Custom, Excise & Service Tax Tribunal
Bbm Heavy Machinery Pvt Ltd vs Commissioner Central Goods And Service ... on 23 October, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO. I
EXCISE APPEAL NO. 85274 of 2022
&
EXCISE CROSS OBJECTION NO. 85533 of 2022
(Arising out of Order-in-Appeal No. DL/73/APPEALS THANE/BH/2021-22 dated 31.08.2021
passed by the Commissioner of GST & Central Excise, Appeals-Thane, Mumbai.)
BBM Heavy Machinery Private Limited .... Appellants
Unit No. D2, Indian Corporation, Dive Village,
Mumbai-Nashik Highway, Bhiwandi - 421 302.
Versus
Commissioner of GST & Central Excise, Bhiwandi .... Respondent
11th Floor, Lotus Infocentre, Near Parel Station
Narmawala Estate, Parel East
Mumbai - 400 012.
APPEARANCE:
Shri Bharat Raichandani along with Ms. Neha Chakraborty, Advocates for the
Appellants
Shri Xavier Mascarenhas, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL)
FINAL ORDER NO. A/86702/2025
Date of Hearing: 24.04.2025
Date of Decision: 23.10.2025
Per: M.M. Parthiban
This appeal has been filed by M/s BBM Heavy Machinery Private
Limited, Mumbai (hereinafter referred to as 'the appellants', for short)
against Order-in-Appeal No. DL/73/APPEALS THANE/BH/2021-22 dated
31.08.2021 (referred to as 'the impugned order', for short) passed by the
Commissioner of GST & Central Excise, Appeals-Thane, Mumbai.
2.1 Brief facts of the case are as follows: -
2.2 The appellants are engaged in the manufacture of excisable goods viz.,
heavy machinery or equipment falling under Chapters 84, 85 of the First
Schedule to the Central Excise Tariff Act, 1985 and for payment of Central
Excise duty and for compliance with Central Excise statute, they had
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obtained Central Excise registration No. AAECB4979QEM001. The appellants
runs its business as a private limited company incorporated by a joint
venture (JV) agreement dated 19.07.2011 entered into between Shri Nikhil
Bhatia, an Indian resident; M/s SMS Meer India Limited, an Indian company
and M/s Officine Meccaniche BBM SPA, Italy, in order to establish state of art
manufacturing workshop comprising full-fledged fabrication, machining,
quality control and assembly shop. During the course of EA-2000 Audit of
the records maintained by the appellants, the department had found that the
appellants had manufactured their final products out of certain raw materials
supplied by M/s SMS Meer India Limited, who are one of the JV entity and
cleared the final products on 'bill to/ship to' basis to the customers of M/s
SMS Meer India Limited. However, the audit observed that the appellants
had failed to pay the central excise duty on the final products on the price at
which the principal manufacturer i.e., M/s SMS Meer India Limited sells the
goods to their customers in terms of Rule 10A of Central Excise Valuation
(Determination of Price of Excisable Goods) Rules, 2000 during the period
from April, 2005 to October, 2006.
2.3 The department had initiated show cause proceedings against the
appellants by issue of Show Cause Notice (SCN) No. HR/02/2020-21 dated
25.06.2020 demanding central excise duty of Rs.1,05,76,627/- along with
interest under Section 11A(4), 11AA of the Central Excise Act, 1944 and for
imposition of penalty on the appellants under Section 11AC ibid. In
adjudication of the SCN dated 25.06.2020, learned Additional Commissioner
of Central Excise had confirmed the demands and imposed equal amount of
penalty on the appellants vide Order-in-Original dated 05.03.2021. Being
aggrieved with the order of the original authority, the appellants had
preferred an appeal before the Commissioner of GST & Central Excise Thane-
Appeals, Mumbai, who in deciding the case vide the impugned order dated
31.08.2021 had upheld the order of the original authority and rejected the
appeal filed by the appellants. Feeling aggrieved with the impugned order,
the appellants have preferred this appeal before the Tribunal.
