TaxTMI 
TaxTMI 
2022 (2) TMI 952
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.... Hundred and Thirteen only) under Section 11A(2) of Central Excise Act, 1944. 2. I Order recovery of interest under Section 11AB of Central Excise Act, 1944 in respect of the demands confirmed at Sr. No.1. 3. I also impose a penalty of Rs. 25,12,27,613 (Rupees Twenty Five Crores Twelve Lakhs Twenty Seven Thousand Six Hundred and Thirteen only) under Section 11 AC of Central Excise Act, 1944 read with Rule 25 of Central Excise Rules, 2002. 4. I also impose a penalty of Rs. 5,00,00,000 (Rupees Five Crores only) on M/s. L&T Limited (Noticee No. 2) under Rule 26 of Central Excise Rules, 2002." 2.1 Appellant 1 undertakes the manufacturing activity from the manufactory located in premises of Appellant 2 to manufacture of Fills, Welding Powder Alloys, Flux for welding, coated welding electrodes and coated / uncoated gas welding rods falling under Chapters 38 and 83 of the first schedule of the Central Excise Tariff Act, 1985. 2.2 Prior to 01.07.2006, Appellant 1 discharged the Central Excise Duty on their goods sold to Appellant 2, with reference to the price at which later sold the goods. 2.3 Vide letter dated 21.06.....
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....• They have mutually agreed to share the expenses on these accounts so that the part expenses incurred by the Appellant 2 is not loaded on the transaction value of the Appellant 1 with the intention of evading payment of central excise duty. • Mutuality is also established by the fact that Appellant 2 has to employ and remunerate qualified persons at Appellant 1 Institute which is also located in the same premises of the Appellant 2. • Appellant 2 purchases the products from the Appellant 1 at their list price and sell these to customers at such prices as the Appellant 2 fixes in conjunction with the Appellant 1. However Appellant 2 has liberty to sell at prices lower than the prices stipulated jointly for sale. • The Selling Agency Agreement - Domestic Sales dated 28.12.1998 does not stipulate any commission or remuneration for the said selling agency service of the Appellant 2, instead they pocket huge profit earned on sale of the goods of Appellant 1. The Selling Agency Agreement For Exports dated 28.12.1998, provides for commission as a percentage of export price. The intention of evasion of central excise duty in respect of domestic....
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.... Central Excise Duty was short paid and thereby they the Noticee No. 2 made themselves liable to imposition of penalty under Rule 26 of Central Excise Rules, 2002. 2.7 By show cause notice dated 03.02.2011, Appellant 1 was called to show cause, as to why: (a) The Central Excise duty amounting to Rs. 21,47,35,943/- (Rupees Twenty One Crore Forty Seven Lakh Thirty Five Thousand Nine Hundred Forty Three ) short paid on the goods manufactured and cleared for the period from July, 2006 to March 2010 (as detailed in Annexure 'A' to the show cause notices) should not be demanded and recovered from them under the proviso to sub section (1) of Section 11A of Central Excise Act, 1944; (b) Interest at appropriate rate should not be demanded and recovered from them under the provisions of Section 11AB of the Central Excise Act, 1944. (c) Penalty should not be imposed on them under Section 11AC of the Central Excise Act, 1944 read with Rule 25 / Rule 27 of the Central Excise Rules, 2002. 2.8 By show cause notice dated 04.05.2011, Appellant 1 was called to show cause, as to why: (a) Central Excise duty amountin....
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....of mutuality of interest they cannot be said to be related and the transaction value between them cannot be rejected. • It has been throughout held by various authorities that mutuality of interest has to be two sided and both buyer and seller should be interested in the business of each other. • Revenue has sought to rely upon the various clauses of the sale agreement to prove the mutuality of interest. These clause do not establish mutuality of interest between them in terms of the judicial pronouncements on the subject, referred below: • Atic Industries Ltd [1984 (17) ELT 323 9SC)] • Lloyds Metal & Engineers Ltd [2008 (222) ELT 84 (T)] • Pepsi Foods (P) Ltd [1993 (64) ELT 426 (T)] • Besta Cosmetic Ltd [2005 (183) ELT 132 (SC)] • Xerographi Ltd [2010 (357) ELT 11 (SC)] • Alembic Glass Industries Ltd. [2002 (143) ELT 244 (SC)] • Jay Formulations Ltd [2010 (261) ELT 641 9T- Ahmd)] • Kanchan Industries [2005 (186) ELT 302 (T-Del)] • South Asis Tyres Pvt Ltd. [2003 (152) ELT 434 (T- Mum)] • Goodyear South Asia Tyres Pvt Ltd. [2015....
