Whether Valuation Rule 9 is applicable when 100% sales are not made to related concern?

PJ/Case Study/2013-14/50

CASE STUDY

Prepared by:-CA Neetu Sukhwani &
Kavita Thanvi

Introduction:-

The present matter relates to valuation of goods cleared by assessee, M/s Somi Conveyor Belting Ltd. to another concern M/s Oliver Micon Inc which is being treated as a related party. The Department is contending that the valuation of goods cleared to the second unit were required to be done as per provisions of Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The appellant is contending that Rule 9 is not applicable as there is sale to outside buyers also and Rule 9 applies only when 100% sales are made to the related party. Therefore, Rule 9 will not apply in the present case. Thus, the issue involved is that of application of Valuation Rule 9.

M/s Somi Conveyor Belting Ltd. v/s, Assistant Commissioner, Central Excise Division, Jodhpur
[Order-In-Appeal no. 26(RDN) CE/JPR-II/2013 dated: 15.02.2013]

Relevant Legal Provisions:-

RULE 8 of CE Valuation Rules, 2000 :- Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be [one hundred and ten per cent] of the cost of production or manufacture of such goods.

Rule 9 of CE Valuation Rules, 2000 :- 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 (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 25 of CE Rules, 2002 Confiscation and penalty.- (1) Subject to the provisions of section 11 AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer,—

(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or
(b) does not account for any excisable goods produced or manufactured or stored by him; or
(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or
(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty,-
then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or two thousand rupees, whichever is greater.

Issue: - Following issue was made before the Commissioner (Appeals):-

Whether Valuation Rule 9 is applicable when 100% sales are not made to related concern?

Brief Facts:-

The present appeal along with stay application has been filed by the appellant against the OIO No. 23/CE/Demand/2011 dated 24.01.2012 passed by the Assistant Commissioner, Central Excise Division, Jodhpur. The appellants are engaged in the manufacture of conveyor Belt/Sheet falling under Chapter subheading no. 40401290 of first schedule of Central Excise Tariff Act, 1985. It has been alleged in the SCN dated 16.09.2010 that the appellant have short paid Central Excise duty amounting to Rs. 45,477/- during the period September, 2009 to July, 2010 by clearing Conveyor Belt/Rubber Sheet to related party i.e. M/s Oliver Micon Inc. on the value which is not in accordance with the Rule 9 of Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000. It has been alleged that the assessee has wrongly valued goods sold to its related concern on the basis of transaction value as specified in section 4 of the Central Excise Act, 1944, when the same was to be valued in accordance with Rule 9. The adjudicating authority has confirmed the demand of Rs. 45,477/- in terms of Section 11A (1) and order to recover the same along with interest under Section 11AB of the Central Excise Act, 1944 and imposed penalty of Rs. 4,500/- under Rule 25(1)(a) of Central Excise Rules, 2002. Aggrieved with the said order of the Assistant Commissioner, the assessee filed this appeal.

Appellant’s Contentions:-

The appellant made following submissions before the Commissioner (Appeals):-

The appellant submit that in the impugned order, text of rule 9 of Central Excise Valuation Rules, 2000 is reproduced and it is held that this rule is applicable only when the excisable goods are not sold except or through a related person. It is held that since they are related with M/s Oliver Micon Inc, this rule is applicable on them. In this regard, it is submitted that the learned Deputy Commissioner has misinterpreted the provision contained in rule 9. The analysis of the said rule makes it clear that this rule is divided into three parts –
-       The first part determines its applicability or otherwise.
-       The second part specifies who will be deemed as related person.
-       The last part specifies what will be the assessable value of the goods sold to such person.
All the three parts are discussed in detail as follows:-

