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CCE Salem Versus ITC Ltd. Vice-Versa And C.A. Nair, Jhon Stephen, Jhon Stephen Versus CCE Salem

2018 (2) TMI 478 - CESTAT CHENNAI

Valuation - paper board - related party transaction - Department took the view that when Wimco Ltd. became a subsidiary of assessee, it no longer cannot be said as retaining its independence; that assessee has become holding company of Wimco Ltd. and they are "related persons" within the meaning of Section 4 (1) (b) of Central Excise Act, 1944 read with Section Central Excise Valuation Rules, 2000 w.e.f. 1.7.2005. - Held that: - Discernably, as per Section 4 (1) (a) of the Central Excise Act .....

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and hence are related for the purpose of Section 4 of the Act. - No allegation has been made by the department that there has been any flow back from Wimco to the assessee towards the allegedly lower pricing adopted by the assessee. - We do not find any attempt by the adjudicating authority to prove with irresistible evidence that the relationship between assessee and Wimco has in fact influenced the price of the goods sold to Wimco or otherwise. As already discussed above, the sole atte .....

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ohan Damodhar, Member (Technical) Shri J. Shankarraman, Advocate For the Assessee Shri R. Subramaniyan, AC (AR) For the Revenue ORDER Per Bench As the issue involved in all these appeals is common, they are taken up together for common disposal. 2. The facts of the case are that M/s.ITC Ltd. (hereinafter referred to assessee) are manufacturers of Paper Board falling under CETH 48109900 of CETA, 1985. On perusal of annual report of the assessee for the year 2006, it appeared that M/s.Wimco Ltd. i .....

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board manufactured by assessee were cleared to their related person M/s.Wimco Ltd. at a lesser price resulting in short payment of duty amounting to ₹ 98,11,438/- for the period 1.7.2005 to 31.3.2007. Show cause notice dt. 07.01.2008 was accordingly issued to the assessee proposing demand of he said amount with interest thereon and also imposition of penalty under various provisions of Central Excise law. In the original round of adjudication, vide order dt. 10.03.2008, the Commissioner c .....

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of the goods sold to M/s.Wimco Ltd. The Tribunal observed that this question should be addressed with reference to price actually charged for comparable quantities of goods sold to independent buyers, which exercise was not even attempted by the Commissioner. Based on these findings, the Tribunal set aside the order and remanded the case to the Commissioner for de novo adjudication, leaving all issues open. In de novo adjudication, the Commissioner vide impugned order dt. 28.10.2009 held that &q .....

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5 of the Central Excise Rules, 2002. Hence this appeal by assessee (E/67/2010). 2. Yet another show cause notice dt. 23.04.2008 had been issued to the assessee on the same issue concerning clearance of goods to a related person viz. M/s.Wimco Ltd. allegedly at lesser price resulting in short payment of duty amounting to ₹ 8,74,526/- with interest for the period 01.04.2007 to 30.09.2007. The show cause notice also proposed imposition of equal penalty under Rule 25 of the Rules read with Sec .....

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vide common impugned Orders-in-Appeal No.86, 87& 88/2009 dt. 29.06.2009 allowed the appeals filed by the assessee, C.A. Nair and John Stephen. Aggrieved, the Department has filed Appeals E/632 to 634/2009 in respect of the assessee, C.A. Nair and John Stephen. 4. Yet another SCN dt. 15.10.2008 for the period 01.10.2007 to 31.03.2008 on the same issue was issued to the aforesaid three noticees inter alia proposing demand of duty amounting to ₹ 10,99,445/- with interest and imposition of .....

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ee, Ld.counsel Shri J. Shankarraman in respect of Appeal E/67/2010 filed by assessee made oral submissions which can be broadly summarized as under : i) The Commissioner has confirmed the demand without following the findings in the remand order of the Tribunal. ii) For the same reasons, the appeals filed by the department against the subsequent orders of Commissioner (Appeals) are not sustainable since the impugned orders in those cases have been passed with correct understanding and applicatio .....

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as incorrectly taken i.e. only as single invoice quantity of sale made to Wimco was taken for comparison for sales made to other customers leaving aside other invoices of sale made to Wimco on the same day, in which cases, the sale price was far higher than the prices to other customers. In 39 cases, the date of sale made to Wimco and other customers was different and also quality code of the product sold to Wimco and other customers was different. Each quality code is different and will vary on .....

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. Thus, out of 235 cases, the comparison made by the Commissioner of date of sale made to Wimco and other customers was erroneous. Out of the remaining cases in two cases price charged to Wimco (relating to Invoice at Sl.No.8 dt. 9.11.2006 and No.10 dt. 4.8.2005) was higher. In the remaining 9 cases, the total quantity purchased by customers other than Wimco was much lower compared to the quantity purchased by Wimco during the same period. Hence the conclusion reached by the Commissioner that in .....

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.R Shri R.Subramaniyan in respect of Appeal E/67/2010 filed by the assessee supports the impugned order. He submits that Commissioner has analyzed the applicability of each relevant rules of the Valuation Rules to the facts of the case and has thereafter only arrived at the correct conclusion that transaction value wound not apply and that only cost construction method based on the principles of Rule 8 of the Rules would only be applicable. The said order is legally correct and hence Appeal E/67 .....

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r when compared to that charged for others and there is no cogent explanation for such variation. The notices in the present case proposed to adopt measure of Rule 8 only after stating that the transaction is not covered by any other rule, hence resort is taken to residuary Rule 11 read with proviso to Rule 9 which eventually has to be read with Rule 8 as the facts involved in those cases are distinguishable from that of the Tribunal s Larger Bench decision in the Ispat Industries case 2007 (209 .....

