2007 (4) TMI 28 - AT - Central Excise

Tribunal confirms Commissioner's order, rejects department's appeal on intercompany valuation and SSI exemption

The Tribunal upheld the Commissioner's order, rejecting the department's appeal. It was concluded that the manufacturing companies and the marketing ... Revenue contended that (i) four companies are interconnected, so price at which sale to marketing company not accepted for valuation (ii) SSI Exemption to one unit (KPPL) not allowed – Held (i) price is not different either for independent buyer or marketing company, so the said price acceptable (ii) allowed Issues Involved:1. Determination of whether the three manufacturing companies (APL, KPPL, CPPL) and the marketing company (CML) are interconnected undertakings and related persons.2. Applicability of transaction value versus normal price for valuation.3. Mutuality of interest between the companies.4. Eligibility for SSI exemption for KPPL.5. Invocation of the extended period for demand.Issue-wise Detailed Analysis:1. Interconnected Undertakings and Related Persons:The department contended that the manufacturing companies (APL, KPPL, CPPL) and the marketing company (CML) were interconnected undertakings controlled by the 'Creative Group.' The shareholding pattern revealed that the same group of individuals and their families controlled all four companies, indicating mutual control and management. The department relied on the definitions provided under Section 2(g) of the MRTP Act, 1969, and Section 4 of the Central Excise Act to argue that these companies were related and interconnected.The Commissioner, however, found no material evidence showing that the 'Creative Group' exercised control over the companies' activities. Each company was managed by its Board of Directors and operated independently. The Commissioner concluded that the companies could not be considered interconnected or related solely based on common shareholding and management advice.2. Transaction Value vs. Normal Price:The department argued that the concept of 'transaction value' replaced 'normal price' from July 2000 onwards, making previous judicial pronouncements inapplicable. However, it was undisputed that 40% of the goods were sold to independent buyers at the same price as to CML. Thus, the price at which goods were sold to CML could not be influenced by any alleged relationship.The Tribunal upheld the Commissioner's decision, stating that Rule 9 of the Central Excise Valuation Rules applies only when goods are sold exclusively to related persons. Since sales were made to both related and independent buyers, Rule 9 was inapplicable, and the price to independent buyers should be used for valuation.3. Mutuality of Interest:The department claimed mutuality of interest existed due to the intertwined shareholding and management. However, the respondents argued that mutuality of interest was not established, as mere shareholding or common directors did not imply mutual business interest. They cited the Supreme Court's decision in Alembic Glass Industries Ltd. v. CCE, which held that shareholders do not have an interest in the company's business solely due to their shareholding.The Tribunal agreed with the respondents, noting no evidence of mutual business interest between the companies. The companies operated independently, and no substantial control or influence was demonstrated by the 'Creative Group.'4. Eligibility for SSI Exemption for KPPL:The department sought to deny SSI exemption to KPPL by clubbing clearances of all three manufacturing units, arguing they were related. The respondents countered that each company had its own factory and was a separate legal entity. They cited various decisions, including Gajanan Fabrics Distributors v. CCE, Pune, which held that clearances could not be clubbed without evidence of dummy units or shared premises.The Tribunal upheld the Commissioner's decision, stating that clearances could not be clubbed as the companies operated independently and no show cause notice was issued to the other units. The demand for duty from all three units indicated that the department treated them as independent entities.5. Invocation of Extended Period:The department invoked the extended period for demand, alleging suppression of facts. The respondents argued that they had regularly filed price declarations and disclosed their marketing pattern, negating any suppression.The Tribunal found no evidence of suppression or willful misstatement, supporting the Commissioner's decision to drop the demand for the extended period.Conclusion:The Tribunal upheld the Commissioner's order, rejecting the department's appeal. It was concluded that the manufacturing companies and the marketing company were not interconnected or related persons for valuation purposes. The price at which goods were sold to both related and independent buyers was the same, and no mutuality of interest was established. The eligibility for SSI exemption for KPPL was confirmed, and the extended period for demand was not applicable. The Commissioner's order was affirmed, and the department's appeal was dismissed.