SKF India Limited Vs Commissioner of Central Excise (CESTAT Ahmedabad)
Summary: The appeals arose from subsequent proceedings concerning the manufacture of ball and roller bearings classified under Chapter Heading 84 of the Central Excise Tariff Act, 1985. The bearings were ultimately used by Railways, in generation of wind energy or for other purposes, and the entire goods were sold through SKF India Limited. For bearings used for wind energy, the appellants had availed exemption under Notification No. 6/2006-CE dated 01.03.2006.
Revenue issued show cause notices for the period 2009-10 to 2013-14 and thereafter for the subsequent period April 2014 to March 2017, primarily on two grounds: first, that the appellants and SKF India Limited were related persons and, therefore, excise duty was payable on the price at which SKF India Limited sold the goods to ultimate customers; and second, that the appellants were not entitled to the exemption under Notification No. 6/2006-CE in respect of bearings sold for generating electricity from wind.
The appellants submitted that both issues had already been decided in their own case by the Tribunal through Final Order No. A/11135-11137/2020 dated 25.08.2020 for the earlier period. Revenue did not dispute that the earlier Tribunal order had been challenged before the Hon’ble Apex Court, but requested that the present proceedings be kept pending until the Supreme Court decided the matter. The Tribunal noted that no stay had been granted by the Supreme Court and declined the request to keep the matter pending.
On the first issue, the Tribunal relied upon its earlier decision concerning whether SKF India Limited and SKF Technologies India Pvt. Ltd. were related persons under Section 4(3)(b)(iv) of the Central Excise Act, 1944. Revenue had relied upon factors including common control by their holding company AB SKF, Sweden, transactions described as related-party transactions in the balance sheet, a loan agreement and the fact that the entire production was sold through SKF India Limited. The earlier Tribunal decision found that the loan transaction, carrying interest at 9% with periodic revision subject to the specified conditions, was a business transaction and did not establish an interest in the business of each other. Similarly, sharing of staff costs, where the costs were charged to each other, was considered a business transaction.
The earlier Tribunal decision further held that the mere fact that the entire production of SKF Technologies India Pvt. Ltd. was sold through SKF India Limited was insufficient to establish that the two entities were related persons. It found that there was no positive evidence showing that the entities had an interest, directly or indirectly, in the business of each other as contemplated by Section 4(3)(b)(iv) of the Central Excise Act, 1944. Consequently, the transaction value between the two entities was accepted for assessment purposes.
On the exemption issue, the earlier Tribunal decision considered Notification No. 6/2006-CE dated 01.03.2006 and Revenue’s contention that the notification covered only parts of generators and not other components of a windmill. The Tribunal considered CBIC Circular No. 1008/15/52015-CX dated 20.10.2015, which specified various items used by wind-operated electricity generators, including the tower, nacelle, rotor and wind turbine controller. It held that the expression “wind operated electricity generator” in the notification covered the entire setup, including the tower, generator and blades, and was not confined merely to the generator as an individual component.
The earlier Tribunal decision also considered the Larger Bench decision in Rakhoh Enterprises 2016 (338)-ELT-449 (Tri-L.B.), concerning components forming an extension or part of a tower. It concluded that the interpretation sought by Revenue was too narrow and that the bearings used at various locations in the windmill, including the rotor shaft, gearbox, generator and yaw gearbox, were covered by the expression “wind operated electricity generator” in Notification No. 6/2006-CE.
Following the earlier decision in the appellants’ own case, the Tribunal held that the appellant and SKF India Limited could not be treated as related parties and that the transaction value between them was the correct value for assessment. It further held that the appellant was entitled to the benefit of exemption under Notification No. 6/2006-CE dated 01.03.2006 for clearances made for generating electricity through windmills.
Accordingly, finding that the issues were no longer res-integra, the Tribunal found no merit in the impugned orders, set them aside and allowed the appeals with consequential relief, if any.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
These appeals are arising out of the subsequent proceedings initiated against the appellants for the subsequent period therefore all the appeals are disposed by a common order.
