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UTC FIRE AND SECURITY INDIA LTD. Versus COMMISSIONER OF C. EX., BELAPUR

Valuation of goods - Captive consumption - same or such goods - Commissioner (Appeals) has accepted the cost produced by the assessee but referred the wrong rule - tribunal reversed the decision of commissioner (appeals) - Held that:- Though in the Show Cause Notice the Assistant Commissioner had mentioned the applicability of Section 4(1)(a) of the Act, even he abandoned that course of action while passing the order. In the final order passed by him, he accepted that the case was covered by Sec .....

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Assessee to a buyer, is to be taken into consideration, subject, of course, to the condition that the buyer is not a related person and the price is the sole consideration for the sale.

Rule 4 would be applicable only in those cases where value of “such goods” which are sold by the assessee for delivery at any other time nearest to the time of the removal of the goods under the assessment, appears to be reasonable to the concerned officer. Goods cannot be treated as same or would fall .....

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of the preceding rules would apply. To put it otherwise, it is the case of ‘best judgment assessment’. However, we find that, that is the exercise otherwise undertaken by the Commissioner (Appeals) in accepting the costing of the goods which was placed by the assessee/appellant before the assessing officer and it was taken into consideration by the Commissioner (Appeals). - Impugned order is set aside - Decided in favour of assessee. - Civil Appeal Nos. 4977-4978 of 2004 - Dated:- 10-4-2015 - A .....

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eal of the Revenue against the order of the Commissioner (Appeals) was allowed. The dispute pertains to the valuation of certain goods used captively by the appellant in the turnkey contracts, in the following circumstances. 2. The appellant, inter alia, manufactures smoke detectors and parts thereof. These goods are sold in two distinct streams as under :- (a) sales in loose condition; and (b) sales as part of turnkey projects where no separate values are recovered for the sale of these go .....

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r the purpose of payment of excise duty which is bone of contention. 4. The Assessing Officer had issued six Show Cause Notices dated 29-9-1995, 28-3-1996, 3-6-1996, 2-9-1996, 3-3-1997, 17-7-1997. It was alleged in these Show Cause Notices that since the aforesaid smoke detectors and parts thereof are captively used by the appellant, insofar as the turnkey contracts are concerned, for the purpose of their valuation, the price at which the same smoke detectors and parts thereof are sold by t .....

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ase pleaded by the appellant was that the matter would not be covered under Section 4(1)(a) and was covered under Section 4(1)(b). He further submitted that in view thereof, it is the Central Excise (Valuation) Rules, 1975 (hereinafter referred to as Valuation Rules, 1975 ) which were to be applied in the given case. According to him, none other Rule than Rule 7 which deals with best judgment assessment , should be made applicable. 6. After hearing the appellant, the Assessing Officer passe .....

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In his opinion, it was not a case where the provisions of Section 4(1)(a) will be applied. He also recorded his finding that even Rule 4 of the Valuation Rules, 1975, had no application. Thereafter, he referred to Rule 6(b) and came to the conclusion that it is this Rule that shall be applicable. 8. We may point out at this stage that the appellant had submitted cost analysis of the aforesaid inputs which are captively used for the turnkey projects and added a margin of 10 per cent thereup .....

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Commissioner which deals with this aspect in detail is reproduced hereunder :- The appellants have worked out the details of costing in respect of the said items under dispute duly certified by Chartered Accountants even prior to the period of dispute. These prices are also inclusive of margin of 10%, whereas appellants claim is that the margin of profit in respect of the entirely turnkey projects is restricted from 4% to 5%. However, this question is not entirely relevant to the issue. The only .....

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for commissioning to turnkey projects at site. Therefore, the only legal acceptable method under the present facts would be to resort to the provisions of the Central Excise Valuation Rules prescribed under Section 4(1)(b) of the Act. While it can be accepted that the subject goods supplied to individual buyer under an invoice, and those sent for commissioning of turnkey projects without any support invoice for this parts, are comparable goods, this fact would only have been utilised for determ .....

