Whether Valuation Rule 9 invokable even when price has not been influenced between the related parties?

PJ/Case Law/2013-14/1832

Case:-JAGAJOTHI SPINNING MILLS Vs COMMISSIONER OF CENTRAL EXCISE, SALEM

Citation:-2013-TIOL-1238-CESTAT-MAD

Brief Facts:-The issue involved in this appeal is the assessable value to be adopted for payment of excise duty on cotton yarn sold by the appellant to M/s Jayakumar Fabrics. Revenue was of the view that the buyer and seller were related and therefore the transaction value could not be adopted as the assessable value. Further, since the yarn sold to M/s Jayakumar Fabrics was consumed by that firm in further manufacture of fabrics, Revenue was of the view that the value should be arrived at as 115% of the cost of production as per Rule 9 and 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. A show cause notice was issued demanding differential excise duty based on assessable value arrived at 115% of cost of production was confirmed by the adjudicating authority along with interest and penalty equal to the differential duty imposed under section 11AC of the Act. There was a penalty of Rs. 10,000/- imposed under Rule 173Q of Central Excise Rules, 1944, Rule 25 of Central Excise (No.2) Rules, 2001 for the periods for which these rules were applicable.

Appellant Contentions:-The appellant submits that he and M/s Jayakumar fabrics were independent entities and there was no mutuality of interest. Further, the appellants were selling such goods to independent buyers at prices lower than the price at which goods were sold to M/s Jayakumar Fabrics. The main legal argument of the Counsel is that Rule 9 comes into force only in situation "when the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person" or "to buyers (being related person), who sells such goods in retail". In the case of the appellant, they sell goods to unrelated buyers at prices lower than the prices at which goods are sold to M/s Jayakumar Fabrics.

Appellant relies on the following decisions:-

(i) Ultra Refrigerators Pvt Ltd Vs. CCE - 2004 (170) ELT 341 (Tri-Del);

(ii) Birdi Steels Vs. CCE-2005 (179) ELT 82 (Tri-Del)

(iii) Aquamall water Solutions Ltd Vs. CCE - 2005 (182) ELT 196 (Tri-Bang); as affirmed by the Hon Apex Court as reported at 2006 (193) ELT A197 (SC);

(iv) Bharat Petroleum Corporation Ltd Vs. CCE-2010 (261) ELT 695 (Tri-Chennai); = (2009-TIOL-2111-CESTAT-MAD)

Respondent Contentions:- Therespondent submitsthat the two firms are clearly related persons. Once the buyer and seller are related, the Central Excise Valuation Rules, 2000 do not envisage valuation based on assessable value of comparable goods and value has to be necessarily 115% of the cost of production as provided under Rules 9 and 8 of the said Rules.

Respondent relies on the following decisions:-

(i) Calcutta Chromotype Ltd Vs. CCE-1998 (99) ELT 202 (SC) = (2002-TIOL-370-SCCX).

(ii) Poornalaya Electricals Vs. CCE-1999(107) ELT 660 (Tribunal);

(iii) CCE Vs. I. T. E. C. (P) Ltd-2002 (145) ELT 280 (SC);

(iv) CCE Vs. Fiat India Pvt Ltd-2012 (283) ELT 161 (SC) = (2012-TIOL-58-SC-CX).

Reasoning of Judgement:-The issue as to whether Rule 9 will apply in situation where an assessee is selling part of the goods to others and part to related party is no longer res-integra as can be seen from the various decisions quoted by the Counsel for appellants. Out of the four decisions quoted by Ld. AR for Revenue, the first three relate to the old valuation Rules and is not quite relevant in the context of the new Rules notified in 2000. The decision of the Apex Court is in the context of an assessee who has been selling goods at prices substantially lower than cost price to capture the market. In this case, no case is made out that the price at which goods are sold to M/s Jayakumar Fabrics is less than cost price. So, we do not find that the said decision would apply in the facts of this case. So, we go by the decisions of the Tribunal already given in the matter to the effect that when prices of goods sold to independent buyers are available there is no scope for invoking provisions of Rule 9 read with Rule 8.

Decision:-Appeal allowed.

Comment:-The analogy that is drawn from this case is that the issue is settled that the provisions of Rule 9 cannot be invoked until and unless the fact of parties being related have influence the price of the goods. Moreover, the said rule is invoked only if all the sales are made to the related party but in the present case some of the sales were also being made to the independent parties and as such, the provisions of Rule 9 were not applicable.

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PJ/Case Law/2013-14/1832

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