Part	Language of rule	Analysis
Part I	“When the assessee so arranges that the excisable goods are not sold by an assessee except to or through* a person”*	This part can again be broken into three sub-parts – · When the assessee so arranges; · that the excisable goods are not sold by an assessee · except to or through a person who is related Thus, this rule clearly states that this rule will be applicable only in the following two cases – - If the assessee sales its entire production to related person; or - If the assessee makes such arrangements that its entire sale is affected by the related person. In other words, if the case is that the related person acts as a middleman in selling the goods of the assessee.
Part II	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,	This part of rule specifies the manner in which the person should be related.
Part III	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 (being related person), who sells such goods in retail:	This part specifies the two transaction values for the two cases in which the rule is applicable- (i) If the sale is TO the related person – transaction value will be the value at which these goods are further sold by the related person to the buyers. However, the buyer should not be related. If the buyer is also related, the value will be the value at which these goods are further sold in retail. (ii) If the entire sale is THROUGH the related person or related person acts as depot/ dealer/ agent – transaction value will be the value at the time of removal at which these goods are further sold by the related person in retail.

The above table clarifies that the part I of the rule 9 which determines the applicability or otherwise of the rule states that this rule is applicable when the entire sale is either to the related person or it is affected through the related person. This fact is further clarified by the last part of the rule which describes the manner of determining the assessable value. This part also specifies the two manners in which the assessable values are to be determined. Since the rule covers only two cases, the two manners for determining the assessable value have been prescribed. Thus, it is clear that except these two cases, this rule does not have any applicability. In the instant case, they are also selling the goods to parties other than the related person. Further, the related person is not acting as an agent or dealer of them. Thus, none of the two conditions specified by the above rule 9 is applicable in this case. Therefore, by no stretch of imagination, this rule can be made applicable to them. In the reply to show cause notice it was duly submitted and following case laws were also relied upon in this regard –

·         Commissioner v. Aquamall Water Solutions Ltd. – [2006 (193) E.L.T. A197 (S.C.)]

·         Birdi Steels vs CCE, Ludhiana [2005(179) E.L.T. 82 (Tri.- Delhi)]

·         Ispat Industries Ltd. vs CCE, Raigad [2007(209) ELT 185 (Tri.-LB)]

·         COMMISSIONER OF C. EX., PUNE Versus AROFINE POLYMERS LIMITED [2007 (214) E.L.T. 241 (Tri. - Mumbai)]

·         ULTRA REFRIGERATORS PVT. LTD. Versus COMMISSIONER OF C. EX., DELHI-IV[2004 (170) E.L.T. 341 (Tri. - Del.)]

·         TECHNOWELD ALLOYS (P) LTD. Versus COMMISSIONER OF C. EX., CHENNAI [2008 (224) E.L.T. 83 (Tri. - Chennai)]

In all of the above cases, it was held that since the sales had been made to the related person as well as other buyers also, so the rule 9 is not applicable. It was also decided that the rule 9 is applicable only in cases where the entire production is sold to the related person. Since they are also selling the goods to the outside buyers, rule 9 cannot be made applicable to them in the light of above cited decisions. However, these decisions were not discussed nor any reasons have been given to establish that these decisions were not applicable in this case. Therefore, the impugned order is not tenable as it is a non-speaking order which is not justified in the light of decision of CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]. In the light of said decision, the impugned order being non speaking and non-reasoned is liable to be quashed.
In continuation to the decisions cited in the reply to show cause notice and written submissions, they further relied upon the following decisions in support of their contention:-

·         M/s Oswal Woollwn Mills v/s CCE, Ludhiana [2005-TIOL-161-CESTAT-DEL]

·         Sundaram Fasteners Ltd & Ors v/s Commissioner of C. Ex, Pondicherry [2011-TIOL-558-CESTAT-MAD]

·         Roots Multiclean Ltd v/s CCE, Coimbatore [2011-TIOL-720-CESTAT-MAD]

