Valuation of goods sold to interconnected undertakings requires proof of mutual interest as per Central Excise Act provisions, without which transaction value is upheld.

[Order per: A.K. JYOTI SHI ]

M/s Kirby Building Systems India Pvt Ltd (hereinafter referred to as appellant) are in appeal against the OIO dt.14.09.2015, whereby, the adjudicating authority has confirmed the demand and has also imposed penalty under section 11AC of the Finance Act, 1994 . The period of dispute is June, 2010 to November, 2013 and the issue involved is valuation of the excisable goods under section 4 of the Central Excise Act, 1944 ( CEA ) cleared to an inter-connected undertaking.

2. The brief facts of the case are that the appellants are supplying certain material to one M/s Kirby Building Systems India (Uttaranchal) Pvt Ltd and both are 100% subsidiary companies of M/s Alghanim Industries (Mauritius) Ltd and therefore, would be treated as inter-connected undertaking in terms of definition of related person under sub-clause (i) of section 4(3)(b)(i) of the CEA . The department felt that the valuation has to be done in terms of section 4(1)(b) of the Excise Act read with Rule 9 of Central Excise Valuation Rules as the goods were being cleared to a related party, which in turn are being sold in retail. On adjudication, the order was confirmed holding, inter alia, that they are related parties and since the goods are tailor-made goods and there is no possibility to compare the goods vide different orders and hence, each lot of goods manufactured and cleared should be treated as a whole and individual group as a whole. Hence, Rule 9 was applicable. Moreover, valuation has to be under section 4(1)(b) as it was mere stock transfer and since they are inter-connected undertakings, there is no need to prove the existence of mutuality of interest between the parties. Further, in the facts of the case, extended period cannot be invoked.

3. Learned Advocate for the appellant has mainly contested that the transaction value can be disregarded only if the department establishes that inter-connected undertaking are also related in terms of sub-clauses (ii) or (iii) or (iv) of section 4(3)(b) and the burden of proof is on the department to prove the mutuality of interest. He has also relied on the various judgments in support that mutuality of interest cannot be inferred just because inter-connected undertakings are subsidiaries of same holding company. Further, he has argued that Rule 9 and 10 cannot be applied as the entire excisable goods are not sold only to or through related person, relying on certain judgments. Insofar as extended period, he has mainly contested that the issue involved in the present appeal is interpretation of complex legal provisions and there is no explicit suppression attributed by the department. He has relied on certain judgments in this regard.

4. Learned AR, on the other hand, has reiterated the findings of the adjudicating authority and, inter alia, submitted that there is no dispute that the transactions between them fall under the definition of related person as per section 4(3)(b)(i).

5. Heard both sides and perused the records.

6. We find that it is not in dispute that they have cleared some goods to another group company, which would fall under the category of inter- connected undertaking. However, part of the clearances has also been made to some unrelated parties. We find that the main line of argument taken by the learned Advocate is that the transaction value can be disregarded only if the department can establish that they are not only inter-connected undertakings but are also related persons in terms of sub-clauses (ii) or (iii) or (iv) of section 4(3)(b). There is no d