2007 (10) TMI 50 - AT - Central Excise

Tribunal overturns order, grants relief to appellant based on valuation, relationship, fraud, and excise duty neutrality.

LLOYDS METALS & ENGINEERS LTD. Versus COMMISSIONER OF C. EX., NAGPUR

LLOYDS METALS & ENGINEERS LTD. Versus COMMISSIONER OF C. EX., NAGPUR - 2008 (222) E.L.T. 84 (Tri. - Mumbai) Issues Involved:1. Alleged undervaluation of goods cleared to LSIL.2. Determination of whether the appellant and LSIL are 'related persons' under Sec. 4(3)(b) of the Central Excise Act, 1944.3. Applicability of the extended period for demand under the proviso to Section 11A(1) of the Central Excise Act, 1944.4. Revenue neutrality of the excise duty paid.Detailed Analysis:1. Alleged Undervaluation of Goods Cleared to LSIL:The primary issue was whether the price charged by the appellant to LSIL was correct or if there was any undervaluation due to LSIL being a group company. The adjudicating authority concluded that the valuation should be done as per Rule 8 read with Rule 9 of the Central Excise Valuation Rules and Sec. 4(1)(b) of the Central Excise Act, 1944. However, the appellant argued that since they sold the same product to independent buyers at the factory gate during the relevant period, the valuation should be based on these comparable sales. The Tribunal referred to the Larger Bench decision in Ispat Industries Ltd. Vs. CCE, Raigad, which established that if factory gate sales to independent buyers exist, the valuation should be based on those prices. The Tribunal concluded that the price charged by the appellant to LSIL was in consonance with settled law, making the adjudicating authority's order unsustainable.2. Determination of 'Related Persons' Under Sec. 4(3)(b) of the Central Excise Act, 1944:The appellant contested that they and LSIL were not 'related persons' as per Sec. 4(3)(b) of the Central Excise Act, 1944. The adjudicating authority held that they were related based on common directors and financial accommodations. However, the Tribunal noted that for parties to be deemed 'related,' there must be mutual interest in each other's business. Citing Supreme Court judgments in Union of India vs. ATIC Industries Ltd. and Alembic Glass Industries Ltd. Vs. Collector of Central Excise & Customs, the Tribunal emphasized that commonality of directors alone does not establish mutual interest. The Tribunal found no evidence of LSIL having an interest in the appellant's business, concluding that they were not 'related persons.'3. Applicability of the Extended Period for Demand Under the Proviso to Section 11A(1) of the Central Excise Act, 1944:The appellant argued that the demand was time-barred as there was no fraud, suppression, or misstatement with an intent to evade duty. They highlighted continuous correspondence with the department, including a letter from the Assistant Commissioner of Central Excise dated 15.5.2001, which stated that the appellant and LSIL were not related. The Tribunal found that the department had accepted this position, making the extended period inapplicable. The show cause notice issued on 5.1.2006 for the period from December 2000 to 5-Aug-2003 was deemed hopelessly time-barred.4. Revenue Neutrality of the Excise Duty Paid:The appellant contended that the entire issue was revenue neutral as the excise duty paid by them was availed as CENVAT credit by LSIL. Although this point was raised, the Tribunal primarily decided the case on the merits and limitation issues, finding the impugned order unsustainable on these grounds.Conclusion:The Tribunal set aside the impugned order, allowing the appeal with consequential relief. The decision was pronounced on 04.10.07.