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06.2009 and 27.08.2009 are erroneous and require to be set aside and the respective orders of the original authority should be restored. 7.1 Heard both sides and have gone through the facts. For better understanding of the issue at hand, it would be useful to reproduce Section 4(1) (a) of Central Excise Act as follows:- SECTION 4.Valuation of excisable goods for purposes of charging of duty of excise. (1) Where under this Act, the duty of excise is chargeable on any excisable goods with referenc .....

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nd the buyer are not related and the price is sole consideration for the sale. The term related person is defined in Section 4 (3) (b) according to which, the person should be deemed to be related if, inter alia, they are interconnected undertaking within the meaning of Section 2(g) of the M.R.T.P, 1969. There is no dispute that assessee and Wimco are interconnected undertakings and hence are related for the purpose of Section 4 of the Act. This being so, the value for the purpose of charging du .....

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provisions concerning sale by assessee to related person is governed by Rule 9 of the Rules is reproduced as under : "Rule 9 When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the .....

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as come to the conclusion that in 88% of the cases, as shown in annexure to the order, the prices charged for supplies to Wimco is largely lower than charged to independent buyers even for comparable quantities. The adjudicating authority on the basis of such a finding, concludes that assessee and Wimco being related Rule 9 of the Valuation Rules will have to be resorted and hence the value will have to be determined in the manner specified in Rule 8, which reads as under : Rule 8. Where the exc .....

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dt.28.10.2009, we find that it suffers from a number of aberrations and misconceived conclusions. In the first place, to attract mischief of Rule 9 the situation should be when all the excisable goods are sold by the assessee only to or through a related person. The take away from this provision is that the entire quantity of the excisable goods are sold to or through related person and obviously to no other buyers. Only if this condition is satisfied, the value of such goods will be taken as th .....

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impugned order, the Commissioner has listed out some 235 cases where goods have been sold to buyers other than Wimco. Notwithstanding this very evident fact, the adjudicating authority has ploughed ahead to justify taking resort to Rule 9 ibid by us. The conclusions in respect of the 235 invoices and his finding that in majority of those cases (88%) the price charged for supplies to Wimco is much lower than charged to other buyers. We are unable to fathom how these findings, even if they are co .....

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nsactions during the impugned period involving 10128 invoices. We have no hesitation in holding that the reasoning and analysis adopted by the adjudicating authority is fallacious and not based on correct interpretation of law. No allegation has been made by the department that there has been any flow back from Wimco to the assessee towards the allegedly lower pricing adopted by the assessee. In the remand order of the Tribunal dt. 23.07.2008 as reported in 2009 (234) ELT 575 (Tri.-Chennai), the .....

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relied on the Tribunal s Larger Bench decision in Ispat Industries Ltd. v. Commissioner of Central Excise, Raigad [2007 (209) E.L.T. 280 (Trib.-LB)], wherein it was held that the provisions of Rule 8 would not apply in a case where some part of the production was cleared to independent buyers. The main grievance of the assessee at present is that the above plea was not even examined by the learned Commissioner. Today, the learned Sr. Advocate has also relied on the Hon ble Supreme Court s judgme .....

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CDR also, who has reiterated the findings of the learned Commissioner. 3. The facts of this case are, apparently, similar to those of Bharti Telecom case cited by the learned counsel. The ruling of the apex court is to the effect that, even if the assessee sells excisable goods to a person who is related to the former in terms of Section 4 of the Act, the transaction value of the goods has to be accepted if it is shown that the relation has not influenced the price. This ruling, though rendered .....

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ruling, impliedly, rules out the applicability of best judgment assessment method to a case where the assessee is related to the buyer but such relation has not influenced the price at which the goods are sold. The Tribunal s Larger Bench decision is explicit on this point. It has been held that the provisions of Rule 8 will not apply in a case where some part of the production of excisable goods is cleared to independent buyers. Such is the case of the present assessee. Therefore, it should not .....

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admitted fact. The question is whether this relationship influenced the price of the goods sold to M/s. WIMCO Ltd. This question should be addressed with reference to the price actually charged for comparable quantities of goods sold to independent buyers. This exercise was not even attempted by the learned Commissioner." Only based on these observations, the Tribunal had remanded the case to the Commissioner for de novo adjudication. However, notwithstanding such clear observations and di .....

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Commissioner cannot be sustained. 7.6 The Tribunal in the remand order had alluded to the Hon ble Supreme Court's judgement in Commissioner of Central Excise, Chandigarh Vs Bharti Telecom and Others [2008-TIOL-124-SC-CX], wherein it was held that even if the assessee and the buyers were related, the transaction value should be accepted if the relation did not influence the price at which the goods were sold; that the said ratio would continue to hold good even for Valuation Rules for post-1 .....

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e remand order dt. 23.07.2008. On this count also, the impugned order dt. 28.10.2009 (relating to E/67//2010) cannot sustain. 7.7 We find that for subsequent periods, the Commissioner (Appeals) vide orders dt. 29.06.2009 (impugned order in department's Appeals E/632-634/2009) and order dt. 27.08.2009 (impugned order in department's Appeals E/648-650/2009) has correctly understood the import and applicability of the decision of the Larger Bench of the Tribunal in the case of Ispat Industr .....

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he sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944." The Commissioner (Appeals) has also followed the law laid down by the Hon ble Supreme Court in the case of CCE Chandigarh Vs Bharti Telecom Ltd. 2008 (226) ELT 3 (SC), which was .....

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