Custom, Excise & Service Tax Tribunal
Shree Vaishnav Industries Pvt Ltd vs Commissioner Of Central ... on 10 March, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO. I
Excise Appeal No. 89303 of 2014
(Arising out of Order-in-Appeal No. PD/TH-I/43/2014 dated 27.06.2014 passed by the
Commissioner (Appeals-I), Central Excise, Mumbai Zone-I)
Shree Vaishnav Industries Pvt. Limited .... Appellants
Survey No. 54/2/2&54/2/3, Bharat Fertilizer Road,
Village Vasuri Khurd, Taluka-Wada,
Dist. - Thane, Pin: 421 312,
Versus
Commissioner of Central Excise, Thane-I .... Respondent
4th Floor, Navprabhat Chambers, Ranade Road
Dadar (W), Mumbai - 400 028
APPEARANCE:
Shri Sunil Gajanan Agarwal, Advocate for the Appellants
Shri Dinesh Nanal, 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/85300/2025
Date of Hearing: 11.11.2024
Date of Decision: 10.03.2025
Per: M.M. Parthiban
This appeal has been filed by M/s Shree Vaishnav Industries Private
Limited, Taluka-Wada, Thane (hereinafter referred to as 'the appellants',
for short) against Order-in-Appeal No. PD/TH-I/43/2014 dated
27.06.2014 (referred to as 'the impugned order', for short) passed by the
Commissioner (Appeals-I), Central Excise, Mumbai Zone-I, Mumbai.
2.1 Brief facts of the case are as follows: -
2.2 The appellants are engaged in the manufacture of excisable goods
viz., M.S. Angles, Channels & Beam, Misrolls (entangled bars and like
goods) falling under Chapter 72 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 obtained Central Excise registration
No. AAICS1080XM001. During the course of audit of the records
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maintained by the appellants, the department had found that for the
purpose of income tax, the appellants had shown M/s Shree Vaishnav
Ispat Private Limited, as their associated company in terms of Section
40A(2)(b) of the Income Tax Act, 1961 and have shown such details in
Form 3CD income tax return for the year 2008-2009. However, they failed
to pay central excise involved in clearance of 'Misrolls' to their associated
company at the rate of 110% as per Section 4(1)(b) of the Central Excise
Act, 1944 read with Rules 8 & 9 of the Central Excise Valuation
(Determination of price of Excisable Goods) Rules, 2000 during February,
2009 to March, 2011.
2.3 The department had initiated Show Cause proceedings against the
appellants by issue of Show Cause Notice (SCN) dated 11.04.2012
demanding central excise duty of Rs.1,84,594/- along with interest under
Section 11A(1) ibid and for imposition of penalty on the appellants under
Section 11AC ibid. In adjudication of the SCN dated 11.04.2012, learned
Deputy Commissioner of Central Excise had confirmed the demands and
imposed equal amount of penalty on the appellants vide Order-in-Original
dated 28.01.2014. Being aggrieved with the said original order, the
appellants had filed appeal before the Commissioner (Appeals), who vide
the impugned order dated 27.06.2014 rejected the appeal and upheld the
order of the original authority dated 28.01.2014.
2.4 Feeling aggrieved with the impugned order, the appellants have
preferred this appeal before the Tribunal.
3.1 Learned Advocate for the appellants submitted that M/s Shree
Vaishnav Ispat Private Limited, as 'associate company' and the appellants
company themselves, are two independent private limited companies.
Since their associate company M/s Shree Vaishnav Ispat Private Limited,
falls under the category of 'inter-connected undertaking', under clause (i)
of Section 4(3)(b) ibid and valuation of goods cleared to them would be
covered under Rule 10 of Central Excise Valuation Rules of 2000. 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 at the prevailing prices and the duty demand made by
the department at 110% of the of production, does not sustain. Further,
he also submitted that there is no method prescribed under CAS4 by the
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Institute of Cost & Works Accountants of India for determination of cost of
production of waste and scrap.
3.2 In addition to the above, learned Advocate also submitted that in
respect of the issues involving difference in interpretation of legal
provision, and where the department had made out a case on the basis of
the accounts maintained by the appellants, there is no question of invoking
suppression for demand of duty. In this regard he had relied upon the
judgements of the Hon'ble Supreme Court in the case of Rajasthan
Spinning & Weaving Mills - 2009 (238) E.L.T. 3 (S.C.) and Nestle India
Limited - 2009 (235) E.L.T. 577 (S.C.).
