Court sets aside duty demand based on audit objections, emphasizes evidence of under valuation.

The court allowed the Revision Application, setting aside the order by the Government of Gujarat demanding differential duty based on audit objections for alleged under valuation of goods. The court held that the duty demand lacked proper justification and reasoned order, emphasizing the need for evidence of deliberate suppression or extra consideration to allege under valuation. The court also noted that changes in valuation methods post-2000 were irrelevant to the case and stressed the acceptance of declared prices when no flow back of money was observed, supported by legal precedents. The court did not address the limitation period issue as relief was granted on the lack of justification for the duty demand.

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Issues:
1. Validity of demand of duty based on audit objection.
2. Allegation of under valuation of goods.
3. Application of changes in the method of valuation.
4. Consideration of limitation period for demand of duty.

Issue 1: Validity of demand of duty based on audit objection
The Revision Application was filed against the order-in-appeal by the Government of Gujarat, challenging a show cause notice issued to the petitioner for under valuation of goods leading to a short levy of duty. The objections raised by the Accountant General were related to the price declared by the petitioner, including labor costs and pricing of different pack sizes. The Superintendent passed an order directing the payment of differential duty based on the audit report. The petitioner contended that the demand cannot be solely based on an audit objection and that a valid show cause notice should be issued with proper justification for the duty demand. The court agreed that the audit objection should initiate an enquiry and investigation, leading to a reasoned order justifying the demand, which was lacking in this case. Since the goods were declared based on approved price lists without evidence of deliberate suppression or extra consideration, the court found no basis for alleging under valuation, citing settled law.

Issue 2: Allegation of under valuation of goods
The petitioner argued that the demand of duty was unfounded as all clearances were made based on filed price lists, without any allegation of excess consideration or price suppression. The petitioner also submitted certificates from a Chartered Accountant explaining the costing methodology. The court noted that without evidence of extra consideration or deliberate price suppression, under valuation allegations were baseless. The court emphasized that when transactions are at arms length and no flow back of money is evident, the declared prices by the assessee are acceptable, as supported by legal precedents.

Issue 3: Application of changes in the method of valuation
The order-in-appeal referred to changes in the method of valuation under the Central Excise Act, effective from 1-7-2000, but stated that these changes were not applicable for the relevant periods. The court concurred, noting that the amendment replacing "normal price" with "transaction value" post-2000 was irrelevant to the case. Even before the amendment, it was established that declared prices by the assessee were acceptable when no flow back of money was observed, as evidenced by the CEGAT decision in a previous case. The court emphasized the need for strong and valid reasons to reject declared prices, which were lacking in the present case.

Issue 4: Consideration of limitation period for demand of duty
The petitioner raised concerns about the demand being made after the normal limitation period of six months without allegations of fraud or suppression. The court, after allowing the Revision Application on merits, did not delve into the limitation arguments since relief was granted to the petitioner based on the lack of justification for the duty demand. The court set aside the order by the Government of Gujarat, emphasizing the importance of valid reasons for rejecting declared prices and the necessity for proper justification in duty demands.

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