Sham intermediary sales in excise valuation support real transaction value, extended limitation, and penalty, with remand for recomputation.

Purported sales of colour TV sets through intermediary concerns were found to be sham, not genuine principal-to-principal transactions, because the surrounding circumstances showed paper intermediation and lack of arm's length dealing. On that basis, valuation on NELCO's purchase prices was upheld. Wilful suppression of the true price sustained invocation of the extended limitation period under the proviso to section 11A, even though the notice did not expressly cite the proviso. Sales tax and excise duty were deductible from assessable value, and penalty was justified, with the matter remanded for recomputation of differential duty and penalty on the reassessed value.

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Issues: (i) Whether the clearances of colour TV sets to the intermediary concerns were genuine principal-to-principal sales or sham transactions, and whether the assessable value could be based on the prices paid by NELCO to those concerns; (ii) whether the extended period of limitation under the proviso to section 11A was available on the facts found; (iii) whether sales tax and excise duty were deductible from the value and whether penalty was warranted.

Issue (i): Whether the clearances of colour TV sets to the intermediary concerns were genuine principal-to-principal sales or sham transactions, and whether the assessable value could be based on the prices paid by NELCO to those concerns?

Analysis: The evidence showed that the appellants manufactured the TVs with their own plant and personnel, but the surrounding circumstances of the supplies, the identical movement of goods, the profit earned by the intermediary concerns, the residential and non-business addresses used in the gate passes, and the absence of convincing proof of genuine intermediation created a strong probability that the alleged sales through the intermediary concerns were make-believe. On that footing, the sales were not treated as arm's length transactions and the NELCO purchase prices became the proper basis for valuation of the clearances reaching NELCO.

Conclusion: The transactions through the intermediary concerns were held to be sham transactions, and valuation on the basis of NELCO's prices was upheld, against the assessee.

Issue (ii): Whether the extended period of limitation under the proviso to section 11A was available on the facts found?

Analysis: The show cause notice alleged wilful suppression of the true price and a deliberate scheme to evade duty through paper transactions. Those allegations were borne out by the findings on valuation, and the facts necessary to sustain the extended limitation were fully set out in the notice. The absence of a specific reference to the proviso did not defeat invocation of the extended period.

Conclusion: The extended period of limitation was held to be validly invoked, against the assessee.

Issue (iii): Whether sales tax and excise duty were deductible from the value and whether penalty was warranted?

Analysis: Sales tax and excise duty formed excludible elements under the valuation provision and were rightly directed to be deducted. In view of the findings on suppression and the nature of the transactions, penalty was also found justified, though its quantification required recomputation after determining the differential duty.

Conclusion: Deduction of sales tax and excise duty was allowed, and imposition of penalty was upheld, against the assessee.

Final Conclusion: The valuation adopted by the lower authority was set aside, the department's valuation theory substantially succeeded, and the matter was remanded for fresh determination of differential duty and penalty on the reassessed value.

Ratio Decidendi: Where the surrounding circumstances establish that purported sales through intermediaries are not genuine arm's length transactions, the assessable value may be determined on the real transaction value, and wilful suppression of the true value sustains invocation of the extended limitation period.

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