2015 (11) TMI 1474 - AT - Central Excise

Waive of pre deposit - Valuation of goods - Section 4(1)(a) - Determination of assessable value - Demand of differential duty - Held that - In terms of the provisions of Section 4(1)(a) of the Act, where the duty of excise is chargeable on any excisable good with reference to their value, then, on each removal of the goods, such value of the goods shall, in a case where the goods are sold by the assessee for delivery at the time and place of removal, the assessee and the buyers of the goods are not related and the price is sole consideration for sale, be the transaction value. According to clause (b) of Section 4(1), in any other case, including the case where the goods are not sold, the transaction value is to be determined in such manner as prescribed. In this regard, the Central Government has framed Central Excise Valuation (Determination of price of excisable goods) Rules, 2000. Thus, Section 4(1)(b) read with the Valuation Rules becomes applicable only when the transaction value under clause(a) of Section 4(1) is not available. The loss making price cannot be accepted as the normal price of the goods and that too when it is spread over a period of more than five years i.e. w.e.f. January, 2008 and it has to be inferred that the consideration could only be to compete with other manufacturers who are also engaged in the manufacture of the similar goods falling under the same Chapter Heading of CETA, 1985, the existence of extra commercial consideration while fixing the price would not be the normal price . No prudent businessman would continuously suffer huge loss only to compete market. - there is neither admission by Appellant that they lowered the price to level below the cost of production to penetrate the market nor there any evidence on record to support this allegation. If the Department s stand is that lower price below the cost of product was to compete with the other manufacturer of comparable cars, that price as discussed above, cannot be held to be influenced by any extra commercial consideration. When the price is fixed keeping in mind the factors of the supply and demand, and also the price on which the competitors are selling the comparable product, the price determined may sometimes be more than the manufacturing cost and profit and sometimes may be less than the manufacturing cost and in the latter cases, it cannot be said that the price is influenced by the extra commercial considerations. Directing the appellant to pre-deposit the entire duty demand confirmed along with interest for compliance with the provisions of Section 35 F would certainly cause undue hardship. Therefore, the requirement of pre-deposit of duty demand, and the interest thereon is, therefore, waived for hearing of the appeal and recovery thereof stayed. - Stay granted.

Summary

Issues Involved:
1. Determination of assessable value under Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 11 of the Central Excise Valuation Rules, 2000.
2. Recovery of short payment of excise duty along with interest.
3. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Determination of Assessable Value:
The appellant manufactures various car models and discharged duty liability based on the value determined under Section 4(1)(a) of the Central Excise Act, 1944. Following the Supreme Court's judgment in Commissioner of Central Excise Vs. FIAT India Pvt. Ltd., the officers sought manufacturing cost details, revealing that the cost of production for certain car models exceeded their selling price. This led to the belief that prices were influenced by extra commercial considerations, prompting the rejection of the declared transaction value. Consequently, the transaction value was recalculated based on cost of production plus a 10% profit margin, invoking Rule 11 of the Valuation Rules.

2. Recovery of Short Payment of Excise Duty:
A show cause notice was issued for recovering a short payment of Rs. 1,64,31,68,579/- for the period from January 2008 to November 2012. The Commissioner adjudicated the notice, confirming a duty demand of Rs. 95,61,79,874/- for the period from January 2012 to November 2012, while dropping the demand for the period beyond one year due to the inapplicability of the extended period of limitation under Section 11A.

3. Imposition of Penalty:
The Commissioner did not impose any penalty under Section 11AC, considering the circumstances. The department's argument was that the appellant sold cars below production cost to compete in the market, thus influencing the price with extra commercial considerations.

Appellant's Argument:
The appellant argued that the price was determined by market forces and commercial considerations, not extra commercial considerations. They contended that fluctuations in costs and market competition influenced the pricing, not an intention to penetrate the market as in the Fiat India case. They cited the Supreme Court's judgment in Guru Nanak Refrigeration Corporation, asserting that mere sale below cost does not justify rejecting the transaction value without evidence of flow back from buyers.

Department's Argument:
The department maintained that the appellant sold cars at a loss to compete, thus the price was influenced by extra commercial considerations. They pointed to the significant number of cars sold at a loss compared to those sold at a profit during the disputed period.

Tribunal's Decision:
The Tribunal observed that there was no evidence of the appellant receiving additional amounts from buyers or engaging in agreements influencing the price. It distinguished between competing in the market and penetrating the market, noting that selling at a competitive price due to market forces does not equate to extra commercial considerations. The Tribunal found that the appellant's case differed from Fiat India, as the latter involved selling at a loss to penetrate the market. Consequently, the Tribunal held that the transaction value should not be rejected merely because the sale price was below the cost of production.

Conclusion:
The Tribunal waived the requirement of pre-deposit of the duty demand and interest, granting a stay on recovery, and allowed the stay application, finding that the appellant had a prima facie case.