Custom, Excise & Service Tax Tribunal
Electronic Corporation Of India Ltd vs Secunderabad - G S T on 4 July, 2025
(1) Appeal No. E/30171/2017
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
REGIONAL BENCH - COURT NO. - I
Excise Appeal No. 30171 of 2017
(Arising out of Order-in-Original No.HYD-EXCUS-003-COM-CE-051-16-17 dated
30.09.2016 passed by Commissioner of Central Excise, Customs & Service Tax, Hyderabad)
M/s Electronic Corporation .. APPELLANT
of India Ltd.,
ECIL Post Office, Lakdi-ka-pul,
Hyderabad,
Telangana - 500 062.
VERSUS
Commissioner of Central Tax .. RESPONDENT
Secunderabad - GST Kendriya Shulk Bhavan, L.B. Stadium Road, Basheerbagh, Hyderabad, Telangana - 500 004.
APPEARANCE:
Shri Sanjeev Nair, Advocate for the Appellant. Shri B. Sangameshwar Rao, Authorised Representative for the Respondent. CORAM: HON'BLE Mr. A.K. JYOTISHI, MEMBER (TECHNICAL) HON'BLE Mr. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER No. A/30235/2025 Date of Hearing:05.05.2025 Date of Decision:04.07.2025 [ORDER PER: A.K. JYOTISHI] M/s Electronic Corporation of India Ltd., (ECIL) are in appeal against the Order-in-Original dated 30.09.2016 (impugned order), whereby, the Adjudicating Authority has decided the issue of valuation in terms of 20 show cause notices issued during the period from 01.07.2000 to 30.06.2012.
(2) Appeal No. E/30171/2017
2. As per the Department, post 01.07.2000 with the change in the statutory provisions under Section 4 of Central Excise Act (Act), the sale between the ECIL and a Joint Venture between ECIL & Opto-Sensors Inc. (OSI), was in nature of related person in terms of deeming provision on account of their being an interconnected undertaking. Based on this, Department felt that valuation cannot be arrived at in terms of Section 4(1)(a) of the Act and therefore the recourse was to be taken to Section 4(1)(b) of the Act. Therefore, it was proposed to compute the value for the purpose of charging central excise duty in accordance with the Valuation Rules 10(a) read with Rule 9 of the Central Excise Valuation Rules, 2000 (Rules).
3. Learned Advocate has taken us through the history of the case by pointing that as early as 01.09.1995, show cause notices were issued based on the agreement between them and M/s Opto-Sensors Inc, alleging that there was a mutuality of interest between the appellant and the Joint Venture entity and therefore, the joint venture's sales price will have to be taken as value for the purpose of discharging the central excise duty by the appellant. This matter, on adjudication, was examined by the Adjudicating Authority vide Order-in-Original dated 04.08.1997, wherein, interalia, Adjudicating Authority examining various clauses and sub-clauses of the Joint Venture agreement as well as submissions of the appellant, came to the conclusion that there was no mutuality of interest between the appellant and the Joint Venture and dropped the demand. The Department went in appeal against the said order before the Tribunal, which again upheld the order of the Adjudicating Authority vide its order dated 28.03.2003. Thereafter, again the Department went to Hon'ble Supreme Court by way of (3) Appeal No. E/30171/2017 Civil Appeal against the order of the Tribunal and the Hon'ble Supreme Court vide its order dated 31.07.2015, interalia, held as under:
"Pure finding of fact is arrived at by the Commissioner while closing the proceeding as well as the Tribunal while confirming the order of the Commissioner, to the effect that the ECIL (Electronics Corporation of India) and the joint venture of the ECIL & OSI (M/s. Opto Sensors Inc.), namely, are not related persons.
2. After going through the orders of the authorities below, we find that this finding of fact was arrived after going through the detailed material which was placed on record. We do not see any reason to interfere with the same, particularly, when we find that no substantial question of law arises for consideration.
3. The appeals are dismissed accordingly"
Further, even for the period from 1998-2000, the same issue was again adjudicated by the Department, where keeping in view of the order of the Hon'ble Supreme Court, supra, the Adjudicating Authority vide order dated 30.09.2016 held that there was no mutuality of interest between the appellant and the joint venture. Admittedly, no appeal has been filed by the Department against the said order. Therefore, the fact that there was no mutuality of interest between ECIL & OSI now stands confirmed in terms of said orders.
