Valuation of goods when sold to sister concern.

PJ/Case Law/2013-14/2025

Case:-M/s MET TRADE INDIA LTD VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, JAMMU & KASHMIR

Citation:- 2014-TIOL-125-CESTAT-DEL

Brief Facts:-Appellant in appeal against Order-in-Original No. JNK/CEX/017/13 dated 13-2-2013 wherein the Commissioner has confirmed the demand of Rs.1,43,33,544/- under Section 11A of the Act along with interest. A penalty of Rs.30 lakh has above been confirmed under Rule 25(1)(a) and Rule 25(1)(d) of Central Excise Rules 2002. Issue briefly noted:-

M/s Met Trade India Ltd., 152, SICOP Industrial Area, Kathua (J&K) (Here-in-after called "the Noticee") are holding Central Excise Registration Certificate No. AAACM8484FXM002 for the manufacture of Tin Alloys and Tin Ingots etc. falling under Chapter 80 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) besides other items. The Noticee are availing exemption of Notification No.56/2002-CE dated 14.11.2002 as amended (hereinafter referred to as the said Notification), by way of self credit of duty in terms of Para 2C of the said Notification.

During the period from December, 2008 to February, 2009 the Noticee cleared 567.397 MT of Tin Alloy (hereinafter referred to as 'the Impugned goods') at the declared assessable value of Rs. 37,04,15,395/- to the buyers related to them, situated at Dadri (U.P.) and Nathpur in Sonepat (Haryana) (hereinafter referred to as 'the related persons') who further used the impugned goods as the raw materials for the manufacture of finished goods. The Noticee had paid BED Rs.3,73,02,618/-, Education Cess Rs.7,46,052/- and S&H Education Cess Rs. 3,73,026/- on the clearances of these impugned goods. As the clearances had been made to the related persons, it appeared that the assessable value of the impugned goods was required to be determined as per the provisions contained in Proviso to Rule 9 read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (hereinafter referred to as "the Valuation Rules"). However, the Noticee did not follow the appropriate Rule of determination of value and had undervalued their clearances and thus evaded Central Excise duty.

The Noticee had produced the Cost Accountant's certificate dated 07.04.2009 (hereinafter referred to as "the said Certificate") showing cost of production of Tin Alloys manufactured by them for the year 2008-09 (upto February, 2009). In the said certificate, the cost of production Per M. T. of Tin Alloy has been arrived at Rs. 821.96 per kg. Therefore, the cost of production of the impugned goods comes to Rs.46,63,74,801/-. Accordingly in terms of Rule 8 read with Rule 9 of the Valuation Rules, the assessable value @ 110% of cost of production comes to Rs.51,30,12,280/-. Thus, it appeared that the Noticee had undervalued their clearances and short paid duty amounting to Rs. 1,43,33,544/-.

It was alleged that the Noticee had cleared Tin Ingots/Billets to their related person who in turn used the said goods as the raw material for the manufacture of finished goods. The Noticee were required to follow Rule 8 and Rule 9 of the Valuation Rules under which the value of such goods was to be determined at one hundred and ten percent of the cost of productionand by not following the said Rules of Valuation, the Noticee undervalued the said goods and hence duty was short paid.

It was further alleged that valuation of goods sold to the related persons does not fall within the ambit a Section No 1(a) of the Act. It attracted the provision of Section No. (1)(b) of the Act.
It was also on record that during investigation, it had been admitted by the noticee that goods cleared to their related person were different from goods cleared to other buyers. It was also admitted that though they sell Lead Alloy to independent buyers but specification and purifications was different from the Lead Alloy sold to their sister concerns. No provisional assessment was resorted to.
Matter again came back to Commissioner on denovo adjudication Commissioner has observed that:-

"Therefore it is clear that there is no hard and fast rule regarding period for which the cost of production needs to be calculated and if there are significant changes in the cost data, then costing can be done even for shorter period. The order passed by Commissioner (Appeals) is based on the logic as reproduced above and therefore the proposition detailed out in Para 7.2 is required to be followed subject to the condition that costing certificates itself are not under doubt.

