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2015 Supreme(SC) 763
SUPREME COURT OF INDIA
A.K. SIKRI, ROHINTON FALI NARIMAN, JJ.
COMMISSIONER OF CENTRAL EXCISE, AURANGABAD – Appellant
VERSUS
M/S.GOODYEAR SOUTH ASIA TYRES P. L.& ORS. – Respondents
CIVIL APPEAL NOS. 1947-1950 OF 2003
WITH
COMMISSIONER OF CENTRAL EXCISE, AURANGABAD – Appellant
VERSUS
M/S.GOODYEAR SOUTH ASIA TYRES PVT. LTD. – Respondent
CIVIL APPEAL NO. 4370 OF 2003
Decided On : 22-07-2015
IMPORTANT POINT
The party giving loan and the borrower do not become ‘related persons’.
Even if the parties are related persons but the assessee is selling major portion of its product to third parties, Rule 9 of the Valuation Rules will not apply.
Headnote:(a) Central Excise Act, 1944 – Section 4(4)(c) – Related person – Have to be 'in the business of each other' – Business is a two way traffic – Two Companies giving loan to assessee – Loan is one way traffic – No mutuality of interest – Not sufficient to hold that parties are 'in the business of each other' and hence related persons – No infirmity in impugned judgment of CEGAT. (Para 8, 11)
1984 (17) ELT 323 – Relied upon
(b) Central Excise Act, 1944 – Section 4(4)(3)(b) – “Inter connected undertaking” – Assessee becoming fully owned company of Goodyear – Becoming “inter connected undertaking” and hence ‘related persons’ – Assessee selling more than 70 per cent of its products to third parties – Rule 9 of Valuation Rules do not apply. (Para 12, 15)
2015 (4) SCALE 631 – Relied upon
Facts of the case:
The respondent (the 'assessee') holds Central Excise Registration for the manufacture of Tyres, Tubes, Flaps, Bladders, etc., falling under Chapter 40 of the Central Excise Tariff Act, 1985.
The assessee was originally M/s. RPG CEAT Group Company. Later on 'RPG SATL' and 'Goodyear' entered into a Joint Venture Agreement dated 10.09.1993 to form a third company in the name of M/s. SATL (the assessee), which came into existence on 30.09.94. The primary objective of the assessee was to manufacture OTR Tyres and Radial tyres exclusively for CEAT and Goodyear under their brand names. The promoters namely Goodyear USA and Goodyear India on one side and RPG CEAT on the other were holding 50:50 equity each in the assessee, and were exclusive buyers of goods manufactured by the assessee.
As per the said agreement, the assessee also 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.
This kind of arrangement led to the issuance of show cause notice by the Commissioner of Central Excise and Customs on 25.01.1999, alleging that CEAT and Goodyear are related persons of the assessee within the meaning of Section 4(4)(c) of the Act of 1944 and as such the selling price of CEAT and Goodyear shall be the assessable value of goods produced by the assessee under section 4 of the Act. Alternatively, it was also alleged as to why the additional consideration flowing back to the assessee should not be added in their present selling price in terms of Rule 5 of the Central Excise (Valuation) Rules, 1975 r/w Section 4 of the Act. In this way a Demand cum Show Cause Notice was issued to the assessee demanding differential duty of Rs.8,76,85,385/-for the period from 01.03.1997 to 16.04.1998 for under valuation of the goods. Contravention of Section 4 of the Act read with Rules 9, 9(2), 52, 173C, 173F, 173G of the Rules was also alleged and penal action was proposed under Section 11AC of the Act read with Rules 173 of the Rules, alongwith penal interest under section 11AB of the Act.
The notice also invoked extended period under proviso to Section 11A(1) of the Act for suppression of facts and willful mis-declaration of Assessable value by assessee with intent to evade payment of Central Excise duty.
The Commissioner passed Orders-in-Original dated 11.05.2000 confirming the demand in the show cause notice. Some penalties were also imposed.
The matter was taken in appeal before the Customs, Excise and Gold (Control) Appellate Tribunal which was allowed.
Finding of the Court:
There is no infirmity in the impugned judgment.
Result: Appeals dismissed.
JUDGMENT
A. K. SIKRI, J.
These two appeals are filed by the Commissioner Central Excise, Aurangabad, wherein the respondent arrayed is same. The issue involved also is common which pertains to the valuation of goods, sold by the assessee, for the purposes of charging excise duty. For this reason, both the appeals were taken up together and are being disposed of by this common judgment. However, keeping in view some distinct feature in the second appeal, viz., Civil Appeal No. 4370 of 2003, the same shall be taken up for discussion separately to address the distinct features.
2. The respondent (hereinafter referred to as the 'assessee') holds Central Excise Registration for the manufacture of Tyres, Tubes, Flaps, Bladders, etc., falling under Chapter 40 of the Central Excise Tariff Act, 1985. In the first appeal, the period involved for the purposes of excise duty is 01.03.1997 to 16.04.1998. The assessee was originally M/s. RPG CEAT Group Company. Later on 'RPG SATL' and 'Goodyear' entered into a Joint Venture Agreement dated 10.09.1993 to form a third company in the name of M/s. SATL (the assessee), which came into existence on 30.09.94. The primary objective of the assessee was to manufacture OTR Tyres and Radial tyres exclusively for CEAT and Goodyear under their brand names. The promoters namely Goodyear USA and Goodyear India on one side and RPG CEAT on the other were holding 50:50 equity each in the assessee, and were exclusive buyers of goods manufactured by the assessee. In the said Joint Venture Agreement, various other stipulations were mentioned showing interest of both Goodyear as well as CEAT in the assessee. As per the said agreement, the assessee also 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.
3. This kind of arrangement led to the issuance of show cause notice by the Commissioner of Central Excise and Customs on 25.01.1999, alleging that CEAT and Goodyear are related persons of the assessee within the meaning of Section 4(4)(c) of the Act of 1944 and as such the selling price of CEAT and Goodyear shall be the assessable value of goods produced by the assessee under section 4 of the Act. Alternatively, it was also alleged as to why the additional consideration flowing back to the assessee should not be added in their present selling price in terms of Rule 5 of the Central Excise (Valuation) Rules, 1975 r/w Section 4 of the Act. In this way a Demand cum Show Cause Notice was issued to the assessee demanding differential duty of Rs.8,76,85,385/-for the period from 01.03.1997 to 16.04.1998 for under valuation of the goods. Contravention of Section 4 of the Act read with Rules 9, 9(2), 52, 173C, 173F, 173G of the Rules was also alleged and penal action was proposed under Section 11AC of the Act read with Rules 173 of the Rules, alongwith penal interest under section 11AB of the Act.
4. The notice also invoked extended period under proviso to Section 11A(1) of the Act for suppression of facts and willful mis-declaration of Assessable value by assessee with intent to evade payment of Central Excise duty. The notice was also issued to four individuals, working for the assessee.
5. The assessee rebutted the aforesaid allegations in the show cause notice by putting up the defence to the effect that the assessee on the one hand and the CEAT and Goodyear on the other hand, were not related persons as there was no mutuality of interest and that no extra commercial considerations were pointed out regarding price fixation. It was contended that the sale of goods by assessee to these two companies was on principal to principal basis and at arm's length. The Commissioner heard the matter and thereafter, passed Orders-in-Original dated 11.05.2000 confirming the demand in the show cause notice. Some penalties were also imposed. The matter was taken in appeal b
