Valuation of excisable goods under Central Excise Act must follow proper procedural requirements under rules 8 and 11

CESTAT Mumbai held that valuation of excisable goods under Central Excise Act, 1944 must follow proper procedural requirements. The tribunal found that rules 6 and 9 of Central Excise Valuation Rules, 2000 could not be invoked as they relate to sales, leaving only rules 8 and 11 applicable. Despite SC precedent in Merino Panel Product Ltd allowing deviation from provisions cited in notices, natural justice requires facts in show cause notice to be basis for adverse action. The appellant failed to establish compliance with rule 8. The impugned order was set aside and matter remanded to original authority for fresh determination of correct duty liability, allowing appeal by way of remand.

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Issues Involved:
1. Recovery of short-levied duty.
2. Applicability of valuation rules.
3. Determination of assessable value.
4. Relationship between entities and its impact on valuation.

Summary:

1. Recovery of short-levied duty:
The dispute involves two entities, M/s Kilitch Co (Pharma) Ltd and M/s Kilitch Drugs (India) Ltd, both held liable for the same set of goods, which contradicts the Central Excise Act, 1944. The lower authorities' proceedings were flawed due to their narrow focus on valuation rules, leading to the setting aside of the demand.

2. Applicability of valuation rules:
The appellants argued compliance with the Supreme Court's formulation in Ujagar Prints v. Union of India, which was yet to be tested against the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The show cause notice's mechanism was inappropriate, necessitating identification of the correct valuation rule, with the Learned Authorized Representative pressing for rule 9, which was not substantiated by evidence.

3. Determination of assessable value:
The tax authorities sought to enhance the assessable value based on the cost of free supplies received and processing charges, which included profit margins. The first appellate authority concluded that various expenses, including marketing and technical know-how, were not included in the assessable value as required under section 4(1)(b) of the Central Excise Act, 1944, read with rule 6 of the Central Excise Valuation Rules, 2000.

4. Relationship between entities and its impact on valuation:
The contention that the formula in Ujagar Prints applied was challenged by the Supreme Court's decision in Commissioner of Central Excise, Indore v. S Kumars Ltd, which emphasized the need to consider relationships between entities. The original authority discarded the appellant's reliance on a circular, concluding that the selling prices of M/s Kilitch Drugs (India) Ltd should form the assessable value.

Conclusion:
The Tribunal found that the lower authorities failed to establish the correct duty liability and the relationship between the entities. The matter was remanded to the original authority for fresh determination, excluding M/s Kilitch Drugs (India) Ltd from liability under section 11A of the Central Excise Act, 1944. Appeals were allowed by way of remand.

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