TaxTMI 
2026 (11) TMI 364
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..../s Soex India Private Limited, Pune, is a 100% Export Oriented Unit (EOU) engaged in manufacture of Tobacco Flavoured, Herbal Hookah, Flavoured/Herbal Tobacco Biri etc., classifiable under the Central Excise Tariff Item 2403 1110, 2403 1190, 2403 1929, respectively, of the Schedule to Central Excise Tariff Act, 1985. For the purpose of payment of Central Excise duty in respect of goods cleared into Domestic Tariff Area and for compliance with Central Excise statue, the appellant company is registered with the jurisdictional authorities holding Central Excise Registration No. AAGCS0625QXM001. The appellants are also registered with the department for service tax purposes. Besides manufacture and clearing of the final products for export, they were also clearing the manufactured goods viz., Tobacco flavoured Hookah and Herbal Hookah in DTA, under the Brand Name "Afzal Hookah' and "Herbal Hookah", through M/s Arabian Nights Private Limited, Mumbai. 2.3 On the basis of intelligence developed by the department that the appellant M/s Soex India Private Limited and M/s Arabian Nights Private Limited, Mumbai, are related persons; and they are selling their final products in DTA through ....
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....ned Commissioner had confirmed the duty demand of Rs.8,40,044/- after taking into account the explanation given by the appellants with respect to expenses incurred and the existence of influence of relationship in their commercial transactions, and dropped the duty demands for the rest of the demand. Further, he had also confirmed the duty demand of Rs.5,00,965/- on account of shortages. Besides this, he had also imposed penalty of Rs.6,70,505/- (50% of the total duty demand) under Section 11AC(1)(c) and a penalty of Rs.50,000/- each on all the appellants under Rule 26 ibid. Feeling aggrieved with the impugned order, the appellants have filed these appeals before the Tribunal. 3. Heard both sides and perused the case records. 4. The short issue for decision before the Tribunal is to determine whether the impugned order passed by the learned Commissioner in confirmation of Central Excise duty demands, is legally sustainable or not, in terms of the Central Excise Act, 1944; and whether, the appellants are liable to penalty under Central Excise Rules, 2002 or otherwise? The period of dispute involved in the present case is from 2010-2011 to 2015-2016. 5.1 On perusal of the im....
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.... on the basis of unit price at which the imported goods or identical or similar goods are sold in greatest aggregate quantity to persons who are not related to the sellers in India, subject to deductions as mentioned in this Rule. Since, as discussed above, the price at which Notice have sold the impugned goods to M/s Arabian Nights Pvt Ltd (ANPL) is suspect, it would be fair and reasonable to determine the deductive value from the unit price at which ANPL sold the goods to independent buyers in greatest aggregate quantity subject to the following deductions as per Rule 7 and Interpretative note thereto: (a) general expenses in connection with sale including commission, (b) profit element of ANPL, (c) cost of transportation and insurance; and (d) the taxes including Sales Tax/VAT 28.00 Accordingly Re-calculated differential duty liability is tabulated below: 28.00 Accordingly Re-calculated differential duty liability is tabulated below; (A) Afzal Hookah St No. F.Y Quantity (Kg.)of A.H cleared by SIPL to ANPL sales price per Kg. of ANPL in terms of sales in largest aggregate qty. Excise Duty paid by SIPL (Per Kg.] ....
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....estion of demand of differential duty from the Noticee does not arise. 28.02 Similarly, as regards the clearances in DTA of 'Herbal Hookah'to ANPL, the values self- declared by the Noticee for discharging the duty liability thereon during the entire periods under consideration i.e.201112,2012-13,2013-14,2014-15 and 2015-16 are found to be higher than the value so arrived by deductive method under Rule 7 of the Customs Valuation Rules based on the sale price of ANPL to unrelated buyers and therefore in the facts and circumstances of the case the transaction value is acceptable and accordingly the question of demand of differential duty from the Noticee does not arise. 28.03 However, I find that only during the period 2012-13 and 2013-14 the clearances in DTA of 'Afzal Hookah' to ANPL, the values self-declared by the Noticee for discharging the duty liability thereon are found to be lower than the value so arrived by deductive method under Rule 7 of the Customs Valuation Rules based on the sale price of ANPL to unrelated buyers. It means the relationship between the Noticee and the buyer ANPL has influenced the price charged for goods and therefore in the facts and ....
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....ved from the case records that Mr. Asif Fazlani, Director Mr. Arif Fazlani, Director & Mr. Iqbal Fazlani, Director of M/s. SIPL (EOU) as well as M/s ANPL (related buyer) arranged business of M/s SIPL & M/s ANPL in such a way that by sale of Tobacco Flavoured Afzal Hookah through M/s ANPL, higher margins are earned as well as Central Excise duty liability at M/s SIPL is reduced proportionately and accordingly profit on the sales are made at M/s ANPL, when there was undervaluation to determine duty liability there would be proportionate lesser duty payment at factory gate of M/s SIPL. Hence they together aided and abetted M/s SIPL in undervaluing the assessable value of goods cleared in DTA and evasion of Central Excise duty equivalent to aggregate of Customs duty as payable thereon. They were working under self-assessment scheme and they ought to have determined the correct assessable value and discharged the correct duty so leviable thereon. In such a scenario they had reasons to believe that the goods so undervalued and Central Excise duty equivalent to aggregate of Customs duty short paid thereby is liable to confiscation under the provisions of Central Excise Act and even under ....
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.... produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value, the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975). Explanation 1.-Where in respect of any such like goods, any duty of customs leviable for the time being in force is leviable at different rates, then, such duty shall, for the purposes of this proviso, be deemed to be leviable at the highest of those rates. Explanation 2.-For the purposes of this sub-section,- (i) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent. export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;" On careful reading of the legal provision under Section 3 of the Act of 1944 which is the charging s....
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.... Thus, prima facie we find that such a determination of revised value without the same having been mentioned as the basis for demand of duty in the SCN, would not justify the legality of the impugned order, and for this reason alone, we find that it is liable to be set aside. 6.4 In this regard, we find that the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Nagpur Vs. Ballarpur Industries Limited- 2007 (215) E.L.T. 489 (S.C.) have held that show cause notice being the foundation in any matter, the rule which has not been mentioned cannot be invoked and applied. The relevant paragraph of the said judgement is quoted below: "21. Before concluding, we may mention that, in the present case, the second and the third show cause notices are alone remitted. The first show cause notice dated 21-5-1999 is set aside as time-barred. However, it is made clear that Rule 7 of the Valuation Rules, 1975 will not be invoked and applied to the facts of this case as it has not been mentioned in the second and the third show cause notices. It is well settled that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. ....
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....484 Kgs. out of the total manufacture of 11,97,765 kgs., which is less than 0.05%. 8.2 Further, the shortages accounted in the books of accounts are required to be reported for the purpose of auditing the accounts relating to a business whose total sales, turnover or gross receipts exceed Rs. One crore in any previous year for the purpose compliance with Income Tax Act, 1961. Such declarations made in the Form 3CD for the purpose of income tax alone was taken by the department for demanding the central excise duty thereon. However, no independent verification of such shortages, and whether the same is on account of clearances made by the appellants were brought out on record. Therefore, we do not find that the shortages for which duty demands were confirmed by the learned Commissioner has any credibility or independent evidence to treat the same 'clandestine clearance' of such goods made by the appellants. Therefore, we are of the considered view that such demand of central excise duty without proper substantiation does not stand for legal scrutiny. 9. In view of the above discussions and on the basis of the judgement of the Hon'ble Supreme Court in the case of Ballarpur Indu....