2018 (2) TMI 358 - AT - Central Excise

Tribunal overturns decision on Polyester Chips value, affecting duty demand & penalties

The Tribunal set aside the decision that re-determined the value of Polyester Chips sold to a related party, leading to duty demand, interest liability, ... Valuation - Polyester Chips of Amorphous Grade (PCAG) with less than 2% IPA content - related party transaction - Held that: - the appellants are correct in contending that transaction between related persons can be rejected only if it does not closely proximate to the value of similar goods, to non-related persons - the Commissioner (Appeals) has accepted transaction value of 2 MTS of 40% IPA AGC, which is an acceptance that the relationship has not influenced the transaction value. The one-time clearance of a very small quantity of AGC, that too of a strength of 20 times the normal IPA strength normally cleared to them cannot be translated into the notional transaction value for other predominant clearances of 2% strength AGC - the adoption of value of ₹ 48.14 per kg. to revise declared values of sub-standard and normal 2% IPA AGC is arbitrary and cannot be sustained - appeal allowed - decided in favor of appellant. Issues:Determination of value of Polyester Chips of Amorphous Grade with less than 2% IPA content involving related parties.Analysis:The dispute in this appeal revolves around the determination of the value of Polyester Chips of Amorphous Grade with less than 2% IPA content involving related parties. The Department contested the price per kg. adopted by the appellants for Amorphous Grade Chips sold to a related party, M/s. Indian Organic Chemicals Ltd. The original authority held that the appellants are related persons and re-determined the value of the chips sold to M/s. IOCL, leading to a differential duty demand, interest liability, and a penalty on the appellants. The appeal filed by the appellants challenging this decision was rejected by the Commissioner (Appeals), prompting this appeal.During the hearing, the appellants argued that the assessable values for different grades of Amorphous Grade Chips varied based on quality, with a higher price for chips with 40% IPA content. They highlighted that the relationship between the parties did not influence the transaction value, as acknowledged by the Commissioner (Appeals). The appellants also pointed out that the transaction value can only be rejected if it does not closely approximate the value of similar goods, as per the Customs Valuation Rules. They argued that the adoption of a specific price for the 40% IPA grade disregarded the rule prohibiting the highest of two alternative prices. Additionally, they emphasized that the cost of production methodology only allows for the adoption of values of identical or similar goods.The Tribunal examined the provisions of the Customs Valuation Rules, particularly Rule 8, which prohibits the determination of values based on various factors such as domestic market prices, cost of production, or arbitrary values. The Tribunal agreed with the appellants that the transaction between related parties can only be rejected if it does not closely approximate the value of similar goods sold to non-related parties. They noted that the one-time clearance of a small quantity of chips with higher IPA content could not be used to determine the value for predominant clearances of chips with normal IPA content. The Tribunal also highlighted a previous order where the lower authority had accepted the value declared by the appellants for similar goods, emphasizing the inconsistency in the current decision.In conclusion, the Tribunal found the adoption of a specific value for revising the declared values of different grades of Amorphous Grade Chips to be arbitrary and unsustainable. Therefore, the impugned order was set aside, and the appeal was allowed with consequential benefits as per the law.