3.1 Learned Advocate for the appellants submitted that the appellants are
having sophisticated manufacturing facility with highly qualified managerial
and technical team of persons, other infrastructure for fabrication,
machining, quality control, assembly line with hydraulic power unit and
electrical control desk for production of complex machinery/ equipment of
huge size. Such machines are made by the appellants on made to order basis
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and these are different from the bulk/mass production equipment, as it is
made for specific requirement of each of their customers. Learned Advocate
further explained that the appellants prepare detailed Bill of Quantity (BOQ)
required for manufacture of the machinery after receiving the purchase
orders, which is a highly technical job that is done independently by
appellants themselves. Based on such BOQ, appellants in turn place orders
for procuring the raw materials from various vendors. However, where
certain components are supplied by the consumer free of cost such as
bearings, motors, gear boxes etc., these are merely fitted or attached to the
machinery manufactured. As such supply of free items by their customers
are only to ensure quality and to reduce the cost of procurement by their
customers, the appellants had agreed to such arrangement. Further, as the
supply of equipment/machinery by the appellants is only a part of the entire
turnkey project, any minor variation in a crucial equipment may result in the
failure of the total project, and thus they had accepted supply of free of cost
material given by their customers. These are either imported or ready-made
branded goods; all other items required for manufacture of machinery are
procured by the appellants from their vendors. The appellants had not raised
any invoice for job work charges; rather, upon manufacture of finished
machinery/equipment, requisite excise invoices were issued for the value of
entire machinery/equipment and the appropriate excise duty, VAT/sales tax
have been paid thereon, and necessary tax returns were also filed for the
relevant period.
3.2 Learned Advocate further submitted that the appellants is not a job
worker as the manufacturing facility is owned by them and the technical
personnel, managerial skilled laborers, quality testing team are employed by
them; procurement of entire raw material is also done on their own account
by using their own funds; and thus the appellants are the actual
manufacturers of the machinery/equipment on contract basis for their
customers. They have entered into an agreement with M/s SMS Meer India
Limited, Kolkata which inter alia provide for provision of some of the raw
materials free of cost, as mutually agreed between them; further, the price
quoted for individual purchase order covers all cost and assembly required
to manufacture the goods according to the required standards; and all
applicable taxes and duties shall be charged additionally at the rate
applicable on the date of delivery.
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3.3 He further stated that M/s SMS Meer India Limited, who purchase the
final product of the appellants even though is a business entity owning more
than one fourth of the equity shares in the appellant's company, it cannot be
treated as 'related person' / 'inter connected undertaking' inasmuch as CBEC
had clarified vide instructions M.F. (D.R.) F. No.354/81/2000-TRU dated
30.06.2000, that in terms of revised Section 4 of the Central Excise Act,
1944 and the Valuation (Determination of Price of Excisable Goods) Rules,
2000, the transaction value between the appellants and 'inter connected
undertaking' will be liable to be rejected, if the assessees and buyer are
inter-connected only in terms of any of the clause (ii), (iii) or (iv) of sub-
section 4(3)(b) ibid. Since, there is no such element in the transaction
between them and their customer/M/s SMS Meer India Limited, he claimed
that the valuation adopted by the appellants is correct. Further, he stated
that the department had not proved in terms of any evidence that the
clearances to their associated company/interconnected undertakings is a
related person transaction. Hence, he claimed that the appellants have
properly paid the applicable central excise duty on the transaction value and
the duty demand made by the department does not sustain.
3.4 The appellants had also submitted transportation documents in the
form of lorry receipts from various transporters engaged by them, indicating
that final products were dispatched at the owners risk and the respective
customers have undertaken the insurance during transportation of the
goods, thereby it is evident that the appellants is merely the consignor in the
transportation including insurance is arranged by the consignee i.e., the
customer. In support of this fact, he stated that the price of the goods is ex-
works Bhiwandi.
3.5 Learned Advocate further submitted that the value of the free issue
material which is merely given by the customer to the appellants for
assembly or fitting purposes; and the value of such material have been
included in the sale value of final goods sold by the appellants. The
transaction between M/s SMS Meer India Limited and the appellants is a
purchase and sale transaction on which appropriate VAT have been paid, and
the periodical sales tax/VAT returns have been assessed by the State
Excise/VAT authorities. Therefore, he submitted that there is no element of
job work involved in these transactions, and the contention of the
Department for revising the assessable value and demand of differential duty
is not legally sustainable.