3.3 Learned Advocate in support of their stand that in respect of
clearance of goods to inter-connected undertakings, the valuation of goods
shall be done under Rule 10 of Rules 2000, had relied upon the following
decisions of the Tribunal:
(i) Commissioner of Central Excise, Raipur Vs. Orient Steel Re-rolling
Mill - 2014 (312) E.L.T. 686 (Tri. Del.)
(ii) Gajra Gears Private Limited Vs. Commissioner of Central Excise &
Service Tax, Indore - 2015 (329) E.L.T. 827 (Tri. Del.)
4. Learned Authorized Representative (AR) appearing for Revenue,
reiterated the findings made by the Commissioner (Appeals) in upholding
the original order and stated that since the appellants had supplied the
goods to their related person, 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 Shree Vaishnav Ispat Private
Limited, which is an 'inter-connected undertaking' of the appellants, is to
be done under Rule 8 & 9 of the Central Excise Valuation (Determination
of price of Excisable Goods) Rules, 2000 or under Rule 10 ibid?
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 SCNs and confirmed in the Order-
in-Original which was upheld in the impugned order is correct or not, and
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for determination of proper Central Excise duty payable on the subject
goods under dispute. The disputed period covered in this case is from
February, 2009 to March, 2011.
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:--
1
Substituted by the Finance Act, 2000, w.e.f. 1-7-2000.
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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.
"4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. ....
8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods.
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) or (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.
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:
6E/89303/2014
(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 11 deals with situations which are not covered by any of the above rules.
8.2 In the impugned order, at paragraph 7, learned Commissioner (Appeals) has made a finding that the appellants had mentioned the name of the inter-connected undertaking M/s Shree Vaishnav Ispat Private Limited, in the Form 3CD of Income Tax return for the year 2008-09 at Sl. No.18 being the person specified in terms of the requirement of Section 40A(2)(b) of the Income Tax Act, 1961. Therefore, the appellants and M/s Shree Vaishnav Ispat Private Limited have become related persons and the value for the purpose of central excise duty is 110% of the cost of production as per Rule 8 & 9 of the Rules of 2000. In this regard, we find that Section 40A of the Act of 1961 deals with 'Expenses or payments not deductible in certain circumstances'. This sub-section (1) to Section 40 ibid provides the powers for the Assessing officer when he determines that any expenditure is excessive or unreasonable and beyond the legitimate needs of the business or profession of the assessee, then he may disallow such deduction. The name of the persons on whom such expenditure had been incurred need to be mentioned at sub-section 40A(2)(b) ibid. There is no 7 E/89303/2014 provision under which mention of a name of a legal person under the Income Tax Act, would enable such persons to be treated as 'related person' under the Central Excise law. 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, 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 8 & 9 ibid, as held in the impugned orders.
8.3 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. 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 on this ground alone the impugned order is liable to be set aside and it does not stand the scrutiny of law.
8E/89303/2014 9.1 We find that in the case of Gajra Gears Private Limited (supra), the Co-ordinate Bench of the Tribunal has held that valuation of goods between inter-connected undertaking shall be determined as prescribed under Rule 10. The relevant paragraph of the said order is extracted and given below:
"5. Merely because the assessee and his buyers are interconnected undertakings in terms of Section 2(g) of Monopolies and Restrictive Trade Practices Act, 1969, for the purpose of valuation, the two cannot be treated as 'related person' and the transaction value cannot be rejected merely on this basis, as for rejecting the transaction value in such cases the conditions prescribed in Rule 10 of the Central Excise Valuation Rules have to be satisfied which are that - (a) all the sales of the excisable goods are to or through the interconnected undertaking; and (b) either the assessee or its buyer are the holding company or subsidiary company or they are also related in terms of clause [(ii), (iii) or (iv)] of Section 4(3)(b) and only when the above conditions are satisfied, the transaction value can be rejected and has to be determined in the manner prescribed in Rule 10. In this case according to the appellant, these conditions are not satisfied, but the Commissioner (Appeals) in the impugned order has not examined this plea. In view of this, the impugned order is set aside and the matter is remanded to the Commissioner (Appeals) for de novo decision."
9.2 We further find that in the case of Ramsons Casting Private Limited (supra), 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 purpose and the transaction value cannot be rejected. The relevant paragraphs of material on record 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 9 E/89303/2014 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..."
10. On the basis of above discussions and analysis, and based on the decisions of the Tribunal, we are of the considered view that the impugned order is not legally sustainable and therefore, the same is liable to be set aside.
11. In the result, the impugned order dated 27.06.2014 is set aside and the appeal filed by the appellants is allowed in their favour.
(Order pronounced in open court on 10.03.2025) (S.K. MOHANTY) MEMBER (JUDICIAL) (M.M. PARTHIBAN) MEMBER (TECHNICAL) Sinha