Case Law Details
Hindustan Engineering Enterprises Vs Commissioner of Central Excise and Service Tax (CESTAT Chandigarh)
The appeals arose from a common order of the Commissioner (Appeals), CGST, Panchkula, which had upheld an Order-in-Original confirming central excise duty demand, interest, and penalties against the appellants. The appellant manufacturer was engaged in the manufacture of submersible pumps and sold its products through a marketing company. During investigation, the Department alleged that the manufacturer had deliberately lowered the price of its products by routing sales through the marketing company, resulting in underpayment of central excise duty. For the period September 2015 to June 2016, an excise duty demand of ₹2,28,348 was computed and confirmed along with interest and penalties.
Before the Tribunal, the appellants contended that the issue had already been decided in their favour in earlier proceedings involving the same parties and similar facts. They argued that the manufacturer and the marketing company were not “related persons” under Section 4(3)(b)(ii) of the Central Excise Act, 1944 read with Section 2(41) of the Companies Act, 1956 and Rule 9 of the Central Excise Valuation Rules, 2000. According to the appellants, the concept of “relative” under the Companies Act applies to natural persons and not to corporate entities. They further submitted that there was neither any allegation nor any finding that the transaction value between the entities was influenced by their relationship. The goods were sold by the marketing company at only a small profit margin and valuation had correctly been adopted on the basis of transaction value.
The Tribunal noted that the issue was no longer res integra and had already been decided in the appellants’ own cases for earlier periods. Referring to its previous orders, the Tribunal reiterated that a private limited company and a partnership concern do not fall within the category of “relatives” as contemplated under Section 4(3)(b)(ii) of the Central Excise Act read with the relevant provisions of the Companies Act. Consequently, the entities could not be treated as related persons for valuation purposes.
The Tribunal further observed that Rule 9 of the Central Excise Valuation Rules applies where goods are sold only through related persons. In the present case, the manufacturer was not exclusively selling goods through the marketing company but was also making sales to government departments and undertaking exports. Therefore, the conditions necessary for invoking Rule 9 were not satisfied.
The Tribunal also took note of earlier orders where proceedings for different periods had either been dropped by the Commissioner (Appeals) or where Revenue’s appeals had not succeeded. Based on the earlier decisions in the appellants’ own cases and the findings regarding the absence of a related-person relationship and the inapplicability of Rule 9, the Tribunal concluded that the impugned orders could not be sustained.
Accordingly, following its earlier rulings on the same issue, the Tribunal set aside the impugned order and allowed the appeals filed by the appellants.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
These two appeals are directed against the common impugned order dated 15.03.2018 passed by the Commissioner (Appeals) CGST, Panchkula, whereby, the Commissioner (Appeals) has rejected the appeal of the appellant and confirmed the Order-in-Original. Since, the issue involved in both the appeals are inter-connected and both have been decided by the common impugned order, therefore, both the appeals are taken up together for discussion and decision.
2. Briefly the facts of the present case are that M/s Hindustan Engineering Enterprises are engaged in the manufacturing of Submersible Pumps falling under Chapter Heading 841313. They were selling their products through a related marketing firm M/s Malkoh Marketing Pvt. Ltd. During the course of investigations, it was found that M/s Hindustan Engineering Enterprises had wilfully lowered the price of their product by arranging to sell their goods through M/s Malkoh, which resulted in issuance of Show Cause Notices to demand and recover Central Excise duty since 2003-04. The appellants are being issued show cause notices for the subsequent period thereto. For the period September, 2015 to June, 2016 the details of goods manufactured by M/s Hindustan Engineering Enterprises and sold through M/s Malkoh Marketing Pvt. Ltd. was called for and an evasion of Central Excise duty amounting to Rs. 2,28,348/- was calculated and the appellants were issued Show Cause Notice dated 05.10.2016 to demand and recover Central Excise duty amounting to Rs. 2,28,348/- with interest besides proposing penal action against both the appellants that the adjudicating authority vide the Order-in-Original dated 18.10.2017 confirmed the demand along with interest and imposed penalties. Aggrieved by the said order, the appellant filed the appeal before the Commissioner (Appeals) who rejected the same. Hence, the present appeal.
3. Heard both the parties and perused the material on record.
4. Learned Counsel for the appellant submits that the dispute in the present case is no more res integra and has been decided in the appellant’s own cases for the previous period by the Tribunal in the following cases:
i) Hindustan Pumps & Electrical Engineering Pvt. Ltd. & Malkoh Marketing Pvt. Ltd. vs, C.C.E. & S.T., 2018 (10) TMI 532- CESTAT Chandigarh
(ii) Hindustan Pumps & Electrical Engineering Pvt. Ltd. & Malkoh Marketing Pvt. Vs. C.C.E. & S.T., decided vide Final Order No. 60685-60688/2024 dated 19.12.2024
(iii) Hindustan Pumps & Electrical Engineering Pvt. & Malkoh Marketing Pvt. Ltd. Vs. C.C.E. & S.T., decided vide Final Order No. 61730-61733/2025-DB dated 28.11.2025.
