue was also considered during the audit by Central Excise Revenue Audit and also was made part of the CAG Report of 2014 laid before the Parliament. Revenue contends that during investigations undertaken by DGCEI, certain new evidences such as Project Tiger Report and email dated 28.01.2010 were recovered which were never before them in inquiries made. Commissioner has in the impugned order recorded following for invoking extended period of limitation:- 91.4 The price of VW brand cars at which it would be sold to M/s. VWGSIPL shall be agreed upon between M/s. VWIPL M/s. VWGSIPL. But since M/s. VWIPL has got an obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L at minimum so that Central Excise duty component would be less. Thus, the price arrived at is an artificial price which does not reflect all components of price. Both the subsidiaries helped the holding company in limiting the price at VWIPL level, so that less amount of Central Excise duty will be paid. This is a deliberate attempt on the part of M/s. VWIPL agreeing to such a lower price for charging duty which is amounting to intent to evade payment of duty. Further, M/s. VWIPL M/s. VWGSIPL had a common goal to manufacture sell VW Brand cars with an ultimate aim to fulfill the objective of M/s. VWAG. They agreed to a price at which M/s. VWIPL would sell the goods in order to suit their business interest. In spite of such a clear cut business interest as brought out from various agreements, M/s. VWIPL has always been contending that they did not have mutuality of interest so as to avoid the legitimate duty component. M/s. VWIPL was privy to internal correspondence from M/s. VWAG, Germany wherein decision to limit the price has been conveyed which has an ultimate aim to reduce Central Excise duty component. Further, M/s. VWIPL received loss compensation in the form of financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the extended period is rightly invoked here in this case. 91.8 As regards the assessee s plea that the audit was done by the department, it is needless to say that the EA 2000 is done on selective points from the available record. Here, I find that this conceptualized deliberate set up/arrangement for depressing the price of cars artificially, with intention to evade payment of duty was unearthed after extensive investigation by DGCEI officials. Had the DGCEI officials have not detected this unique way of undervaluing the goods by lowering the price artificially through a systematic planning by M/s. VWIPL and its group, M/s. VWIPL would have continued this modus operandi for evasion of duty by distorting the relevant provisions as explained above. 91.9 In view of the above, I find that the contentions of M/s. VWIPL on invoking the provisions of extended period of limitation are not tenable. Further, I find that in this era of self-assessment tax regime, the assessee is expected to take utmost care while assessing and removing the goods manufactured by them. In spite of the responsibility cast upon them to do so by the law, the assessee i.e. M/s. VWIPL have wrongly asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and was subject matter of correspondence and discussions. It was also taken up in the audit conducted by Central Excise Revenue Audit and is part of the CAG Report of 2014, tabled in Parliament. When the entire issue was under discussion and inquiry, and revenue entertained the view about the correctness of the methodology of valuation adopted as is evident from the CAG Report of 2014. Change in opinion or insufficiency of enquiries earlier made by the department cannot be said to be amongst the grounds enumerated in section 11A (4) for invoking the extended period of limitation. In case of Pushpam Pharmaceuticals [1995 (78) ELT 401 SC] Hon ble Supreme Court has clearly stated as follows: 4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. One cannot fail to notice that both the proviso to sub section 1 of section 11A and section 11AC use the same expressions: ....by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,... . In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under section 11A (1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under section 11A (2) there is a legally tenable finding to that effect then the provision of section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under section 11A (2) there would be no application of the penalty provision in section 11AC of the Act. On behalf of the assessees it was also submitted that sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 (in short the `Rules') and a decision of this Court in Chairman, SEBI vs. Shriram Mutual Fund Anr. [2006(5) SCC 361] and was of the view that the basic scheme for imposition of penalty under section 271(1) (c) of IT Act, Section 11AC of the Act and Rule 96ZQ (5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI's case (supra) and not in Dilip Shroff's case (supra). Therefore, the matter was referred to a larger Bench. After referring to a number of decisions on interpretation and construction of statutory provisions, in paragraphs 26 and 27 of the decision, the court observed and held as follows: 26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in Section 11AC. Where the outer limit of penalty is fixed and the statute provides that it should not exceed a particular limit, that itself indicates scope for discretion but that is not the case here. 23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharamendra Textile decides. Thus in our view the penalty imposed under Section 11AC is liable to be set aside the moment it is held that extended period of limitation cannot be invoked for making the demand. 4.19 Penalty under Rule 26 of Central Excise Rules, 2002 Commissioner has imposed penalty under Rule 26 of Central Excise Rules, 2002 relying on the decision of the Hon ble Apex Court in case of Gujarat Travancore Agency [1989 (42) ELT 350 (SC)], wherein Hon ble Court has held as follows: 4. ..........In most case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed by the statute. Since we find that the issue involved in the matter is of interpretation of legal provisions and number of contractual agreements and documents. On the merits till the time investigations were undertaken by Director General of Central Excise Intelligence, revenue authorities also held the view akin to held by the Appellants. When revenue authorities also held the same view as the appellant then how can appellants alone be held guilty of contumacious conduct for imposition of penalty. In our view in such case involving complex issues in relation to interpretation of statutory provisions, where revenue also entertained the same view as appellants the penalties imposed under Rule 26 of Central Excise Rules, 2002 cannot be justified and are set aside, following the decision of Apex Court in case of Hindustan Steel (supra). 5.1 In view of the discussions as above we summarize our findings as follows: However we make it clear that this is only summarization of our finding recorded earlier, in case of any doubt or confusion, the discussion in relevant para of the order needs to be looked into. The Appellant and M/s VWGSIPL are related to each other in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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