TaxTMI 
TaxTMI 
2022 (3) TMI 399
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....ntral Excise Tariff Act, 1985. During audit, it was observed that it had cleared MS Angles and MS Channels to M/s Ashutosh Engineering Industries, Raipur which is a subsidiary of M/s Ashutosh Structures Pvt. Ltd., Raipur. It was further found that the assessee has two Directors (1) Shri Virender Kumar Agarwal; and (2) Shri Basant Kumar Agarwal. Both these Directors along with Shri K.L. Agarwal and Shri O.P. Agarwal were also found to be the Directors of M/s Ashutosh Structures Pvt. Ltd. which is the holding company of the buyer M/s Ashutosh Engineering Industries, Raipur. It was further found that the assessee was clearing similar goods sold to Ashutosh and to independent buyers on the same date on different prices and was paying duty on such prices. 3. It appeared that the assessee and Ashutosh were interconnected undertakings and therefore, related persons in terms of Section 4 of the Central Excise Act, 1944 and that it was selling goods at a lower price to Ashutosh and was paying excise duty on a lower value. It was felt that the value of the goods sold to Ashutosh must be determined as per Rule 4 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules,....
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....ment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment as may appear reasonable. 6. The prayer in Revenue's appeal is that the impugned order may be modified by confirming the entire demand as proposed in the show cause notice along with interest and penalty. 7. The appeal by the assessee is to set aside the entire demand confirmed in the impugned order along with interest and penalties on the following grounds: (i) The Commissioner has confirmed the demand of Rs. 42,64,132/- holding that the assessee and Ashutosh are inter-connected undertakings and are relatives because two Directors namely Shri Virender Kumar Agarwal and Shri Basant Kumar Agarwal are common to the appellant and the holding company of Ashutosh - viz., M/s Ashutosh Structures Pvt. Ltd. Hence, the assessee and Ashutosh are related persons in terms of Section 4 (3) (b) (i) and (ii) of the Central Excise Act, 1944. (ii) However, the assessee does not own either Ashutosh or its holding company nor do they own the assessee. (iii) Ashutosh, the buyer, is not a body corporate although ....
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....al by officers for the purpose. 11. Section 4 was amended with effect from 1.7.2000 and duty became payable on "transaction value" (which is relevant to the current period). The assessable value for each removal of the goods is the transaction value if four conditions are met: (a) there is a sale ; (b) the sale is for delivery is at the time and place of removal; (c) the assessee and the buyer of the goods are not related; and (d) the price is the sole consideration of sale. 12. If any of these four conditions are not met, the value has to be determined as per the Valuation Rules. Of the above, what is relevant to these appeals is whether or not the assessee and the buyer Ashutosh were related persons. The buyer and seller are 'related persons' according to clause (b) of sub-section (3) of section 4 if one more of the following conditions are met: (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 indire....
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....b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. ...... (3) For the purpose of this section,- (a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) 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 - BEFORE 1 April 2012 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 (64 of 1969); and FROM 1 April 2012 (i) "inter-connected undertakings" means two or more undertakings which are interconnected with each other in any of the following manners, namely :- (A) if one owns or controls the other; ....
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....ed body corporate) one-fourth of the directors of the other; or (v) if the same individual or individuals belonging to a group, while holding (whether by themselves or together with their relatives) not less than one-fourth of the equity shares in one such body corporate also hold (whether by themselves or together with their relatives) not less than one-fourth of the equity shares in the other; or (vi) if the same body corporate or bodies corporate belonging to a group, holding, whether independently or along with its or their subsidiary or subsidiaries, not less than one-fourth of the equity shares in one body corporate, also hold not less than one-fourth of the equity shares in the other; or (vii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individual (whether independently or together with his relatives) or the same body corporate (whether independently or together with its subsidiaries); or (viii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individual....
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.... it; (II) "associated persons" - (a) in relation to a director of a body corporate, means - (i) a relative of such director, and includes a firm in which such director or his relative is a partner; (ii) any trust of which any such director or his relative is a trustee; (iii) any company of which such director, whether independently or together with his relatives, constitutes one-fourth of its Board of directors; (iv) any other body corporate, at any general meeting of which not less than one-fourth of the total number of directors of such other body corporate are appointed or controlled by the director of the first mentioned body corporate or his relative, whether acting singly or jointly; (b) in relation to the partner of a firm, means a relative of such partner and includes any other partner of such firm; and (c) in relation to the trustee of a trust, means any other trustee of such trust; (III) where any person is an associated person in relation to another, the latter shall also be deemed to be an associated person in relation to the former; (ii) "relative" shall have the meaning assigned ....
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....taking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm,- (a) hold, directly or indirectly, not less than fifty per cent of the shares, whether preference or equity, of the body corporate, or (b) exercise control, directly or indirectly, whether as [Director-General] or otherwise, over the body corporate, (v) if one is owned by a body corporate and other is owned by a firm having bodies corporate as its partners, if such bodies corporate are under the same management [* * * *], (vi) if the undertakings are owned or controlled by the same person or [by the same group], (vii) if one is connected with the other either directly or through any number of undertakings which are inter-connected undertakings within the meaning of one or more of the foregoing sub-clauses. [Explanation I .-For the purposes of this Act, ][two bodies corporate,] shall be deemed to be under the same management,- (i) if one such body corporate exercises control over the other or both are under the control of the same group or any of the constituents of the same group; or (ii) if the managing d....