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....the Central Excise Act, 1944. As per terms of the sub-section 3(b) of the Section 4 of the Act, 1944 "persons" shall be deemed to be "related" if, i. they are inter-connected undertakings; ii. they are relatives; iii. amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or iv. they are so associated that they have interest, directly or indirectly, in the business of each other" Explanation. - In this clause - i. "inter-connected undertakings" shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969); and ii. "relative* shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956); A plain reading of the provisions of sub-section 3(b) of section 4 of the Central Excise Act, 1944 indicate that persons shall be deemed related if they are inter connected undertakings, relative, amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor O....
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.... through a person who is related in the manner specified in either of sub-clauses (ii). (iii) or (iv) of clause (b) of sub section (3) of section 4 of the Act, or the buyer is a holding company or subsidiary company of the assessee. In such cases only the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail, besides being inter connected undertakings. In the nut shell to assess the goods and to collect Central Excise duty in terms of Rule 9, the persons need to be related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee. Having discussed about the persons to be deemed as 'related in terms of the provisions of the Act and provisions of valuation, I proceed to examine whether Noticee no.1 and Noticee no.2 are related persons in the facts and circumstances of the case. The facts of the case in brief are that M/s EWAC A....
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....Rule 9. ............ As such I proceed to examine the case on the other remaining/surviving condition i.e. as to whether M/s L & T Ltd., and M/s EWAC are so associated that they have interest, directly or indirectly, in the business of each other. As discussed above it is clearly seen that M/s L &T Ltd., and M/s EWAC are interconnected undertakings and under the same management. Accordingly the valuation of the transacted goods between them need to be done under the Rule 10 of the Central Excise valuation Rules, 2000. The question of the valuation and assessment of the goods under Rule 10(a) i.e. in the manner prescribed in Rule 9 or under Rule 10(b) rest upon their association and their interest, directly or indirectly, in the business of each other. ........... The Corporate Management of M/S. L&T Ltd nominates its employees as Directors of EWAC and decision of the appointment is taken by the Board and Shareholders of EWAC; M/s. L&T Ltd is bearing the salary and other expenses of officers and Directors of M/s. EWAC. Inter Unit Debit Advices are issued by M/S. L&T Ltd Headquarter Corporate Accounts Section to Machinery and Industrial Pr....
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....th the prior consent of M/s. EWAC (which consent shall not be unreasonably withheld), will not directly or indirectly be concerned or engaged in any business of the same nature as that of M/s. EWAC and competing therewith other than products of companies entitled to use the "EUTECTIC"/"CASTOLIN' trade mark; d) The cost of advertisements in the technical press or elsewhere, cost of preparation of product industrial films/slides, and participation in trade fairs and exhibitions in India shall be borne equally by Ms EWAC and M/S. L&T LTD. The amount of such advertising and other expenses shall be decided in advance by mutual agreement by M/S L & T LTD and M/s EWAC. e) The cost of printing the sales literature, direct mailers and technical publications like Modern Maintenance Welding viz cost of paper, art work, photography, design typesetting, block and film amking etc., shall be borne equally by M/s EWAC and M/s L & T LTD. f) All sales literature requirements shall be decided in advance by mutual agreement between M/S L & T LTD and M/s EWAC g) M/S. EWAC would provide to M/S. LARSEN & TOUBRO LTD, all reasonable requiremen....
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....EWAC and except with the prior consent of M/s. EWAC (which consent shall not be unreasonably withheld), will not directly or indirectly be concerned or engaged in any business of the same nature as that of M/s. EWAC and competing therewith other than products of companies entitled to use the "EUTECTIC","CASTOLIN" trade mark. M/S. L&T Ltd shall employ and remunerate suitably qualified persons to conduct training courses at EWAC Institute in Mumbai. The commission/discount of 45% on the Export price to be paid to selling agent by EWAC, M/S. L&T LTD shall use its best endeavors to foster the interests and trade of the Company and, except with the prior consent of the Company (which consent shall not be unreasonably withheld), will not directly or indirectly be concerned or engaged in any business of the same nature as that of the company and competing therewith other than products of companies entitled to use the "Eutectic"/"Castolin" trade mark. It is also seen that though the Selling Agency Agreements expired after five years of its existence, both M/s. EWAC and M/S. L&T Ltd. have continued the sale and purchase of the goods as before. Apart from these M/s L &T Ltd., has provided la....
