TaxTMI 
TaxTMI 
2022 (2) TMI 952
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....f 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 21.06.2006 Appellant 1 informed the jurisdictional Assistant Commissioner of Centra....
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....ded 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 sales is obvious. * Though the Selling Agency Agreement - Domestic Sales does provide that the Appellant 1 has the right to sell the products directly to customers, but....
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....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 amounting to Rs. 3,64,91,670/- (Rupees Three Crores Sixty Four Lakhs Ninety One Thousand Six Hundred Seventy only) short paid on the goods manufactured and cleared for the period from April, 2010 to 13.12.2010 under the proviso to sub section (1)Section 11 A of the Central Exc....
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....e 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 (322) 389 (SC)] * Vinny Overseas Pvt Ltd [2009 (245) ELT 759 (T- Ahmd)] * In absence of the mutuality of interest between them, they cannot be held to related person and the transaction value between them would be the basis for the determination of assessable value as per Section 4. Since they have paid the duty accordingly the demand as per the impugned order cannot be sustained. * Demand made by the notice dated 03.02.2011, issued beyond the normal period of limitation cannot b....
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.... 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 OR they are so associated that they have interest, directly or indirectly in the business of each other. In a way it states that if these persons falls under any of the categories listed at (i) to (iii), they shall be deemed as 'related persons' or they should be so associated that they have interest, directly or indirectly in the business of each other to term them related persons under the section. The condition of having a interest in the business of each other is not called for/required in the event circumstances, if they are inter-connected undertakings, relative, amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor o....
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....ated 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 Alloys Ltd., (Noticee no. 1) are engaged in the manufacture of Fills, welding powder Alloys, Flux for welding, Coated welding electrodes and coated/uncoated gas welding roads of chapter 38 & chapter 83 of the first schedule of the Central Excise tariff Act, 1985. M/s EWAC incorporated on 4.4.1962, was formed by joint venture of M/s L&T and a non-resident on 50-50 basis. M/s L & T enhanced the equity base to 60% and M/S EWAC became a subsidiary of L&T in 1979. M/s EWAC issued 51200 equity shares to Eutectic corporation ,USA and as a result the holdings of M/s L&T reduced to 50% and consequently became an associate company of M/s L &T with effect from 18.05.93. The goods manufactured by M/s EWAC are cleare....
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...., 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 Products Division, Powai (MIPD) which show overheads charges including Administrative and Management expenses of the Corporate department of M/S. L&T Ltd allocated to MIPD. Shri P.N. Muigund, Senior Deputy General Manager, Corporate Accounts of M/S. LARSEN & TOUBRO LTD in his statement dated 27.2.07 revealed that the said Debit advices show the total expenses budgeted and incurred by the company's corporate department, which are not otherwise directly allocated to the Business Divisions. He further revealed that salaries and certain other expenses of Officials and Directors of M/s EWAC are also included in the above head. He also clarified that the said overhead is debited to MIPD since the services of the Corporate Department are availed by the said Divis....
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....aper, 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 requirements of demonstration samples, including feeders, torches and other accessories required by salesmen for demonstration, at 25% of the list price and full excise duty and sales tax payable thereon. M/s. EWAC and M/S. L&T Ltd will ensure that such materials are drawn only for bona fide use and in reasonable quantities; h) M/S. L&T Ltd shall employ and remunerate suitably qualified persons to conduct training courses at EWAC Institute in Mumbai. The conditions stipulated in the Selling Agency Agreement for Exports dated 28th December, 1998 are as follows: (a) M/S. L&T LTD has been appointed as selling Agent of EWAC for sales on Exports outside India against remuneration, (b) 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 int....
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....es 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 land and looked after marketing of the goods also. 3. The depositions of various officials and the selling arrangements confirm that not only M/s L & T Ltd., was having an interest in the business of M/S EWAC but M/s EWAC was also interested in the business of M/s L&T Ltd., as it shall enhance the brand value and share in market of Welding electrodes etc. The assessee have in their reply primarily contended that it is not in dispute that 50% of the share holding of EWAC is held by L&T but there is no material to show that EWAC holds any share in L & T and as such cannot be termed as related persons' MS EWAC is neither a subsidiary of L&T nor subsidiary of any company, which is the subsidiary of L&T nor 'relative' in terms of companies Act 1956 and as such they are not related persons within the meaning of clause (ii)&(iii) of section 4(3)b) of the Central Excise Act. R....
