CESTAT Upholds Penalty On Philips Electronics In Excise Undervaluation Case

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld the penalty imposed on Philips Electronics India Ltd under Rule 26 of the Central Excise Rules, 2002, in a long-running excise undervaluation dispute involving alleged related-party transactions with contract manufacturer. The Bench of Angad Prasad (Member Judicial) dismissed the appeal filed by Philips Electronics India Ltd and upheld the Order-in-Original dated 18.03.2013 passed by the Commissioner of Customs & Central Excise, Hyderabad-IV. The dispute arose from an agreement dated 01.04.2009 between Philips Electronics India Ltd and M/s Quad Electronic Solutions Pvt. Ltd for manufacture of certain electronic products. The department alleged that the two entities were “interconnected undertakings” and therefore deemed to be “related persons” under Section 4(3)(b) of the Central Excise Act, 1944. Based on this allegation, the department rejected the transaction value declared by Quad and instead adopted the price at which Philips sold the goods to its related customers for valuation purposes under Rule 9 of the Central Excise Valuation Rules, 2000. The adjudicating authority had earlier confirmed differential excise duty demand against Quad and also imposed penalties on Quad, Philips Electronics, and Quad’s Managing Director Mr. Raminder Singh Soin. Before the Tribunal, Philips argued that its transactions with Quad were on a principal-to-principal basis and that mere existence of interconnected undertakings would not automatically make them related persons for excise valuation purposes unless mutuality of interest was established under the statutory provisions. The company also challenged the penalty imposed under Rule 26 of the Central Excise Rules. It contended that Rule 26 could not be invoked because the goods were not liable for confiscation and because a body corporate cannot possess the mental element or “knowledge” required under the provision. Philips relied on several earlier Tribunal rulings, including the Larger Bench decision in Steel Tubes of India Ltd. The Revenue, however, argued that the term “person” used in Rule 26 includes juristic entities such as companies and corporations. The department relied upon judgments including the Supreme Court ruling in Aggarwal Trading Corporation and other decisions supporting imposition of penalties on corporate entities. The Tribunal noted that appeals filed separately by M/s Quad and its Managing Director had already been disposed of earlier, with Quad’s appeal being treated as abated following winding-up proceedings and the Managing Director’s appeal dismissed for default. Consequently, the findings of undervaluation and duty evasion recorded by the adjudicating authority had attained finality. A major issue before the Bench was whether a company could be penalised under Rule 26. The Tribunal analysed the Larger Bench ruling in Steel Tubes of India Ltd., which had earlier held that penalty under the erstwhile Rule 209A could not ordinarily be imposed on a body corporate because a company does not independently possess “knowledge” like a natural person. However, the Bench distinguished those rulings and placed reliance on the Supreme Court judgment in Aggarwal Trading Corporation, which held that the expression “person” includes companies, firms, associations and other incorporated bodies by virtue of the General Clauses Act. The Tribunal observed that neither the Central Excise Act nor the Rules specifically exclude companies from the scope of Rule 26. It further noted that Section 4(3)(b) itself uses the term “person” broadly enough to cover both natural persons and corporate entities. On that basis, the Bench concluded that penalty under Rule 26 can validly be imposed on a body corporate. On the issue of confiscability of goods, the Tribunal held that actual confiscation of goods is not mandatory for invoking Rule 26. It stated that if goods are otherwise liable to confiscation because of contravention of excise provisions or undervaluation leading to short-payment of duty, Rule 26 becomes applicable. The Bench further recorded that the adjudicating authority had found evidence showing Philips Electronics was aware that the assessable value adopted by Quad excluded technical know-how charges and resulted in short payment of excise duty. The Tribunal also noted allegations that the parties delayed furnishing information to the department and had structured contractual clauses to deal with possible future excise duty demands arising from undervaluation disputes. Holding that there was sufficient material to establish knowledge and involvement on the part of Philips Electronics, the Tribunal upheld the penalty imposed under Rule 26 and dismissed the appeal. Case Details Case Title: M/s Philips Electronics India Ltd Vers Citation: JURISHOUR-1270-CES-2026(HYD) Case No.: Excise Appeal No. 26858 of 2013 Date: 14.05.2026 Counsel For Appellant: Prakash Shah, Advocate Counsel For Respondent: K. Sreenivasa Reddy, AR Click Here To Read Order Read More: Cashbacks Received On Commercial Credit Card Usage Not Taxable As Service: CESTAT

CESTAT Upholds Penalty On Philips Electronics In Excise Undervaluation Case

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