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e two different consideration shall prevail in establishment of the prices. Therefore, a better and more acceptable method would be to resort to the costing method under Rule 6(b) (ii) of the Central Excise Rules. In the present case, the appellants have also earlier informed to the Department the costing in respect of the subject disputed items in their letter dated 11-3-1994, supported by certificate from Chartered Accountant. This rejects around 10% margin of profit, from other costing detail .....

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nder turnkey projects. 9. The Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as CESTAT ) while setting aside the aforesaid order held that as the case is covered by Section 4(1)(b) of the Excise Act, 1944, it is the Valuation Rules 1975 which would be applicable. However, according to the CESTAT, it is Rule 4 which is applicable in the present case. The order of the CESTAT reveals that while holding so, no reasons were given in a short one page order. The afores .....

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ule 4 is upheld along with consequential duty demands. 10. The only observations which is made in the aforesaid paragraph is that the contention of appellant herein that the goods sold in the loose form are not the same or identical goods which are used in the turnkey projects, is brushed aside with the observations that the appellant-assessee had not been able to produce any evidence to substantiate this. Apart from making this remark, there is no other discussion in the impugned order. It .....

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only method by each of the assessable value in respect of the limited dutiable items, supplied along with a large number of other bought-out items, can be the costing method. The costing in respect of each of these individual items have been already determined by the appellants and informed to the Department in their letter dated 11-3-1994. It is their claim that the same costing is also considered by the appellants while determining the total costing of the turnkey project. Shri P.R. Sahoy, Di .....

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er dated 11-3-1994, a consistent profit at the rate of 10% has been shown. According to the representative, this higher margin of profit was accepted for by the appellants after receiving direction from the Department that the normal acceptation for profit on costing basis will be 10%. It is therefore their claim that the said price for individual dutiable items, worked out by the appellants and informed to the Department, should be the basis for chargeability to duty in respect of turnkey proje .....

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or the items but is only a loose estimation made for obtaining periodic payments during erection period. It is therefore that even if the contract stipulated this break up price for realization of payments, these shall only be for relevant for realization of progressive payment from the contracting positing, and shall not be construed for any other purpose. 11. What emerges from the aforesaid discussion is that though in the Show Cause Notice the Assistant Commissioner had mentioned the app .....

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se where Section 4(1)(a) of the Act is applicable. That is the common case of the parties. As per Section 4(1)(a) of the Act, normal prices of the goods, viz., the prices at which such goods are ordinarily sold by the Assessee to a buyer, is to be taken into consideration, subject, of course, to the condition that the buyer is not a related person and the price is the sole consideration for the sale. In this case, as mentioned above, even the Assistant Commissioner in his final order, accepted t .....

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This is to be determined in such manner as may be prescribed. Manner is prescribed in the Valuation Rules, 1975. Therefore, we have to consider as to which Rules of the Central Excise (Valuation) Rules, 1975 is applicable. Since there is a dispute between the applicability of Rule 4 and Rule 6, we will like to reproduce these two Rules along with Rule 3 and Rule 7 as well in order to present the complete picture. RULE 3. The value of any excisable goods shall, for the purposes of clause (b .....

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e proper officer. RULE 6. If the value of the excisable goods under assessment cannot be determined under rule 4 or rule 5, and - (a) where such goods are sold by the assessee in retail, the value shall be based on the retail price of such goods reduced by such amount as is necessary and reasonable in the opinion of the proper officer to arrive at the price at which the assessee would have sold such goods in the course of wholesale trade to a person other than a related person: Provided tha .....

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lue under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods; (ii) if the value cannot be determined under sub-clause (i), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods; (c) where the a .....

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a related person does not sell the goods but uses or consumes such goods in the production or manufacture of other articles, in the manner specified in clause (b) of this rule; (iii) in a case where a related person sells the goods in the course of wholesale trade to buyers, other than dealers and related persons, and the class to which such buyers belong is known at the time of removal, on the basis of the price at which the goods are ordinarily sold by the related person to such class of buyer .....

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