Chettinad Cement Fails to Prove Chettinad Builders is an Associate, Not a Related Party: CESTAT upholds Excise Duty Recalculation [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that Chettinad Builders Private Limited ( CBPL ) was a "related party" as the appellant failed to prove it an "associate" under the Central Excise Act, 1944. It upheld the differential duty demands imposed on the appellant.

Chettinad Cement Corporation Ltd., the appellant, manufactures cement sold in bulk and 50 kg bags to various dealers, distributors, and industrial customers. The appellant sold cement in bulk to Chettinad Builders Private Limited ( CBPL ) which used it for manufacturing Ready Mix Concrete ( RMC ) and construction purposes.

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The Large Taxpayer Unit (LTU) audit identified pricing discrepancies between cement sold to CBPL and other industrial buyers. The appellant’s financial statements for 2010–2011 also declared CBPL as a related party under Accounting Standard-18 (AS 18).

Based on this, the revenue issued eight show-cause notices covering 2008–2012 questioning the valuation and raising demands for differential duty. The appellant responded that CBPL was not a related party under Section 4(3)(b) of the Central Excise Act and that AS 18 was relevant only for income tax purposes.

Revenue countered that the appellant’s financial disclosures served as primary evidence, indicating that CBPL was a “related party” not “an associate.” The department recalculated the excise duty demand, considering CBPL a related party.

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Aggrieved, the appellant approached CESTAT. The two-member bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the financial statements clearly declared CBPL as an "Associate" and that the appellant failed to explain why it made that declaration or clarify the relationship.

The tribunal explained that the company was responsible for proving the transactions were fair, but they did not do so. The tribunal agreed with the decisions of the lower authorities stating that the tax demands were correctly calculated based on related-party pricing rules.

The tribunal rejected the appellant’s claim about AS 18 and pricing issues. Considering that the appellant failed to prove that the CBPL was not a related party but an associate, the tribunal dismissed the appeal of the Chettinad Cement and held that the excise duty calculation was correct.

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