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TMI Blog2024 (8) TMI 1526X X X X Extracts X X X X X X X X Extracts X X X X ..... lated person. In the present case when the appellant had sold the goods to unrelated buyers and also to related buyers then the said rule would not apply. Even if the appellant and M/s Maruti Udyog Ltd. are held to be interconnected undertaking and hence related in terms of Section 4 (3) (b) of the Central Excise Act, 1944 then also Rule 9 cannot be invoked for determination of the value in the present case. In the present case the demand has been determined by application of Rule 9 read with Rule 8, in a unique manner whereby 10% notional profit has been added to the assessable value determined either on the basis of transaction value or in terms of Section 4A. The logic behind the same is not understood as the said rule itself lays down that assessable value shall be 110% percent of the Cost of Production - there are no legal provision which supports the manner of determination of assessable value by just adding 10% notional profit to the value of clearances as per Section 4 (1) (a) or assessable value determined as per Section 4A of the Central Excise Act, 1944. Conclusion - i) The impugned SCN rightly alleges that the party i.e. M/s Denso India Ltd. & Ms Maruti Udyog Ltd. ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Ms Maruti Udyog Ltd. The Auditors therefore, were of the view that appellant should have paid duty as per Valuation Rules (Cost + 10% as notional profit) and that the party was accordingly required to pay the differential duty, with interest. The duty short paid was worked out as follows : S No Period Rate of duty Value of Clearance 10% notional profit (Rs) Duty involved on 10% notional profit (Rs) Differential amount of duty on transaction value clearances 1 01,10.2008 to 7.12.2008 14 410148137 41014814 5914336 2 8.12.2008 to 25.02.2009 10 507322161 50732216 5225418 3 26.02.2009 to 31.03.2009 8 399580521 39958052 3292543 4 1.04.2009 to 25.02.2010 8 3180713372 318071337 26209078 5 26.02.2010 to 31.03.2010 10 383055380 38305538 3945470 6 01.04.2010 to 31.03.2011 10 4495200755 449520076 46300568 7 01.04.2011 to 16.03.2012 10 3582749953 358274995 36902325 8 17.03.2012 to 31.03.2012 12 260008616 26000862 3213706 9 1.04.2012 to 31.03.2013 12 3404613586 340461359 42081024 Total 17,30,84,468 Differential amount of duty on sale on MRP basis S No Period Rate of duty Ass value after abate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruti Udyog Limited are interconnected undertaking. ⮚ Appellant and M/s Maruti Suzuki are not related parties as per Section 4 (3)(b) of the Excise Act nor are they interconnected undertakings. ⮚ Rule 9 is not applicable even if two companies are interconnected undertakings only. ⮚ Extended period of limitation is not applicable. ⮚ As demand cannot be upheld demand of interest and penalty imposed are to be set aside. 3.3 Learned authorized representative reiterates the findings recorded in the impugned order. 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments. 4.2 Impugned order records the findings as follows : "The issue in the present case, relates to valuation of goods cleared by the party to M/s Maruti Udyog Ltd., Gurgaon, on which the party reportedly discharged duty on the basis of valuation on transaction value under Section 4(1)(a) of the Central Excise Act, 1944, whereas according to the department he party & M/s Maruti Udyog Ltd. are related/ inter-connected undertakings and fall under the purview of 'related person' in terms of Section 4(3)(b) of the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the transaction value. (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. I also consider the SCN's allegation that the assessees are related and "inter- connected undertaking' in terms of Section 4(3)(b)(i) & Section 4(3)(b)(iv) of the Act. Clause (b) of sub- section (3) reads as under: (3) For the purpose of this section , - (a) .... (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. 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 (64 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)." Further, since in the instant case, the subject goods have been ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - Mumbai), wherein the CESTAT held that "Valuation (Central Excise) - Related person - Inter-connected undertakings - Shri Sanjay Bahadur is MD of UPL and simultaneously Director of UTL - Shri Ramesh Chandra Director in UPL and UTL - Both persons are not mere managers, both executed the policies of both the units/companies - Moreover, UTL holds 40% shares of UPL i.e. more than 33 1/3% which means both are under same management - Therefore, both are inter-connected undertakings under Section 2(g) of Monopolies and Restricted Trade Practices Act, 1969 and related persons in terms of Section 4(3)(b) of Central Excise Act, 1944 [para 6]" Thus, as per this judgement of the Hon'ble CESTAT, both the units (seller & buyer) were held as 'related person' & 'inter-connected undertakings' under the above provisions of Section 4 of the Central Excise Act, 1944. The