Buyers cannot be Treated as Related Persons Merely Due To Common Promoters or Minority Shareholding: CESTAT [Read Order]
CESTAT,clarifies that excise valuation cannot be altered unless the Department proves common management, control, or mutuality of interest
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the buyers cannot be said to be related persons or inter-connected undertakings under Section 4 of the Central Excise Act, 1944 on the basis of common promoters or minority shareholding.
The Tribunal held that in the absence of proof of common management or mutuality of interest, the excise duty demand on redetermined value is not sustainable.
The assessee was involved in the production of excisable goods and supplied the same to certain buyer companies. The Department claimed that the buyers were related persons under Section 4 of the Central Excise Act, as there existed common promoters and minority cross-shareholding between the assessee and the buyers.
Based on this the department disputed the transaction value and determined the assessable value at 110% of the notional cost of production and raised a demand for excise duty along with interest and penalties.
The demand was upheld by the adjudicating authority as the relationship between the parties justified deviating from the normal transaction value.
Before the Tribunal, the assessee argued that common promoters or minority interests alone cannot lead to the presumption of a related party relationship under excise law. It was also argued that the statute requires proof of common management, control, or mutuality of interest which was not established by the Department.
The assessee further submitted that the Department could not prove that prices were affected by any relationship or that sales were not at arm’s length. It was also argued that the cost of production was never assessed in accordance with the Central Excise Valuation Rules making the choice of 110% cost arbitrary and illegal.
The Revenue supported its demand and claimed that common promoters were sufficient to show that the undertakings were interconnected.
The Tribunal overruled the Revenue’s stand, holding that related party status cannot be presumed. The Tribunal said that sharing common promoters or minority shareholding, without any indication of common management or financial control, cannot be relied upon to invoke Section 4.
CESTAT also held that the valuation of 110% of cost is permissible only after conclusively establishing the related party status and proper determination of the cost of production which was not done by the Department. Without meeting the statutory requirements, the revised value could not be sustained.
Accordingly, the two-member bench of Justice S.S Garg[Judicial Member] and P.Anjani Kumar[Technical Member] set aside the excise duty liability reiterating that the transaction value is sacrosanct unless the Department meets the heavy burden of establishing related party influence and non-arm’s length price.
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