By TIOL News Service

MUMBAI, FEB 26, 2019: THIS is a Revenue appeal against the o-in-a passed by the Commissioner of Central Excise (Appeals), Nagpur in which the order of the original authority, confirming differential duty liability of Rs.16,24,669/- and Rs.6,55,953/- has been set aside.

The facts are that the respondent had been supplying 'steel ingots' to M/s. Orange City Alloys Pvt. Ltd on payment of duty at transaction value which is claimed by the central excise authority to be below the cost of production and as the transaction was between two related persons and, therefore, duty should have been discharged under rule 8 of Central Excise Valuation Rules, 2000, on cost of production plus 10%. The principal ground for the appeal of Revenue is that the two are 'interconnected' and, therefore, 'related'. It is also submitted that 'waste' and 'scrap' generated by the purchasing undertaking is an 'input' in the operations of the other.

The respondent assessee submitted that Explanation in section 4 of CEA, 1944 defines 'interconnected undertakings' and furthermore as per section 4(3)(b), persons are deemed to be related if they are inter alia interconnected undertakings.

Also, the provisions of rule 8 would come into play only when, as per rule 10, the undertakings that are interconnected are also related in terms of sub-clause (ii) or (iii) or by clause (b) of sub-section (3) of section 4 of the Central Excise Act 1944. Inasmuch as the applicability flounders in the absence of any interest, directly or indirectly, in the business of each other.

The Bench considered the submissions and observed -

++ It is seen from the records that though neither company are connected to each other directly, common shareholding in both the companies may well render them as 'interconnected undertakings.'

++ Though interconnection between undertakings is one of the criteria for determining related person, the provisions of rule 9 excludes applicability on this ground and rule 10, which is pertinent, permits recourse to rule 8 only when these 'interconnected undertakings' have demonstrable interest in the business of each other. The flow of material from the appellant to the other unit does not suffice to establish mutual interest in the business of each other.

++ The context of such a commercial relationship ['waste' and 'scrap' generated by the purchasing undertaking being an 'input' in the operations of the other] cannot be said to meet with the qualification of having an interest in the business of each other.

++ In the present instance, the definition of related person, though including interconnected undertaking, as found by the appellate authority is not admitted and certainly does not extend to the valuation provision invoked in the show cause notice.

++ The reviewing authority appears to have omitted to consider the substantial difference between rule 9, which is applicable in certain conditions of relationship, and rule 10 which is applicable to circumstances in which the relationship between the buyer and the seller is solely between the interconnected undertakings.

Placing reliance on the decision in Handy Wires Pvt. Ltd - 2015-TIOL-2451-CESTAT-MUM, the Tribunal concluded that the o-in-a is legal and proper.

The Revenue appeal was dismissed.

(See 2019-TIOL-606-CESTAT-MUM)