Charges of Misdeclaration & Undervaluation are not Valid in Absence of Corroborative Evidence: CESTAT [Read Order]

In a recent case, the Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that Charges of Misdeclaration & Undervaluation are not valid in absence of Corroborative Evidence.

The question before the bench is whether there is a relationship between OMIFCO and Krishak Bharti Co-Operative Limited (KRIBHCO), the appellant and the Government of India and whether the import price was influenced.     

It was observed that a company and shareholder cannot be termed as partners in the business carried on by the company. In the partnership Act, 1932 “partnership” has been defined as the relationship between two persons who have agreed to share the profit of business carried on by all or any of them acting for all. The partnership is formed through an agreement. Since there was no partnership agreement between the Appellants and OMIFCO, they cannot be treated as legally recognized partners only because the Appellants hold a 50% share in OMIFCO.  

Sub-clauses (i) to (viii) of Rule 2 (2) of CVR, 2007, indicate that each of the subclauses deals with different means of establishing deemed relationship between two persons. In terms of Rule 2(2)(i) persons can be deemed to be related only if they are officers or directors of one another‟s business. In terms of Rule 2(2)(ii) persons can be deemed to be related only if they are legally recognized partners in business and terms of rule 2(2)(iv) persons can be deemed to be related only if both of them are directly or indirectly controlled by the third person.

Further, Rule 2 (2)(vi) of CVR, 2007 states that a person shall be deemed to be related only if both of them are directly or indirectly controlled by a third person. The revenue failed to show who is the third person who controls Appellants.

In the absence of Corroborative evidence to prove the relationship between the appellant and the government, a Coram comprised of Mr Ramesh Nair, Member (Judicial)  and Mr Raju, Member (Technical) set aside the impugned order and allowed the appeal.

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