TMI Blog2020 (8) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... to proceed. However, while carrying out the exercise of re adjudication, the Adjudicating Authorities should keep in mind the principles enumerated hereunder: Cases where the period of assessment is prior to 01.07.2000 First ascertain the price at which such goods are ordinarily sold by the assessee to a buyer who is not related to him, in the course of wholesale trade, at the time and place of removal and also find out whether the price is the sole consideration for the sale. If the Adjudicating Authority is able to find this out, he may take such price as the normal price and treat the case as covered by Section 4(1)(a), applying, wherever permissible, the prescriptions contained in the proviso to clause (a) of sub -section (1) of Section 4. If Value is not ascertainable, then follow the Rules. The phrase for any other reason appearing in Section 4(1) (b) would include cases where the price charged in the course of wholesale trade is not discernible or where the same, though discernible, cannot be linked to delivery at the time and place of removal or where the price is not the sole consideration for the sale, even though the price charged in the course of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Tax of different Commissionerates, filed under Section 35L(1)(b) of the Central Excise Act, 1944 (hereinafter referred to as the Act ), questioning the correctness of the orders passed by Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore (CESTAT) in seven different batches of cases, but arising out of similar facts and raising identical questions. 2. For the purpose of convenience, the facts out of which the first batch of cases in Civil Appeal Nos. 7240 -7248 of 2009 (which we may call the lead case) arise, are recorded in detail. The facts in the other batches of cases are brought on record in brief and to the extent that they have some distinguishing features. As a matter of fact, the batch of cases relating to the assessee by name, M/s. CERA Boards and Doors (the respondents in Civil Appeal Nos. 7240 -7248 of 2009), was decided first by CESTAT. Thereafter, CESTAT decided the other 6 batches of cases on the basis of the ratio laid down in CERA Boards. This is why Civil Appeal Nos. 7240 -7248 of 2009 are taken as the lead case. Facts in Civil Appeal Nos. 7240 -7248 of 2009 3. M/s. CERA Boards and Doors, Kannur, which is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se sheets recovered from a Sales Executive by name Mr. Dayanandan, (ii) computer print outs containing overdue bills statements, (iii) the price lists containing the actual rate per square feet of plywood/block boards of different thicknesses, (iv) certain slips containing the details of the sales made during the relevant period, (v) copies of statements of expenses, (vi) copies of periodical cash statements and the statement of cash sent through one Mr. Xavier, (vii) collection books, (viii) a red colour notebook containing partywise details of invoiced amounts and the amounts payable in cash, (ix) a notebook containing details of transactions with various dealers, (x) a green colour notebook and two receipt books, (xi) the diary of the Sales Executive, Mr. Dayanandan, and certain other items. 9. Apart from the above documents seized during the searches, the show cause notices also relied upon the statements recorded from (i) Mr. Dayanandan (Sales Executive), (ii) Mr. Cyril D Souza (Sales Executive), (iii) Mr. M. P. Narayanan, (iv) Mr. K. S. Harris (Managing Partner), (v) Mr. K. S. Mohammad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price indicated in each invoice. 15. After the receipt of the replies from the assessee, the Commissioner of Central Excise and Customs, Calicut, held personal hearings, allowed the cross examination of witnesses, perused the case law relied upon by the assessee and then passed an Order- in- Original No. 14/2006 dated 09.05.2006. By this Order- in- Original, the Commissioner (i) confirmed the demand of duty in a sum of ₹ 79,21,663 from the assessee under the proviso to Section 11A(1) of the Act, (ii) levied interest at the appropriate rate for the belated payment of the duty under Section 11AB of the Act, (iii) imposed a penalty of ₹ 79,21,663 under Section 11AC read with Rule 25, (iv) directed the confiscation of goods seized from the assessee, valued at ₹ 12,80,926 with an option to redeem the same upon payment of fine of ₹ 25,000, (v) directed the confiscation of goods seized from five different dealers, however, with an option to redeem the same upon payment of fine amounts ranging from ₹ 2,500 to ₹ 15,000, (vi) imposed a penalty of ₹ 5,000 each, upon the assessee and five of the dealers and (vii) imposed a penalty of ₹ 5,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/2006 dated 09.05.2006, one appeal was filed by the assessee, one appeal was filed by its Managing Partner, one appeal was filed by the Manager of the Bangalore depot of the assessee, one appeal each was filed by five dealers from whom seizure of material was effected and one appeal was filed by the Commissioner himself. Thus, there were 9 appeals, 8 of which were at the instance of assessee, its Managing Partner, its Manager, and the five dealers, and the last of which was by the Commissioner of Central Excise. 18. While the 8 appeals filed at the instance of the assessee and its coterie were directed against the demand for differential duty, interest, penalty and confiscation, with an option of redemption, the appeal filed by the Commissioner was on the ground that as against the proposal for a differential duty of ₹ 4,29,01,384 made in the show cause notice, the adjudicating authority confirmed the demand only to the extent of ₹ 79,21,663. 