Custom, Excise & Service Tax Tribunal
Sri Kaliswari Metal Poweders P Ltd vs Madurai on 14 March, 2019
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IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
[COURT : Division Bench B1]
Appeal Nos.: E/40697 & 41951/2013
Sl. No. Appeal No. Appellant Respondent
1. E/40697/2013 M/s. Sri Kaliswari Metal The Commissioner of Powders (P) Ltd., Unit II G.S.T. & C.Ex., Madurai Arising out of Order-in-Appeal No. 307/2012 dated 21.12.2012 passed by the Commissioner of Central Excise (Appeals), Lal Bahadur Shastri Marg, Madurai
2. E/41951/2013 M/s. Sri Kaliswari Metal The Commissioner of Powders (P) Ltd., Unit II G.S.T. & C.Ex., Madurai Arising out of Order-in-Appeal No. 71/2013 dated 31.07.2013 passed by the Commissioner of Central Excise (Appeals), Lal Bahadur Shastri Marg, Madurai Appearance:-
Shri. M. Kannan, Advocate for the Appellant Shri. S. Govindarajan, AC (AR) for the Respondent CORAM:
Hon'ble Shri Madhu Mohan Damodhar, Member (Technical) Hon'ble Shri P. Dinesha, Member (Judicial) Date of Hearing/Decision: 14.03.2019 Final Order Nos. 40492-40493 / 2019 Per Madhu Mohan Damodhar :
The facts in both these appeals being identical, they are taken up for common disposal.
2.1 The appellants are engaged in the manufacture of Aluminium Powder and Aluminium paste falling under Chapter 76 of the Central Excise Tariff Act, 1985. The contention of the Department is that the appellants were allowing cash discount of Rs. 4/- per kg on 2 Aluminium Powder to all buyers who were making 100% payment in advance. However, they were allowing cash discount of Rs. 5/-
per kg to M/s. Sri Kaliswari Fire Works.
2.2.1 The contention in the first Show Cause Notice dated 30.03.2011 relating to Appeal No. E/40697/2013 is that M/s. Sri Kaliswari Fire Works is a partnership firm consisting of 18 partners. Out of the 18 partners of M/s. Sri Kaliswari Fire Works, 17 partners jointly hold 55.87% shares in the appellant's company. Hence, the appellants and M/s. Sri Kaliswari Fire Works are associated and related persons.
2.2.2 The contention in the second Show Cause Notice dated 08.12.2011 relating to Appeal No. E/41951/2013, is that M/s. Sri Kaliswari Fire Works Pvt Ltd. consists of 30 shareholders. Out of the 30 shareholders of M/s. Sri Kaliswari Fire Works Pvt. Ltd., 27 shareholders hold 94.29% shares in the appellant's company. Hence, the appellants and M/s. Sri Kaliswari Fire Works Pvt. Ltd. are associated and related persons.
2.3 In adjudication, the Original Authority confirmed the duty demand and imposed equal penalty under Section 11AC of the Central Excise Act, 1944. The Commissioner (Appeals) has upheld 3 the adjudication orders and rejected the appeals. The details of the demands are as under :
Sl. Impugned Appeal No. Period of Duty Penalty No. Order and Dt. dispute demanded imposed (in Rs.) (in Rs.)
1. Order-in-Appeal E/40697/2013 April 2008 Rs. 59,338/- Rs. 59,338/-
No. 307/2012 to u/S 11AC
dt. 21.12.2012 October 2010
2. Order-in-Appeal E/41951/2013 November 2010 Rs. 28,609/- Rs, 28,609/-
No. 71/2013 to u/S 11AC
dt. 31.07.2013 October 2011
3. Today when the matter came up for hearing, Ld. Advocate Shri. M. Kannan appearing on behalf of the appellant made oral and written submissions which are summarized as under :
(i) The appellants are adopting different prices for different buyers based on the terms of the payment. There is no favoured price for sale of metal powder to M/s. Sri Kaliswari Fire Works. There is no mutuality of interest in extending Re.
1/- extra discount based on large quantum of purchase by M/s. Sri Kaliswari Fire Works.
(ii) In this, there is no mutuality of interest. It is submitted that 'mutuality' of interest in each other's business means that there should be a 'two way flow'. There is no such allegation in the notice itself and mere extending discount to an industrial consumer would not entail the Department to apply 4 the transaction as a sale to a related person. There is absolutely 'no' mutuality of interest. Therefore, the impugned Order is liable to be set aside.
