TMI Blog2022 (12) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... h the other hand, it would promptly disobey those very directions. Maintaining predictability in taxation law is of utmost importance and, for this reason, the Court should not accept an argument by the Revenue that waters down its own Circular as this would fall squarely within the contours of the prohibition outlined in PAPER PRODUCTS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE [ 1999 (8) TMI 70 - SUPREME COURT] . The presumption under Section 4(1)(a) is that the sale from an Assessee to an independent party is the proper valuation to be used for determining excise duty. Conversely, a rebuttable presumption can be drawn regarding related party transactions and the value at which goods are sold in such situations. Rule 9 would be sufficient to resolve this issue when sales are made only to related entities, but where both independent and related parties are involved, we must refer to other means. In this context, Rule 11 obliges the Revenue to use reasonable means consistent with the principles under Section 4(1) of the CEA to arrive at the appropriate value - the show cause notice and the order of the Commissioner proceed along the basis that Section 4(1)(b) is applicable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt parties unconnected with the Respondent, but also to two related parties called Merino Industries Ltd. ( MIL ) and Merino Services Ltd. ( MSL ), as defined under Section 4(3)(b)(i) of the Central Excise Act, 19441 ( CEA ) read with Section 2(g) of the Monopolies and Restrictive Trade Practices Act, 1969.2 It was ascertained that Respondent was a subsidiary of MIL with 74.65% of its shareholding vested in the latter. With regard to MSL, the Assessee was found to have significant influence over its operations and the two companies shared Directors/Key Managerial Personnel. 3. The sales to these related entities were discovered to be undervalued in comparison to those made by the Assessee to non- related independent entities. This artificial devaluation resulted in a shortfall in collection of excise duty due to the deliberate deflation of the price by the Assessee when selling goods to its related party concerns. Hence, the assessable value of the excisable materials had to be established in order to then calculate the correct amount of excise duty to be levied. 4. The assessable value of excisable goods is worked out via Section 4(1) of the CEA. As we will repeatedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. 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 time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail : Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in rule 8. Rule 10. When the assessee so arranges that the excisable goods are not sold by him except to or through an inter-connected undertaking, the value of the goods shall be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 343 in excise duty. Further, due to the purported suppression of the differential in the prices at which the goods were being sold, the extended period of limitation of 5 years was invoked under the Proviso to Section 11A(1) (4) of the CEA. 5 9. The Assessee disputed the contents of the notice before the Commissioner. One of the contentions raised was that the Revenue had incorrectly invoked Rule 11 of the CEVR, read with Section 4(1) of the CEA, to value the goods that were sold to the Respondent s alleged sister concerns. The Department itself had issued a Circular on 01.07.20026 which clarified the manner in which valuation was to be done when sales are made to both independent and related buyers. The Circular stated: No. Question Response 12. How will valuation be done when goods are sold partly to related persons and partly to independent buyers? There is no specific rule covering such a contingency. Transaction value in respect of sales to unrelated buyers cannot be adopted for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to independent buyers. As part of the sales by the Assessee in the present case were to related buyers, reliance had to be placed on Section 4(1)(b) instead; ii) The CBEC Circular of 01.07.2002 clarified the methodology to be adopted for determining the value of goods when sales are made to both independent and related buyers i.e. resort to Rule 11 read with either Rule 9 or 10 of the CEVR; iii) The CESTAT in Reliance Industries (Supra) had affirmed the usage of the formula as provided in the Circular. The decision in Aquamall Water Solutions (Supra) relied upon by the Commissioner was distinguishable on facts, as the dispute in that instance exclusively involved transfer of goods solely to related parties; iv) The show cause notice by the Revenue sought to assess the value of the goods by relying on Rule 11 of the CEVR, read with Rule 4 and Section 4(1)(a) of the CEA. This was contrary to the CBEC Circular and rendered the notice defective and unenforceable; v) Consequently, the order of the Commissioner affirming a defective show cause notice would, necessarily, have to be set aside as well. The Appellant-Revenue is now in appeal before