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....orporate 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 which runs into nearly 43 pages, discussions and findings have been recorded by the adjudicating authority in 7 pages most of which has been reproduced by us in para 4.2 above. The consideration of the submissions made by the appellant is only in the last para and what can be said to be findings on the mutuality of interest is portion indicated in bold by us. All other are statement of facts and is verbatim repetition of the show cause notice. 4.4 Having observed so, we proceed to examine the matter. Appellants do not dispute that they are "inter connected undertaking" as defined by the MRTP Act and Central Excise Act, 1944 but they state that they being not "holding and subsidiary companies" cannot be said to related in terms of Section 4, ibid as they do not have mutuality of interest in the business of each other. Board has in para 24 of the Circular dated 30.06.2000 clarified as follows: "Thus the term inte....
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....od 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 persons as they became "inter connected undertaking" and are covered by the provisions of amended Section 4(4)(3)(b) of the Act which provides that the person would 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 they have interest, directly or indirectly, in the business of each other." 15. This position was not denied even by the assessee. However, their submission was that provisions of Rule 9 of the Valuation Rules are not attracted as this Rule applies only when assessee so arranges its affairs that the excisable goods are not sold by it except to or through a person who is related in the manner specified in either of the sub-clauses (ii), (iii) or (iv) of Section 4(3)(b) of the Act. [Rule 9 does not cover clause (i)].....
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.... Assistant Collector for differential duty related to the applicability of the definition of "related person" in clause (c) of sub-section (4) of section 4 of the amended Act. The Assistant Collector took the view that the assessee on the one hand and Atul Products Limited and Crescent Dyes and Chemicals Limited on the other were related persons within the meaning of the first part of the definition of the term "related person" and the assessable value of the dyes manufactured by the assessee for the purpose of excise duty was, therefore, liable to be determined with reference to the price at which the dyes were ordinarily sold by Atul Products Limited and Crescent Dyes and Chemicals Limited. This view taken by the Assistant Collector was set aside by the High Court on the ground that the assessee on the one hand and Atul Products Limited and Crescent Dyes and Chemicals Limited on the other were not "related persons" and the wholesale cash price charged by the assessee to Atul Products Limited and Crescent Dyes and Chemicals Limited and not the price at which the latter sold the dyes to the dealers or the consumers, represented the true measure of the value of the dyes for the purp....
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....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 business of Atul Products Limited. There are two points of view from which the relationship between the assessee and Atul Products Limited may be considered. First, it may be noted that Atul Products Limited is a shareholder of the assessee to the extent of 50 per cent of the share capital. But we fail to see how it can be said that a limited company has any interest, direct or indirect, in the business carried on by one of its shareholders, even though the shareholding of such shareholder may be 50 per cent. Secondly, Atul Products Limited is a wholesale buyer of the dyes manufactured by the assessee but even then, since the transactions between them are as principal to principal, it is difficult to appreciate how the assessee could be said by virtue of that circumstance to have any interest, direct or indirect, in the business of Atul Products Limited. Atul Products Limited buys dyes from the assessee in wholesale on principal to principal basis and then sells such dyes in the market. The assessee is not concerned whether Atul Products Limited sells or ....
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.... with reference to the selling price charged by Atul Products Limited and Crescent Dyes and Chemicals Limited to their purchasers but must be determined on the basis of the wholesale cash price charged by the assessee to Atul Products Limited and Crescent Dyes and Chemicals Limited. The demand made by the Assistant Collector for differential duty must, therefore, be held to be rightly quashed by the High Court." Thus for the reason common director and 50 % share holding of the Appellant 2 in the Appellant 1 cannot be reason for establishing the appellants as related person. Further in case of Pepsi Food (P) Ltd {1993 (64) ELT 426 (T) by majority tribunal has held as follows: "43. The submissions made by the Ld. Counsel and the Ld. SDR, have been carefully considered. It is seen that the Ld. Member (T), in his order, has noted one odd fact, which is peculiar to this case and not present in the cases cited before the Bench or are not noticed by the judgments which changes the complexion of the case. This is the fact that the appellants sell the goods of their own brand name to M/s. Voltas, who are the exclusive marketers of the goods. Better the business of M/s. Voltas greater is ....