(iii) Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 though referred in the Show Cause Notice, the same is not applicable to the present case since Rule 9 cannot be applied when the goods are partly sold to independent buyers.
(iv) That there are no specific provisions for valuation of the goods cleared to independent buyers as well as to related persons to arrive at the assessable value for the goods cleared to related persons. Therefore, Rule 11 is applicable to the facts of the case.
(v) As per Rule 11, valuation of excisable goods is to be done using reasonable means consistent with the principles and general provisions of these rules and Section 4(1) is applicable, which states that in other cases i.e. which include sale made to independent buyers as well as to related persons. In that circumstance, the value would have to be determined as per Rule 11 of the Central Excise Valuation Rules. Rule 9 is not applicable to the facts of the case as the said Rule deals with a 5 situation when the goods are sold exclusively to related persons.
(vi) The C.B.E. & C. vide Circular No. 643/34/2002-CX dated 01.07.2002 has clarified how the valuation has to be done when the goods are partly sold to related persons and partly to independent buyers, which is extracted below :
S. No. Point of Doubt Clarification
12. How will There is no specific rule covering such a
valuation be contingency. Transaction value in respect of
done when sales to unrelated buyers cannot be adopted
goods are sold for sales to related buyers since as per
partly to related Section 4(1), transaction value is to be persons and determined for each removal. For sales to partly to unrelated buyers, valuation will be done as independent per Section 4(1)(a) and for sale of the same buyers? goods to related buyers, recourse will have to be taken to the residuary Rule 11 read with Rule 9 (or 10). Rule 9 cannot be applied in such cases directly since it covers only those cases where all the sales are to related buyers only.
(vii) As per the said clarification, the sales to unrelated buyers cannot be adopted for sales to related buyers. As per Section 4(1), sale of the same goods to related buyers recourse will have to be taken to the residuary Rule 11 read with Rule 9 or 10. Rule 9 alone cannot be applied in such cases directly since it covers only those cases where all the sales are to related buyers only.
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(viii) Without prejudice to the above submissions, it is submitted that as per proviso to Rule 9, where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in Rule 8. In this case, M/s. Sri Kaliswari Fire Works has consumed the Aluminium Powder in the manufacture of fireworks. Therefore, the demand confirmed in the impugned order is liable to be set aside.
(ix) It is submitted that, the filling of Price List is dispensed with and the approval of Price List is not necessary unlike Part II Price List existed under erstwhile Rule 173C of the Central Excise Rules, 1944. There is no suppression of facts and hence, the first Show Cause Notice dated 30.03.2011 is barred by limitation.
4. On the other hand, Ld. AR Shri. S. Govindarajan appearing on behalf of the respondent reiterated the correctness of the impugned Orders.
5. Heard both sides and have gone through the facts.
6. We find that the contention of the Ld. Advocate for the appellant indeed has merit. As per the Show Cause Notice itself, the 7 appellants were supplying their goods to various customers and not just to related persons. As per the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, Rule 9 would be applicable when the assessee sells the goods only to a related person. The relevant rule is reproduced as under :
"RULE 9. [Where whole or part of the excisable goods are sold by the assessee to or through a person who is related in the manner specified in any of the sub- clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of such 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 goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail :
Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in rule 8."
7. We find that the CBEC in the Circular dated 01.07.2002 relied upon by the Ld. Advocate for the appellant, has clarified that Rule 9 cannot be applied in such cases when goods are sold party to related persons and partly to independent buyers and that it covers only those cases where all the sales are to related persons only. 8.1 In the circumstances, it would be in the fitness of things that the matter is once again re-looked into by the adjudicating authority. So ordered. In such de novo adjudication, the adjudicating 8 authority shall take into account the submissions and contentions of the appellants in paragraph 3 supra.
8.2 In any case, irrespective of the final outcome of such de novo adjudication, it is noted that the entire issue has emanated out of an interpretational dispute on the applicability or otherwise of Rule 9 of the Central Excise Valuation Rules. This being so, we hold that imposition of penalties under Section 11AC of the Act is not warranted. So ordered.
9. The appeals are partly allowed and partly remanded on above terms.
(Dictated and pronounced in open court)
(P Dinesha) (Madhu Mohan Damodhar)
Member (Judicial) Member (Technical)
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