us. B. SUBMISSIONS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is applicable only when the sale of goods does not take place at the time of removal from the factory. There is no dispute over the fact that sales were effectuated at the time of removal itself by the Assessee; v) Regardless of whether the show cause notice is defective, the invocation of the extended period of limitation and the imposition of penalties under the CEA are unwarranted. Having benefitted from the assistance of both parties, we may now examine their rival contentions. C. ANALYSIS C.1. BINDING NATURE OF CIRCULARS ISSUED BY THE DEPARTMENT 15. On first blush, it appears that the arguments from the Appellant-Revenue and Respondent-Assessee are on two separate footings. While the former assails the specific reasoning given by the CESTAT for setting aside the show cause notice in terms of invocation of an incorrect part of the CEVR, the latter is more concerned with the binding nature of the CBEC Circular issued by the Revenue itself. 16. It is clear that the latter question goes to the heart of the matter, rather than the issue of whether the show cause notice becomes legally untenable for failure to expressly mention that the valuation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise duty could be levied upon micronutrients only under the provisions of heading 31.05 as other fertilisers . If the later circular is contrary to the terms of the statute, it must be withdrawn. While the later circular remains in operation the Revenue is bound by it and cannot be allowed to plead that it is not valid. 16. We reject the submission to the contrary made by learned counsel for the Revenue and in the affidavit by M.K. Gupta, working as Director in the Department of Revenue, Ministry of Finance. One should have thought that an officer of the Ministry of Finance would have greater respect for circulars such as these issued by the Board, which also operates under the aegis of the Ministry of Finance, for it is the Board which is, by statute, entrusted with the task of classifying excisable goods uniformly. The whole objective of such circulars is to adopt a uniform practice and to inform the trade as to how a particular product will be treated for the purposes of Excise duty. It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 in SCC) of Dhiren Chemical's case is being misunderstood. It therefore becomes necessary to clarify Para 9 of Dhiren Chemical's case. One of us (Variava, J.) was a party to the Judgment of the Dhiren Chemical's case and knows what was the intention in incorporating Para 9. It must be remembered that law laid down by this Court is law of the land. The law so laid down is binding on all Courts/Tribunals and Bodies. It is clear that circulars of the Board cannot prevail over the law laid down by this Court. However, it was pointed out that during hearing of Dhiren Chemical's case because of circulars of the Board in many cases the Department had granted benefits of exemption Notifications. It was submitted that on the interpretation now given by this Court in Dhiren Chemical's case, the Revenue was likely to reopen cases. Thus Para 9 was incorporated to ensure that cases where benefits of exemption Notification had already been granted, the Revenue would remain bound. The purpose was to see that such cases were not reopened. However, this did not mean that even in cases where Revenue/Department had already contended that the benefit of an exemption Notification w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution Bench in Ratan Melting (Supra), and laid down that: 131. In the opinion of this court, the views expressed in Keshavji Ravji, Indian Oil Corporation and Ratan Melting and Wire Industries (though the last decision does not cite Navnit Lal Jhaveri), reflect the correct position, i.e., that circulars are binding upon departmental authorities, if they advance a proposition within the framework of the statutory provision. However, if they are contrary to the plain words of a statute, they are not binding. Furthermore, they cannot bind the courts, which have to independently interpret the statute, in their own terms. At best, in such a task, they may be considered as departmental understanding on the subject and have limited persuasive value. At the highest, they are binding on tax administrators and authorities, if they accord with and are not at odds with the statute; at the worst, if they cut down the plain meaning of a statute, or fly on the face of their express terms, they are to be ignored. 24. However, as we will elaborate upon below, we do not agree that there exists any conflict between the Circular dated 01.07.2002, and provisions of the CEVR at all. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case as it addresses situations where goods are not sold at the time of removal from the factory of the manufacturer. In this case, the Respondent-Assessee admittedly sold the goods upon removal itself, hence Rule 4 is of no relevance. 