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3.6 Learned Advocate stated that in respect of clearance of goods made
by appellants to their customer who is an inter-connected undertaking, to
the extent they both are not covered as 'related person' under clauses (ii),
(iii) or (iv) of Section 4(3)(b) ibid, the valuation of goods shall be done on
the basis of transaction value as per Rule 6 of Rules of 2000. In support of
their stand they relied upon the following decisions:
(i) Nilkamal Ltd. and Godriwala Plastics Pvt. Ltd. Vs. Commissioner of
Central Excise & S.T., Raipur - Final Order 50105-50106/2018 dated
01.01.2018
(ii) Panipat Wollen Mills Vs. Commissioner of Central Excise, Ludhiana -
2017 (357) E.L.T. 551 (Tri. - Chan.)
(iii) Poona Bottling Co. Ltd. and Another Vs. Union of India and Others -
1981 (8) E.L.T. 389 (Del.)
(iv) Shiva Steel Industries (Nagpur) Limited Vs. Commissioner of Central
Excise, Nagpur - Final Order No. A853302025 dated 13.03.2025.
4. Learned Authorized Representative (AR) appearing for Revenue,
reiterated the findings made by the Commissioner (Appeals) in upholding
the original order. He further stated that since the appellants had received
free supply of materials from their customers/related person and since they
are working under same management, the valuation of the goods has to be
done treating the appellants as a job worker and therefore the impugned
order is sustainable.
5. Heard both sides and perused the records of the case. We have also
perused the additional written submissions presented in the form of paper
book for this case.
6. The issue involved in this appeal is to determine whether the clearance
of excisable goods by the appellants to M/s SMS Meer India Limited, which is
an 'inter-connected undertaking' of the appellants, is to be done under Rule
10A of the Central Excise Valuation (Determination of price of Excisable
Goods) Rules, 2000 as claimed by the department or as per value adopted
by the appellants under the appropriate Rules of 2000 by including the value
of free supplies made to them?
7. In order to address the above issues relating to valuation of excisable
goods, we would like to refer the relevant legal provisions contained in
Central Excise Act, 1944 and Rules made thereunder for considering whether
the valuation proposed in the SCN and confirmed in the Order-in-Original is
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correct or not, and for determination of proper Central Excise duty payable
on the subject goods under dispute. The disputed period covered in this case
is from April, 2015 to October, 2016.
Central Excise Act, 1944
Valuation of excisable goods for purposes of charging of duty of excise.
"Section 3. Duties specified in First Schedule and the Second Schedule to
the Central Excise Tariff Act, 1985 to be levied. -
(1) There shall be levied and collected in such manner as may be prescribed a
duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable
goods (excluding goods produced or manufactured in special economic zones)
which are produced or manufactured in India as, and at the rates, set forth in the
Fourth Schedule :......
Legal provision after amendment w.e.f. 01.07.2000:
1
Section 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 assessee and the buyer of the goods are not related
and the price is the sole 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.
Explanation.--For the removal of doubts, it is hereby declared that the price-cum-
duty of the excisable goods sold by the assessee shall be the price actually paid
to him for the goods sold and the money value of the additional consideration, if
any, flowing directly or indirectly from the buyer to the assessee in connection
with the sale of such goods, and such price-cum-duty, excluding sales tax and
other taxes, if any, actually paid, shall be deemed to include the duty payable on
such goods.
(2) The provisions of this section shall not apply in respect of any excisable goods
for which a tariff value has been fixed under sub-section (2) of section 3.
(3) For the purposes of this section,--
(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 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" means two or more undertakings which
are inter-connected with each other in any of the following manners,
namely:--
Substituted by the Finance Act, 2000, w.e.f. 1-7-2000.
1
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(A)if one owns or controls the other;
(B)where the undertakings are owned by firms, if such firms have one or
more common partners;
(C) where the undertakings are owned by bodies corporate,--
(I) if one body corporate manages the other body corporate; or
(II) if one body corporate is a subsidiary of the other body corporate; or
(III) if the bodies corporate are under the same management; or
(IV) if one body corporate exercises control over the other body
corporate in any other manner;......
...
(d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods."
Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
"Rule 3. The value of any excisable goods shall, for the purposes of clause (b) of sub-section (1) of section 4 of the Act, be determined in accordance with these rules.
....
Rule 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee :
Provided that where price is not the sole consideration for sale of such excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value.
Explanation 1.--For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely :--
(i) value of materials, components, parts and similar items relatable to such goods;
(ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods;
(iii) value of material consumed, including packaging materials, in the production of such goods;
(iv) value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods.....8
E/85274/2022 & E/CO/85533/2022 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.