In the above decisions it is ample clear that where the goods are sold to both related persons and independent buyers, rule 9 is not applicable. Thus, the contention of the impugned order that this rule is applicable in this case is not sustainable and is liable to be quashed.
It is further held by the impugned order that since M/s Oliver Micron Inc is related to them, rule 9 is applicable and therefore, valuation is to be done under Rule 9 of the Central Excise valuation (determination of Price of Excisable Goods) Rules, 2001. It was held that they in their Balance sheet itself have declared related party disclosure statement wherein M/s Oliver Micon Inc, Jodhpur has been shown as a related party where relatives of key management personnel exercising influence. Both concerns have direct/indirect interest in the business of each other towards maximization of profit being husband and wife. The instant case clearly falls under the ambit of Section 4(3)(ii), (iii) and (iv) of the Central Excise Act, 1944. In this regard, it is submitted that this conclusion is vague as applicability or otherwise of the rule 9 is to be determined in accordance with the first part of the definition as discussed here above. If the conditions mentioned in the first part are satisfied then the second part is to be checked that whether that person is related in terms of provisions of Central Excise Act, 1944. If both of the above two parts are applicable, then valuation is to be done as per last part of this rule. Thus, all the three parts are to be checked in sequence. However, if the first part is not applicable, question of going to the second part of definition does not arise at all. In the instant case, the entire sale is not made to M/s Oliver and also M/s Oliver Micron is not acting as a depot/agent/dealer for them. Therefore, the conditions prescribed in part I of the rule 9 are not satisfied. Hence, the rule 9 is not applicable and it is not required to check whether the person is related or not. Thus, the contention of the impugned order is going against the general rules of interpreting the legal provisions, hence not justified and is liable to be quashed.
It is further submitted that the impugned order is alleging that the since M/s Oliver Micron Inc. has been shown as related person in the related party disclosure statement of their Balance sheet, both the concerns have direct/indirect interest in the business of each other towards maximization of profit being husband and wife. In this regard, it is submitted that even if the related persons are there, then too, the mutuality of interest is to be proved before applying the rule 9 of the valuation rules. Merely because one of the key management personnel of them is related to the proprietor of the M/s Oliver Micron, it does not lead to a conclusion that there is mutuality of interest. It is further submitted that before invoking the provisions of rule 9, the department has to prove that the price of the goods was affected by the said relation. In this regard, they placed reliance on the certain decisions in their reply to the show cause notice as well as in the written submissions during personal hearing. These decisions are reiterated as follows:-

·         CCE-II, Chennai vs Beacon Neyrpic Ltd.[2006(193)ELT 16(SC)]

·         R.B. Agarwalla & Co. Pvt. Ltd. vs CCE [2007(217) ELT 417 (Tri.-Kolkata)]

·         Alembic Glass Industries Ltd. vs Collector of C Ex. & Cus [2002(143) ELT 244 (SC)]

·         Y. N. Shah vs CCE, Mumbai [2004(170) ELT 353 (Tri.-Mumbai)]

In all of the cases as relied by them in their reply to show cause notice as well as in the written submissions, it was decided that merely because two units have common directors or related by any other relation, valuation rules cannot be invoked unless it is proved that the relation has influenced the prices and there was a two way flow back. Therefore, proving mutual business interest is pre requisite for invoking Valuation rules. But the learned Adjudicating Authority has not taken into consideration the case laws cited by them. Therefore, the learned Adjudicating Authority has passed a non-speaking order and the same is passed in violation of principles of natural justice. It has been held by hon’ble Supreme Court in the case of State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS] that the non-speaking or non-reasoned order is not tenable in the eyes of laws. Thus, the learned assistant commissioner was to discuss and distinguish the decisions cited by them and reasons were to be given as to why these decisions are not applicable. But this is not done; as such a non-reasoned order is being passed which is not sustainable in the light of above decision.
In continuation to above, they further relying upon the following case laws:

·         COMMISSIONER OF C. EX., CHANDIGARH Versus BHARTI TELECOM. LTD [2008 (226) E.L.T. 3 (S.C.)]