4.1 He further submits that both the authorities below have wrongly held that the appellant i.e. HEE (which is a company during the relevant period of time) and MMPL are related persons in terms of section 4(1)3(b)(ii) of the Central Excise Act, 1944 read with rule 9 of the Central Excise (Valuation) Rules, 2000 and section 2(41) of the Companies Act, 1956. He further submits that perusal of section 2(41) of the Companies Act, 1956, read with section 6 and Schedule IA of the said Act, it can be appreciated that the relationship between the natural persons have been enumerated as “relatives”. Hence, two corporate entities cannot be “relative” in terms of section 4(1)3(b)(ii) of the Central Excise Act, 1944 read with section 2 (41) of the Companies Act, 1956. He further submits that in the case of Hind Lamps Ltd. v. Union of India [1977 E.L.T. (JI), the Hon’ble Allahabad High Court has held the concept of ‘relative’ as envisaged in Section 4(1)3(b)(ii) of the Central Excise Act, 1944, have no application to the case where the five customer-companies were not natural persons but impersonal bodies. He further submits that the decision has been affirmed by the Hon’ble Supreme Court in the case of U.O.I. vs. Hind Lamps, 1989 (43) E.L.T. 161 (S.C.). He further submits that the HEE and MMPL are not the related persons in terms of any clause of Section 4(1)(3) the Central Excise Act, 1944. He further submits that neither there is allegation in the show cause notice nor any findings that the transaction price charged by HEE from MMPL was influenced by their relationship. The price was the sole consideration for the sale as evident from the fact that MMPL has sold the same goods at the profit of 5 to 7% only and valuation has been correctly made at the transaction value and Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, has no application in the present case.
4.2 On the other hand, learned authorized representative for the appellant reiterated the findings of the impugned order.
5. We have considered the submissions of both the parties and perused the material on record, we find that the issue involved in the present case is no more res integra and has been decided in favour of the appellant by this Tribunal in the decisions cited (Supra).
6. In this regard, we may refer to the findings of the Tribunal in the case of M/s Hindustan Engineering Enterprises Vs. Commissioner of Central Excise, vide Final Order No. 6068560688/2024 decided on 19.12.2024, wherein the Tribunal has held as under:
6. Heard both sides and perused the records of the case. We find that the same issue has come for consideration before this Bench in the appellant’s own case for the demand raised for the period 2003-04 and 2005-06. The Bench vide Final Order No.63235-63241/2018 dated 05.10.2018 held that:
11. On going through the above provisions, we find that in terms of section 4(3)(b)(ii), If the person is relative then he should be relative in terms of Section 2(41) of Companies Act, 1956, which defines that relative means with reference to any person who is related to such person in anyway specified section 6 of and no others. The section 6 as cited hereinabove defines the relationship.
12. On going through the same, we find that as the Private Limited Company is not a living person and partnership firm is consist on various partners but the private company/partnership firm find no mention in limited schedule of 1(A) of section 6 of the Companies Act, 1956, therefore, the Revenue’s case fails on this ground only.
13. In view of the above, we hold that the appellants are not related person in terms of Section 4(3)(b)(ii) of the Central Excise Act, 1944.
14. Further, we take note of the fact that valuation is to be done if the goods are not sold by the assessee except through the persons who is related. Admittedly, whole of the goods are not sold by the M/s Hindustan through M/s Malkoh. In fact, M/s Hindustan is selling goods to Government Department as well as for exports. In that circumstances, the provisions of Rule 9 of Central Excise Valuation Rules, 2000, are not applicable to the facts of this case. Therefore, on that ground also, the charge of Revenue of under valuation is not sustainable.
15. Without going to the other aspect of the case, we hold that the appellant are not related persons in terms of section 4(3)(b)(il) of Central Excise Act, 1944 and provisions of Rule 9 of the Central Excise Valuation Rules, 2000, are not applicable to the facts of this case, therefore, the impugned orders are not sustainable in the eyes of law.
7. We further find that Commissioner (Appeals) vide Order dated 16.04.2013, deciding an order passed in respect of proceedings initiated against the appellants for the period January 2010 to September 2010, dropped the allegations. On an appeal filed by the Revenue against the said order, this Bench vide Final Order No.60628-60629/2023 dated 28.11.2023 dismissed the appeal, albeit on monetary grounds. We further find that Commissioner (Appeals) vide Order dated 28.01.2014 dropped the proceedings Initiated for the period October 2010 to July 2011.
8. In view of the above, we find that the issue is squarely covered in favour of the appellants and the impugned orders cannot be sustained. Accordingly, we allow all the four appeals.
7. By following the ratios of the above cited decisions in the appellant’s own case cited (supra), we set aside the impugned order by allowing the appeals of the appellants.
(Operative part of the order pronounced in the open court)
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