Rule 10. Where whole or part of the excisable goods are sold by the assessee to or through an inter-connected undertaking, the value of such goods shall be determined in the following manner, namely:--
(a) if the undertakings are so connected that they are also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9.
Explanation.--In this clause "holding company" and "subsidiary company" shall have the same meanings as in the Companies Act, 1956 (1 of 1956);
(b) in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of section 4.
Rule 10A. Where the excisable goods are produced or manufactured by a job- worker, on behalf of a person (hereinafter referred to as principal manufacturer), then,--
(i) in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job-worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer;
(ii) in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker;
(iii) in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods:
Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods.
Explanation.--For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him.9
E/85274/2022 & E/CO/85533/2022 8.1 In the present case, it has to be firstly determined whether the transactions are between related persons, and then for the purpose of determination of central excise duty, the value should be determined as per the Central Excise Valuation (Determination of the Price of Excisable Goods) Rules, 2000. Of these, each of the rule has a specific application for the purpose of determination of the value, as explained hereunder. These are:
(i) Rules 1 and 2 are the preliminary provisions.
(ii) Rule 3 mandates that valuation should be done as per the rules.
(iii) Rule 4 deals with situations where goods are sold, but not at the time of removal.
(iv) Rule 5 deals with situations where goods are sold, but not at the place of removal.
(v) Rule 6 deals with situations where there is an additional consideration for sale.
(vi) Rule 7 deals with situations where there is no sale and the goods are transferred to the assessees' own depot not at the premises of the consignment agent.
(vii) Rule 8 deals with situations where goods are captively consumed by the assessee-appellants or on its behalf in which case, the valuation has to be done at 110% of the cost of production.
(viii) Rule 9 deals with the situations where the assessee and the buyer are related persons as per sub-Clauses (ii) (iii) or (iv) of Clause (b) of sub-Section (iii) of Section 4.
(ix) Rule 10 (a) deals with situations where sale is to related persons as per sub-Clause (i) of Clause (b) of sub-Section (3) of Section 4 also known as inter-connected undertaking where the assessee and the buyer are, in addition, also related persons as per sub-clause (ii) or (iii) or (iv) or the buyer is the holding company or a subsidiary company of the assessee.
(x) Rule 10 (b) deals with situations where the assessee and the buyer are interconnected undertakings as per sub-Clause (i), but they are not also related persons in terms of sub-Clauses (ii) (iii) or (iv) nor is the buyer a holding company or a subsidiary company of the assessee.
(xi) Rule 10A deals with specific situation of manufacture by a job worker on behalf of the principal manufacturer and the definition of job-worker is also provided therein;
(xii) Rule 11 deals with situations which are not covered by any of the above rules.
8.2 In the impugned order, learned Commissioner (Appeals) has given his findings as given below for coming to the conclusion that the appellants is a job worker and the value for the purpose of central excise duty is to be determined as per Rule 10A of the Rules of 2000.
"11. The Appellant are claiming that they have manufactured excisable goods in their own account but have failed to substantiate the same with suitable documentary evidence and the same is rejected... "Word "any" has 10 E/85274/2022 & E/CO/85533/2022 diversity of meaning and may be employed to indicate "all" or "every" as well as "some" or "one" and its meaning in the given statute depends upon the context in the subject matter of the statute. It is often synonymous with "either", "every" or "all". It's generally may be restricted by context".
Accordingly, as the Appellant manufactured excisable goods out of some inputs supplied free of cost by SMS and supplied the same to the customers of SMS on their behalf they qualify to be job worker of SMS as per the provisions under Rule 10A of the Valuation Rules.
12. I further find that Appellant are a Joint-Venture Company of SMS in terms of Joint-Venture Agreement dated 19.07.2011 which describes their relation with each other. Some of the terms of the said agreement are detailed under Para 3.3 of the impugned order which are reproduced below for ease of reference:
a. The Finance Director of the Joint-Venture Company shall be nominated by M/s SMS b. Any decision on investment or borrowing in the Joint-Venture Company on the guarantee of M/s SMS and appointment or change of Auditors of the Joint-Venture Company could be done only on the affirmative vote of the Director representing M/s SMS.
c. All the parties have undertaken not to directly or indirectly compete with the business of the Joint-Venture Company i.e. M/s BBM d. Joint-Venture Agreement to adhere to the regular reporting systems established by M/s SMS.
e. Statutory Auditor has nominated by M/s SMS shall be appointed by the Joint-Venture Company.
