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TMI Blog2022 (3) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation rule to be applied for the period prior to 2013 and which is the correct valuation rule to be applied for the period after 2013? - HELD THAT:- The changes which have been brought in w.e.f. 2013 are only in Rules 8, 9 and 10 and not in the remaining rules. In Rule 8, which deals with captive consumption, making mandatory the assessable value to be 115% of the cost of manufacture which was reduced to 110% and 2013. Rules 9 and 10 dealt with only situations where goods were not sold except (ii) or (iii) to a related person prior to 2013. After 2013 these Rules are applicable where either whole or part of goods sold by the assessee to or through related persons. There is no other material change w.e.f. 2013 The prayer of the Revenue that the goods cleared by the assessee and sold to M/s Ashutosh should be valued under Rule 4 cannot be accepted. Rule 4 deals with goods which are sold but not at the time of removal. In such a case the value should be as per the transaction value at any time nearest to the time of removal of goods under assessment subject to adjustment on account of the difference in the dates of delivery of goods. In this case, there is no dispute that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that it was selling goods at a lower price to Ashutosh and was paying excise duty on a lower value. It was felt that the value of the goods sold to Ashutosh must be determined as per Rule 4 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 upto 30.11.2013 and thereafter through cost plus method under Rule 8 of the Valuation Rules. Accordingly, the SCN was issued demanding differential duty of ₹ 3,27,90,997/- under Section 11A of the Central Excise Act along with interest under Section 11AB (upto 07.04.2011) and under Section 11AA (after 07.04.2011) on the duty short paid. It was also proposed in the SCN to impose a penalty upon the assessee under Section 11AC. 4. In the impugned order, the Principal Commissioner has partly confirmed the demand and partly rejected it as follows:- Sl.No. Period Valuation method proposed in SCN Differential duty (Rs.) Decision by impugned order 1. April, 2010 to 30 November, 2013 Determination of value of final products in terms of Rule 4 of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and Ashutosh are inter-connected undertakings and are relatives because two Directors namely Shri Virender Kumar Agarwal and Shri Basant Kumar Agarwal are common to the appellant and the holding company of Ashutosh viz., M/s Ashutosh Structures Pvt. Ltd. Hence, the assessee and Ashutosh are related persons in terms of Section 4 (3) (b) (i) and (ii) of the Central Excise Act, 1944. (ii) However, the assessee does not own either Ashutosh or its holding company nor do they own the assessee. (iii) Ashutosh, the buyer, is not a body corporate although the assessee and M/s Ashutosh Structures Pvt. Ltd. are bodies corporate. However, they do not manage each other and neither is a subsidiary of the other. The assessee and M/s Ashutosh Structures Pvt. Ltd. are not under the same management. The assessee does not exercise any control over M/s Ashutosh Structures Pvt. Ltd. and vice-versa. Therefore, they do not meet the definition of interconnected undertakings. (iv) There is no mutuality of interest between the assessee and M/s Ashutosh Structures Pvt. Ltd. ; (v) The Adjudicating Authority has not established that the assessee has influenced the value of the goods sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to these appeals is whether or not the assessee and the buyer Ashutosh were related persons. The buyer and seller are related persons according to clause (b) of sub-section (3) of section 4 if one more of the following conditions are met: (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. 13. The Valuation Rules treat cases where the buyer and seller are related persons because of being inter-connected undertakings different from those cases where the buyer and seller are related persons under any of the other clauses of subsection (3) of section 4. Further, the Rules also make a distinction between cases where the buyer and seller are only inter-connected undertakings and those cases where, the buyer and seller, in addition to being inter-connected undertakings, are also related in any of the other ways indicated in clause (b) of sub-section (3) of section 4. 14. This leads to the next question as to what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - In this clause - BEFORE 1 April 2012 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 (64 of 1969); and FROM 1 April 2012 (i) inter-connected undertakings means two or more undertakings which are interconnected with each other in any of the following manners, namely :- (A) if one owns or controls the other; (B) where the undertakings are owned by firms, if such firms have one or more common partners; (C) where the undertakings are owned by bodies corporate,- (I) if one body corporate manages the other body corporate; or (II) if one body corporate is a subsidiary of the other body corporate; or (III) if the bodies corporate are under the same management; or (IV) if one body corporate exercises control over the other body corporate in any other manner; (D) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm,- (I) hold, directly or indirectly, not less than fifty per cent. of the shares, whether preference or equity, of the body corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two bodies corporate is exercised or controlled by the same individual (whether independently or together with his relatives) or the same body corporate (whether independently or together with its subsidiaries); or (viii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individuals belonging to a group or by the same bodies corporate belonging to a group, or jointly by such individual or individuals and one or more of such bodies corporate; or (ix) if the directors of one such body corporate are accustomed to act in accordance with the directions or instructions of one or more of the directors of the other, or if the directors of both the bodies corporate are accustomed to act in accordance with the directions or instructions of an individual, whether belonging to a group or not. Explanation II. - If a group exercises control over a body corporate, that body corporate and every other body corporate, which is a constituent of, or controlled by, the group shall be deemed to be under the same management. Explanation III. - If two or more bodies corporate under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such firm; and (c) in relation to the trustee of a trust, means any other trustee of such trust; (III) where any person is an associated person in relation to another, the latter shall also be