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TMI Blog2025 (2) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholding patterns it would be amply clear that they are not holding and subsidiary companies and given that they are not covered under the aforementioned sub-clauses, the provisions of Rule 10(a) ibid would not be applicable and that the only recourse left to be taken is the valuation of their goods cleared to DSRMPL under Rule 10(b) ibid which in other words means that the value shall be determined as if they are not related persons for the purpose of sub-section (1) of Section 4. While the contention of DSRM that from the shareholding patterns it would be evident that DSRM and DSRMPL are not holding and subsidiary companies, is not seen controverted in the OIO, it is seen that the adjudicating authority has brushed aside the contention of the appellant that the value has to be determined in accordance with Rule 10 of the valuation rules stating that it is unsustainable since DSRM had adopted the CAS-4 valuation for paying differential duty during 2009-10 - since it is an admitted fact that DSRM and DSRML are treated as related only on the ground of being inter-connected undertakings as stated in sub-clause (i) of Section 4(3)(b), the legal premise based on Rule 9 and Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 whereby the adjudicating authority has confirmed the demand of Rs.1,24,89,578/- being the amount of differential duty of excise short paid on the goods sold by the appellant to their related buyer DSRMPL during the period from July 2009 to March 2012 under proviso to Section 11A(1)/Section 11A(4) of the Central Excise Act, 1944 (Act in short), appropriated the said amount paid by the appellant towards the differential duty of excise short paid, demanded the interest of Rs.56,49,437/- under Section 11AB/Section 11AA of the Act on account of delay in payment of the differential duty and imposed a penalty of Rs.1,24,89,578/- under Section 11AC of the Act. 3. Brief facts of this case are that DSRM are engaged in the manufacture of MS Ingots falling under chapter heading 72061010 of the Central Excise Tariff Act, 1985 (CETA in short) and clear their entire finished goods to their sister unit DSRMPL. The IAD, Hqrs Office, Madurai, during the course of their audit, vide letter C. No. III/1-/318/2010-IA dated 13.09.2010 communicated to DSRM that DSRMPL were holding shares to the extent of 40% of share capital of DSRM with a common management and a common Managing Director, since July 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g November 2012 which was confirmed vide letter dated 02.01.2013 of the Range Officer, Vadamadurai Range. Further DSRM was asked to pay the differential duty by calculating the duty liability on each removal of the goods as required under Section 4(1) as they had paid the differential duty earlier by adopting the CAS-4 value on total quantity of goods removed on each month. This lead to DSRM paying the reworked short payment of duty for the year 2009-10 quantified as Rs.1,77,574/- by adjusting the Cenvat account vide voucher No.700 dated 10.01.2013. 5. The special team headed by the Deputy Director(cost) upon noticing that certain items were wrongly deducted from cost of production, redetermined the CAS-4 value of the steel ingots manufactured during the year 2009-10 as Rs.24,546/- per MT and vide letter C. No. III/10/318/2012-IA dated 14.2.2014 communicated the differential duty further payable worked out as Rs.1,33,029/- which was accepted and paid by DSRM by debiting the Cenvat accouont as per the journal voucher No.821 dated 28.02.2014. 6. The Department was of the view that DSRM's explanation that the income of Rs.75,00,000/- towards discounts and other receipts vide journal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of excisable goods) Rules, 2000 inasmuch as they failed to determine and pay appropriate duty on the goods manufactured and cleared to their related buyer and have also rendered themselves liable for imposition of penalty under Section 11AC of the Act, issued SCN No.04/2014-CE dated 05.08.2014 demanding Rs.1,24,89,578/- being the differential duty of excise short paid on goods sold to their related buyer DSRMPL during the period July 2009 to March 2012 and proposing the appropriation of the said amount that was paid by DSRM together with a demand of interest of Rs.56,49,437/- and proposing imposition of penalty under Section 11AC in asmuch as they have manipulated their accounts with a view to suppress the cost of manufacture of the goods sold to their related buyer and failed to determine the correct assessable value by furnishing CAS-4 statements for the years 2009-10(from July 2009), 2010-11 and 2011-12 with an intent to evade payment of appropriate duty. 9. DSRM filed a reply dated 16-12-2014, whereby, while conceding that DSRM and DSRMPL are interconnected undertaking, contested the valuation adopted by the Department. It was stated that while they were interconnected u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that having common directors makes two companies interconnected undertakings in terms of Section 4(3)(b)(i) of CEA