ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Mutuality of Interest in Excise Valuation

From an analysis of the legal pronouncements on the subject it is clear that in the absence of mutuality of interest between two firms there cannot be any legitimate conclusion that they are related persons, even if they are principal and subsidiary.

The concept of transaction at arm‘s length is basic in valuation of goods in all tax laws. The relationship of this concept with the other concept of mutuality of interest has been a matter of discussion in many judgments by the Supreme Court, the high courts and the tribunal. Though the law is fairly settled, yet the flurry of cases at all levels shows the tendency among revenue officials to go on issuing show cause memos to corporates. This betrays an inadequate appreciation of the basic principles.

Mutuality of interest means that both manufacturer and buyer have interest in each other’s business. This is necessary in order that they are treated as related persons. If the interest is one-sided then they cannot be treated as related persons. If they are related persons then the value of the goods manufactured by the manufacturer is unacceptable and it can be loaded.

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