Custom, Excise & Service Tax Tribunal
Handy Wires Pvt. Ltd vs Commissioner Of Central Excise, Nagpur on 3 March, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL NO. E/994/10-MUM [Arising out of Order-in- Original No. 05/2010/C dtd. 11/1/2010 passed by the Commissioner of Central Excise, Nagpur] For approval and signature: Honble Mr. P K Jain , Member(Technical) Honble Mr Ramesh Nair, Member(Judicial) =======================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
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Handy Wires Pvt. Ltd.
:
Appellants
VS
Commissioner of Central Excise, Nagpur
:
Respondent
Appearance
Shri. Vinay Sejpal, Advocate for the Appellants
Shri. N.N. Prabhudesai, Superintendent(A.R.) for the Respondent
CORAM:
Honble Mr. P K Jain, Member (Technical)
Honble Mr. Ramesh Nair, Member (Judicial)
Date of hearing: 3/3/2015
Date of decision: 3/3/2015
ORDER NO.
Per : Ramesh Nair
This appeal is directed against Order-in- Original No. 05/2010/C dated 11/1/2010 passed by the Commissioner of Central Excise, Nagpur, wherein total demand of Rs. 8,03,787/-, interest and penalty of equal amount under Section 11AC and also equal amount of penalty under Rule 25 of Central Excise Rules, 2002 were confirmed. The fact of the case is that the appellant M/s. Handy Wires Pvt. Ltd. are engaged in manufacture of M.S. Wire. On scrutiny of the record by the Revenue officer it was observed that the appellant have cleared excisable goods i.e. M.S. Wire to the following unit :
(1) M/s. Hany Products (India), Uppalwadi, Kamptee Road, Nagpur.
(2) M/s. Stewols India (P) Ltd., 5, Industrial Estate, Uppalwadi Kamptee Road, Nagpur [Fomerly known as M/s Stewols and Co. (A registered partnership firm) (3) M/s. Spick and Span Stewols Pvt. Ltd. Uppalwadi, kamptee Raod, Nagpur.
On further scrutiny of the balance sheet and memorandum of article of the company it was found that all the three aforesaid entities are interconnected undertaking and therefore contended that these are the related persons. Show cause notice was issued and culminated into adjudication wherein it was held that the appellant is required to discharge excise duty under Rule 8 and 9 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 i.e. 110% of cost of production or manufacture of said goods supplied to all the three related entities and accordingly confirmed demand of duty, interest and penalty.
2. Shri. Vinay Sejpal, Ld. Counsel for the appellant submits that though three separate companies, to whom the goods were sold, have been admitted by the appellant as interconnected undertaking but merely because customers are interconnected undertaking, it cannot be said that they are related persons in terms of Section 4. He referred to Rule 9 of Central Excise Valuation Rules, 2000, according to which, if the goods are sold through person who is related in the manner specified in either of sub clause 2, 3, or 4 of clause B of Subsection (3) of Section 4 of the Act, transaction value shall be the value at which the goods are sold by such related person at the time of removal to buyer(not being related person) or where such goods not sold to such buyers(being related person) who sold such goods in retail. He also referred Board Circular no. 354/81/2000 TRU dated 30/6/2000 wherein in para 24 it was clarified that the transaction will be rejected in case of interconnected undertaking only when they are related in the sense of any of clause (ii), (iii) or (iv) of subsection 4(3)(b) or buyer is holding company or subsidiary company of the assessee. It was further clarified that while dealing with the transactions between interconnected undertakings, if the relationship has described in clause 2, 3 or 4 does not exist and the buyer is not holding company or subsidiary company then for assessement purpose they will not be considered related. It is his submission that in view of the above provisions, even though the three buyers company are interconnected undertaking of the appellant, these three buyers cannot be treated as related person. Therefore whole foundation of the case gets demolished. He submits that in the impugned order Ld. Commissioner has held that all the three buyers as interconnected undertaking and due to this reason treated as related person and valuation was attracted under rule 8 and 9 of Central Excise Valuation Rules, 2000, which is absolutely incorrect as per the explanation given above. He submits that since all the three buyers are not related therefore valuation under rule 8 and 9 of Central Excise Valuation Rules, 2000 is not applicable and the sale price of appellant to these companies is the correct transaction value and excise duty on the said value cannot be found fault. Ld. Counsel, without prejudice to the above also submits that in the present case it is fact on record that the appellant are not selling only to these three interconnected undertakings but also selling their goods sold to independent buyers. He