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.... associated Company. They are interconnected undertakings in terms of MRTP Act. The terms and condition of the sale agreements and arrangement of sale there under indicate that M/s L & T Ltd. should ensure to foster the interests and trade of M/s EWAC and, except with the prior consent of M/s EWAC (which consent shall not be unreasonably withheld), will not directly or indirectly be concerned or engaged in any business of the same nature as that of the company and competing therewith other than products of companies entitled to use the "Eutectic"/"Castolin" trade mark. Further, the statements of the various officials of M/S EWAC and M/S L & T Ltd., also strengthen the fact that M/s EWAC and M/s L&T are having interest in the business of each other. Since, it is apparent in the facts and circumstances and discussion that M/S EWAC and M/s L & T are having interest in the business of each other, both bodies of corporate are 'related persons within the meaning of Section 4 of the Central Excise Act, 1944, and therefore, the assessment of the goods are required to be done under Rule 9 of the Valuation rules, 2000. .........." 4.3 Interestingly the impugned order wh....
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.... conditions, namely, price is for delivery at the time and place of removal and the price is the sole consideration for sale are satisfied. If any of the two aforesaid conditions are not satisfied then, quite obviously, value in such cases will be determined under the relevant rule." In case of South Asia Tyres Pvt Ltd. [2015 (322) ELT 389 (SC)] Hon'ble Apex Court has in respect of the amended Section 4, observed as follows: Civil Appeal No. 4370 of 2003 13. The period involved in Civil Appeal No. 4370 of 2003 is from 1-7-2000 to 26-9-2000. It so happened that the joint venture agreement between the parties was terminated and the CEAT transferred its entire shareholding in the Goodyear group of which 97 per cent is held by Goodyear USA and 3 per cent is held by Goodyear India Private Limited. Thus, the assessee became the subsidiary of Goodyear USA. On this basis, show cause notice was issued for the aforesaid period treating the assessee and Goodyear as related persons having mutuality of interest. 14. No doubt that the assessee became the fully owned company of Goodyear, the relationship between the two would be that of related pers....
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....ppellant 1 and Appellant 2 equally participate in the promotion of the sale of the goods of Appellant 1 to the customers of Appellant 2. They contribute equally by the way of sharing the expenses towards such sale promotion. e) Expenditure incurred by Appellant 2 on the advertisement of the goods of Appellant 1, clearly show the interest of Appellant 2 in the business of Appellant 1, as this promotes the brand of Appellant 1. f) Appellant 2 conducts training programs for its employees from the training institute of Appellant 1. g) Appellant 2 is not permitted to undertake the business of trading of the same/ similar goods of competitors, without prior consent of Appellant 1. 4.6 We do not find that any of such reasons will establish mutuality of interest. In case of Atic Industries [1984 (17) ELT 323 (SC)] Hon'ble Apex Court has clearly laid down the concept of mutuality of interest stating as follows: "5. The second ground on which the assessee assailed the validity of the demand made by the Assistant Collector for differential duty related to the applicability of the definition of "related person" in clause (c) of sub....
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....in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of the other. The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct, while the interest of the latter in the business of the former may be indirect. That would not make any difference, so long as each has got some interest, direct or indirect, in the business of the other. Now, in the present case, Atul Products Limited has undoubtedly interest in the business of the assessee, since Atul Products Limited holds 50 per cent of the share capital of the assessee and has interest as share holder in the business carried on by the assessee. But it is not possible to say that the assessee has any interest in the b....
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....s of the assessee. Equally the assessee has no interest direct or indirect in the business of Crescent Dyes and Chemicals Limited, which is just a wholesale dealer purchasing dyes from the assessee in wholesale on principal to principal basis. It is obvious that for the same reasons which have prevailed with us while discussing the case of Atul Products Limited, the assessee has no direct or indirect interest in the business of Crescent Dyes and Chemicals Limited. The first part of the definition of related person in clause (c) of sub-section (4) of section 4 of the amended Act is, therefore, clearly not satisfied both in relation to Atul Products Limited as also in relation to Crescent Dyes and Chemicals Limited and neither of them can be said to be a "related person" vis-a-vis the assessee within the meaning of the definition of that term in clause (c) of sub-section (4) of section 4 of the amended Act. We, therefore, affirm the view taken by the High Court and hold that the assessable value of the dyes manufactured by the assessee cannot be determined with reference to the selling price charged by Atul Products Limited and Crescent Dyes and Chemicals Limited to their purchasers ....
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....of goods by the first petitioner for M/s. Philips India Ltd. does not create inter se interest between the two companies, directly or indirectly in the business of each other. The only interest that M/s. Philips India Ltd. has is to ensure that it gets the goods it has ordered in time and of the specifications required. The only interest in the transaction which the first petitioner has is to get the price of the goods it manufactures for M/s. Philips India Ltd. It is a pure transaction of sale. The interest in the business of each other contemplated by the section is something more than the fulfilment of one single commercial transaction entered into between the parties. M/s. Philips India Ltd. are not concerned whether the first petitioner makes a profit or loss in the transaction covered by the contract between the two. Likewise, the first petitioner is not interested as to whether M/s. Philips India Ltd. sells or does not sell or sells at a profit or loss the goods purchased by it from the first petitioner. Indeed, the two companies are competitors in the trade of manufacturing and selling electric bulbs and electric tube-lights. They cannot have any interest in the business of....