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....de of manufacturing and selling electric bulbs and electric tube-lights. They cannot have any interest in the business of each other, their interest being confined only to successful fulfilment of one contract in question." 44. Again the Delhi High Court considered the issue in its decision in the case of Jay Engg. Works Ltd. & Another v. Union of India & Others reported in 1981 (8) E.L.T. 284 (Del.) which was cited with the approval by the High Court in the above decision also. It was held that it is very difficult to say that a mere purchaser or even a sole-selling agent would be a related person within the meaning of the definition. Para 7 of this decision is reproduced below: "So far as the first question is concerned it appears to us that the answer is obviously and patently in the negative. There is no material on record to indicate that Usha and the Petitioner are so associated with each other that they can be said to have an interest directly or indirectly in the business of each other. We shall refer later on to the terms of the arrangement between the petitioner and Usha while discussing the second aspect referred to above. It will be seen therefrom that primari....
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....nd on such sale, the ownership of the goods vests with Voltas who are free, according to the Agreement, to fix their own sale price and clause 12 of the Agreement, specifically, lays down that the transaction is on a principal to principal basis and the Agreement also has a provision for termination of the contract for any failure to discharge obligations. These features of the Agreement make the facts of this case more akin to those dealt with by the Delhi High Court cited supra [1982 (10) E.L.T. 463 (Del.) and 1981 (8) E.L.T. 284 (Del.)] and dissimilar to the facts of the case dealt with by the Supreme Court in the case of Snow White Industrial (supra) relied upon by the Ld. SDR. The ratio of the High Court judgments (supra) also would support the view that the exclusive marketeering of goods through M/s. Voltas by the appellants with their brand name, may not be sufficient circumstances having regard to the factual background of the case and the features of the Agreement between the two parties to come to the conclusion that the appellants and M/s. Voltas can be held to be related persons in terms of the definition under Sec. 4(4)(c) of the Central Excises and Salt Act, 1944." ....
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....t to prove that the purchaser is a related person as found by the Tribunal in the case of Lakme Ltd., supra. All the factors mentioned in the impugned order for treating M/s. Meghal Enterprises as a related person are nothing but business transaction as Meghal Enterprises purchase the entire production of the goods manufactured by the manufacturing units on mutually agreed price and they are responsible for advertising and publicity by of the goods. Bearing the responsibility of advertisement and publicity by Meghal Enterprises does not make them related person as they have also their own interest in advertising the goods. In any case the question may be that whether cost of such advertisement is includible in the assessable value of the goods. But that is not the issue involved here. The fact that the goods are known in the market as those of Kanchan Industries does not establish the mutuality of interest. This is a normal business phenomenon. When a dealer of Maruti Udyog Ltd. sells motor vehicles of Maruti Udyog, these vehicles are known as Maruti vehicles and not the vehicles of dealers. Mutuality of interest cannot be established by merely showing that they have business deali....
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....as it stood prior to 1-7-2000. In view of the amended definition of related person, so as to include inter-connected undertakings within the purview of related person, these decisions have no relevance. Since in the present case, the two persons, namely, M/s. Legrand and M/s. DIPL are inter-connected and M/s. Legrand exercises control over M/s. DIPL as discussed above, which fact is clearly brought out from the admissions made in the statements of Mrs. U.D. Morarji, Mr. A.P. Subedar and Mr. J.C. Tharud, both the entities have to be deemed as related. Therefore, the findings of the adjudicating authority that they are not related is unsustainable in law. As per the definition of inter-connected undertakings "mutuality of interest in the business of each other" is not required. As per item (d) of sub- clause (iii) of clause (g), if "one body corporate exercises control over the other body corporate in any manner" would suffice to hold them as inter-connected. The fact that M/s. Legrand controlled the activities of DIPL is clearly established from the facts available on record. 5.6 In the case before us, we have clearly held that M/s. DIPL and M/s. Legrand are related as they ....
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....assessable value? The answer is obviously 'NO'. As discussed in the preceding paragraphs, the sale value is below the cost of production of DIPL and does not include the cost of tools, dies, moulds, drawings, etc. used in the production of the goods sold and the sale value also does not include the cost of R&D work undertaken by Legrand for the goods manufactured by DIPL and the staff cost of Legrand deputed to DIPL for supervising the operations and providing technical assistance. These are additional considerations flowing from Legrand to DIPL. Therefore, the provisions of Rule 6 of the Central Excise Valuation Rules would come into play and the ratio of the decision of the Hon'ble Apex Court in the Fiat India case (supra) would squarely apply. Rule 6 provides for inclusion of money value of additional consideration flowing directly or indirectly from the buyer to the assessee and the following elements of cost have to be added to the sale value, namely :- (i) value of materials, components, parts and similar items relatable to such goods; (ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production o....