13. I find from the fact of working of the Appellant and SMS under the same management and the above terms of the Joint-Venture Agreement that the Appellant and the SMS are so associated that they have interest, directly or indirectly, in the business of each other. Therefore, the value is required to be determined in terms of Rule 10 read with Rule 9 of the Valuation Rules. Notwithstanding the above, I further find that by undertaking the activity of manufacture of excisable goods using some inputs supplied by SMS free of cost the Appellant qualified to be job work of SMS in terms of the Explanation to Rule 10A of the Valuation Rules and accordingly the value is also required to be determined in terms of Rule 10A of the Valuation Rules. I find that in any case the assessable value for the excisable goods manufactured by the Appellant shall be the normal transaction value at which the same are sold by SMS as the provisions under the Rule 9 read with Rule 10 of the Valuation Rules and/ or rule 10A of the Valuation Rules lead to the value applicable for the Appellant to be the transaction value of SMS.
14. In view of the above, I find that the demand succeeds on merit and therefore the same is recoverable along with consequential interest under Section 11A(4) of the CEA read with Section 11AA of the CEA..."
8.3 In this regard, we find that Section 4 of the Act of 1944 specify that valuation of excisable goods shall be determined as 'transaction value' in case where the buyer and seller are not related and the price is the sole consideration for the sale. In any other case, including the case where the goods are not sold, the value for the purpose of excise duty shall be 11 E/85274/2022 & E/CO/85533/2022 determined in the manner as prescribed under the Central Excise Valuation (Determination of the Price of Excisable Goods) Rules, 2000. Further, the said Section 4 ibid inter alia also deal about the valuation of transaction between 'related' persons therein and explains four categories of relationship such as (i) inter-connected undertakings; (ii) relatives; (iii) buyer is relative and the distributor of the assessee or a sub-distributor of such related distributor; (iv) persons related in a manner that in their association, they have interest, directly or indirectly, in the business of each other. Further, the term 'inter-connected undertakings' have also been explained therein. From the facts on record it transpires that M/s SMS Meer India Limited, are holding 35% of the shares of the appellants and they are also part of the appellants joint-venture company and thus the appellants and M/s SMS Meer India Limited are 'inter-connected undertakings' and thus they are to be treated as 'related person' under the Central Excise law in terms of Section 4(3)(b)(i) ibid. However, for the purpose of determination of the specific method or the application of legal provision under the Rules of 2000 for determination of value, there is a need to determine the specific aspects of relationship between the related persons, for applying the specific rules relevant for valuation of the excisable goods. Further, the term 'job worker' has been defined under the Rules of 2000 so as to mean a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer. Also the term 'principal manufacturer' has been explained in the said Rules, so as to mean that the production or manufacture of the goods are being done on his behalf, by any other person who is treated as 'job- worker'.
8.4 On perusal of the documents placed in file, it transpires that the appellants and M/s SMS Meer India Limited, are 'inter-connected undertakings' inasmuch as they are holding 35% of the shares of the appellants company; the Finance Director of appellant's joint-venture company shall be nominated by M/s SMS Meer India Limited; they are also part of the appellants joint-venture company; and thus the appellants and M/s SMS Meer India Limited are 'related' to each other. However, there is no relationship in terms of 'distributorship' or 'dealership' between the two business entities or any other business interest, directly or indirectly, between them.
12E/85274/2022 & E/CO/85533/2022 8.5 Further, we have also examined the relevant legal provisions concerning 'related person' as follows. The essence of the legal provisions contained in Section 4(3)(b) of the Central Excise Act, 1944, state that 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.
In the Explanation clause it is clearly provided that "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 "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 legal provisions, it appears that interconnected undertakings are also related person. However, as per Rule 9 of Central Excise Valuation Rules, 2000, it is clear that Rule 9 ibid 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. Further, Provisio of Rule 9 also suggests that merely because buyer is interconnected undertaking that alone is not sufficient for holding as related person, but they should be related in one of the categories mentioned in (ii) to (iv) viz., relatives, relationship of distributor or sub- distributor etc. It is nowhere discussed in the impugned order or any evidence produced by the authorities below to state that the appellants and their interconnected undertaking are related in terms of the above provisions of the Central Excise statute. Therefore, we are of the opinion that valuation of excisable goods as per Rule 9 ibid is not applicable in this case.