28. Rule 9 addresses the valuation of excisable goods when sales are to related parties. Thus, we will focus on Section 4(1)(b) of the CEA, and Rules 9 11 of the CEVR. This final limb of our examination will be to determine the method adopted for valuation in cases of partial sales to both independent and related purchasers. Since Rule 11 merely refers back to the principles under the CEVR as a whole read with Section 4(1) of the CEA, it is arguable that there is still a gap in terms of how to proceed with the assessment. In normal circumstances, we may have left this responsibility to the Department but given the history of the case, we find it appropriate to fill in the blanks ourselves. 29. In fact, a solution to this problem already exists and it is drawn from the notion of value that exists under Section 4(1) of the CEA. This Court in Commissioner of Central Excise, Mumbai v. FIAT India (P) Ltd. Ors. (2012) 9 SCC 332 has commented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al price and because of extra-commercial considerations the price charged was less than the normal value. 31. In the present case, the factors mentioned in Xerographic Ltd. (Supra) have been clearly fulfilled as MIL and MSL were charged below the price that was imposed on independent buyers due to extra-commercial considerations. Hence, we can determine the price of goods sold to related parties by perusing the price at which the sales were made to independent parties. In SACI Allied Products Ltd., U.P. v. Commissioner of Central Excise, Meerut (2005) 7 SCC 159 the facts were very similar to the case before us. The sales by the Assessee were made to both independent and related parties and the question that arose was regarding fixing the assessable value of the goods that were conveyed to the latter entities. The 3-Judge Bench held that: 19. We have already extracted Section 4(1)(a) of the Act and the third proviso to Section 4(1)(a) of the Act in paragraph supra. In the present case, normal price satisfying the requirements of Section 4(1)(a) of the Act is available and there is no dispute on this factual position. About 35% of the production of the goods is sold by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, thus, ruled that the amount charged from independent buyers can form the benchmark to calculate the appropriate assessable value of the goods sold to the related parties. This approach is of great assistance keeping in view the similarity between the facts and issues that arose in SACI Allied Products (Supra) and in the dispute before us. 33. The conclusion we reach from this is that the principles under Section 4(1) of the CEA are geared toward determination of the value of goods. Under Section 4(1)(a), the value of goods for the purposes of excise duty, is deemed to be the normal price of the goods that are ordinarily sold in the course of business, and where the price is the sole consideration for the transaction. It is only when this cannot be gleaned from the set of transactions available on record that we resort to Section 4(1)(b). 34. The presumption under Section 4(1)(a) is that the sale from an Assessee to an independent party is the proper valuation to be used for determining excise duty. Conversely, a rebuttable presumption can be drawn regarding related party transactions and the value at which goods are sold in such situations. Rule 9 would be suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales to both independent and related parties. The conclusion reached through this process may very well be in consonance with our analysis. 37. Regardless of the value the Revenue finally settles upon, we do not find the Circular itself to be contrary to any statutory provisions. To do so would essentially render Point No. 12 ineffective and such an outcome should, ideally, be avoided as far as possible. In fact, the Commissioner s order proceeds to determine the value of the sales made by the Respondent-Assessee to its sister concerns on the basis of the value of its sales to independent parties. In our considered view, this is entirely consistent with the actual intent of the Circular dated 01.07.2002, which we have already held is not in contravention with either the CEA or the CEVR. 38. The only remaining facet of the case is the extended period of limitation invoked against the Respondent-Assessee under the CEA. The justification of extending the period of limitation depends upon whether the Respondent-Assessee has suppressed facts and failed to provide accurate information regarding its sales to the Revenue. To this extent, there is a finding of fact against the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,- (a) the Central Excise Officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice; (b) the person chargeable with duty may, before service of notice under clause (a), pay on the basis of,- (i) his own ascertainment of such duty; or (ii)the duty ascertained by the Central Excise Officer, the amount of duty along with interest payable thereon under section 11AA. (4) Where any duty of excise has not been levied or paid or has been shortlevied or short-paid or erroneously refunded, by the reason of- (a) fraud; or (b) c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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