Undervaluation demand fails absent proof that invoice price is unreal, especially in revenue-neutral transactions.

Excise duty demand based on alleged undervaluation was unsustainable where the assessee showed negotiated pricing, regular invoices, and a revenue-neutral structure with credit available to the buyer. The burden remained on the Revenue to prove that the invoice price was not the true value, and no cogent evidence was produced to displace the contractual price. The limitation issue also favoured the assessee because the show cause notice was issued long after the relevant period despite departmental awareness of the transactions through regular clearances. With the duty demand failing, the penalties had no independent basis and could not survive.

---

---

Issues: (i) Whether the demand of duty on the footing of undervaluation of the final product was sustainable; (ii) Whether the demand was barred by limitation and the penalties could survive.

Issue (i): Whether the demand of duty on the footing of undervaluation of the final product was sustainable.

Analysis: The duty demand was founded on assumptions that the landed cost of aluminium ingots supplied under Rule 57F(3) had been understated and required notional additions. The recorded facts showed negotiated prices, clear invoices and a revenue neutral situation, since duty paid by the intermediate unit was available as credit to the buyer. The burden to prove undervaluation lay on the Revenue, and no sufficient evidence was produced to show that the invoice price did not reflect the true value.

Conclusion: The demand on merits was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation and the penalties could survive.

Analysis: The show cause notice was issued long after the relevant period, while the goods were being cleared through regular invoices and both units were within the same division, indicating that the department was aware of the transactions. Once the duty demand failed, the penalties had no independent basis and could not be sustained.

Conclusion: The demand was time-barred and the penalties were unsustainable.

Final Conclusion: The impugned order was set aside and all the appeals were allowed with consequential relief.

Ratio Decidendi: A demand of excise duty based on undervaluation cannot be sustained without cogent evidence that the invoice price is not real, especially where the transaction is revenue neutral and the department has not disproved the apparent contractual price; any connected penalty falls when the demand itself fails.

---