Interest Of Buyer In Assessee's Business Not Established for Valuation of Excisable Goods: CESTAT Rejects Department's Appeal Seeking Valuation Of Goods Sold Prior To 2013

The two member bench of Justice Dilip Gupta (President) and P.V.Subba Rao (Technical Member) has observed that as Rule 10 (b) squarely covers the transaction, value has to be determined as per this Rule. For the goods cleared to the buyer, it should be assessed as if the assessee and the buyer are not related persons. In other words, the transaction value has to be accepted.

The respondent/assessee has been a private limited company engaged in manufacture of Iron and Steel products, such as, angles, channels & joists falling under Chapter 72 of Schedule II to the Central Excise Tariff Act, 1985. During audit, it was observed that it had cleared MS Angles and MS Channels to M/s Ashutosh Engineering Industries, Raipur which is a subsidiary of M/s Ashutosh Structures Pvt. Ltd., Raipur. It was further found that the assessee has two Directors.

It was further found that the assessee was clearing similar goods sold to Ashutosh (buyer) and to independent buyers on the same date at different prices and was paying duty on such prices.

It appeared that the assessee and buyer were inter-connected undertakings and therefore, related persons in terms of Section 4 of the Central Excise Act, 1944 and that it was selling goods at a lower price to buyer and was paying excise duty on a lower value. It was felt that the value of the goods sold to buyer must be determined as per Rule 4 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 upto 30.11.2013 and thereafter through cost plus method under Rule 8 of the Valuation Rules.

The show cause notice was issued demanding differential duty under Section 11A of the Central Excise Act along with interest under Section 11AB (upto 07.04.2011) and under Section 11AA (after 07.04.2011) on the duty short paid. It was also proposed in the Show Cause Notice to impose a penalty upon the assessee under Section 11AC.

The appellant/department has submitted that the goods cleared by the assessee and sold to M/s Ashutosh should be valued under Rule 4 cannot be accepted.

Rule 4 deals with goods which are sold but not at the time of removal. The value should be as per the transaction value at any time nearest to the time of removal of goods under assessment subject to adjustment on account of the difference in the dates of delivery of goods. There is no dispute that the goods were sold at the time of removal. The only allegation is that the assessee and buyer are related persons.

The Commissioner found that they were related in terms of clauses (i) and (iv) of Section 4(3)(b) of Central Excise Act, 1944.

"We have recorded our finding that they are not related as per clause (iv) of section 4(3)(b) because the interest of the buyer M/s Ashutosh in the business of the assessee has not been shown or established. Therefore, the appropriate rule to be applied is Rule 10 (b) both for the period prior to 2013 and after 2013," the CESTAT said.

The CESTAT observed that as Rule 10 (b) squarely covers the transaction, value has to be determined as per this Rule. For the goods cleared to the buyer, it should be assessed as if the assessee and the buyer are not related persons. In other words, the transaction value has to be accepted.

Case Title : M/s Khyati Ispat Private Limited vs Principal Commissioner, Central Tax & Central Excise

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