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....ing of the first part of the definition. We are, therefore, unable to accept the contention of learned counsel for the respondents that Usha will be a related person under the above portion of the definition clause. Certain judicial decisions to which we shall be referring later also touch upon this aspect of the matter and reinforce our conclusion." 45. This decision was again followed by the Delhi High Court in its subsequent judgment in Straw Products Ltd. (supra) and the Court observed that mere commercial contract between two independent parties for the purchase and sale of the goods manufactured by one party cannot ipso facto lead to the conclusion that the two of them are so associated as to have interest in the business of each other. This association, the Court observed, has to be of financial or managerial interest in the business of each other and not mere business connection between two persons. In the present case, the perusal of the clauses in the Agreement, shows that the transaction is one of outright sale of the goods by the appellants to M/s. Voltas and on such sale, the ownership of the goods vests with Voltas who are free, according to the Agreeme....
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....t, in the business of the person alleged to be a related person nor is it enough that such person has an interest, direct or indirect, in the business of the assessee. In the case of UOI . v. Atic Industries Ltd., 1984 (17) E.L.T. 323 (S.C.), the Supreme Court has held that each of them must have direct or indirect interest in the business of each other. In the present matters, the mutuality of interest has been presumed by Revenue on the basis of sale of entire production by the manufacturing units to M/s. Meghal Enterprises on the basis of mutually agreed price, the goods were known in the market to be those of Kanchan Industries, price list was circulated on the letter head of Kanchan Industries and the entire responsibilities of advertisement and publicity rested with Meghal Enterprises. These grounds do not satisfy the first part of the definition of "related person" as given in Section 4(4)(c) of the Central Excise Act, that is, all these factors do not establish that they have interest, directly or indirectly, in the business of each other. Sale of entire production by a manufacturing unit is not sufficient to prove that the purchaser is a related person as found by the Trib....
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....314) ELT 571 (T-Mum)], it has been held as under: 5.4 The definition of 'related person' has undergone substantial change w.e.f. 1-7-2000 when the new Section 4 came into existence. As per the definition of related person in the new Section 4, a person shall be deemed to be related if they are (i) inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. As per the new Section 4, if two persons are inter-connected undertakings, they would be deemed to be related persons. In the instant case, M/s. Legrand and M/s. DIPL are inter-connected as per sub-clauses (c), (d) and (g) of Section 2 of the MRTP Act. Therefore, the decisions relied upon by the respondent in the case of Kanchan Industries; Playworld Electronics Pvt. Ltd.; Sanghi Organization; Alembic Glass and Kaira Dist. Co-Op. Milk Producers Union (supra) would not help them as all of them dealt with a situation in respect of Section 4 as it stood prior to 1-7-2000. In view of the amended definit....
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....e not related persons for the purpose of sub-section (1) of Section 4." Sub-clauses (ii), (iii) and (iv) of clause (b) deals with when they are relatives, amongst them the buyer is a relative and distributor of the assessee; or they are so associated that they have interest, directly or indirectly in the business of each other. In the present case M/s DIPL and Legrand are not relatives as defined in the Companies Act nor is there any distributor relationship between the two. While Legrand has interest in the business of DIPL as discussed in the preceding paragraphs, there is no evidence available on record to show that DIPL has interest in the business of Legrand except that between a seller and buyer. Therefore, mutuality of interest in the business of each other is not established and therefore, the provisions of clause (b) of Rule 10 shall apply and the valuation has to be done by treating them as not related persons. Therefore, the selling price of Legrand cannot be taken as the assessable value of DIPL in respect of the goods sold by the latter to the former. 5.7 Then the question is whether the sale price of DIPL can be taken as the assessable value? T....
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.... case there is not even whisper of such a thing. Hence this decision does not advance the case of revenue. 4.9 In the case of Karan Engineers {2017 (357) ELT 241 (T- Del)] relied upon by the authorized representative following has been held: "10. On careful consideration of the facts and findings recorded by the original authority, we find no reason to come to a different conclusion than the one arrived at by the original authority. We find no merit in appellant's plea that there is no financial flow back or mutuality of interest among the legal entities. It is apparent that when the affairs of these 3 units were managed by overall control, the benefit accrue to the closely connected family member. There is no need to show, demonstratively, cash flow or a specific monetary consideration from one entity to another entity. The arrangements are so, that ultimately the monetary benefit should accrue to a closed group of people in a family. The arrangement is beneficial to the persons while adversely affected the proper valuation and duty payment by the manufacturing unit." This case is the case were the benefits accrued to closely connected family members, this is ....