thereby construing them as related for the limited purpose of applicability of Section 4(1)(b) of the CEA. iii. that for the transaction covered under Section 4(1)(b) of the CEA, the value shall be determined as provided in the Valuation Rules, more specifically under Rule 10 of the Valuation Rules which deals with Valuation for transaction between related person being interconnected undertaking, the extract of the relevant provision is as below, 10. Where whole or part of the excisable goods are sold by the assessee to or through an inter connected undertaking, the value of such goods shall be determined in the following manner, namely:- (a) If the undertakings are so connected that they are also related in terms of sub clause on (ii) or (iii) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions made the demand of interest and penalty are not sustainable. 11. The Ld. Counsel Shri. M. Karthikeyan also submitted that even if the demands were held to be unsustainable, DSRM would not and cannot claim refund, having passed on the same to DSRMPL while selling the MS ingots to DSRMPL and since DSRMPL too have used these goods to manufacture its final products sold to its customers, the incidence of duty thus has been passed on down the chain of consequent sales. 12. The Learned Authorised Representative Smt. O.M. Reena draws attention to para 17 and 19 of the impugned order in original and submits that DSRM and DSRMPL are related persons in as much as DSRM and DSRMPL are owned and controlled by the same management in terms of Section 2(g)(vi) of the Monopolies & Restrictive Trade Practices Act, 1969 and it is an admitted fact that DSRM and DSRMPL are interconnected undertakings. It is her submission that as per Section 4, interconnected undertakings are related persons and DSRM has paid differential duty based on CAS-4 valuation as pointed out by audit without protest for the Financial year 2009-10 and for further subsequent financial years also. She submits th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the demand of an amount of Rs.1,17,24,765/- being the credit of additional duty wrongly taken and utilized during April 2014 and November 2014 under Rule 14 of CCR read with Section 11A(1)(a) of the Act along with demand of appropriate interest under Rule 14 of CCR read with Section 11AA of the Act and imposed equivalent penalty under Rule 15(1) of CCR. 15. Facts briefly are that DSRMPL who received raw material M.S. Ingots during the period July 2009 to March 2012 from DSRM had taken credit on supplementary invoices issued by DSRM against whom charges of suppression, wilful misstatement etc. have been confirmed by invoking extended period of limitation vide OIO 10/2014 dated 30.1.2.2014 and thus the supplementary invoices based on which DSRMPL had taken cenvat credit are not valid documents for the purpose of Cenvat Credit in terms of Rule 9(1)(b) as per which cenvat credit can be taken on the basis of supplementary invoices except when the amount of duty become payable on account of fraud, misstatement or suppression on the part of the supplier of the inputs. DSRMPL was issued an SCN 04/2015-CE dated 16.04.2015 proposing denial of cenvat credit taken on supplementary invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as DSRM had manipulated financial accounts by reducing the cost of production and adopting a lesser value for payment of duty which has been found to be a deceitful action that justified invoking the extended period. That the contentions of DSRMPL, the appellant herein, that they had taken cenvat credit when the proceedings initiated against their supplier was pending and therefore the subject supplementary invoices are valid documents is unacceptable since the supplier had accepted the redetermination of assessable value and paid the differential duty amount and it is immaterial whether the same was paid before the determination happened through an adjudicating order. That the contention of the DSRMPL that the words "became recoverable" would mean only consequent to adjudication proceedings is an exercise of hair splitting and no credence need be given for such attempts. He places reliance on the decisions in Supreme Petrochem Ltd v Commr of Central tax and Central Excise Chennai [2018 (6) TMI 565] upheld by Hon'ble High Court of Madras ,2019 (28) GSTL 564 (Mad) and Nova Iron & Steel Ltd v Commissioner of GST, Central Excise & Customs, 2019 (5) TMI 1244-CESTAT New Delhi. The Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conferred by Section 37 of the Act, the Central Government has made the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (Valuation Rules in short) and in the impugned OIO, the Adjudicating Authority, has while narrating the allegation made in the SCN, reproduced Rule 8 and 9 of the Valuation Rules and has stated in paragraph 6 that as per the above provisions, the value of the goods sold to a related buyer who consumes such goods in the production shall be one hundred and ten percent of the cost of production or manufacture of such goods and that in view of the above legal provisions, ,the assessable value of MS ingots cleared to DSRMPL has to be arrived at only by adopting CAS-4 method. 