submits that on the issue when goods are sold to related person as well as to the independent buyers the value at which goods to the independent buyers shall apply also to the clearance made to related buyers. In this support he placed reliance on the Larger Bench judgment of this Tribunal in the case of Ispat Industries Ltd. Vs. CCE Raigad [2007 (209) ELT 185(Tri. LB)]. In the said judgment this position has been confirmed that where the goods are sold to related person as well as independent buyers the transaction value charged to the independent buyers shall apply in the case of supply of goods to the related person. He submits that the appellant have submitted detailed chart showing comparison between sale price to these three interconnected undertakings as well as sold to the independent buyers wherein the price are more or less same. In majority of the case the prices to the interconnected undertakings are higher than price charged to the independent consumer. For this reason also at the most price charged to the independent consumer shall be applicable and not price arrived at by adopting cost construction method as provided under Rule 8 of Central Excise Valuation Rules, 2000. He submits that on both the counts as submitted above, in any case valuation adopted by Ld. Adjudicating authority in terms of Rule 8 and 9 of Central Excise Valuation rules is not at all applicable therefore impugned order is suffered by very serious infirmity and the same deserve to be set aside and the appeal of the appellant may be allowed.
3. On the other hand, Shri. N.N. Prabhudesai, Ld. Superintendent (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He further submits that it has been admitted by the appellant that all the three companies whom the goods were sold are their interconnected undertakings. He submits that in terms of Section 4(3) (b) the interconnected undertaking is related person therefore the Ld. Adjudicating authority has correctly applied the valuation of the goods in terms of Rule 8 and 9 of Central Excise Valuation Rules, 2000. He also submits that the directors in all the companies are common therefore appellant and buyer companies are related person. He prays that impugned order be maintained and the appellants appeal be rejected.
4. I have carefully considered the submissions made by both the sides and perused the record.
5. The appellant have admitted that the three buyers companies are their interconnected undertakings. However merely because buyers are interconnected undertakings it is not sufficient to hold that the companies are related persons. related is defined under section 4(3)(b) which is reproduced below:
Section 4(3)(b) in the Central Excise Act, 1944
(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 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);
From the plain reading of the above section it appears that interconnected undertaking are also related person. However, as per Rule 9 of Central Excise Valuation Rules, 2000 it is clear that Rule 9 shall apply only when the goods are sold through person as specified under sub clause (ii), (iii) or (iv) of clause (b) of section 4 of the act. The said provision 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 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.
From the above rule 9 it is very clear that only in cases where goods are sold through the person as specified under clause (ii), (iii) or (iv) of clause (b) of Section 4 the transaction value at which the goods are sold by the said person shall apply and not the sale price at which goods are sold to these three category of person are made. Provision of rule 9 also shows that merely buyers is interconnected undertaking that alone is not sufficient for holding as related person. We have gone through the Board Clarification referred by the Ld. Counsel in circular No. MF/DR/F/354/81/2020 TRU dated 30/6/2000 is reproduced below.
F.No. 354/81/2000-TRU Subject: Central Excise Section 4- Transaction Value- Regarding.
I am directed to say, that as you aware, section 4 of the Central Excise Act, as substituted by section 94 of the Finance Act, 2000( No. 10 of 20000), would come into force from the 1st day of July, 2000. For the sle of ready reference, the new section 4 is being reproduced below:
4(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall.
a. in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the asessee and the buyer of the goods are not related and the price is the sold consideration for the sale, 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.
2. The provisions of the section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of Sec.3.
a. "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;
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 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; and ii. "relative" shall have the meaning assigned to it in Clause (41) of Section 2 of the Companies Act, 1956;
(c) "place of removal" means.