19. By Final Order Nos. 245 -253/2009 dated 24.03.2009, the CESTAT (i) rejected all the five appeals filed by the five dealers challenging the orders of confiscation of the seized goods with the option for redemption and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of cases, also manufactures plywood/block boards. Similar searches conducted at their premises revealed that the assessee had grossly undervalued the goods cleared by them from their factory, resulting in evasion of Central Excise duty to the tune of ₹ 2,72,03,232 during the period between 01.12.1998 and 17.10.2002. 24. Show cause notices (i) dated 08.04.2003, for confiscation of the material and cash, imposition of penalty, etc., and (ii) dated 22.12.2003, demanding differential duty of ₹ 2,72,03,232 under Section 11A(1) of the Act, interest, penalty, etc. were issued. 25. After the receipt of the replies from the assessee to the two show cause notices, the Commissioner of Central Excise and Customs, Calicut, held an enquiry and passed an Order- in-Original No. 10/2006 dated 27.03.2006, by which, he (i) confirmed the demand of duty to the extent of ₹ 1,50,23,911 from the assessee under the proviso to Section 11A(1) of the Act, (ii) levied interest at the appropriate rate for the belated payment of duty under Section 11AB of the Act, (iii) imposed a penalty of ₹ 1,50,23,911 under Section 11AC read with Rule 25, (iv) directed the confiscation of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: I. That there was overwhelming evidence to show under invoicing; II. That in respect of the sales made prior to 01.07.2000, the Adjudicating Authority should have adopted the normal pricing method; III. That for the clearances made after 01.07.2000, the transaction value has to be determined in respect of each transaction and the differential duty confined only to the evidences available on record; IV. That the stand of the Revenue that 70% should be added to the invoice value uniformly in respect of all clearances, cannot be accepted. 30. Aggrieved by the said order, the Revenue has come up with this batch of six appeals, Civil Appeal Nos. 8615 -8620 of 2009. Facts in Civil Appeal Nos. 2236 -2253 of 2011 31. Searches were conducted by the officers of the Directorate General of Anti -Evasion (Central Excise) on 23.09.1997, simultaneously at the premises of eleven plywood manufacturing units located at Kumbla, Kasargod District, on the basis of intelligence reports that they were indulging in undervaluation and evading payment of central excise duty. 32. After recovering incriminating evidence and recording the statements of propriet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 26,73,758/- M/s. Mailatty Wood Industries ₹ 23,24,056/- ₹ 23,24,056/- M/s. National Wood Products ₹ 61,14,236/- ₹ 61,14,236/- M/s. Bharath Chemicals ₹ 5,52,839/- ₹ 5,52,839/- 36. In addition to the above, the Adjudicating Authority confirmed the demand of interest under Section 11AB, ordered the confiscation of material with an option to redeem the same on payment of fine and imposed penalties. However, (1) the currency of ₹ 20,66,940 and the demand drafts and cheques seized from Sh. Mohammed Arabi was directed to be released and (2) the proceedings envisaged in the twelve show cause notices on account of clubbing the value of clearances of all the units, were dropped. 37. The Adjudicating Authority ruled that there was sufficient evidence to prove undervaluation. However, he took the view that since the units were registered separately with the Departments of Industries, Sales Tax and the Income Tax, their clearances could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be allowed, and the matter remanded for re adjudication on the terms indicated above. 40. Aggrieved by the said order, the Revenue has come up with this batch of appeals, Civil Appeal Nos. 2236- 2253 of 2011. Facts in Civil Appeal Nos. 3227- 3230 of 2011 41. Similar to the preceding cases, M/s. Mysore Chipboards Ltd., which is the assessee concerned in this batch of cases, also manufactures plywood/block boards/particle boards. Searches conducted by the DGCEI at their premises revealed that the assessee had undervalued the goods manufactured by them and cleared them from their factory, resulting in the evasion of Central Excise duty to the tune of ₹ 7,51,53,570 during the period from 01.07.2000 to 28.08.2003. 42. A show cause notice dated 21.07.2005 was issued, demanding differential duty of ₹ 7,51,53,570 under Section 11A(1) of the Central Excise Act, 1944, interest, penalty, etc. 43. After the receipt of the reply from the assessee, the Commissioner of Central Excise, Mysore held an enquiry and passed an Order- in- Original No. 06/CCE/2006 dated 05.10.2006. By this Order- in- Original, the Commissioner (i) confirmed the demand of duty in a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) allowed the appeal filed by the Revenue and remanded the matter for fresh adjudication (except on the clearances relating to Umiya enterprises and sales from the Delhi branch) and (iii) allowed the Miscellaneous Application relating to the maintainability of the appeal filed by the Mysore Commissioner. 