By TIOL News Service

MUMBAI, OCT 05, 2016: THE appellant, a subsidiary company of M/s M& M Ltd., Mumbai, are engaged in the manufacture of Sintered Products. The appellants' were supplying 3 types of components (Sintered bushes/bearing) to M/s M& M Ltd. for the manufacture of Motor Vehicles at their plants at Igatpuri, Kandivali and Nagpur. The prices charged by the appellants to M/s M & M Ltd. were negotiated prices on principal to principal basis. The appellants paid CE duty considering the same as ‘Transaction Value' as per Section 4 of the CEA, 1944. The sales to M/s M & M Ltd. were below 2% of the total sales during the period from 1.7.2000 to 31.12.2000.

Revenue alleged that the valuation adopted in respect of the aforesaid clearances to M&M Ltd. is improper inasmuch as these companies are related persons in the sense that they fall within the category of interconnected undertakings in terms of definition given in sub-Section (9) of Section 2 of MRTP Act, 1969. That is to say, that the prices charged are at a rate lower than that arrived as per cost construction method and without adding 15% by way of profit margin. Demands were confirmed with interest and penalties were also imposed.

None appeared for the appellant before the CESTAT but a request for adjournment was made. The Bench observed that the matter is of the year 2005 and, therefore, declined the request.

As for the appeal, the Bench noted -

+ The law is well settled inasmuch the transaction value can be rejected only if both the units have mutual interest in business of each other. While holding company may have an interest in the subsidiary company, subsidiary company may not have any interest in the holding company. In the case in hand, it is on record and undisputed, that appellants sells 98% of his finished goods to outsiders/independent buyers, and only 2% of the finished goods manufactured are sold to the holding company.

After extracting rule 9 of the Valuation Rules, 2000, invoked in the SCN, the Bench held -

"5.1 Plain reading of the said rule will indicate that the said rule assuming that the subsidiary and holding company are interconnected, the said rule will be applicable only if the excisable goods manufactured by the appellants are not sold except to or to related person. It is to be noted the rule contemplates that entire production needs to be sold through the holding company. In the case in hand, the entire production is not sold to the holding company. In view of this, provisions of rule 9 are not invokable in the case in hand. On this point itself, the impugned order is liable to set aside."

The impugned order was set aside and the appeal was allowed with consequential relief.

(See 2016-TIOL-2620-CESTAT-MUM)