In absence of mutuality of interest two persons cannot be treated as related

Brief of the case:

• The Hon’ble Supreme Court in the case of M/s Goodyear South Asia Tyres held that in order to brand two persons as relatives on the basis of mutuality of interest it is necessary to show that such interest is from both sides in the business of one another.
• Thus, the fact that assessee company is a joint venture of buyers and receiving certain assistance from buyers to smoothen its operations would not result in the interest of business of one another, at the best it is unilateral interest of buyer in the business of assessee company.

Facts of the case:

• The assessee is a joint venture of RPG SATL and Goodyear , known as M/s SATL. It was formed for manufacture OTR tyres and Radial tyres exclusively for CEAT and Goodyear under their brand names.
• The assessee received unsecured interest free loan of Rs.85.66 crores from CEAT and Goodyear. Some moulds and other equipments worth Rs. 10 crores free of cost, on loan basis, were also given by these two companies to the assessee.
• Such assistance by promoter companies to assessee was examined by the customs officer who issued show cause notice requiring to show cause as to why the assessee and promoter companies (buyers) are not to be treated as related persons as per Sec 4(4)(c) of the Act.
• After considering the reply of assessee, the adjudicating authority demanded differential duty by making valuation treating the assessee and buyers as related persons.
• The appeal of assessee was allowed by tribunal on the ground that there was no mutuality of interest in the present case.

Contention of the Revenue:

• The assessee and buyers have interest in the business of one another because the buyers are dependent on the manufacturing activity of the assessee and the assessee on the assistance from buyers for its smooth running of its business.
• Further, the interest is also natural because the assessee and buyers are under same management and to some extent common control.

Contention of the Assessee:

• Sale of goods by assessee to these two companies was on principal to principal basis and at arm’s length.

• There is no mutuality of interest because the assessee has no interest in the business of buyers. It is the interest of the buyers in the business of assessee to whom the assessee company is supplying the goods manufactured by it.

Held by Hon’ble Supreme Court:

• The point of dispute is whether the assessee company and buyers ((Goodyear Indian Limited and CEAT Limited) are related persons as defined u/s 4(4)(c) of the Act.
• The revenue has based its valuation by considering them related person on the basis of “mutuality of interest in the business of one another”. The expression clearly means that interest of the two persons have to be mutual, i.e., in each other to treat them as related persons.
• Two companies had given a loan of Rs. 85.66 crores to the assessee company, Further, some moulds and equipments were also supplied free of cost. It was done to smoothen the operations of assessee company from whom the lenders are purchasing goods.
• This clearly show that the buyers have interest in the business of assessee, but not vice-versa. Therefore, to brand them as related persons interest has to be from both sides in the business of one another which is missing in the present case.

• On the basis of above findings, the court disallowed the revenue’s appeal to make valuation treating the assessee and buyers as related parties.

NF