4. He further points out that the Department again, based on certain investigation and relying on the fact that there has been change in the statutory provision governing valuation under Section 4 and Valuation Rules, felt that the appellant and joint venture are interconnected undertakings and therefore they are deemed to be related person. It was also alleged that there is mutuality of interest in terms of certain provisions of the Joint Venture agreement, including shareholding of the ECIL in joint venture entity, and therefore any increased price realised by the joint venture was (4) Appeal No. E/30171/2017 indirectly flowing back to them by way of dividend. Therefore, it's a case where Rule 10 and more particularly in terms of Rule 10(a) of the Central Excise Valuation Rules read with rule 9 would be applicable. This issue in terms of various show cause notices issued post 01.07.2000, has been decided and the demand has been upheld vide the impugned order.
5. Learned Advocate's main argument are as under:
a) It is not disputed by them that they would be deemed to be an "interconnected undertaking" post 01.07.2000
b) The allegation that they have not sold to anybody else other than Joint Venture is not correct and it is submitted they have been selling independently also to different parties apart from selling products to the joint venture
c) As regards the mutuality of interest clause, which is mandatorily to be invoked along with their being interconnected undertaking, it is clearly a settled matter that they are not having any mutuality of interest in terms of the same agreement, which was earlier analysed by the Adjudicating Authority and Tribunal and subsequently upheld by the Hon'ble Supreme Court.
6. He further submits that the term related person as such has not undergone any change and essentially there is no change in the definition of related person prior to 01.07.2000 or post 01.07.2000 under Section 43b(iv) which is almost identical to what existed prior to 01.07.2000. This has also been clarified by the Board Circular dated 30.06.2000. Therefore, on both the grounds that they are also selling to others also as well as there being no mutuality of interest, the Valuation Rule 10(a) cannot be invoked for determining the value and infact recourse will have to be taken to Rule 10(b) (5) Appeal No. E/30171/2017 which provides to resort to the transaction value in terms of Section 4(1)(a). He has also cited various cases independently that even if these situations prevail there will be no mutuality of interest and he has explained that in the present appeal where in the earlier round of litigation at the level of adjudication as well as the Tribunal, it has been clearly held that there is no mutuality of interest. The agreement between appellant and Joint Venture has removed the same for pre and post amendment in Section 4 in the year 2000.
7. On the other hand, Learned AR, apart from reiterating the Order-in- Original, submits that there is a clear change in the law in the sense that the entire provision of Section 4 was amended with effect from 01.07.2000 and therefore the Department was free to examine the entire issue irrespective of the fact that in the first round they were held to be unrelated person by the Supreme Court. He is relying on certain judgments including the following:
i) Commissioner of C.Ex & ST, Rohtak Vs Merino Panel Product Ltd., [2023 (383) ELT 129 (SC)]
ii) Amara Raja Batteries Ltd., Vs Commissioner of Central Tax, Tirupati- GST vide Final Order No. A/30130/2023 dated 31.05.2023.
8. Heard both the sides and perused the records.
9. Short question for determination is whether the valuation adopted by the Department for demanding duty in terms of Section 4 of Central Excise Act and Central Excise Valuation Rules is correct or otherwise. The Department had issued various show cause notices alleging that the appellant and M/s ECIL- Electronics Corporation Rapiscan Ltd., (ECRL), a joint venture company between ECIL and M/s Opto Inc, USA are related (6) Appeal No. E/30171/2017 persons in terms of Clause 1(iv) under Section 4(3)(B) of Central Excise Act 1944 and therefore the value of the goods namely XBIS cleared by ECIL is to be taken as value at which the related interconnected undertaking i.e. ECRL sold to the unrelated person. The appellants are not denying that they are not interconnected undertaking post 01.07.2007 in terms of Section 4(3)(B) of Central Excise Act. However, for the purpose of taking recourse to valuation as per Rule 10(a) read with Rule 9 of the Central Excise Rules as proposed in the show cause notice, it is mandatory that the parties are also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of Section 4 of Central Excise Act. We find that the show cause notice has alleged that the appellants are related to ECRL in terms of sub-clause
(iv) of clause (b) of sub-section (3) of Section 4. Therefore, they have to be also related, apart from being interconnected undertaking, in the sense that they have interest, directly or indirectly, in the business of each other. Further, since, in terms of earlier round of litigation, it is now settled position that they were not treated as related person for having any mutuality of interest in terms of the same Joint Venture Agreement, therefore, even for post 01.07.2007 factual matrix of their being not related on account of their not having any interest directly or indirectly in the business of each other, will hold.
10. Further, we find that the provisions of erstwhile Section 4(4)(c) of Central Excise Act, which defined related person as "related persons means a person who is so associated with the assessee that they have interest directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor". Therefore, it is obvious that post 01.07.2007, merely a concept of "interconnected undertaking" has been (7) Appeal No. E/30171/2017 brought in the concept of related person. Further, we find that this view has also been clarified by the Board in their Circular dated 30.06.2020 wherein, interalia, it was pointed out that notwithstanding the change in definition of related person in the new Section 4, for practical applications, it's scope has been reflected and but for small variation it would not be much different from that covered under the old Section 4 definition.
