Whether the two units which are in interconnected in terms of Companies Act can be treated as related persons for Valuation Rules?

PJ/Case Law/2014-15/2136

Case:-C.C.E., RAIPUR Vs M/s ORIENT STEEL RE-ROLLING MILL

Citation:-2014-TIOL-202-CESTAT-DEL

Brief Facts:- The respondent are engaged in manufacture of re-rolled products of Iron and Steel strips chargeable to Central Excise duty under Chapter 72 of the Central Excise Tariff. Scrutiny of their records showed that more than 50% of their clearances are to M/s P.S. Steel Tubes (P) Ltd. during period from 01/6/05 to 01/7/05 which was using the goods for manufacture of their final products. It was also found that the respondent and M/s P.S. Steel Tubes (P) Ltd. were interconnected undertakings within the meaning of this term as defined in Section 2 (41) of the Companies Act, 1956 and therefore, the respondent and M/s P.S. Steel Tubes (P) Ltd. appeared to be related person in terms of Section 4 (3) (b) of the Central Excise Act. The department, therefore, was of the view that the assessable value of the goods cleared by the respondent to M/s P.S. Steel Tubes (P) Ltd. should be determined under Rule 10 read with Rule 8 of the Central Excise Valuation Rules, 2000 on the basis of 110% of the cost of production. Since, the respondent had paid duty on the transaction value, on this basis five show cause notices were issued during the period from July 2000 to February 2006 for demand of differential duty alongwith interest and also for imposition of penalty. The show cause notices were adjudicated by the Additional Commissioner vide order-in-original by which the above-mentioned duty demands were confirmed and alongwith interest thereon under Section 11AB and beside this, penalty was also imposed on the respondent under Rule 25 of the Central Excise Rules. No penalty was imposed under Section 11AC. On appeal being filed to Commissioner (Appeals), the Commissioner (Appeals), vide order-in-appeal set aside the Additional Commissioner's order and allowed the appeal on the ground that even if the respondent and M/s P.S. Steel Tubes (P) Ltd. are interconnected undertakings, they cannot be treated as related persons as in terms of Rule 10 of the Central Excise Valuation Rules, interconnected undertakings are to be treated as related persons only if they are so connected that they are also related in terms of sub-clause (ii), (iii) or (iv) of Clause (b) of Sub-Section 3 or Section 4 or buyer is a holding company or subsidiary company of the assessee, while this is not so in this case. Against this order of the Commissioner (Appeals), this appeal has been filed by the Revenue.

Appellant’s Contention:- The revenue pleaded that since partners of the respondent are also Directors in M/s P.S. Steel Tubes (P) Ltd., the respondent and M/s P.S. Steel Tubes (P) Ltd. would be interconnected undertakings in terms of the definition of this term as given in Section 2 (41) of the Companies Act and hence in terms of the provisions of Section 4 they have to be treated as related persons. He also pleaded that the respondent and M/s P.S. Steel Tubes (P) Ltd. have mutuality of interest and, therefore, they are also related in terms of Clause (iv) of Section 4 (3) (b) and, for this reason, they have to be treated as related persons.

Respondent’s Contention:- The respondent defended the impugned order by reiterating the findings of the Commissioner (Appeals) and pleaded that even if the respondent and M/s P.S. Steel Tubes (P) Ltd. are treated as interconnected undertakings in terms of the definition of this term as given in Section 2 (41) of the Companies Act, for the purpose of valuation rules, they can be treated as related persons only if as per the provisions of Rule 10 of the Central Excise Valuation Rules they are also related in terms of Clause (ii), (iii) or (iv) of Section 4 (3) (b) of the Central Excise Act that is they are either relatives or amongst them, buyer is a relative and distributor of the assessee or sub-distributor of such distributor or they are so associated that they have interest direct or indirect in the business of each other or the buyer is holding company or subsidiary company of the assessee, while in this case none of there conditions are satisfied. He also pleaded that there is absolutely no evidence to show that there is any mutuality interest between the respondent and M/s P.S. Steel Tubes (P) Ltd. the respondent, therefore, pleaded that there is no infirmity in the impugned order.

Reasoning of Judgment:- The Tribunal heard both the parties and finds that show cause notice treats the respondent and M/s P.S. Steel Tubes (P) Ltd. as related persons only on the basis that they are interconnected undertakings in terms of its definition of this term as given in Section 2 (41) of the Companies Act and the show cause notices, nowhere discusses as to how the conditions prescribed in Rule 10 of the Central Excise Valuation Rules, 2000 are satisfied, that is either the buyer is holding company or subsidiary company of the assessee or the two are so connected that they are also related in terms of Clause (ii), (iii) or (iv) of Clause (b) of sub-Section (3) of Section 4 of the Act. There is absolutely neither any allegation, nor any evidence to show that the respondent and M/s P.S. Steel Tubes (P) Ltd. have interest in the business of each other. For applying Rule 10 read with Rule 9 and Rule 8 of the Central Excise Valuation Rules, the mere the fact that the assessee and his buyer are interconnected undertakings is not sufficient and it has also to be shown that either the buyer is holding company or subsidiary company or is also so connected with the assessee that they are related persons in terms of Clause (ii) or (iii) or (iv) of Section 4 (3) (b) of the Central Excise Act. In this case, neither M/s P.S. Steel Tubes (P) Ltd. is holding company or subsidiary company of the respondent nor there is any evidence to prove that the respondent are so connected with M/s P.S. Steel Tubes (P) Ltd. that they are also related in terms of Clause (ii), (iii) or (iv) of Section 4 (3) (b). In view of this, the respondent and M/s P.S. Steel Tubes (P) Ltd. cannot be treated as related persons and, as such, there is no infirmity in the impugned order.

Decision:- The Revenue's appeal is, therefore, dismissed.

Comments:- The crux of this case is that the Rule 10 of the Central Excise Valuation Rules, 2000 is only satisfied when, the buyer is holding company or subsidiary company or is also so connected with the assessee that they are related persons in terms of Clause (ii) or (iii) or (iv) of Section 4 (3) (b) of the Central Excise Act. The mere fact that two assessees are interconnected in terms of the provisions of the Companies Act cannot be a reason to treat them as related persons for the purposes of valuation under the Central Excise Laws also.

Comments

PJ/Case Law/2014-15/2136

Post a Comment

Query