present case is squarely covered by the above judgments of the Hon'ble CESTAT. In view of the above facts & judgments, the contention of party that holding of merely 10% shares or having common Directors does not mean that the parties are related under the provisions of Section 4(3)(b) of the Excise Act, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks Company Ltd., holds 37,428 equity shares in Alembic Glass, i.e. the petitioner company; thus, both have reciprocal interest in the business of each other,; moreover three of the directors are common, Chairman of both he companies is also common; in view of this position, it cannot be said that the assessee company and Alembic Chemical Works Company Ltd. have no interest in the business of each other. The shareholding of each in other company cannot be said to be negligible The said judgements of the Hon'ble Supreme Court & the High Court are also squarely applicable to the present case. In view of the above facts & judgements, I find no merit in the party's contention that Mr. K. Asai, who is common Director of both the units had attended only 12 Board meetings, out of the total 36 meetings and in none of such meetings, any issue relating to prices of goods sold by the Noticee to Maruti was discussed. The above facts indicate that the impugned SCN rightly alleges that the party i.e. M/s Denso India Ltd. & Ms Maruti Udyog Ltd. are inter-connected undertakings and have mutual business interest and therefore, they qualify as 'related parties'/ related person under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 11A(4) of the Central Excise Act, 1944 has been rightly invoked. Therefore, the case laws as cited by the party in this regard are not applicable to the present case. On the issue of the imposition of a penalty upon the party, I find that penalty has been proposed against them under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules 2002 for the alleged contravention of Rule 4,6 & 8 of the Central Excise Rules, 2002. As discussed supra, the fact of clearance of goods by the party to M/s Maruti Udyog Ltd. without proper payment of excise duty for the relevant period came in the notice of the department only during the audit of the party's records i.e. the above fact of undervaluation & short-payment of excise duty was not disclosed by the party at their own. The party's such act amounts to suppression of facts with intent to evade payment of Central Excise duty and accordingly they rendered themselves liable for penal action. I find that the party has contended that as under bonafide belief that payment of excise duty in respect of the clearance of goods made by them to Ms Maruti Udyog Litd. for the relevant pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maruti Udyog Limited being interconnected unit with the valuation of the goods could not have been done in the manner suggested by the show cause notice and upheld by the impugned order. 4.6 During the entire period of dispute it is not even the case of the revenue that entire goods cleared by the appellant were cleared by the appellant to M/s Maruti Udyog Limited. Appellant has categorically vide its letter dated 23.08.2013 informed that the percentage of sale to M/s Maruti Udyog Limited was as in table below: Financial Year 2008-09 2009-10 2010-11 2011-12 2012-13 % Sales to M/s Maruti 43.6 47 47.1 38 33.74 4.7 The above fact of sale to unrelated person is not disputed by the revenue either in the show cause notice or in the impugned order. Rule 9 of the Valuation Rules, 2000 as it existed during the relevant time clearly stated "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-clause (i), (ii) or (iv) of Clause (b) of sub-section (3) of Section 4 of the Act, ...". Thus in terms of the above rule it is evident that the said rule applies on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000. The decision of the Apex Court is in the context of an assessee who has been selling goods at prices substantially lower than cost price to capture the market. In this case, no case is made out that the price at which goods are sold to M/s. Jayakumar Fabrics is less than cost price. So, we do not find that the said decision would apply in the facts of this case. So, we go by the decisions of the Tribunal already given in the matter to the effect that when prices of goods sold to independent buyers are available there is no scope for invoking provisions of Rule 9 read with Rule 8." 4.8 In case of Chennai Petroleum Corporation Ltd [2009 (240) E.L.T. 372 (Tri. - Chennai)] following has been held : "2. Heard both sides. On a careful consideration of the case records and the submissions by both sides we find that in terms of Rule 10(a) of the Valuation Rules, when the excisable goods are not sold except through an interconnected undertaking the value should be determined as per Rule 9 of the Valuation Rules. As per this rule, the assessable value shall be the price charged by the related person when the excisable goods are arranged to be sold through a related person. