TaxTMI 
TaxTMI 
2018 (2) TMI 478
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....hey are "related persons" within the meaning of Section 4 (1) (b) of Central Excise Act, 1944 read with Section Central Excise Valuation Rules, 2000 w.e.f. 1.7.2005. Department alleged that paper board manufactured by assessee were cleared to their related person M/s.Wimco Ltd. at a lesser price resulting in short payment of duty amounting to Rs. 98,11,438/- for the period 1.7.2005 to 31.3.2007. Show cause notice dt. 07.01.2008 was accordingly issued to the assessee proposing demand of he said amount with interest thereon and also imposition of penalty under various provisions of Central Excise law. In the original round of adjudication, vide order dt. 10.03.2008, the Commissioner confirmed proposals in the SCN in entirety and also imposed equal penalty. On appeal against the said order, CESTAT Chennai vide Final Order No.748/2008 dt. 23.7.2008 as reported in 2009 (234) ELT 575 (Tri.-Chennai), inter alia observed that the Commissioner had erroneously applied Rule 8 of the Valuation Rules; that Wimco Ltd. being a subsidiary of the assessee, the relationship of the assessee to the buyer is an admitted fact; however, the question is whether this relationship influenced price of the go....
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....mounting to Rs. 10,99,445/- with interest and imposition of penalties. In adjudication, original authority vide an order dt. 02.02.2009 confirmed demand of the said amount with interest, imposed equal penalty on the assessee and also imposed penalty of Rs. 1 lakh each on C.A. Nair and John Stephen. In appeal, Commissioner (Appeals) vide OIA No.113, 114 & 115/2009 dt. 27.08.2009 allowed the appeals filed by all the three noticees. Hence Appeals E/648-650/2009 by the Department. 5. Today when the matter came up for hearing, on behalf of the assessee, Ld.counsel Shri J. Shankarraman in respect of Appeal E/67/2010 filed by assessee made oral submissions which can be broadly summarized as under : i) The Commissioner has confirmed the demand without following the findings in the remand order of the Tribunal. ii) For the same reasons, the appeals filed by the department against the subsequent orders of Commissioner (Appeals) are not sustainable since the impugned orders in those cases have been passed with correct understanding and application of law. The proceedings initiated against paid employees of the assessee, which were initiated in the cases pertaining to department appeals a....
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....of Appeal E/67/2010 filed by the assessee supports the impugned order. He submits that Commissioner has analyzed the applicability of each relevant rules of the Valuation Rules to the facts of the case and has thereafter only arrived at the correct conclusion that transaction value wound not apply and that only cost construction method based on the principles of Rule 8 of the Rules would only be applicable. The said order is legally correct and hence Appeal E/67/2010 filed by assessee does not have merit. 6.2 Ld. A.R states that the for the same reasons, the orders of the Commissioner (Appeals) in OIA No.86,87& 89/2009 dt. 29.06.2009 and OIA No.113, 114 & 115/2009 dt. 27.08.2009 are erroneous. As per the details complied by the department, it is evident that in majority of cases, the price charged for supplies to Wimco is much lower than charged to independent buyers even for comparable quantities. The price charged for Wimco is definitely lower when compared to that charged for others and there is no cogent explanation for such variation. The notices in the present case proposed to adopt measure of Rule 8 only after stating that the transaction is not covered by any other rule, h....
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....y other case,including the case where the goods are not sold, be the value determined in such manner as maybe prescribed." 7.3 During the impugned period, the manner of valuation for the purpose of Section 4 (1) (b) was prescribed by the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 which was notified w.e.f. 30.06.2000. The provisions concerning sale by assessee to related person is governed by Rule 9 of the Rules is reproduced as under : "Rule 9 When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail : Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be....
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....s. The conclusions in respect of the 235 invoices and his finding that in majority of those cases (88%) the price charged for supplies to Wimco is much lower than charged to other buyers. We are unable to fathom how these findings, even if they are correct, can be taken as justification for invoking Rule 9 leading to valuation under Rule 8 of the Rules. Be that as it may, as pointed out, we find merit in the ld. Advocate s contention that out of 235 invoices compared by the adjudicating authority in 225 cases, the invoices have been wrongly compared or wrong conclusions have been arrived at. We also find credence in the contention of the ld. Advocate that the 235 invoices relied upon by the adjudicating authority comprised only 2% of the transactions during the impugned period involving 10128 invoices. We have no hesitation in holding that the reasoning and analysis adopted by the adjudicating authority is fallacious and not based on correct interpretation of law. No allegation has been made by the department that there has been any flow back from Wimco to the assessee towards the allegedly lower pricing adopted by the assessee. In the remand order of the Tribunal dt. 23.07.2008 as....
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.... shown that the price at which the goods are sold has been influenced by the relationship between the buyer and the seller. Thus the Apex Court s ruling, impliedly, rules out the applicability of best judgment assessment method to a case where the assessee is related to the buyer but such relation has not influenced the price at which the goods are sold. The Tribunal s Larger Bench decision is explicit on this point. It has been held that the provisions of Rule 8 will not apply in a case where some part of the production of excisable goods is cleared to independent buyers. Such is the case of the present assessee. Therefore, it should not be difficult to hold that the learned Commissioner has erroneously applied Rule 8 ibid. 4. Voluminous record of summary of invoices issued to independent buyers as well as M/s. WIMCO Ltd. for the period of dispute was produced before the adjudicating authority by the assessee in their endeavour to establish that no favoured treatment was shown to the related buyer. Obviously, M/s. WIMCO Ltd., being a subsidiary of a subsidiary of the assessee, the relationship of the assessee to the buyer is an admitted fact. The question is whether this relatio....
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....h of the Tribunal in the case of Ispat Industries Ltd. Vs CCE Raigad 2009 (209) ELT 185 (Tri-LB) where the Larger bench answered the reference to it as follows : "9. In view of what we have observed above, we answer the reference in the following terms : (a) 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; (b) 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." The Commissioner (Appeals) has also followed the law laid down by the Hon'ble Supreme Court in the case of CCE Chandigarh Vs Bharti Telecom Ltd. 2008 (226) ELT 3 (SC), which was the very same case law that was followed by this Tribunal in their remand order dt. 23.07.2008. On the reliance by the lower appellate authorities on the Ho....