Summary
A pyrethroid manufacturer became a majority-owned joint venture subsidiary of a foreign agrochemical company, which also wholly owned the Indian buyer to which the manufacturer sold all its Esbiothrin at cost plus a mark-up. The Revenue treated the two as related persons under Section 4(4)(c) of the Central Excise Act, 1944 and the Tribunal upheld the demand as a combined operation benefiting both. The Supreme Court allowed the appeals: following Atic Industries, Hind Lamp, Goodyear and Kwality Ice Cream, each party must have an interest in the business of the other; common parentage and sale of the whole output to a sister company did not show mutual interest, and there was no finding that the price was below market.
Issues
- Whether a manufacturer and a buyer that are both subsidiaries of the same foreign holding company are related persons under Section 4(4)(c) of the Central Excise Act, 1944 so that the buyer's resale price becomes the assessable value.
Provisions considered
- Section 4(4)(c), Central Excise Act, 1944A related person is one so associated with the assessee that they have interest, directly or indirectly, in the business of each other; the test requires mutual, two-way interest, and the de jure inclusion of holding and subsidiary companies does not make two sister subsidiaries related to each other. (¶¶ 10, 11, 12, 13, 17)
- Section 4(1)(a), Central Excise Act, 1944Where the assessee and buyer are not related and price is the sole consideration, the transaction value governs; the Revenue had the cost-plus mark-up documents and other objective material to compare with market prices but recorded no finding that the price was depressed. (¶¶ 10, 17)
Held
- Following Atic Industries and Hind Lamp, it is not enough that one party has an interest in the business of the other; each must have a direct or indirect interest in the business of the other, as reaffirmed in Goodyear South Asia Tyres, which rejected one-way traffic, and Kwality Ice Cream, which required interdependence and reciprocity beyond a manufacturer-distributor relationship. Supreme Washers illustrates the contrary case of common procurement, stock, machinery, marketing and finance. (¶¶ 11, 12, 14, 15, 16)
- That the foreign parent held all shares of the buyer and a majority in the manufacturer, and that all the manufacturer's products were sold to the buyer, does not show that the manufacturer had any interest in the buyer's business or vice versa; the Revenue inferred a relationship without applying the proper test and without finding that the price was lower than the market price of the goods, so the rejection of the transaction value was erroneous. (¶¶ 17, 18)
Result
Appeals allowed; order of the Customs, Excise and Service Tax Appellate Tribunal dated 23.04.2010 treating the sales as made to a related person set aside; no order as to costs.