2025 (3) TMI 955 - AT - Central Excise

Valuation of excisable goods between inter-connected undertakings requires Rule 10 application, not Rule 8-9

Shiva Steel Industries (Nagpur) Limited Versus Commissioner of Central Excise, Nagpur

CESTAT Mumbai held that valuation of excisable goods between inter-connected undertakings should be determined under Rule 10 of Central Excise Valuation ... Appropriate valuation method for the clearance of excisable goods by the appellant - inter-connected undertaking - applicability of Rule 8 & 9 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000 or under Rule 10 ibid? - HELD THAT:- Section 40A of the Income Tax Act, 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 of income-tax, 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 provision under which mentioning the names of a legal person(s) under the Income Tax Act, would enable such persons to be automatically treated as ‘related person’ under the Central Excise law. In the absence of specific determination of the relationship between the appellant and the inter-connected undertaking, being related to each other in terms of Section 4(3) of the Central Excise Act, 1944, there are no merits in the impugned order insofar as it has treated the transaction between these two, as related party transaction without following the due process of law laid down under Central Excise statute. Therefore, there do not 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. The 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, proviso 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 appellant and their interconnected undertaking are related in terms of the above provisions of the Central Excise statute. Therefore, on this ground alone the impugned order is liable to be set aside and it does not stand the scrutiny of law. In the case of Gajra Gears Private Limited [2015 (2) TMI 1090 - CESTAT NEW DELHI], 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. It is further found that in the case of Commissioner of Central Excise, Nagpur Vs. Ramsons Casting Private Limited [2016 (12) TMI 908 - CESTAT MUMBAI], 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. Conclusion - The valuation should be conducted under Rule 10, not Rule 8 & 9, as the appellant and M/s Ujjawal Ispat Private Limited were not related persons under the relevant legal framework. The impugned order is set aside and the appeal is allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue in this appeal was to determine the appropriate valuation method for the clearance of excisable goods by the appellant, M/s Shiva Steel Industries, to M/s Ujjawal Ispat Private Limited, which was considered an 'inter-connected undertaking.' Specifically, the court needed to decide whether the valuation should be conducted under Rule 8 & 9 or under Rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe relevant legal provisions are contained in the Central Excise Act, 1944, and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Section 4 of the Central Excise Act, 1944, provides the basis for determining the value of excisable goods. The rules under the 2000 Valuation Rules specify different scenarios for valuation, with Rule 8 applying to goods captively consumed and Rule 9 addressing transactions between related persons. Rule 10 deals with inter-connected undertakings.Court's Interpretation and ReasoningThe Tribunal examined whether the appellant and M/s Ujjawal Ispat Private Limited were 'related persons' under Section 4(3)(b) of the Central Excise Act, 1944. The Tribunal found that being inter-connected undertakings does not automatically classify parties as related persons for excise valuation purposes. The Tribunal referenced the principle that a mere mention of association under the Income Tax Act does not suffice to establish a related person status under the Central Excise law.Key Evidence and FindingsThe Tribunal noted the Commissioner's reliance on the appellant's income tax filings, where M/s Ujjawal Ispat Private Limited was listed as an associated company. However, the Tribunal emphasized that there was no evidence to prove that the appellant and the buyer were related persons as per the criteria under the Central Excise Act, particularly under sub-clauses (ii), (iii), or (iv) of Section 4(3)(b).Application of Law to FactsThe Tribunal applied the legal provisions to the facts, determining that Rule 9 was inapplicable since the relationship criteria under Section 4(3)(b) were not met. Instead, the Tribunal found that Rule 10 should apply, as the appellant and M/s Ujjawal Ispat Private Limited were inter-connected undertakings but not related persons as per the specific legal criteria.Treatment of Competing ArgumentsThe appellant argued that the transaction value should be based on Rule 10, citing precedents where inter-connected undertakings were not automatically deemed related persons. The Revenue maintained that the appellant's association with M/s Ujjawal Ispat Private Limited justified a valuation under Rule 8 & 9. The Tribunal sided with the appellant, referencing several Tribunal and Supreme Court decisions that supported the appellant's position.ConclusionsThe Tribunal concluded that the transactions between the appellant and M/s Ujjawal Ispat Private Limited should not be treated as related person transactions under Rule 9. Instead, Rule 10 was applicable, and the valuation should be based on the transaction value, not 110% of the cost of production.SIGNIFICANT HOLDINGSThe Tribunal held that merely being inter-connected undertakings does not equate to being related persons for excise valuation purposes. The Tribunal emphasized that the criteria under Section 4(3)(b) must be strictly met to classify parties as related persons. The Tribunal reiterated that Rule 10 should apply to inter-connected undertakings unless additional criteria for related persons are satisfied.Core Principles EstablishedThe Tribunal reinforced the principle that the mere existence of inter-connected undertakings does not suffice to reject transaction value unless the specific conditions under Rule 10 are met. The Tribunal also highlighted the necessity of proving a reciprocity of interest or control to classify entities as related persons under Central Excise law.Final Determinations on Each IssueThe Tribunal set aside the impugned order dated 31.08.2012, ruling in favor of the appellant. The Tribunal determined that the valuation should be conducted under Rule 10, not Rule 8 & 9, as the appellant and M/s Ujjawal Ispat Private Limited were not related persons under the relevant legal framework.