TaxTMI 
TaxTMI 
2020 (8) TMI 702
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....the retail business and not the brand name. On the basis of audit objection department issued different SCNs to the units as follows holding that for purposes of valuation of clearances of goods, by the holding company to the subsidiary company, the marketing expenses incurred by the subsidiary should be included to the value of the finished goods. The same were confirmed but for demand, for the period February 2009 to September 2009, January 2010 to March 2011, 2011-12 and April 2011 to July 2012, which was dropped on account of being barred by limitation. Appeals were filed as below. Appeal/ Details C/1938/ 2010 E/20624/ 2018 E/20563/ 2018 E/20564/ 2018 E/20566/ 2018 E/20461/ 2019 Period of Dispute 2/2003 -1/ 2009 10/2009 -12/2009 8/2012 -3/2013 8/2014 -8 2015 4/2013 -7/2014 9/2015 to 2/2016 SCN date 20-4-2009 18-10-2010 16-08-2013 30-07-2015 & 05-02-2016 22-04-2014 & 01-10-2014 19-09-2016 Demand Rs 2,65,39,968 17,46,141 16,28,992 42,44,211 6,50,905 31,53,535 Impugned Order 05/2010 07-06-2010 119/2018 8-2 2018 89-91/2018 24-1-2018 89-91/2018 24-01-2018 89-91/2018 24-01 2018 201/2018 27-4-2018 Penalty Rs 2,65,39,968 4,40,000 4,07,248 10,61,0....
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....so catering to domestic market through the subsidiary company HWPL; these facts indicate mutuality of interest between the two companies. Also, the Directors are common; * As per Rule 8 of Customs Valuation Rules, the value of the goods is to be computed value which should consist of the sum of the cost of the value of materials and fabrication or processing employed in production, the amount of profit and general expenses and value or cost of other ancillary expenses; * Therefore, expenses towards brand building incurred by HWPL by way of advertising and sales promotion and marketing at the behest of the Appellant and charged off in the consolidated accounts of the Appellant related to the sale and cost of subject fabrics at the hands of the Appellant and are includable in the assessable value for the purpose of payment of duty by the Appellant. 3. Learned Counsel submits on the consolidated financial statements that they essentially present a combined accounts and financial position of all the group entities, put together; the very purpose of preparing a consolidated financial statements would be defeated if expenses are booked again separately in such financial statements; ....
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....t HWPL is nevertheless a separate legal entity under the provisions of the Companies Act, 2013 (earlier Companies Act, 1956); it is the only entity privileged to use the brand "ATMOSPHERE" at all times and under its own name; use of this brand name in any of the Appellant's products would therefore amount to offense in terms of the Indian Copyright Act, 1957, Trade Marks Act, 1999 and Rules there under; it is a settled position of law that a balance sheet entry could never become an income or an expenditure, as the case may be; it was held in Mahindra Holiday and Resorts India Ltd2018-VIL-668- CESTAT-CHE-ST, that "...an amount showed in the balance sheet could neither be an income nor a consideration nor a payment or the gross amount charged in terms of Section 67(a) and (c) and hence, it is nothing but a financial adjustment in the nature of book entry."; CESTAT Mumbai held similarly in Reliance Infratel Ltd2015-TIOL- 2160; Greenwich Meridian Logistics 2016-TIOL-869; Phoenix International Freight Service Pvt Ltd2016-TIOL-2353 and Thermax Instrumentation Ltd 2015-TIOL-2376. 4. Learned Counsel submits that Marketing and Promotional Expenses incurred by HWPL are not to be included ....
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....lowed in Balsara Hygiene Products Ltd Vs CCE, Vapi 2012 (278) ELT 526 (Tri-Ahmd) and affirmed by the Supreme Court in 2015 (321) ELT A146. He submits that mere advancing loan does not prove mutuality; appellant has been charging interest on loan extended to HWPL, since January 2008; department has not made out any case to establish that the relationship with HWPL has influenced the price; mutuality of interest has neither been established nor evidence of flow back of money brought out and hence, undervaluation cannot be alleged; he relies upon. (i). Apsara Metallica Industries 2019 (369) ELT 1619 (Tri.-Mumbai). (ii). Bharat Petroleum Corporation Ltd2016 (342) ELT 602 (Tri.- Chennai). (iii). BPL Sanyo Utilities & Appliances Ltd2007 (220) ELT 175 (Tri- Bang). 5.1. Learned Counsel further submits that learned Commissioner finds the mutuality of interest and thus concludes that marketing and promotion expenses incurred by HWPL are includible in the assessable value; English meaning of 'Mutuality' is "a reciprocal relation between interdependent entities"; therefore, for mutuality of interest to exist between two entities, there should necessarily be interdependence; mandatory co....
