Order date – 29 August 2022

Facts – 

• The appellant, MAHENDRA SPONGE & POWER LTD., is the manufacturer of iron and steel products and are also availing Cenvat Credit on inputs, capital goods and input services in terms of Cenvat Credit Rules 2004.
• During the course of audit of books and accounts of appellant it was observed that they sold sponge iron and MS ingots to its related units i.e. M/s. Mahendra Strips Pvt Ltd. Raipur, M/s. Super Ispat (Raipur) Pvt Ltd., and M/s. Animesh Iron, Raipur, at the value lower than the normal price charged to the independent buyers during the period 2011-12 and 2012-13 (upto September 2012).
• Show Cause Notice dated 04.04.2016 was issued alleging that the value of the goods cleared by the appellants to the related firm should have been determined in the manner specified in Rule 8 and in terms of Rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
• Accordingly, Central Excise duty amounting to Rs.2,58,14,047/- along with interest and appropriate penalty was proposed to be recovered from the appellant.
• Aggrieved, the appellant filed an appeal.

Issue – 

• Whether the central excise along with interest and penalty imposed is sustainable?

Order – 

• The Tribunal observed that the value other than transaction value, in terms of Rule 9 and proviso thereof (Rule 8), shall be ascertained case where an interconnected undertakings are also related in the manner specified in either of the sub clauses (ii) (iii) or (iv) of Clause (b) of sub section (3) of section 4 of Central Excise Act, 1944
• In order to invoke the provisions of sub-clause (iv) of section 4(3)(b) of the Act, it has to be proved that the appellant and its other units are so associated that they have interest, directly or indirectly, in the business of each other. The appellant is in no way directly involved with the business activities with its other units and such sales between them are business transactions which are on principal to principal basis. There is no evidence to show that there was any financial flow back.
• Also, the fact about two or more Directors in two companies to be common, it does not automatically apply that two companies are related, the same view was taken by the apex court in CCE vs. Sanghi Organisation.
• Therefore, the appeal was allowed.