25. DSRM, upon being put to notice of the aforesaid allegation in the SCN, has contested the same. It is their stand that since the SCN allegation of their being related is only as an inter-connected undertaking in terms of clause (i) of Section 4(3)(b) and not in terms of clause (ii), (iii) or (iv) of the said section, Rule 10 as well as Rule 9 of the valuation rules are not applicable and consequently, Rule 8 is also not applicable. 26. For better appreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act determination of the value in the manner prescribed in rule 9. DSRM had contended that from the shareholding patterns it would be amply clear that they are not holding and subsidiary companies and given that they are not covered under the aforementioned sub-clauses, the provisions of Rule 10(a) ibid would not be applicable and that the only recourse left to be taken is the valuation of their goods cleared to DSRMPL under Rule 10(b) ibid which in other words means that the value shall be determined as if they are not related persons for the purpose of sub-section (1) of Section 4. While the contention of DSRM that from the shareholding patterns it would be evident that DSRM and DSRMPL are not holding and subsidiary companies, is not seen controverted in the OIO, it is seen that the adjudicating authority has brushed aside the contention of the appellant that the value has to be determined in accordance with Rule 10 of the valuation rules stating that it is unsustainable since DSRM had adopted the CAS-4 valuation for paying differential duty during 2009-10. DSRM also has contended that their aforementioned contentions are in consonance with the contemporaneous exposition in Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hy the transaction value being adopted by the appellant in their clearance to DSRMPL is unacceptable. We also find that the legal provisions of Rule 8 and Rule 9 sought to be relied on in the SCN and which reliance has been taken note of by the adjudicating authority in the impugned OIO, is contrary to the interpretation of the said provisions by the Honourable Apex Court in CCE, Pune v.M/s. Mahindra Ugine Steel Co Ltd, 2015-TIOL-53-SC-CX, wherein it has been held as under: "Learned counsel for the appellant, however, referred to Rule 9 and submitted that the proviso to the said Rule would attract the applicability of Rule 8 in the present case. In order to appreciate this argument, we take note of Rule 9 which is reproduced below: "RULE 9: When the assessee so arranges that the excisable goods are not sold by an assessee except 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); or where such go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that since it is an admitted fact that DSRM and DSRML are treated as related only on the ground of being inter-connected undertakings as stated in sub-clause (i) of Section 4(3)(b), the legal premise based on Rule 9 and Rule 8 that has been invoked in the SCN to foist the requirement of adherence to CAS-4 valuation by DSRM thus stands demolished in light of the ratio laid down by the Honourable Supreme Court while interpreting these rules in CCE, Pune v. M/s. Mahindra Ugine Steel Co Ltd, 2015-TIOL-53-SC-CX as reproduced supra. 30. SCN cannot be issued on a wing and a prayer. The assessee ought to be put to notice of the relevant statutory provisions applicable for the period, detailing how and why the said provisions stood attracted, along with evidence substantiating the department's contentions/allegations, which would than be the foundation that establishes a tenable demand. In the absence of invoking of Rule 10 as well as any allegation/evidence in the SCN or finding in OIO, that DSRM and DSRMPL being inter-connected undertakings are 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 or that DSRMPL as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the demand made on DSRMPL vide the impugned order in original No.14/2016 dated 07.06.2016, against which the appellant DSRMPL has preferred the instant appeal No. E/41636/2016, cannot sustain for the reason that ineligibility of credit taken on supplementary invoices issued by DSRM hinged on the invalidity attached to the said invoices on the grounds that the charges against DSRM of suppression, wilful misstatement etc. have been confirmed by invoking extended period of limitation vide OIO 10/2014 dated 30.12.2014 and thus the supplementary invoices based on which DSRMPL had taken cenvat credit are not valid documents for the purpose of Cenvat Credit in terms of Rule 9(1)(b). In view of our findings in Appeal No. E/40781/2015 supra that the impugned order in original 10/2014 dated 30.12.2014 is untenable both on merits and limitation and thus the demand confirmed by the said order in original 10/2014 dated 30.12.2014 cannot sustain, consequently the invalidity attached to the supplementary invoices issued by DSRM to DSRMPL, which is the subject matter of the instant appeal preferred by DSRMPL stands effaced ab initio, thereby rendering the supplementary invoices based on which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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