2025 (1) TMI 305 - AT - Central Excise

Rule 4 governs valuation when goods sold to both related and unrelated parties, not Rule 8

The CESTAT Ahmedabad held that when goods are sold to both related and unrelated parties, valuation should be governed by Rule 4 rather than Rule 8 of ... Method of valuation - clearance of excisable goods made to related parties - to be governed under Rule 8 of Central Excuse Valuation Rules, 2000 or not - personal penalties imposed under Rule 26 on certain individuals. Demand of differential duty on the issue of valuation - HELD THAT:- There is no dispute on the fact that the goods are sold to the related as well as un related buyers and the appellant have applied the transaction value which is charged to the un related buyers also in respect of clearances made to the related parties. In this case , the valuation of the goods cleared to the related buyers was correctly made by applying the transaction value at which the goods are sold to unrelated buyers. This issue has been considered by the larger bench of the CESTAT in the case of ISPAT INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX., RAIGAD [2007 (2) TMI 5 - CESTAT, MUMBAI-LB] where it was held that 'the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.' Thus, valuation of goods cleared to related parties which is based on the transaction value at which the goods are sold applied to unrelated buyers is absolutely correct. Therefore, in this regard demand is not sustainable. Hence, duty demand of Rs. 5,36,540/- is set aside. Personal penalties imposed on various persons - HELD THAT:- Since the major demand which is on the issue of valuation has been set aside, the personal penalty under Rule 26 is not sustainable considering the over all facts of the case. Therefore, the penalties imposed under Rule 26 are set aside. Conclusion - Rule 8 applies only when the entire production is captively consumed and not sold. Rule 4 is preferred for valuation when goods are sold to both related and unrelated parties. Penalties imposed under Rule 26 are set aside. Appeal allowed in part. The legal judgment from the Appellate Tribunal CESTAT Ahmedabad addresses three primary issues concerning excise duty demands and penalties. Below is a structured analysis of the judgment:1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:(i) Whether the demand of Rs. 58,129/- for clandestine removal of goods is justified.(ii) Whether the demand of differential duty amounting to Rs. 5,63,540/-, based on the valuation of supplies to related parties under Rule 8 of the Central Excise Valuation Rules, 2000, is correct.(iii) Whether the personal penalties imposed under Rule 26 on certain individuals are justified.2. ISSUE-WISE DETAILED ANALYSISIssue (i): Demand of Rs. 58,129/- for Clandestine RemovalRelevant Legal Framework and Precedents: The issue pertains to the clandestine removal of goods, which involves evasion of excise duty.Court's Interpretation and Reasoning: The appellant did not effectively contest this demand.Key Evidence and Findings: The appellant failed to provide substantial evidence or arguments against the charge.Application of Law to Facts: Given the lack of contestation, the court upheld the demand.Conclusions: The demand of Rs. 58,129/- was upheld.Issue (ii): Differential Duty Demand of Rs. 5,63,540/-Relevant Legal Framework and Precedents: The dispute revolves around the applicability of Rule 8 of the Central Excise Valuation Rules, 2000. The appellant argued that Rule 8 should not apply as goods were sold to both related and unrelated parties.Court's Interpretation and Reasoning: The court referred to the judgment in Ispat Industries Ltd vs. Commissioner, which clarified that Rule 8 applies only when the entire production is captively consumed and not sold.Key Evidence and Findings: The appellant sold goods to both related and unrelated parties, using the transaction value for unrelated parties as the basis for related party transactions.Application of Law to Facts: The court determined that Rule 4, which allows for transaction value, was more appropriate than Rule 8, as the goods were not exclusively sold to related parties.Treatment of Competing Arguments: The court favored the appellant's argument, supported by precedents, that Rule 8 was inapplicable.Conclusions: The demand of Rs. 5,63,540/- was set aside.Issue (iii): Personal Penalties under Rule 26Relevant Legal Framework and Precedents: Rule 26 pertains to penalties for individuals involved in the evasion of duty.Court's Interpretation and Reasoning: With the major demand on valuation set aside, the basis for personal penalties was significantly weakened.Key Evidence and Findings: The penalties were linked to the valuation issue, which was resolved in favor of the appellant.Application of Law to Facts: The court found no grounds to sustain the penalties once the valuation demand was overturned.Conclusions: The personal penalties were set aside.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'The provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers.''The provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.'Core Principles Established:1. Rule 8 applies only when the entire production is captively consumed and not sold.2. Rule 4 is preferred for valuation when goods are sold to both related and unrelated parties.Final Determinations on Each Issue:(i) The demand of Rs. 58,129/- was upheld.(ii) The differential duty demand of Rs. 5,63,540/- was set aside.(iii) Personal penalties under Rule 26 were set aside.The judgment effectively clarifies the applicability of valuation rules under the Central Excise framework, emphasizing the correct interpretation and sequential application of Rules 4 and 8.