It was observed that the Noticee had initially submitted a cost certificate dated 07.04.2009 wherein cost of production of the goods was worked out as Rs. 804508/- PMT for the period from 04/208 to 02/2009.

Monthwise cost of production submitted by appellant is given table below:

Sr. No.	Month of CAS-4 and date	Quantity of Production in Certificate (in MT)	Cost of production of goods as reflected in certificate (in Rs.)
Sr. No.	Month of CAS-4 and date	Quantity of Production in Certificate (in MT)	Total	PMT
1	04/08 dated 05.01.2010	287.24	276341185	962056.76
2	05/08 dated 05.01.2010	225.12	240845835	1069855.34
3	06/08 dated 05.01.2010	126.91	145560512	1146958.57
4	07/08 dated 05.01.2010	73.92	81911552	1108110.82
5	08/08 dated Nil	183.85	191845378	1043488.59
6	09/08 dated 05.01.2010	301.57	324945078	1077511.28
7	10/08 dated 30.11.2012	345.383	335359910	970979.78
8	11/08 dated 30.07.2012	237.702	183835582	773386.77
9	12/08 dated 30.11.2012	301.099	189976162	630942.52
10	01/09 dated 30.11.2012	135.744	80377209	592123.48 1
11	02/09 dated 30.11.2012	6.11	3855059	630942.55
Total		2224.648	2054853462	923675.77
Quantity and value of good produced as per CAS-4 statement dated 07.04.2009 filed by the Party for the period 04/2008 to 02/2009		2634.06	2119122130	804507.92

Cost of production PMT for the period from 04/2008 to 02/2009 is Rs. 804508/-PMT and average cost of production for all the months in table comes to Rs.923676/-.

Appellant Contentions:-On the other hand, it was claimed by the appellants that Tin prices have been fluctuating between 20000 US dollar as on 01.04.2008 and in October 2008, prices were in the range of 12000 to 15000 PMT. However on perusal of prices during the relevant period, it was observed that costs shown were comparable for all months through there have been wide fluctuations in the prices.

Counsel of appellant during submissions had referred to variations in the LME prices from USD 20000/- PMT in April 2008 and USD/20000 in Oct. 2008. He also justified use of average method as arithmetic mean. On the other hand, he challenged the method of calculation on the basis of CAS-4.

Respondent Contentions:-Learned DR reiterated the findings as contained in the adjudication order.

Reasoning of Judgment:-We have considered submissions made by both the sides. Method of calculation adopted by the appellants is not proper way of calculation. We agree with the findings of learned Commissioner that under no circumstances, cost of production is less than Rs.8,25,955/- PMT. Differential duty arrived in earlier Original-in-Order and this Order-in-Original is the same i.e Rs. 1,43,33,544/-. Personal penalty has also been maintained at Rs. 30,00,000/-(Rs. thirty lakh).

Method of calculation in these circumstances has to be based on monthly calculations as variations are very wide and average method cannot be adopted. On perusal of production and costing as given in the table in proceeding pass, it is evident that in some months production was very high and in some months, production recorded was too less. Considering overall circumstances, prima facie case is made by the Revenue.

In view of above findings, a pre-deposit of Rupees forty lakhs is ordered as a condition for hearing the appeal. This amount should be deposited within six weeks. Compliance will be noted on 30.12.2013. In the meantime remaining amount of duty and total amount of penalty shall remain stayed till further order.

Decision:-Pre-deposit ordered.

Comment:-The essence of this case is that the goods cleared to related party are to be valued as per the provisions contained in Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 if the price at which the goods are being sold to related party are not at arm length’s price. However, the revenue department has practice to invoke the provisions of Rule 9 even when the goods sold to the related party are at transaction value. In the present case, as the method of calculation adopted by the assessee was not found proper, pre-deposit was ordered.

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PJ/Case Law/2013-14/2025

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