2019 (6) TMI 261 - AT - Central Excise

Tribunal Rules Related Entities, Rejects Demands Based on Mutuality of Interest

The Tribunal held that the entities were related persons under Section 4 of the Central Excise Act due to interconnected undertakings. It determined that ... Valuation - related concern/ undertaking - Rule 9 of the Central Excise Valuation Rules - HELD THAT:- When the sale price of independent buyer and prices at which the goods were sold to M/s SMS are equal and in some cases even the sale price to M/s SMS are more, there is no reason to disturb the valuation method followed by the Appellant. The sale price to M/s SMS is not influenced by any extra commercial consideration. The depot of M/s SMS cannot be considered as of the Appellant. The Appellate authority has also relied upon the transportation cost incurred by M/s SMS over the period of time. The transportation charges incurred by SMS which includes towards other goods also cannot be a ground to disturb valuation. Further the show cause notice does not make any such allegation against the Appellant. Extended period of limitation - HELD THAT:- There was no intention of the Appellant company to suppress the fact to evade duty. In such case even the demands raised by invoking extended period of limitation are not sustainable. Appeal allowed - decided in favor of appellant. Issues Involved1. Determination of whether the appellant and M/s SMS are 'related persons' under Section 4 of the Central Excise Act.2. Applicability of Rule 9 of the Central Excise Valuation Rules.3. Validity of the demands raised based on mutuality of interest.4. Examination of whether the demands are time-barred due to extended period of limitation.Detailed Analysis1. Determination of 'Related Persons'The primary issue was whether the appellants and M/s SMS could be considered 'related persons' under Section 4 of the Central Excise Act. The appellants argued that having common directors or shareholders does not automatically make entities related; there must be mutuality of interest. The Commissioner (Appeals) initially found that common directors and shareholders alone were insufficient to establish a related person status. The adjudicating authority, however, confirmed the demands based on Rule 8 of the Valuation Rules, which was beyond the scope of the show cause notices. The Additional Commissioner, in remand proceedings, confirmed the demands invoking Rule 8 despite directions to use Rule 9. The final appellate order held that 100% shares of M/s SMS were held by the Parekh family, making the entities interconnected undertakings and thus related persons under Section 4(3)(b)(i) of the Act.2. Applicability of Rule 9 of the Central Excise Valuation RulesThe show cause notice alleged that duty on goods cleared to M/s SMS should be based on the sales price of SMS under Rule 9, as the appellant had shown SMS as a related concern in financial reports. The Commissioner (Appeals) found that the invocation of Rule 8 was incorrect and beyond the scope of the show cause notices. The appellate authority's final order stated that the duty should be paid as per Rule 9, at the price at which M/s SMS sold the goods. However, the Tribunal found that the appellate authority had incorrectly applied sub-clause (i) of Section 4(3)(b), which was never invoked in the show cause notice. The Tribunal concluded that Rule 9 was not applicable as there was no mutuality of interest.3. Validity of Demands Based on Mutuality of InterestThe Tribunal noted that the Commissioner (Appeals) had earlier directed the adjudicating authority to verify mutuality of interest under sub-clause (iv) of Section 4(3)(b). The adjudicating authority was to examine only this sub-clause, but the appellate authority revisited and nullified its own findings, which had attained finality. The Tribunal found no evidence of mutuality of interest between the appellant and M/s SMS, except for common directors. The Tribunal cited judgments in Union of India Vs. Atic Industries and Alembic Glass Industries Ltd., concluding that there was no financial interest between the two entities, and the provisions of sub-clause (iv) were not applicable.4. Examination of Time-Barred DemandsThe appellants argued that the demands were time-barred as there was no suppression or misstatement. They had paid duty on comparable prices, declared their marketing pattern, and filed required information under Rule 173C of the Central Excise Rules, 1944. The Tribunal noted that the show cause notice for the period April 2006 to February 2007 was clearly time-barred. The Tribunal found no intention of the appellant to suppress facts to evade duty, and thus, the demands raised by invoking the extended period of limitation were not sustainable. The Tribunal cited the BDH Industries case, which held that detailed examination of shareholding does not imply suppression of facts.ConclusionThe Tribunal set aside the impugned order and allowed the appeals with consequential reliefs, finding that the demands were not sustainable on merits and were also time-barred. The Tribunal emphasized that the sale price to M/s SMS was not influenced by any extra commercial consideration and that the correct valuation method was followed by the appellant.