49. The findings recorded and the reasons therefor, as given by CESTAT, are as follows: I. That the demand of ₹ 60,712 for the differential value of ₹ 3,79,452 in respect of the clearances reflected in the Inter- Office memo was rightly confirmed by the Adjudicating Authority, by rejecting the retractions of the statements of Sh. K. Sridhar and Sh. Umeedmal Jain who had admitted to undervaluation and collecting differential amounts in cash; II. That the demand of duty of ₹ 4748 on the differential value of ₹ 29,677 with respect to clearances from the Lucknow branch was liable to be sustained; III. That the demand of ₹ 80,36,177 on the differential value of ₹ 5,02,26,106 for the clearances made to M/s. Kela Brothers was to be confirmed on the principle of preponderance of probability regarding undervaluation by the assessee; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000 on Sh. P. M. A. Razak, the Managing Director of the assessee. 54. The Commissioner recorded a finding that the evidence on record proved that the assessee had undervalued the goods sold through Shree Shyam Plywoods by about 75% and those sold through other dealers by about 70%. 55. Aggrieved by the Order- in- Original No. 10/2006 dated 29.05.2006, the assessee, its Managing Director and the Commissioner of Central Excise, Mangalore filed three appeals before the CESTAT. 56. By Final Order Nos. 1145 -1147/2010 dated 26.08.2010, the CESTAT allowed all the three appeals and remanded the matter for re quantification of duty in the light of the findings given. 57. The findings recorded and the reasons therefor, as given by CESTAT, are as follows: I. That the statements given by third parties in the course of investigation stood in contrast to the statements given by the employees of the assessee and that once retracted, the statements of third parties would lose their evidentiary value; II. That the pocket planner recovered from Sh. Ashraf was not an official record of the assessee but a private diary; III. That the prices written on the letterhead of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (i) confirmed the demand of duty in a sum of ₹ 7,21,568 from the assessee under the proviso to Section 11A(1) of the Act, (ii) levied interest at the appropriate rate for the belated payment of the duty under Section 11AB of the Act, (iii) imposed a penalty of ₹ 7,21,568 under Section 11AC, (iv) imposed a penalty of ₹ 50,000 under Rule 25 and (v) imposed a penalty of ₹ 50,000 each on Sh. B. Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin under Rule 26. 62. The Adjudicating Authority held that there was undervaluation on assessee s part and that therefore, Section 4(1)(a) was not applicable to the assessee s transactions and that the assessable value had to be ascertained in terms of Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. 63. Aggrieved by the Order- in- Original No. 20/2007 dated 29.06.2007, the assessee, Sh. B. Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin filed four separate appeals before the Commissioner of Central Excise (Appeals). 64. The Commissioner of Central Excise (Appeals) dismissed the appeals. 65. Aggrieved by the Orders in Appeal dated 18.09.2008, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Excise duty to the tune of ₹ 50,42,761 during the period between 01.07.2001 to 31.03.2004. 70. A show cause notice dated 10.10.2006 was issued demanding differential duty of ₹ 50,42,761 under Section 11A(1) of the Central Excise Act, 1944, interest, penalty, etc. 71. After the receipt of the reply from the assessee, the Commissioner of Central Excise, Mangalore, held an enquiry and passed an Order- in Original No. 08/2007 dated 29.03.2007, wherein he (i) confirmed the demand of duty in a sum of ₹ 40,46,923 from the assessee under the proviso to Section 11A(1) of the Act, (ii) directed appropriation of ₹ 2,00,000 voluntarily paid by the assessee, (iii) levied interest at the appropriate rate for the belated payment of the duty under Section 11AB of the Act, (iv) imposed a penalty of ₹ 40,46,923 on the assessee under Section 11AC, (v) imposed a penalty of ₹ 2,00,000 on the assessee under Rule 25 of the 2002 Rules and (vi) imposed a penalty of ₹ 2,00,000 each on Sh. B. Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin under Rule 26 of the 2002 Rules. 72. The Adjudicating Authority held that the documentary evidence and wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s removed by the assessees for sale to or through dealers. 78. In other words, the entire dispute now revolves around the question of valuation of excisable goods, for the purposes of charging of duty. But for finding an answer to the said question, it is necessary for us to take note of the period of assessment. In some of these cases, the period of assessment was both prior to and after 01.07.2000 and in other cases, the period was after 01.07.2000. According to the respondents, the method of determination of value before 01.07.2000 was different from the method of valuation after 01.07.2000, since Section 4 of the Central Excise Act, 1944 was amended with effect from 01.07.2000 under Act 10 of 2000. The amended Section 4 also underwent some changes in the years 2003 and 2012. We are not concerned with the changes brought forth in 2012. 