11. We have also noticed that while the Department have said they have not been selling to other independent customers, whereas the appellants have categorically submitted that they have been selling to other buyers also and it has been categorically stated by way of Affidavit dated 19.05.2025 by Shri G. Satish Kumar, Senior Manager, Finance that during the period under dispute the appellant had sold scanner system not only to ECRL but also to independent unrelated customers. Since, this is an old matter, we find that they have been able to submit only a few invoices/documents evidencing sales/clearance to unrelated customers. We have perused sample copies of invoices, purchase orders etc., and we find that X-ray Baggage Inspection system has been sold to some other customers also, i.e. HPCL, NTPC, Department of Automic Energy, Nuclear Power Corporation of India Ltd., etc. We have also perused the Statutory Provisions under which the demand has been confirmed by the Adjudicating Authority. No doubt, the appellant and ECRL are interconnected undertaking. This has also been admitted by the appellant. Therefore, in terms of provision post 01.07.2007, the appellant and ECRL would be deemed to be a related person and therefore the valuation cannot be in terms of Section 4(1)(a) in the first instance and it has to be determined in accordance with the valuation rules. As per the said rules, in terms of Rule 10, as it was during the period 01.12.2010 "when the assessee so arranges that the excisable goods are not sold by him except to (8) Appeal No. E/30171/2017 or through an interconnected undertaking, the value of the good shall be determined in accordance with the manner indicated at Rule 10(a) & 10(b)". We find that there are instances, when goods have been sold by the appellant to some other independent buyers also. Further, we note that apart from this, these interconnected undertakings are also required, interalia, to be related in terms of said Clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of Section 4. As per sub clause (iv) clause b of sub- section (3)3 of Section 4, apart from their being interconnected undertaking they are required to be associated in a manner that they have interest directly or indirectly in the business of each other. Department is relying on the fact that any increased realisation of price shall result in increased dividend to the appellant to prove that they have interest in the business of each other. We find that the issue that there is no mutuality of interest between the appellant and the joint venture company ECRL is already a settled matter in terms of the agreement between these two companies and it's not in dispute that they were not getting dividend prior to 2000, and therefore unless any substantive change in the factual matrix is brought on record, it cannot be said that there was any mutuality of interest in the business of each other.
12. Therefore, on both the grounds of there being some sale to unrelated party as also the fact that there is no mutuality of interest, Rule 10(a) cannot be invoked. Therefore, per force, recourse has to be taken to Rule 10(b) which provides that the value shall be determined as if they are not related person for the purpose of sub-section 1 of Section 4. In other words, the transaction value will have to be taken as value for the purpose of Central Excise duty.
(9) Appeal No. E/30171/2017
13. We also find force in the judgments cited by the appellant namely
i) Alembic Glass Industries Ltd., Vs CCE [2002 (143) ELT 244 (SC)]
iii) Union of India Vs Atic Industries Ltd., [1984 (17) ELT 323 (SC)]
iv) Kwality fun foods & Restaurant P. Ltd., Vs CCE, Combatore [2012 (283) ELT 261 (Tri-Chennai)]
v) CCE, Mumbai Vs Bhor Industries Ltd., [2006 (198) ELT 63 (Tri-Mum)]
vi) CCE, Hyderabad Vs Themis Medicare Ltd., [2012 (276) ELT 539 (Tri-Bang)]
vii) CCE,ST & Cus, Visakhapatnam-II Vs Rak Ceramics India Pvt Ltd., [2015 (326) ELT 599 (Tri-Bang)]
viii) Motorol Speciality Oils Ltd., Vs CCE & Cus, Vadodara [2009 (243) ELT 449 (Tri-Ahmd)]
ix) Llyods Metal & Engineers Ltd., Vs CCE, Nagpur [2008 (222) ELT 84 (Tri-Mum)]
x) Jagajothi Spinning Mills Vs CCE, Salem [2015 (329) ELT 374 (Tri-Mad)]
14. Thus, in view of given factual matrix, submissions and case laws cited, we find demand cannot be sustained by invoking Rule 10(a) read with Rule 9 in this case. We find that recourse will have to be taken under Rule 10(b) and therefore transaction value under Section 4(1) would be the basis for determination of value. Accordingly, the impugned order is not sustainable and liable to be set aside. Accordingly, the impugned order is set aside.
15. Appeal allowed.
(Order Pronounced in open court on_04.07.2025_) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Jaya