8.6 From the details furnished by the appellants including the Joint Venture agreement, terms and conditions agreed upon between the appellants and M/s SMS Meer India Limited, it transpires that both the parties are engaged in separate business activity. While the appellants are engaged in the business of designing, engineering, manufacturing, repairing, re-conditioning of all varieties and sizes of metallurgical equipment, machinery, accessories, components and spare parts used in the heavy engineering industry as plant and machinery; their customer M/s SMS Meer India Limited is engaged in the business of planning, design, engineering, contracting, commissioning, supervision at site etc., of plant, equipment in the field of steel & wire mills, aluminum/copper plant, furnaces etc. and in execution of turnkey projects.
13E/85274/2022 & E/CO/85533/2022 The appellants have employed their own technical manpower, skilled labour, managerial team. Further, they had full facilities of fabrication department with specialized machines viz. CNC gas cutting machine for plantes, band saw cutting machine for rounds, manual metal arc welding machines, tungsten inert gas welding machines; machining department with CNC boring milling machine; quality control department will full range of micrometers, vernier calipers, metrology room, digital height gauges, portable 3D Co- ordinate measuring machine with accuracy of 27 micros on 2.4 mts; assembly department having the facility of hydraulic power unit and an electrical control desk for functional testing as well as for motor and spindle running test of the machinery.
8.7 As per the agreed terms and conditions between them, the appellants had proposed to sell their manufactured final products and M/s SMS Meer India Limited, customer/buyer had agreed to purchase the same, by pooling together their finances and technical expertise. The supply of free material by M/s SMS Meer India Limited to the appellants is only to ensure the quality parameters of the final product. From the purchase orders and illustrative pictures of the machinery supplied by the appellants as placed in the records of the case, it also transpires that the fully manufactured machine/equipment has been supplied by the appellants, whereas M/s SMS Meer India Limited have only supplied part of such equipment viz., hydraulic tank unit, main electrical panel, control desk as free supply of materials to the appellants. Further, in the excise invoices issued by the appellants to their customers such as M/s Jinal Aluminium Limited, M/s SMS Meer India Limited, the excise duty has been paid by the appellants on the assessable value of entire machinery including free supply of material by specifically indicating the total assessable value, besides the value of goods supplied by them. Therefore, the above facts evidentially prove that the value of the excisable goods cleared by the appellants included the value of free supplies, wherever applicable, and the excise duty has been appropriately paid treating the same as 'transaction value', in terms of Rule 10(b) ibid read with Rule 3 ibid. Furthermore, the transportation documents wherein transit insurance being undertaken by the respective customers/buyers for sale at factory gate, and the sales tax/VAT returns in respect of supply of materials at free of cost to the appellants also indicate that the transactions are in the nature of sale and there is no job work involved on account of such free supply of some of materials to the appellants by M/s SMS Meer India Limited.
14E/85274/2022 & E/CO/85533/2022 8.8 We also find that in the absence of specific determination of the relationship between the appellants and the inter-connected undertaking, being related to each other in terms of Section 4(3) of the Central Excise Act, 1944 and 'job worker' as per explanation provided under Rules of 2000, in order to enable application of Rule 10(a) or 10A ibid for valuation of goods, we do not find any merits in the impugned order insofar as it has treated the transaction between these two, as related party transaction. Therefore, we do not find that there exist sufficient grounds to claim that the valuation of impugned goods shall be done on the basis of Rule 10A ibid.