79. Therefore, let us first take note of how the statutory prescription stood before 01.07.2000 and after the said date. The relevant portion of Section 4 as it stood before 01.07.2000 and as it stands after 01.07.2000 is presented in a tabular column as follows: Section 4 as it stood before 01.07.2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such dealers, to dealers (being related persons) who sell such goods in retail; (b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. (2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. (3) [...] (4) For the purposes of this section- (a) assessee means [...]; (b) place of removal means- (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; (iii) A depot, premises of a consignment agent or any other place or premises from the excisable goods are to be sold after their clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty payable on such goods. (2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under subsection (2) of Section 3. (3) For the purpose of this section - (a) assessee means [...]; (b) persons shall be deemed to be related if- [...] (c) place of removal means- (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, (iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed; (cc) time of removal , in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory; (d) transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where normal price was not ascertainable, the same would fall under Section 4(1)(b) and the valuation in such cases had to be done in terms of the Valuation Rules of the year 1975. Clause (b) identifies one situation, namely where goods are not sold, in which, the normal price may not be ascertainable. In addition, clause (b) also recognises the fact that there may be cases where normal price is not ascertainable for any other reason. These cases may perhaps include sales otherwise than in the course of wholesale trade. 83. Though the words normal price were used in Section 4(1) (a), the proviso to clause (a) recognised the fact that the normal price need not be the same universally, but could vary from one class of buyers to another or from one place of removal to another. 84. By the amendment under Act 10 of 2000, with effect from 01.07.2000, the words normal price and the words in the course of wholesale trade were removed. Instead, the words transaction value were inserted in Section 4(1)(a). 85. As rightly pointed out by the learned Additional Solicitor General, the third question referred to the Constitution bench in CCE vs. Grasim Industries Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of valuation, for cases not covered by clause (a). 88. For the valuation under Section 4(1) to follow the transaction value , (after amendment) the three conditions stipulated in clause (a), namely (i) that the goods are sold for delivery at the time and place of removal, (ii) that the assessee and buyer are not related and (iii) that the price is the sole consideration for the sale, should be satisfied. 89. If the three conditions, enumerated in clause (a), (indicated above) are not satisfied, then the case would fall under clause (b) of sub -section (1) of Section 4, which starts with the words in any other case . In other words, in cases not covered by clause (a), the value can be determined in such manner as may be prescribed. 90. After the amendment under Act 10 of 2000, the Central Government issued a new set of rules called the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. These rules were issued in exercise of the power conferred by Section 37, in supersession of the 1975 Valuation Rules. 91. Rule 3 of the aforesaid 2000 Rules makes it clear that the value of excisable goods, for the purposes of clause (b) of subsection (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le only to a few out of the several transactions that he had with the assessee, should be taken to be the normal price or the transaction value, as the case may be, applicable to all the transactions that the particular dealer had with the assessee. 96. Similarly, what the CESTAT did in all these cases is: (i) to uphold the finding of undervaluation and evasion of duty; (ii) to hold that invoice price need not be taken as the normal price in respect of cases prior to 01.07.2000 and that wherever a particular amount is actually found to have been paid by a dealer, the same could be taken to be the transaction value, for cases after 01.07.02000; and (iii) to hold that the determination of the normal price or the transaction value, as the case may be, should be confined only to the evidence available on record, but not to all the transactions across the board. 97. But the Adjudicating Authorities as well as CESTAT are also guilty of failure to do something in these batches of cases. They are: (i) Failure to find out, in cases covered by Section 4(1) as it stood prior to 01.07.2000, whether there were sales in the course of wholesale trade, satisfying the 3 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scertainable, either for the reason that the goods are not sold or for any other reason, then he may take it that the case would fall under Section 4(1)(b) and take recourse in such cases, to the Central Excise (Valuation) Rules, 1975. III. The phrase for any other reason appearing in Section 4(1) (b) would include cases where the price charged in the course of wholesale trade is not discernible or where the same, though discernible, cannot be linked to delivery at the time and place of removal or where the price is not the sole consideration for the sale, even though the price charged in the course of wholesale trade for delivery at the time and place of removal are available. IV. If the case falls under Section 4(1)(b) and the Adjudicating Authority takes recourse to the method of valuation prescribed in the 1975 Rules, he shall find out which among the relevant rules would apply to the cases on hand before proceeding with the valuation. B. Cases where the period of assessment is after 01.07.2000 I. First ascertain the transaction value , with particular reference to the definition of the said expression contained in Section 4(3)(d). II. Apply the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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