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....hether belonging to a group or not. Explanation II.-If a group exercises control over a body corporate, that body corporate and every other body corporate, which is a constituent of or controlled by, the group shall be deemed to be under the same management. Explanation III.-If two or more bodies corporate under the same management hold, in the aggregate, not less than [one-fourth]equity share capital in any other body corporate, such other body corporate shall be deemed to be under the same management as the first-mentioned bodies corporate. Explanation IV.-In determining whether or not two or more bodies corporate are under the same management, the shares held by [financial institutions] in such bodies corporate shall not be taken into account. [* * *] [* * *] 17. We find in these appeals the following questions need to be answered. (a) Are the assessee and the buyer Ashutosh inter-connected undertakings and thereby, related persons? (b) Are the assessee and the buyer Ashutosh also related persons in any of the other ways indicated in section 4? (c) Which Valuation Rule should be adopted for the period pri....
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....as the Directors of the assessee. In other words, Shri Virender Kumar Agarwal and Shri Basant Kumar Agarwal who are the two Directors of the assessee are also the Directors of M/s Ashutosh Structures Pvt. Ltd. whose subsidiary is the buyer Ashutosh. 20. In fact, this aspect has come to light from the assessee's own disclosure under the head of "related party disclosure" as per the Accounting Standard 18 of Institute of Chartered Accountants of India in the assessee's balance sheet. Under the head "list of enterprises over it key managerial persons or the relatives have significant influence with whom transactions have taken place", the assessee had declared the name of M/s Ashutosh Structures Pvt. Ltd. It is also not disputed that the buyer Ashutosh is a subsidiary of M/s Ashutosh Structures Pvt. Ltd. In view of these facts, we find that the assessee as well as the buyer Ashutosh are controlled by the same persons Virender Kumar Agarwal and Basant Kumar Agarwal. When these facts were disclosed by the assessee in its own balance sheets, we find no reason to accept the contention of the assessee and that they are not inter-connected undertakings in these appeals before us. We, the....
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....as "anyone who is related to such a person in any of the ways specified in Section 6 of the Companies Act and no others". Section 6 defines relative to mean members of a Hindu undivided family or husband and wife or related in the manner indicated in Schedule (1A) to the Act. A perusal of Schedule (1A) also shows that it deals with individuals, such as, father, mother, son, daughter, wife, husband etc. Nothing in the Companies Act suggests that two companies can be called relatives in terms of that Act. In this case, the assessee is a company and the buyer is a Proprietor firm owned by another company. Neither the assessee nor the buyer is an 'individual' and, therefore, they cannot be relatives. Hence, they cannot be related persons as per clause (ii) of section 4 (3) (b). Clause (iii) to section 4 (3) (b) applies to cases where the buyer is a relative and the distributor of the assessee or the sub-distributor of such distributor. There is no allegation that the distributor is the distributor or the sub-distributor of the assessee in this case. Therefore, the assessee and the buyer Ashutosh cannot be related persons as per clause (iv) to Section 4(3)(b). 25. To conclude, while ....
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....he assessee and the buyer are, in addition also related persons as per sub-Clause (ii) or (iii) or (iv) or the buyer is the holding company or a subsidiary company. (j) Rule 10 (b) deals with situations where the assessee and the buyer are interconnected undertakings as per sub-Clause (i), but they are not also related persons in terms of sub-Clauses (ii) (iii) or (iv) nor is the buyer holding for a subsidiary company of the assessee. (k) Rule 11 deals with situations which are not covered by any of the above rules. 29. The changes which have been brought in w.e.f. 2013 are only in Rules 8, 9 and 10 and not in the remaining rules. In Rule 8, which deals with captive consumption, making mandatory the assessable value to be 115% of the cost of manufacture which was reduced to 110% and 2013. Rules 9 and 10 dealt with only situations where goods were not sold except (ii) or (iii) to a related person prior to 2013. After 2013 these Rules are applicable where either whole or part of goods sold by the assessee to or through related persons. There is no other material change w.e.f. 2013. A summary of the Valuation Rules is reproduced below :- Summary of Central Exci....
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....rson consumes the goods, valuation should be done as per Rule 8. Where whole or part of the excisable goods are sold by the assessee to or through a related person as per sub-clauses (ii), (iii) or (iv). Rest is the same. 8. Rule 10(a)- Goods sold to an 'inter-connected undertaking', as per subclause (i) of clause (b) of sub-section 3 of section 4 of the Act who are also related persons in terms of subclauses (ii) or (iii) or (iv) or the buyer is a holding company or a subsidiary company of the assessee Only when the assessee so arranges that the excisable goods are not sold by him except to or through an interconnected undertaking. Valuation should be as per Rule 9. Where whole or part of the excisable goods are sold by the assessee to or through an inter-connected undertaking. Valuation should be as per Rule 9. 9 Rule 10(b)- Goods are sold to inter-connected undertaking, as per subclause (i) of sub-section 3 of section 4 of the Act but is not related as per subclauses (ii) to (iv) Value shall be determined as if they are not related persons for the purpose of subsection (1) of section 4 Value shall be determined as if they are not related persons for....