2013 (5) TMI 322 - AT - Central Excise

Tribunal rules in favor of appellant, assessable value based on sale price to related party.

M/s Eastern Bakeries Pvt. Ltd. Versus Commr. of Central Excise, Kol. VII

M/s Eastern Bakeries Pvt. Ltd. Versus Commr. of Central Excise, Kol. VII - 2013 (293) E.L.T. 593 (Tri. - Kolkata) Issues Involved:1. Determination of assessable value of excisable goods.2. Allegation of related person status between the appellant and M/s BIL.3. Financial transactions and their impact on the commercial relationship.4. Supply and maintenance of machinery under bailment.5. Administrative control and correspondence between the appellant and M/s BIL.6. Allegation of sharing sales tax benefits.7. Application of legal precedents and principles.Issue-wise Detailed Analysis:1. Determination of Assessable Value of Excisable Goods:The primary issue was whether the assessable value of goods sold by the appellant to M/s BIL should be based on the price at which the appellant sold the goods to M/s BIL or the price at which M/s BIL sold the goods to its customers. The department contended that M/s BIL was a related person under Section 4 of the Central Excise Act, 1944, and thus the value should be based on M/s BIL's sale price. The appellant argued that the transactions were on a principal-to-principal basis, and the price at which goods were sold to M/s BIL should be the assessable value.2. Allegation of Related Person Status:The department alleged that M/s BIL was a related person due to mutual interest in each other's business. This was based on financial transactions, supply of machinery, and administrative control. The appellant refuted this, stating that they and M/s BIL were independent entities with no common directors, shareholding, or employees, and their transactions were purely commercial.3. Financial Transactions:The department argued that loans and advances from M/s BIL to the appellant indicated mutual interest. The appellant explained that the financial transactions were normal business practices. The loan of Rs. 50 lakhs was a short-term accommodation due to delayed disbursement from SIDBI, and advances were against future deliveries, common in business practices.4. Supply and Maintenance of Machinery:The department alleged that the supply of packing and wrapping machines on bailment indicated mutual interest. The appellant clarified that the machines were supplied to ensure hygienic packing of branded cakes and that the cost of these machines was minimal compared to their total investment. The maintenance costs were reimbursed by M/s BIL as per the bailment agreement.5. Administrative Control:The department pointed to various letters from the appellant to M/s BIL seeking approval for administrative decisions as evidence of control. The appellant argued that these letters were to inform M/s BIL about additional expenditures affecting cost price and were part of normal business communication. The letters were not replied to by M/s BIL and were written in the initial period of operation.6. Allegation of Sharing Sales Tax Benefits:The department alleged that the appellant shared sales tax benefits with M/s BIL. The appellant denied this, explaining that the letter in question was about recalculating conversion charges based on sales tax benefits, not sharing them.7. Application of Legal Precedents:The tribunal referred to the Supreme Court's decision in Atic Industries and other cases, emphasizing that mutual interest must be two-sided to qualify as related persons. The tribunal found that the department failed to establish mutual interest, as the appellant had no interest in M/s BIL's business. The tribunal also noted that the department did not investigate M/s BIL's role or verify the letters from the appellant.Conclusion:The tribunal concluded that M/s BIL was not a related person to the appellant. The assessable value should be based on the price at which the appellant sold the goods to M/s BIL. The tribunal set aside the impugned orders and allowed the appeals with consequential relief as per law. The issue of limitation was not considered as the decision on merit was in favor of the appellant.