2. The facts of the case are that the appellants are engaged in the manufacture of ball and roller bearing classified under Chapter Heading 84 of Central Excise Tariff Act, 1985. These bearings are ultimately used by Railways or in generation of wind energy or for other purposes. The entire goods are sold through SKF India Limited. As regards the bearings used for wind energy, the appellants have availed the benefit of exemption provided under Notification No. 6/2006-CE dated 01.03.2006. The investigation was conducted and thereafter the show cause notices were issued for the period 2009-10 to 2013-14 on the following grounds:-
(a) The appellants and M/s. SKF India Limited are related persons, the excise duty is payable on the priced at which M/s. SKF India Limited has sold the goods to the ultimate customers.
(b) The appellants are not entitled to the benefit of exemption under Notification No. 6/2006-CE on bearing sold for generating electricity from wind. Thereafter the impugned show cause notices were issued to the appellants for the subsequent period April 2014 to March 2017.
3. Learned Counsel for the appellant submits that the issue has already been settled by this Tribunal vide Final Order No. A/11135-11137/2020 dated 25.08.2020 in the appellant’s own case for the earlier period and these being the subsequent show cause notices, therefore the Tribunal decision for the earlier period be followed.
4. On the other hand learned Authorised Representative submitted that the order of this Tribunal has been challenged in the Hon’ble Apex Court and stay application has also been filed and the matter has come up before the Hon’ble Apex Court on several occasions. He prays that till the decision of Hon’ble Apex Court in the matter, the matter be kept pending.
5. Heard the parties, considered the submissions. On careful consideration of the submissions made by learned Authorised Representative, although the order of this Tribunal has been challenged before the Hon’ble Apex Court but no stay has been granted by the Hon’ble Apex Court till date. Moreover, the matter has come before the Hon’ble Apex Court on four occasions in the past. In these circumstances, without obtaining stay of operation of the order of this Tribunal, we decline the request of keeping the matter pending, made by learned Authorised Representative. Therefore, we proceed to decide the issue.
6. We find that on the earlier occasion, in the appellant’s own case, for the earlier period, this Tribunal observed as under:-
10. We have considered rival submissions. We find that there are two issues which are needed to be decided. Firstly, if M/s SKF India Ltd. and M/s SKF Technologies India Pvt. Ltd. are related persons in terms of the Central Excise Act, 1944. Secondly, to see if the benefit of notification no. 06/2006 can be extended to the bearings manufactured by the SKFTIL and supplied for use in the wind operated electricity generators.
10.1 It has been asserted by Revenue that M/s SKFIL and M/s SKFTIL are related as both of them are controlled by their holding company, namely M/s AB SKF, Sweden. It has been asserted by Revenue that M/s SKFTIL in their balance-sheet have reiterated under the heading <related parties transactions= with SKFIL. It has also been asserted that there is a loan agreement dated 08/12/2008 between M/s SKFIL and M/s SKFTIL under which M/s SKFIL has extended significant amount of loan to M/s SKFTIL. It has also been asserted by Revenue that SKFTIL does not have any backup for selling goods in the market and the entire marketing is looked after by the SKFIL. Similarly, M/s SKFIL does not have manufacturing capabilities and they are dependent on M/s SKFTIL for manufacturing of goods. On the basis of assertions, Revenue has sought to treat M/s SKFIL and M/s SKFTIL as related parties under clause (iv) section 4(3)(b) of the Central Excise Act, 1944. The said section 4 reads as under:
(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.”
Clause (iv) has been involved in present facts.
10.1 We find that so far as loan granted by M/S SKFIL to M/s SKFTIL is concerned interest at the rate of 9% has been fixed. It has also been specified that the rate of interest would be revised regularly at half yearly basis and shall not be less than the prevailing bank rate under section 49 of RBI Act, 1934. In view of above, it is apparent that this a purely business transaction and not a transaction creating interest in the business of each other.
10.2 It is seen that M/s SKFIL and M/s SKFTIL are sharing some staff cost. It is seen that M/s SKFIL has factories located in Bangalore, Haridwar, Pune, Manesar and Jamshedpur, also for 5 branches located all over the country. There are also two associate companies namely M/s SKF Technologies Ltd. and M/s Lincoln Helios India Ltd. Among these organisations, M/s SKFIL has identified the departments where they share the cost incurred on staff. We find that these are purely business transaction and cost sharing cannot be treated as transaction creating interest in business of each other. Had it been the case that M/s SKFIL were providing such services free of cost or at subsidised rates to the other, then one could have asserted that there was an interest in business of each other. In this case, the costs of staff are charged to each other. Therefore, it can only be treated as business transaction.