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional High Court in the case of Indian Drug Manufacturers Association v. Union of India, wherein the Court held that Rule 8 applies in a situation where goods are not sold but are cleared 'exclusively' to be used in consumption or for manufacture of other articles. We also agree with the contention of the assessee that Rule 8 will apply only in two situations, (a) where the goods are consumed by him in the same factory (captive consumption) or (b) where such goods are transferred to another factory for consumption in the manufacture of other articles on behalf of the assessee. In this case, it is not the case of the revenue that the goods were transferred to other units for manufacture of other articles on behalf of the assessee/appellant, i.e. the Dolvi Unit. We agree with the assessee's contention that the expression 'assessee', wherever it appears in the Central Excise Rules, applies to a particular factory, which is why different units belonging to one company are separately registered and separately assessed to duty. Since the assessee in the present case is the Dolvi plant and it is not the revenue's case that the other three units of the company to whom HR coils were trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is 'primary' whereas the conditions in Rule 9 (2) are the 'accessories'. The 'accessory' must, therefore, serve the 'primary'." 9. In view of what we have observed above, we answer the reference in the following terms : (a) the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers; (b) the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods. In the present case, the appellants sold the goods partly and therefore, Rule 8 as it stood during the relevant period would not be applicable. We have noticed that the Rule 8 of the Valuation Rules was amended, by Notification No. 14/2013-C.E. (N.T.), dated 22-11-2013." 4.12 4.12 In case of Sterlite Optical Technologies Ltd [2018 (359) E.L.T. 723 (Tri. - Mumbai)] Mumbai bench held as follows : "2. Ld. AR for the Revenue argued that the respondents were supplying certain goods to their own subsidiary and they were also selling the said goods in the open market to unrelated buyers. He argued that the respondents were raising the Central Excise invoices, following Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 on the cost plus 15% basis. He pointed out that the respondents were recovering the balance amount of the difference between the price at which they were selling to the unrelated parties and the assessable value arrived at by the cost construction method through debit note. He argued that by raising on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per valuation to be used for determining excise duty. Conversely, a rebuttable presumption can be drawn regarding related party transactions and the value at which goods are sold in such situations. Rule 9 would be sufficient to resolve this issue when sales are made only to related entities, but where both independent and related parties are involved, we must refer to other means. In this context, Rule 11 obliges the Revenue to use "reasonable means" consistent with the principles under Section 4(1) of the CEA to arrive at the appropriate value. We observe that the show cause notice and the order of the Commissioner proceed along the basis that Section 4(1)(b) is applicable as the Assessee and MIL and MSL are related parties. Section 4(1)(a) was deemed to be inapplicable as it addresses situations where the parties are not related. 35. The unequivocal position which emerges before us is that the price charged from independent parties for the sale of excisable goods can be used as a benchmark for determination of excise duty on related transactions when such a price is readily available. However, we add the caveat that when making such calculations via transposition, the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded to the assessable value determined either on the basis of transaction value or in terms of Section 4A. The logic behind the same is not understood as the said rule itself lays down that assessable value shall be 110% percent of the Cost of Production. Vide Circular No dated Board has clarified as follows: "I am directed to say that on introduction of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000,w.e.f. 1.7.2000, it was clarified by the Board vide Circular No.354/81/2000-TRU dated 30.6.2000 (para 21) that for valuing goods which are captively consumed, the general principles of costing would be adopted for applying Rule 8. The Board has interacted with the Institute of Cost & Works Accountants of India (ICWAI) for developing costing standards for costing of captively consumed goods. (2) The Institute of Cost & Works Accountants of India [ICWAI] has since developed the Cost Accounting Standards, CAS2, 3 and 4, on capacity determination, overheads & cost of production for captive consumption, respectively, which were released by the Chairman , CBEC on 23.1.2003. (3) It is, therefore, clarified that cost of production of captively consumed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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