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....ii). Uniworth Textiles Ltd 2009 (244) E.L.T. 401 (Tri-Del) (iv). Shri Ahimsa Mines & Minerals Ltd2016 (343) ELT 529 (Tri - Del). 7. Learned counsel submits on the issue of limitation (in respect of Appeal No. C/1938/2010), that it is evident from the records that during the relevant period, i.e, March 2003 to January 2009, the Appellant has cleared goods from their export oriented units to DTA as per the provisions and permission from DGFT authorities; appellant on their own sought provisional assessment of the goods cleared to DTA as there were no independent sales of the products in the local market; while replying to the queries, raised by the department vide letter dated November 22, 2004, they submitted that the transfer price calculated by them exceeded the value derived under the deductive method of valuation computed under Rule 7 of the Customs Valuation Rules; indirect marketing expenses were highlighted by their exclusion in the set of calculation under the deductive method and this was taken in to account while ordering the finalization of assessment vide order dated March 29, 2003; while computing under the deductive method, deductions in the form of additions usuall....
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....ided the valuation in terms of Rule 7 of CVR, 1988 or Rule 8 of CVR, 2007. It was argued in all the OIOs that the appellant while arriving at the value of the goods cleared by the appellants, under Rule 7/8 of CVR, have not included the expenses incurred by the subsidiary towards the marketing/advertising alleging that the same have been incurred on behalf of and at the behest of the appellant. The OIOs silent on as to why the said Rule 7/8 have been invoked. There is no discussion on as to why the value declared by them needs to be rejected and why it should be arrived at under Rule 7/8 of Customs Valuation Rules, sequentially proceeding with preceding Rules in terms of Rule 3. 3. Determination of the method of valuation. - For the purpose of these Rules- i. the value of imported goods shall be the transaction value; ii. if the value cannot be determined under the provisions of clause (i) above, the value shall be determined by proceeding sequentially through Rules 5 to 8 of these rules. 11. The impugned orders are silent as to how the appellants claim of valuation under Rule 7 was legally tenable and how Rules preceding the same are not applicable. The respective authoriti....
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....s is applied, no proper reasoning has been given in the impugned orders. 12. We find that Hon'ble Apex Court has gone in to the issue of valuation of clearances by EOUs to DTA in the case of Morarjee Brembana Ltd 2015 (318) ELT 600 (SC)and have held as follows. 9. Mr. Radhakrishnan has, however questioned the aforesaid view of the Tribunal and argued that since the respondent is hundred per cent export-oriented unit, any sale or clearance of cotton fabric by the respondent to DTP should be treated as transaction sale and therefore Rule 4 would be applicable. However, this argument has to be rejected in view of proviso to Section 3 of the Central Excise Act, 1944 which reads as under: "Section 3. Duties specified in the [Schedule to the Central Excise Tariff Act, 1985] to be levied. - (1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the Schedule to the Central Excise Tariff Act, 1985 : Provided that the duties of excise which shall be lev....
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....behalf. In view of the above, we find that the issue needs to go back to the original authority to consider the Rules of valuation and to give clear findings on the conclusions arrived thereof. Moreover, we find that the initial SCN was adjudicated by the Commissioner and the subsequent SCNs were adjudicated by lower authorities. In the interest of Justice, we hold that all the SCNs be adjudicated now by Commissioner who is competent to adjudicate the case involving highest duty. 13. Coming to the issue of applicability of the extended period, we find that in respect of the appeal No.C/1938/2010, it was contended that extended period was invocable as the appellants have suppressed the fact that the expenses on marketing and advertisement have been borne by the subsidiary who is also a buyer of the goods from the appellants and the fact that the appellants have suppressed the fact that the marketing / promotional expenses incurred by HWPL have been charged off in the financial accounts of HSL as confirmed by the auditor's report. The appellants have taken the plea that earlier provisional assessment was made and was finalised and even under circumstances, Department has invoked ex....