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Issues: (i) Whether the assessable value for clearances by a 100% EOU to DTA, made through a related buyer, could be determined by directly applying Rule 7 of the Customs Valuation Rules without sequential application of the valuation scheme; (ii) Whether the demand was barred by limitation in the absence of suppression of facts with intent to evade duty.
Issue (i): Whether the assessable value for clearances by a 100% EOU to DTA, made through a related buyer, could be determined by directly applying Rule 7 of the Customs Valuation Rules without sequential application of the valuation scheme.
Analysis: The valuation framework for DTA clearances by a 100% EOU was examined with reference to Section 3 of the Central Excise Act, 1944 and Section 14 of the Customs Act, 1962. The valuation rules had to be applied in sequence, and the department could not straightaway resort to Rule 7 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007. Since the show cause notice and the impugned order proceeded directly under Rule 7 without first following the sequential scheme, the method adopted for valuation was inconsistent with law.
Conclusion: The valuation adopted by the department was not legally sustainable and this issue was decided in favour of the assessee.
Issue (ii): Whether the demand was barred by limitation in the absence of suppression of facts with intent to evade duty.
Analysis: The department had prior knowledge of the relevant valuation dispute through the earlier audit objection and the assessee's reply. The record did not disclose any positive act of suppression or deliberate withholding of facts with intent to evade duty. In these circumstances, invocation of the extended period was not justified.
Conclusion: The demand was held to be barred by limitation and this issue was decided in favour of the assessee.
Final Conclusion: The impugned demand, interest and penalties could not be sustained, and the appeal succeeded on limitation, with the valuation issue also decided against the department.
Ratio Decidendi: In valuation disputes governed by a sequential statutory scheme, the prescribed order of application of valuation rules must be followed, and the extended period cannot be invoked unless suppression of facts with intent to evade duty is established by positive material.
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