2024 (8) TMI 260 - AT - Central Excise

Third party inspection charges cannot be included in transaction value under Section 4 without meeting rigorous requirements

The CESTAT Allahabad set aside demands for inclusion of third party inspection charges in transaction value under Section 4, ruling that such charges ... Valuation - inclusion of third party inspection charges in the transaction value - Demand on the basis of statement of Director without any corroborative /cogent material brought on records - Penalty on Director. Valuation - inclusion of third party inspection charges in the transaction value - HELD THAT:- It is settled principle that basic feature of Section 4 has never changed even after the two amendments. Thus, the definition of “transaction value” after amendment, means the price actually paid or payable for the goods, when sold, and include in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling, organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. The Hon’ble Supreme Court in the case of Purolator India Ltd. [2015 (8) TMI 1014 - SUPREME COURT] has held that 'Section 4(2) pre-2000 made it clear that where the price of excisable goods for delivery at the place of removal is not known, and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery is to be excluded from such price.' Hon’ble Supreme Court in the case of CCE, Pondicherry vs. Acer India Ltd. [2004 (9) TMI 106 - SUPREME COURT] wherein it has been held that only because the expression, “by reason of sale, or in connection with the sale” has been used in the definition of “transaction value”, the same by itself would not take away the rigors of charging section. Thus, the demand of duty in respect of third party inspection charges cannot be sustained and is accordingly set aside. Demand on the basis of statement of Director without any corroborative /cogent material brought on records - HELD THAT:- The issue has been examined by the Hon’ble Allahabad High Court in the case of M/S. CONTINENTAL CEMENT COMPANY VERSUS UNION OF INDIA & OTHERS [2014 (9) TMI 243 - ALLAHABAD HIGH COURT] where it was held that 'to prove the allegation of clandestine sale, further corroborative evidence is also required. For this purpose no investigation was conducted by the Department.' - The demand on this count is also not sustainable and is set aside. Penalty on Director - HELD THAT:- There is no justification in maintaining the penalty imposed upon the Director and accordingly the same is set aside. The appeals filed by the Appellants are allowed. Issues Involved:1. Cost of Transportation2. Third Party Inspection Charges3. Supply of Sockets4. Price Variation/Escalation5. Loose Slips/Papers6. Supply of Solvent Cement7. Penalty on Appellant8. Penalty on DirectorIssue-wise Detailed Analysis:1. Cost of Transportation:The appellant argued that the place of removal is the factory gate, and transportation was arranged at the buyer's request. As per Rule 5 of the Central Excise Valuation Rules, 2000, freight is not includible in the assessable value. The Tribunal found merit in this argument and held that the demand of duty on the freight is not sustainable.2. Third Party Inspection Charges:The buyer required inspection, test certification, and marking by a Third Party Inspection Agency before dispatch. The Tribunal upheld that these charges are includible in the transaction value by virtue of the definition under Section 4 of the Central Excise Act, 1944, as the sale was subject to such inspection.3. Supply of Sockets:Sockets were supplied with PVC pipes at no extra price, and the appellant argued that the cost of sockets was already included in the price of the pipes. The Tribunal agreed, stating that no additional consideration was received for the sockets, making the demand on the cost of free supplied sockets unsustainable.4. Price Variation/Escalation:The Tribunal found no supplementary invoice or bill indicating price escalation. The appellant argued that the price escalation clause applied only to transactions with government agencies, which require regular documentation. The Tribunal found no evidence of additional consideration received due to price escalation, rendering the demand on this count unsustainable.5. Loose Slips/Papers:Loose slips containing details of alleged clandestine removals were recovered during a search. The Director of the appellant company owned these slips and agreed to pay the duty involved. The Tribunal noted that there was no evidence to prove clandestine production and removal. Since the appellant did not retract the statement, the Tribunal upheld the demand based on the principle that 'what is admitted need not be proved.'6. Supply of Solvent Cement:Solvent Cement was supplied free of cost with PVC pipes to specific buyers under contract. The appellant argued that the value of such bought-out items is not includible in the assessable value. The Tribunal applied the ratio of the ITI Limited case, finding the demand on this count unsustainable.7. Penalty on Appellant:The Tribunal noted that the appellant had already deposited significant amounts before and shortly after the issuance of the Show Cause Notice (SCN). Since the entire duty along with interest was paid before the issuance of the SCN, the Tribunal imposed a penalty of only 15% of the duty confirmed under Section 11AC(1)(d) of the Central Excise Act, 1944.8. Penalty on Director:The Tribunal found that the penalty on the Director under Rule 26 of the Central Excise Rules, 2002, was justified. However, given the reduced duty liability, the penalty was reduced from fifty thousand to fifteen thousand rupees.Conclusion:The Tribunal allowed the appeals filed by the Appellants with consequential reliefs, setting aside the demands related to transportation costs, supply of sockets, price escalation, and solvent cement. However, the demand related to third-party inspection charges and loose slips was upheld. The penalties were adjusted accordingly, reducing the penalty on the Director and confirming only a 15% penalty on the appellant.