2026 (4) TMI 690

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....efly stated, are that M/s. Kannappan Iron & Steel Company (Pvt) Ltd., Puducherry (hereinafter referred to as "the Appellant") is engaged in the manufacture of M.S. Ingots, CTD Bars and TMT Bars falling under Chapter 72 of the Central Excise Tariff Act, 1985 and is duly registered with the Central Excise Department. During the course of audit conducted by the Central Excise Revenue Audit (CERA), it was observed that the appellant had effected clearances not only to independent buyers but also to certain entities, namely M/s. Kannappan & Co. and M/s. Kannappan Iron Traders, who were found to be related persons within the meaning of Section 4 of the Central Excise Act, 1944. The Department formed a view that the transaction value adopted by the appellant in respect of such clearances to related persons could not be accepted under Section 4(1)(a) of the Act and that the valuation was required to be determined in terms of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, particularly Rule 9 read with Rule 11. Consequently, a show cause notice was issued proposing demand of differential duty amounting to Rs.2,83,25,041/- for period October 2007 to Dece....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ual differential duty, if any, would be substantially lower. 5.1 Per Contra, the Authorized Representative for the Revenue Mr. N. Satyanarayana has reiterated the findings of the adjudicating authority and submitted that the appellant and the buyers are clearly related persons as defined under Section 4(3)(b) of the Central Excise Act, 1944. It was contended that once the relationship is established, the transaction value cannot be accepted and valuation has to be done in terms of the Valuation Rules. 5.2 It was further submitted that the appellant has sold goods to related parties at prices lower than those charged to independent buyers and that such differential pricing clearly establishes that the relationship has influenced the price. Therefore, Rule 9 is correctly invoked and the valuation adopted by the Department is in accordance with law. 6. We have carefully heard the submissions advanced by both sides, examined the appeal records in detail, and considered the statutory provisions and the case laws cited. 7. Upon consideration of rival submissions and the record, the following questions arise: i. Whether the transaction value adopted by the appellant i....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....e to commercial considerations such as quantity, market conditions and contractual terms. The Department has not produced any evidence of flow back of funds, mutuality of interest affecting pricing or any arrangement indicating that the price was influenced by relationship. 9.3 It is also not in dispute that the appellant has effected sales both to the alleged related persons as well as to independent buyers. This factual position assumes significance in determining the applicability of the Valuation Rules. 9.4 The appellant has placed reliance on judicial precedents to contend that mere existence of relationship is not sufficient to reject the transaction value unless it is demonstrated that such relationship has influenced the price. In particular, reliance has been placed on the judgment of the Hon'ble Supreme Court in CCE, Chandigarh vs Bharti Telecom Ltd., 2008 (224) E.L.T. 506 (S.C.), wherein the Hon'ble Court, in paragraphs 5 & 6 has held that: - "5. Learned senior counsel appearing for the revenue did not dispute the fact that the BTL sold the goods to STL at or about the same price at which it sold the goods to DOT and MTNL. Even if the STL is taken to be a ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s finding of the Tribunal. Nonetheless, we find that the impugned order is only a rehash of the earlier adjudication order dt. 10.03.2008. We therefore are of the opinion that in the de novo proceedings, the adjudicating authority has not appreciated or complied with the directions of the Tribunal vide remand order dt. 23.07.2008. On this count also, the impugned order dt. 28.10.2009 (relating to E/67//2010) cannot sustained." The above decisions, relied upon by the appellant, lay down the settled legal position which squarely applies to the facts of the present case. 9.7 At this juncture, it is necessary to examine whether the adjudicating authority has complied with the directions of this Tribunal in the earlier round of proceedings, wherein it was specifically directed to determine the assessable value in accordance with Rules 4 to 7 of the Valuation Rules. 9.8 On a careful perusal of the impugned order, we find that there is no examination of the applicability of Rules 4 to 7 in a sequential manner, nor are any reasons recorded for discarding these rules or for holding them to be inapplicable. Instead, the adjudicating authority has proceeded directly to invoke Rule 9 ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... contemporaneous independent sales assumes significance in the context of valuation. We find that the Tribunal, in the case of Denso India Ltd. [2025 (28) CENTAX 20 (Tri.-All.)] has held that where comparable sales to independent buyers are available, the same ought to be considered in preference to resorting to Rule 9. The said view has been affirmed by the Hon'ble Supreme Court [2025 (28) CENTAX 21 (S.C.)]. The consistent judicial view, including that of the jurisdictional High Court and the Tribunal, is that valuation should, as far as possible, be based on actual transaction values, and recourse to Rule 9 can be taken only upon proper examination of such comparable data and satisfaction of the conditions prescribed therein. In the present case, no such exercise has been undertaken by the adjudicating authority. 9.14 The impugned order does not demonstrate that the statutory conditions for invoking Rule 9 stand satisfied, nor does it establish that Rules 4 to 7 were inapplicable. In view of the foregoing discussion and applying the ratio of the decisions of higher judicial forum, we hold that the transaction value cannot be rejected merely on the ground of relationship in the....