9.1 We find that in the case of Nilkamal Limited (supra), the Co-ordinate Bench of the Tribunal has held that valuation of goods between the entities under a MOU is not an arrangement for job work. The relevant paragraph of the said order is extracted and given below:
"6. The dispute is with reference to valuation of branded furniture cleared by the main appellant with brand name of M/s. Nilkamal. We have perused the MOU dated 10.6.2010. It is apparent that such MOU is not an arrangement for job work and it only specifies that the main appellant shall manufacture furniture of specified quality and raw materials also should be as per the standard and specification of brand norms. The price to be charged is to include the cost of raw material, packing material, master batch, stickers, manufacturing and other overheads, as fixed from time to time with profit margin plus sales tax and excise. The payment shall be made on weekly basis. On careful perusal of the MOU, we note that same cannot be considered as arrangement for job work. Infact, an identical MOU was the subject matter of decision in respect of another manufacturer in Gowhati. There the original authority held that there is no job worker arrangement. The fact M/s. Nilkamal has sold the said furniture with much higher price and hence Rule 10A of Central Excise Valuation Rules, 2000, apply to manufacture of the appellant is not tenable. The goods sold by M/s. Neelkamal is on the higher price as it includes expenses like storage, advertisement and sales after the goods were received from the appellant. Hence, the difference between the sale price of the appellant and sale price of Neelkamal by itself will not justify the inference of job work arrangement"
9.2 We further find that in the case of Commissioner of Central Excise, Nagpur Vs. Ramsons Casting Private Limited - 2017 (357) E.L.T. 431 (Tri. Mumbai.), the Co-ordinate Bench of the Tribunal has held that in the absence of evidence, even if two companies are operated as 'interconnected undertakings', they cannot be treated as 'related person' for valuation 15 E/85274/2022 & E/CO/85533/2022 purposes, and the transaction value cannot be rejected. The relevant paragraph of the said order is extracted and given below:
"7. The transaction value can be rejected only when the buyers are related in the sense in clause (ii), (iii) or (iv) of Section 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 buyer 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 (ii), (iii) or (iv) of Section 4(3)(b). In the present case Revenue contended that the respondent and buyers company are interconnected undertaking therefore, they are related and consequently proposed Rule 8 of Central Excise Valuation Rules, 2000 and adopted the valuation of cost construction method. The show cause notice or original order have not brought any material to establish that the relationship between respondent 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 cannot 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 respondent and the so-called interconnected undertaking is correct valuation and the same cannot be disturbed, therefore, value as provided under Rule 8 is not applicable in the present case. We have gone through judgments relied upon by the rivals. We find that the judgment relied upon by the ld. Counsel are directly applicable in the facts of the present case. As regard the judgment in case of Avon Scales Co. (supra) relied upon by the ld. AR the same is not applicable for the reason that relationship is related to the partners and partnership firm, whereas in the present case respondent and the buyer are two independent private limited companies. In view of our above discussion we are of the considered view that the respondent have correctly valued their goods sold to their group company..."
9.3 We also find that in the case of Poona Bottling Co. Ltd. (supra), the Co-ordinate Bench of the Tribunal has held that in the absence of evidence, to prove that the job-worker entity are the employees of principal manufacturer, or that they have acted as the agents of principal manufacturer, the assessable value can not be resorted to as though they are job-worker of a principal manufacturer. The relevant paragraph of the said order is given below:
"11. On merits, the short question for consideration is whether the petitioners were manufacturer of soft drinks for and on behalf of M/s. Parle Modern Bakeries with whom they had entered into franchise agreements. The petitioners would be deemed to be manufacturing the soft drinks for and on behalf of M/s. Parle and or Modern Bakeries only in two contingencies, namely (a) when they are employees of the said companies 16 E/85274/2022 & E/CO/85533/2022 or (b) their agents. The petitioners are admittedly not the employees of M/s. Parle and or Modem Bakeries. They are independent persons. They have installed their own machinery, they employ their own labour, the investment made belongs to them, they sell the soft drinks manufactured to their own customers though in a particular area. In such circumstances they cannot be termed as servants by any stretch of argument. The mere fact that they were using trade mark of M/s. Parle or that M/s. Parle had control over the quality and also had right of inspection and control over price, will not make the petitioners their servants."
The above case was challenged by the department before the Hon'ble Supreme Court in Civil Appeal Nos. 356-63 of 1982 (with C.A. No. 1042 of 1990) filed by Union of India against the judgment and order of Hon'ble Delhi High Court in C.W.P No. 916 of 1978. In the judgement decided on 19.05.1981 reported in 2003 (154) E.L.T. A240 (S.C.), the Hon'ble Supreme Court had dismissed the appeal filed by the department.
10. On the basis of above discussions and analysis, and based on the decisions of the Tribunal and the Hon'ble Supreme Court referred above, we are of the considered view that the impugned order upholding the decision of the original authority in respect of supply of materials as a 'job worker' for confirmation of the adjudged demands is not legally sustainable and therefore, the same is liable to be set aside.
11. In the result, the impugned order dated 31.08.2021 is set aside and the appeal filed by the appellants is allowed in their favour.
12. Cross-objection filed by the Revenue also stands disposed of.
(Order pronounced in open court on 23.10.2025) (S.K. MOHANTY) MEMBER (JUDICIAL) (M.M. PARTHIBAN) MEMBER (TECHNICAL) Sinha