Khyati Ispat Private Limited Vs Principal Commissioner (CESTAT Delhi)
The facts of the case, in brief, are that M/s Khyati Ispat Pvt. Ltd., Raipur3, is a private limited company engaged in manufacture of Iron and Steel products, such as, angles, channels & joists falling under Chapter 72 of Schedule II to the Central 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, Raipur4. 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.
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, 20005 upto 30.11.2013 and thereafter through cost plus method under Rule 8 of the Valuation Rules. Accordingly, the SCN was issued demanding differential duty of Rs. 3,27,90,997/- under Section 11A of the Central Excise Act along with interest under Section 11AB (upto 07.04.2011) and under Section 11AA (after 07.04.2011) on the duty short paid. It was also proposed in the SCN to impose a penalty upon the assessee under Section 11AC.
In this case, it is undisputed that the buyer Ashutosh is owned by M/s Ashutosh Structures Pvt. Ltd. which has four Directors, two of whom are the same 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.
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, therefore, find that the assessee and M/s Ashutosh are interconnected undertakings in terms with Section 4 (3) (b) (i) of the Act.
We, find that the assessee has an interest indirectly in the business of the buyer Ashutosh as the directors of the assessee are also two of the four directors of the holding company of the buyer Ms/ Ashutosh Structurals Pvt. Ltd. However, there is no evidence to show that the buyer Ashutosh also has an interest in the business of the assessee. Therefore, while the interest has been established in one direction there is no evidence of business interest in the other direction namely that there is no evidence that the buyer was interested in the business of the assessee. Therefore, we find that they are not related persons in terms clause (iv) of section 4(3) (b).
Section 2 (41) of the Companies Act defines relative 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).
To conclude, while we find that the assessee and M/s Ashutosh are inter-connected undertakings and hence are related in terms of Clause (i) of Explanation to Section 4 (3) (b), they are not related in terms of Clause (ii) (iii) or (iv).
The prayer of the Revenue that the goods cleared by the assessee and sold to M/s Ashutosh should be valued under Rule 4 cannot be accepted. Rule 4 deals with goods which are sold but not at the time of removal. In such a case the value should be as per the transaction value at any time nearest to the time of removal of goods under assessment subject to adjustment on account of the difference in the dates of delivery of goods. In this case, there is no dispute that the goods were sold at the time of removal. The only allegation is that the assessee and M/s Ashutosh are related persons. The Commissioner found that they were related in terms of clauses (i) and (iv) of Section 4(3) (b). However, we have recorded our finding that they are not related as per clause (iv) of section 4(3)(b) because the interest of the buyer M/s Ashutosh in the business of the assessee has not been shown or established. Therefore, the appropriate rule to be applied is Rule 10 (b) both for the period prior to 2013 and after 2013.
As Rule 10 (b) squarely covers the transaction, value has to be determined as per this Rule. For the goods cleared to Ashutosh, it should be assessed as if the assessee and the buyer are not related persons. In other words, the transaction value has to be accepted.
We, therefore, find that Revenue‟s appeal seeking valuation of goods sold prior to 2013 as per Rule 4 is not correct and the valuation has to be done in terms of Rule 10 (b), i.e., as per the transaction value both for the period prior to and after 2013. Consequently the demand of duty under Section 11 A cannot be sustained either in the normal period or for the extended period. The demand of interest and the penalties imposed also cannot be sustained consequently.
FULL TEXT OF THE CESTAT DELHI ORDER
These two appeals have been filed by the assessee and the Revenue assailing the same order-in-original dated 15.05.20191 passed by the Principal Commissioner, Central Tax and Central Excise, Raipur, whereby he decided the show cause notice dated 01.05.20152 issued to the assessee.
2. The facts of the case, in brief, are that M/s Khyati Ispat Pvt. Ltd., Raipur3, is a private limited company engaged in manufacture of Iron and Steel products, such as, angles, channels & joists falling under Chapter 72 of Schedule II to the Central 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, Raipur4. 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, 20005 upto 30.11.2013 and thereafter through cost plus method under Rule 8 of the Valuation Rules. Accordingly, the SCN was issued demanding differential duty of Rs. 3,27,90,997/- under Section 11A of the Central Excise Act along with interest under Section 11AB (upto 07.04.2011) and under Section 11AA (after 07.04.2011) on the duty short paid. It was also proposed in the SCN to impose a penalty upon the assessee under Section 11AC.
4. In the impugned order, the Principal Commissioner has partly confirmed the demand and partly rejected it as follows:-