deemed to be an associated person in relation to the former; (ii) relative shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956); (c) place of removal means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; [(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed; (cc) time of removal , in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory; (d) transaction value means the price actually paid or payable for the goods, when sold, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be under the same management,- (i) if one such body corporate exercises control over the other or both are under the control of the same group or any of the constituents of the same group; or (ii) if the managing director or manager of one such body corporate is the managing director or manager of the other; or (iii) if one such body corporate holds not less than [one-fourth] of the equity shares in the other or controls the composition of not less than [one-fourth] of the total membership of the Board of Directors of the other; or (iv) if one or more directors of one such body corporate constitute, or at any time within a period of six months immediately preceding the day when the question arises as to [whether such bodies corporate are under the same management, constituted (whether independently or together with relatives of such directors or the employees of the first mentioned body corporate) one-fourth of the directors of the other; or] (v) if the same individual or individuals belonging to a group, while holding (whether by themselves or together with their relatives) not less than [one-fourth] of the equity shares in one such body corporate also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Are the assessee and the buyer Ashutosh also related persons in any of the other ways indicated in section 4? (c) Which Valuation Rule should be adopted for the period prior to 2013? (d) Which Valuation Rule should be adopted for the period after 2013? (e) Is the demand of differential duty sustainable on merits under section 11A as confirmed in the impugned order or does it need to be enhanced as prayed for by the Revenue or set aside as prayed for by the assessee? (f) Has the extended period of limitation for raising the demand correctly invoked in the case? (g) Is the demand of interest sustainable? (h) Is the imposition of penalties sustainable? 18. Inter-connected undertakings are defined in Section 4 (3) (b) (i) for the period after 28.05.2012 and as per MRTP Act, 1969 for the period prior to this date. As per both these provisions, two undertakings can be treated as inter-connected if they are related with each other in any of the following: (a) one is owner or controls the other ; (b) where the undertakings owned by firms, if such firms have one or more common partners ; (c) where the undertakings are owned by bodies corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the assessee and that they are not inter-connected undertakings in these appeals before us. We, therefore, find that the assessee and M/s Ashutosh are interconnected undertakings in terms with Section 4 (3) (b) (i) of the Act. 21. The next question is whether the assessee and M/s Ashutosh are also related persons in terms of clause (ii) or (iii) or (iv) of Section 4 (3) (b). Commissioner has found that the assessee and M/s Ashutosh have interest directly or indirectly in the business of each other and therefore held that they constitute related persons as per clause (iv) of Section 4 of Section 4 (3) (b). Paragraph 15.2 and 15.3 of the impugned order is reproduced below :- 15.2 Secondly, under the Related Party disclosure , mandated as per Accounting Standard 18 issued by Institute of Chartered Accountants of India, Noticee in its balance sheet, under the list of enterprises over which key managerial persons or their relatives have significant influence with whom transactions have taken place , in addition to other names, the name of M/s Ashutosh Structures Pvt. Ltd. was declared. 15.3 Thus, it is seen that to be related party, as per the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hutosh cannot be related persons as per clause (iv) to Section 4(3)(b). 25. To conclude, while we find that the assessee and M/s Ashutosh are inter-connected undertakings and hence are related in terms of Clause (i) of Explanation to Section 4 (3) (b), they are not related in terms of Clause (ii) (iii) or (iv). 26. The next question is which is the correct valuation rule to be applied for the period prior to 2013 and which is the correct valuation rule to be applied for the period after 2013. 27. The proposal in the show cause notice was to apply Rule 4 for the period prior to 2013 and assess the goods on a value at 110% of the cost of manufacture for the period post 2013. The Commissioner has dropped the demand for the period prior to 2013. The appeal of the Revenue is that for the period prior to 2013, Rule 4 should be adopted and the demand should be confirmed. 28. As we have discussed above, Section 4 of the Act requires transaction value to be adopted for valuation with four exceptions viz., (a) where the goods are not sold (b) where the delivery is not at the time and place of removal, (c) where the assessee and buyer are related persons or ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced below :- Summary of Central Excise Valuation Rules S.No. Rule and the situation it deals with Before 2013 From 2013 1 Rules 1, 2 and 3- Preliminary No change 2 Rule 4- Goods are sold but not at the time of removal. Based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods No change 3 Rule 5- Goods are sold but for delivery not at the place of removal but elsewhere. Transaction value minus the cost of transportation from the factory to the buyer s premises No change 4 Rule 6- Goods are sold but price is not the sole consideration for sale Value shall be the aggregate of such transaction value and the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he excisable goods are not sold by him except to or through an interconnected undertaking. Valuation should be as per Rule 9. Where whole or part of the excisable goods are sold by the assessee to or through an inter-connected undertaking. Valuation should be as per Rule 9. 9 Rule 10(b)- Goods are sold to inter-connected undertaking, as per subclause (i) of sub-section 3 of section 4 of the Act but is not related as per subclauses (ii) to (iv) Value shall be determined as if they are not related persons for the purpose of subsection (1) of section 4 Value shall be determined as if they are not related persons for the purpose of subsection (1) of section 4 10 Rule 11- 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 No change 30. We have already recorded our finding that the assessee and M/s Ashutosh, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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