23. Where goods are sold through related persons, the transaction value is not applicable. However, there is some change in the definition of related persons vis-`-vis the old definition. It includes "inter-connected undertakings" as defined in the Monopolies and Restrictive Trade Practices Act, 1969. The definition of interconnected undertaking in the said Act reads as follows:
"Inter-connected undertakings" means two or more undertaking which are inter-connected with each other in any of the following manner, namely:-
i. if one owns or controls the other, ii. where the undertakings are owned by firm, if such firms have one or more common partners.
iii. Where the undertakings are owned by bodies corporate, a. if one body corporate manages the other body corporate, or b. if one body corporate is a subsidiary of the other body corporate, or c. if the bodies corporate are under the same management, or d. if one body corporate exercise control over the other body corporate in any other manner;
i. where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firms, a. hold, directly or indirectly, not less than fifty per cent of the shares, whether preference or equity, of the body corporate, or b. exercise control, directly or indirectly, whether as director or otherwise, over the body corporate.
i. if one is owned by a body corporate and the other is owned by firm having bodies corporate as its partners, if such bodies are under the same management.
ii. If the undertakings are owned or controlled by the same person or (by the same group).
iii. If one is connected with the other either directly or through any number of undertakings within the meaning of one or more foregoing sub-clauses.
Explanation I. For the purpose of this Act, (two bodies corporate), shall be deemed to be under the same management,-
From the above clarification it was made clear that the transaction value can be rejected only when the buyers are related in the sense in clause (ii), (iii) or (iv) of Section of 4(3) (b) or buyer is holding company or subsidiary company of the assessee. It was made further clear that while dealing with transaction between interconnected undertaking, if the relationship as described in clause (ii), (iii) or (iv) does not exist and buyers also not holding or subsidiary then for assessment purpose they will not be considered related. In view of above clear position as regard transaction between interconnected undertakings, it is crystal clear that in existing status of interconnected undertaking they should fall under the category of sub clause 2,3 or 4 of Section of 4(3)(b). In the present case Ld. Commissioner emphasized on the fact that this appellant and buyers company are interconnected undertaking therefore they are related and consequently applied rule 8 of Central Excise Valuation Rules, 2000 and adopted the valuation of cost construction method. Ld Commissioner have not brought any material to establish that the relationship between appellant and buyers company are one of the relationship as prescribed under sub clause (ii), (iii) or (iv) of Section 4(3)(b) of Central Excise Act therefore in our considered view even if it is accepted that the buyers company are interconnected undertaking of the appellant company it can not be treated as related person in terms of Section 4(3)(b) in absence of relationship as specified under sub clause (ii), (iii) or (iv) of Section 4 (3)(b). In this position, the transaction value of the goods between appellant and these three interconnected undertaking is correct valuation and the same can not be disturbed, therefore value as provided under Rule 8 is not applicable in the present case. Moreover we are convinced with the argument of the Ld. Counsel that sale price of goods sold to interconnected undertaking are in majority of the case higher than the price charged to the independent buyer for the same goods. Now it is settled law by the Larger Bench of this Tribunal in the case of Ispat Industries (Supra) that if goods partly sold to the independent buyer and partly to the related person, valuation under Rule 8 shall not apply in the case of goods sold to related person but transaction value at which the goods are sold to independent buyers shall apply. For this proposition the larger bench has contended that first principle of valuation is the transaction value and only in the absence of transaction value, valuation rules should be made applicable. When for the same goods transaction value is available i.e. transaction value at which the goods are sold to independent buyers, then there is no scope of any notional value such as valuation in terms of Rule 8 or otherwise. For this reason also valuation of Rule 8 can not be applied in the present case. In view of our above discussion we are of the considered view that the appellant have correctly valued their goods sold to their three interconnected undertakings, therefore the impugned order is not sustainable and deserve to be set aside. We therefore set aside the impugned order and allow the appeal with consequential relief, if any, in accordance with law.
(Operative part pronounced in court) P K Jain Member (Technical) Ramesh Nair Member (Judicial) sk 2