2019 (11) TMI 669 - AT - Central Excise

Tribunal overturns order, buyer not related party. Profitability key in duty liability determination.

The Tribunal set aside the impugned order, ruling in favor of the appellant. It held that the Commissioner erred in treating the buyer as a related party ... Valuation - related party transaction - applicability of section 4 (1) (b) of Central Excise Act, 1944 read with Central Excise Valuation Rules, 2000 - short payment of duty - Scope of SCN - HELD THAT:- The show cause notice has been issued to the appellant on the basis of cost data that the appellant is selling the goods below the cost price, therefore, the selling price cannot be the assessable value of the goods in question. The appellant is located in the State of Jammu and Kashmir taking self credit/ refund of duty paid in cash. The duty paid in cash is an incentive to the appellant and if the same is taken into account then the appellant has earned the profit on the goods sold. In fact, cash incentive was given by way of duty paid in cash has been shared with their buyers. Therefore, the appellant earned profit on the goods sold by them. In that circumstance, the whole case of the Revenue alleged in the show cause notice is not sustainable. Scope of SCN - HELD THAT:- Moreover, the Commissioner in the adjudication order has treated buyer as related person as there is no allegation in the show cause notice that the appellant has sold the goods to the buyer, who is related person of the appellant. Therefore, the Commissioner has travelled beyond the scope of the show cause notice in the eyes of law. Appeal allowed - decided in favor of appellant. Issues Involved:- Allegation of short payment of duty based on cost of production- Allegation of related party transaction- Application of Central Excise Valuation Rules- Applicability of Notification No.56/02-CE dt.14.11.2002- Challenge to impugned orderAnalysis:1. Allegation of Short Payment of Duty: The appellant, engaged in manufacturing PA Systems, faced allegations of short payment of duty due to the declared assessable value being below the cost of manufacture. The impugned order confirmed the demand against the appellant based on this issue.2. Allegation of Related Party Transaction: The Commissioner held that the buyer was a related person of the appellant, leading to the duty being payable under specific sections of the Central Excise Act and Valuation Rules. However, the appellant argued that the show cause notice did not mention any such relationship, and the impugned order exceeded the scope of the notice by considering this aspect.3. Application of Central Excise Valuation Rules: The appellant contended that the Commissioner wrongly applied costing principles, especially regarding the duty collected from the buyer and incentives obtained. They argued that even if goods were sold below cost, incentives received should have been considered to determine actual profitability.4. Applicability of Notification No.56/02-CE dt.14.11.2002: The appellant highlighted the provisions of this notification, asserting that duty collected from the buyer was eligible for refund as a special dispensation. They argued that the impugned order failed to consider this aspect, leading to an incorrect determination of duty liability.5. Challenge to Impugned Order: The Tribunal, after considering submissions from both sides, found that the show cause notice was issued based on the appellant selling goods below cost. However, it noted that the duty paid in cash was an incentive, leading to the appellant earning profits on sales. The Tribunal also emphasized that finalized assessments of duty refunds cannot be reopened through show cause notices, citing relevant legal precedents.6. Conclusion: The Tribunal set aside the impugned order, ruling that the Commissioner had incorrectly treated the buyer as a related person without proper grounds in the show cause notice. The decision highlighted that the appellant's profitability, including incentives and duty refunds, needed to be considered while determining duty liability. The appeal was allowed with consequential relief granted to the appellant.