TaxTMI 
TaxTMI 
2006 (7) TMI 484
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....orate General of Anti Evasion, ADG, Anti Evasion, Chennai, issued a Show Cause Notice alleging that the assessee was holding company and a 'related person' of M/s. Tractors and Farm Equipments Ltd., Chennai (henceforth referred as TAFE) who sourced all its requirement of OE engines for tractors from Simpson and that the value adopted by the assessee for payment of duty on clearances of OE engines and Trade Engines (for spare market) to TAFE had not reflected the correct assessable value (value, henceforth) for the purposes of Section 4 of the Central Excise Act, 1944 (Act). It was proposed to re-determine the value of OE engines under Section 4(1)(a)(iii) of the Act invoking Central Excise Valuation Rules, 1975, and particularly rules 6(c)(ii) and 6(b)(ii). As regards replacement engines sold by TAFE, it was proposed to adopt the sale price of TAFE to their buyers as basis of value. The impugned clearances had been made during August 1998 to January 1999 and the proposed demand was for Rs. 2,02,37,753/-. 3. The Show Cause Notice had cited the following allegations to arrive at the tentative finding that Simpson and TAFE had interest in the business of each other and they we....
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....and a subsidiary company were to be treated as between related persons under Section 4(4)(c) of the Act. He decided that the issue whether in the factual setting as in the subject case, mutuality of interest between the two entities was essential to treat them as related had not been settled. He found that TAFE was a subsidiary of Simpson and the two were dependent on each other and promoted each other's business. The Commissioner decided Simpson and TAFE to be related persons for the purpose of the Act for the reasons proposed in the Show Cause Notice. In addition, it was found that Simpson had filed price lists indicating TAFE as a company related to it. He decided, that it was "the generality of the whole situation wherein the behaviour and approach of both the companies towards each other would determine whether the two companies are interdependent to each other". 6. Though the Show Cause Notice had proposed to revise the assessable of OE engines sold to TAFE in terms of Rule 6(b)(ii) of Central Excise Valuation Rules, 1975 read with Rule 6(c) ibid for demand, the Commissioner found that the assessee had already included 20% of the cost of production of OE engines clear....
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....siness interest between Simpson and TAFE. In the order, though the Commissioner accepted that value of Trade Engines could not be adopted as value of OE Engines, he adopted value of Trade Engines as value of OE Engines cleared to TAFE. The Commissioner had made errors in quantifying the demand by adopting prices of several types of Trade Engines which were not comparable to engines supplied to TAFE as OE. The Commissioner had rejected their application for rectification of the mistakes in the order. While agreeing with the appellant that holding company, subsidiary company relationship under the Companies Act did not result in both being related persons under Section 4(4)(c) of the Act, he had decided that controlling interest was enough to hold the companies to be having mutuality of interest in the business ignoring the ratio of Atic Industries case. He ignored the decision in Ralliwolf Limited v. UOI of the Bombay High Court saying that the judgment was a remand order. Therefore he failed to appreciate the ratio of the judgment. The Commissioner had erred in not following CEVR 6(b)(ii) to determine the value when he had found that there was no price of comparable goods available....
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....on taken by the Commissioner of Central Excise, Trichy involving identical facts relating to the same assessee. The learned Sr. Advocate for the appellants argued that the order containing a different finding of the Commissioner, Trichy that Simpson and TAFE were not related had been accepted by the CBEC and therefore, a different position could not be canvassed by the department. 12. The learned SDR, Smt. R. Bhagyadevi argued that both the adjudication orders had been passed almost simultaneously by the two Commissioners. Therefore, in passing the subject order, the adjudicating authority was not bound by that ratio nor res judicata applied. The review and acceptance by CBEC of the order of Commissioner took place much after passing of the subject order. Therefore the principle of res judicata did not apply in passing the subject order. The SDR cited the decision of the Hon'ble Supreme Court in the case of CCE, Raipur v. Hira Cement reported in 2006 (194) E.L.T. 257 (S.C.) in support. She submitted that the subject case came up for consideration before the competent Tribunal for the first time. It had the discretion to decide judicially the issues involved and was not shac....
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....lue of engines manufactured by Simpson and cleared to TAFE for consumption or sale. The Show Cause Notice proposed to revise the value following the provisions of Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 for the goods consumed in manufacturing tractors by TAFE found to be related to the assessee. "Related Person" occurring in Section 4(4)(c) of the Act, is defined as under : " Related person means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor." 16. Courts and the Tribunal have explained the true sense of the expression "Related Person" in a large number of decisions. Where a subsidiary company and the holding Company are involved, it has been laid down by the Bombay High Court in CCE & C, Mumbai III v. Ralliwolf Ltd. that Section 4(4)(c) is not attracted merely because an assessee and its buyer have a subsidiary company holding company relationship. The High Court held : "Reading the section as a whole, it is clear that merely b....
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....the Department. In this case, it is possible that Simpson has interest in the prospects of TAFE as its major shareholder; but there is no reason to expect TAFE to be interested in promoting the business of Simpson. In view of this decision Simpson and TAFE cannot be held to be related persons for the purpose of Section 4. 19. In British Health Products India Limited and Others v.CCE [1999 (34) RLT 244 (CEGAT)] the Tribunal considered the transactions between BHPL and Dabur India Limited against the allegation of their being related persons as decided by Revenue. DIL purchased all the products of BHPL. DIL and its six nominee companies had acquired 60% of the paid up capital of BHPL. DIL stood as guarantor for loans taken by BHPL. DIL extended unsecured loan to BHPL and wrote off outstanding interest of Rs. 9.7 lakhs due from BHPL. Marketing and Distribution Agreement between BHPL and DIL provided flat margins of 25% for sales to DIL irrespective of the fact that BHPL sold some medicines below cost. It was in this background that the allegation of the two entities being related persons was raised. It was decided that in the absence of mutuality of interest between the two en....
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....s by TAFE at a price which was 4.34% in excess of the value adopted by Simpson for sale of more than 10000 similar engines and therefore, the sale or price was not significant to support revision of the assessable value. This contention of the learned Counsel carries considerable force. It was further argued that having consciously opted for Rule 6(b)(ii) of the CEVR 75 in the show cause notice, abandoning the same in adjudication proceedings was incorrect on the part of the adjudicating authority as held in various judicial authorities. However, it is seen that the adjudicating authority opted for Rule 6(b)(i) as suggested by the appellants in the adjudication proceedings before the Commissioner in writing. lt is seen from the statement of General Manager, Marketing of TAFE dated 22-1-96 before the Assistant Director, DGAE, Madras Zonal Unit that in 1994-95, total number of OE engines cleared to TAFE were 18000 and same type of replacement engines cleared were 10 and that same would be the case of clearances to replacement market. It is not indicated by the assessee or the adjudicating authority as to what is the total number of the engines cleared during the period covered by the....