The Supreme Court (SC) has held that rejecting the value at which goods were sold by treating assessee as related person under section 4(4)(c) of the Central Excise Act, 1944 in absence of proper test is erroneous.
M/s Bilag Industries P Ltd. & Anr., the petitioner challenged the order of the Customs, Excise and Service Tax Appellate Tribunal (‘CESTAT’) is whether the price at which the appellant M/s Bilag Industries Ltd., Vapi (‘BIL’) sold its products to the buyer, should be treated as a transaction with a “related person” under Section 4(4)(c) of the Central Excise Act, 1944 (“the Act”).
BIL was incorporated as Mitsu Industries Ltd. (‘MIL’) in 1992; it was formed by members of the Bilkhias family who were its major shareholders/promoters. MIL used to manufacture pesticides, insecticides, and their intermediaries classifiable under Chapter 38, Central Tariff Act, 1985 (‘CETA’). These fell under the broad category of pyrethroid products. Besides other products like Cypermethrin and alpha Cyermethrin, MIL manufactured Allethrins, Deltamethrin, and intermediates for the entire range of products. Before July 1999, MIL did not manufacture Esbiothrin and Esbiol
On 16.02.1998, AgrEvo GmbH and MIL signed a Letter of Intent, expressing their intention to form a joint venture for research, manufacture, and sale of mainly synthetic pyrethroids products and their intermediates.
BIL had been selling its manufactured products to various bulk formulators including Rhone Poulenc Agro Chemicals India Ltd./ Aventis CropScience (India) Ltd. The Esbiothrin purchased from BIL had been sold by Aventis CropScience (India) Ltd., to various end-consumers. The price at which the goods manufactured by BIL and sold to AgrEvo SA on export was based on the supply agreement dated 03.07.1999.
An amount of ₹5,95,97,434/- was demanded as differential duty on Esbiuothrin during the period 09.06.2001 to 25.03.2004, on the ground that the price at which the goods were sold to end customers by Sumitomo should be the basis for determination of assessable value and that the sale by BIL to Aventis CropScience (India) Ltd. was to a “related” person. The order in the original was appealed by BIL, to the CESTAT.
In Supreme Washers Pvt. Ltd. v. Commissioner of Central Excise, Pune, it was held that holding common stock of raw material and semi-finished goods, with the common use of machinery between the three units, with common marketing arrangements and free flow of finance between the three units, cumulatively established the assessees’ interrelationships and interdependence of all three units with each other.
It was evident that AgrEvo SA/ Aventis CropScience SA holds the entire shareholding in Aventis CropScience (India) Ltd. (the buyer and shareholder in BIL. All the latter’s products are sold to Aventis CropScience (India) Ltd.
A Coram comprisJustice S. Ravindra Bhat, Justice Dipankar Datta observed that it could not have concluded that such a relationship, as is contemplated by Section 4(4)(c) could have been inferred, without applying the proper test.
The SC concluded that the revenue’s decision in rejecting the value at which the goods were sold, by treating the assessee as a related person, was erroneous. The court further set aside the impugned order and allowed the appeal.
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