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2014 (7) TMI 317 - AT - Central ExciseValuation of goods - Undervaluation of goods - Alloy and Non-Alloy Round - department was of the view that the value addition shown by the appellant during the period of dispute was very low - totalling up the expenses on coal, electricity, wages, castings and consumables, metal rolls/lubricants, cartages/general expenses and the gross profit - Held that - very basis of determining the value addition per matric tonne during each financial year is not correct and hence, in our view, no duty can be demanded merely on this basis. Moreover neither any inquiry has been conducted with the appellant s customers to ascertain as to whether any amount over and above the invoice price had been charged by the appellant nor any inquiry has been conducted for ascertain as to what was the prevailing market price of the alloy and non-alloys rounds during each financial year. If the prevailing market price of the alloy and non-alloys rounds during the period of dispute was much higher than the price at which the appellant were showing the sale, there could have been a basis for doubting the declared assessable value, but no such inquiry has been conducted. When in terms of Section 4 (1) of the Central Excise Act, 1944, the assessable value is the transaction value as defined in this Section and the transaction value of the goods at the time and place of removal i.e. at factory gate, is available and no evidence has been produced indicating that the sale price had been under declared, there is no justification for determining the transaction value by cost construction method which, in turn, is based on the arbitrarily determined valuation addition. The impugned order is, therefore, not sustainable - Decided in favour of assessee.
Issues:
1. Allegation of under-declaration of assessable value leading to short payment of central excise duty. 2. Calculation of value addition per metric tonne by the department. 3. Justification of duty demand based on cost construction method. 4. Lack of inquiry with customers and suppliers regarding pricing and raw material consumption. 5. Commissioner's finding on price as the sole consideration for sale. 6. Adjudication of the show cause notice and penalty imposition. Issue 1 - Allegation of under-declaration of assessable value: The appellant, a manufacturer of Alloy and Non-Alloy Round chargeable to central excise duty, was accused of under-declaring the assessable value of their products to minimize duty payment through PLA. The department alleged that the declared value was lower than the actual value addition, resulting in a shortfall in duty payment. A show cause notice was issued demanding the alleged short-paid duty amount along with interest and penalty under Section 11 AC. Issue 2 - Calculation of value addition per metric tonne: The department calculated the value addition per metric tonne by totaling expenses on various inputs and dividing it by the total quantity of rounds cleared. The department contended that the actual value addition based on the sale price was significantly lower than the calculated value addition, indicating under-declaration of assessable value by the appellant. Issue 3 - Justification of duty demand based on cost construction method: The appellant argued against the department's use of the cost construction method to determine duty liability, emphasizing that transaction value at the factory gate should be the assessable value unless specific conditions for cost construction method application are met. The Tribunal found the department's approach unjustified and unsustainable. Issue 4 - Lack of inquiry with customers and suppliers: No inquiry was conducted with the appellant's customers to verify pricing or with suppliers to investigate raw material consumption. The absence of market price analysis and raw material sourcing scrutiny undermined the department's allegation of under-valuation and raised doubts about the duty demand's validity. Issue 5 - Commissioner's finding on price as the sole consideration for sale: The Commissioner held that the appellant's declared assessable value was incorrect, suggesting that price was not the sole consideration for sale. However, the lack of clarity on additional considerations influencing pricing weakened this finding. Issue 6 - Adjudication of the show cause notice and penalty imposition: The Commissioner confirmed the duty demand, interest, and imposed a penalty on the appellant in the original order. The Tribunal, after considering arguments from both sides, found the department's basis for duty demand flawed and unsustainable. Consequently, the impugned order was set aside, and the appeal along with the stay application were allowed. This detailed analysis of the judgment highlights the key issues raised, arguments presented, and the Tribunal's decision, providing a comprehensive overview of the legal proceedings and outcomes.
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