10.3 The mere fact that the entire production of M/S SKFTIL is sold through M/s SKFIL is not sufficient to make them related parties. There has to be positive evidence of them having interest in the business of each other. The mere fact that M/s SKFTL are reporting transactions with M/s SKFIL as <related party transaction= in their balance sheet is irrelevant. The criteria for treating two parties as related is very well defined in Central Excise Act and treatment given by the appellant in their balance sheet has no relevance in the facts of this case.
10.4 We find that no such evidence has been produced by Revenue and in these circumstances they cannot be treated as related parties. Since the two cannot be treated as related parties, the transaction value between SKFIL and SKFTIL has to be accepted for the purpose of assessment. The appeal on this count is allowed.
11. The next issue related to the admissibility of notifications of 06/2006 to the bearings manufactured by the M/s SKFTL and ultimately sold for use in the wind operated electricity generators as parts. Revenue has sought to deny the benefit of this notification by asserting that the earlier notification no. 05/99 dated 28/02/1999 exempted the following in serial no. 13 of list 4:
”Windmills parts of windmills and any special designed devises which run on windmills= Revenue has asserted that the description was changed from <windmills, parts of windmills and any special designed devises which run on windmills= to <wind operator electricity generator, its components and parts thereof including rotor and wind turbine controller.=
11.1 It has been argued that only parts of „generators‟ are exempted and not parts of wind mill. The crux of the argument being that only the generator used in the wind mill is windmill generators and balance, that is, blades and the towers are not parts of the generators. It is seen that circular no. 1008/15/52015-CX dated 20/10/2015 of the Board clearly specified that the following items used by wind operated electricity generator, will be exempt from payment of excise duty:
(i) ”Tower: which supports the nacelle and rotor assembly of a wing operated electricity generator.
(ii) Nacelle:which contains of gearbox, generator, yaw components, flexible couplings, brake hydraulic, brake callipers, sensors, nacelle plate, nacelle cover and other smaller components.
(iii) Rotor: consists of blades, hub, nosecone, main shaft, special bearings.
(iv) Wind turbine controller, nacelle controller, main shaft, special bearings.”
From the above, it is clear that the CBIC treats the entire „wind mill‟ as the „wind operated electricity generators‟. The generator fixed in the „wind operated electricity generator is merely a sub system.
11.2 The appellants have also relied on the decision of larger bench of Tribunal in the case of Rakhoh Enterprises 2016 (338)-ELT-449 (Tri- L.B.) is as follows: <We find that the anchor rings and the load spreading plates are specifically designed for the purpose of attaching the tower to the ground by providing necessary bolts for the same. The anchor rings and the load spreading plates are an extension of the tower, though the same is fixed to the foundation first and later attached to the tower. Thus they are parts of the tower”
This decision also supports the appellant’s case.
11.3 Appellants have contended that the bearings are used at various places in the wind mill like rotor shaft, gearbox, generator, yaw gearbox, etc. We find that the interpretation sought by Revenue is very narrow. The term wind operated electricity generator appeared in notification 06/2006-CE dated 01.03.2006 includes the entire setup i.e. the tower, the generator, the blades which are used to generate electricity from wind. The term „wind operated electricity generator‟ in the notification does not refer to solely to the generator which is just one of the parts of the wind operated electricity generator. In view of above, we do not find any merit in the argument of Revenue and the demand on that is set aside. Hence, the appeal is consequently allowed.”
7. As both the issues which forms the basis of demand in the impugned orders have been decided by this Tribunal, therefore we hold that the appellant and SKF India Limited cannot be treated as related parties. Therefore, the transaction value between the appellants and SKF India Limited is the correct value for the purpose of assessment. We further hold that appellant is entitled for the benefit of exemption Notification No. 6/2006-CE dated 01.03.2006 as claimed for the clearances made for generating electricity for wind mills.
8. In view of this, as the issue is no more res-integra, we do not find merits in the impugned orders. Accordingly, the impugned orders are set- aside and the appeals are allowed with consequential relief, if any. (Operative part of the order pronounced in the open court)