·         CCE, Chandigarh v/s Shri Manan Agarwal, Director of M/s Accord Distributors (P) Ltd and others [2008-TIOL-2706-CESTAT-DEL]

·         M/s Mercury Abtibiotics Pvt Ltd and Others v/s CCE, Vadodara [2009-TIOL-629-CESTAT-AHM]

Thus, from the above cases, it is clear that it is also required to be shown that the relation between the two parties had an effect on the sale price of the goods. Since mutuality of interest is not established in this case, therefore Rule 9 of the Valuation Rules is not applicable.
It is reiterated that the provisions of Rule 9 will not apply in the instant case as this rule applies when the entire sale is made to or through the related person and the price is affected by the fact of being the related person. Both of these conditions are not satisfied in the instant case, as such this rule is not applicable. It is further submitted that even if it is accepted for the sake of argument also, that the rule 9 is applicable then, they would like to make reference of the proviso to Rule 9.
Thus, it is clear that even if the rule 9 is made applicable to them, the valuation will be done in accordance to its proviso which says that where the assessee is selling their goods to the related person who is further using those goods in the manufacture of final products, then valuation is to be done in accordance to the rule 8. If all the cases of sale to related person were to fall under main part of rule 9 there was no need to insert the proviso. If even it is accepted for the sake of argument only that proviso to rule 9 is not applicable, then this interpretation will render that proviso as redundant. It has been held by the hon’ble Supreme Court in the case of Amrit Paper vs. CCE, Ludhiana [2006-TIOL-85-SC-CX]and also in the case of Rajesh Kumar Sharma vs. UOI [2007-TIOL-16-SC-CUS]. In both of these cases, the highest court of India has decided that the interpretation which results in rendering any portion of rule or legislation redundant should be avoided. These decisions alongwith certain other decisions were discussed in the reply to show cause notice but the impugned order has not discussed these decisions and hence it has proved to be a non speaking order.

It is further alleged that Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 will not be applicable in this case because Rule 8 applies to cases where the goods are not sold but are captively consumed. It is further held that though M/s. Oliver Micon Inc., Jodhpur is manufacturing goods but it is clear that no manufacturing activity was carried out by M/s Oliver Micon Inc. To this, they submit that in the reply to the show cause notice, they had clearly submitted that the basic raw material supplied by them is in form of plain rubber sheet which is tested and engraved in specific profile for its end-use. The engraved rubber sheet is then approved by QA and laminated and sent for final trimming and packing under brand name of Oliver Micon Inc. Such process changes use and character of plain surface rubber sheet. It was further submitted that rubber sheet after processing by M/s Oliver is used in fixing on machines on which the conveyor belt is used. But the rubber belt as supplied by M/s Somi Conveyor Belting cannot be used for this purpose. The processes undertaken by M/s Oliver have to be undertaken to make it fit for such use. As such, this process employed by M/s Oliver Micron changes the character and use of this product and as such it amounts to manufacture. It was further submitted that they had in a number of correspondences on this issue with the department wherein the process employed by M/s Oliver Micron Inc. was explained in detail which itself proved that the goods supplied by them were further used in the manufacturing of final products sold. In their reply to the impugned show cause notice, they had also submitted the certificate of cost and work accountant which clearly show that the duty paid by is totally correct. It is paid on the basis of cost of production plus 10% profit. The cost sheet is calculated as per CAS-4 issued by Institute of cost and work accountant. The board has also mentioned that the cost sheet is to be prepared for rule 9 under CAS-4 only. Hence, the valuation done by them was correct and demand is liable to be set aside. However, these contentions were not considered and it is simply held that no manufacture is being carried on at related person’s place. Such an order is a non speaking order which does not discuss their submissions. A non speaking order is not tenable in the light of following decision of hon’ble Apex court –

·         Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]

In this case also, the submission regarding the process employed by M/s Oliver Micron is not discussed in detail. Thus, the impugned order being non speaking is not viable and is liable to be quashed.
Without prejudice to above, they further submit that even if it is accepted for the sake of argument also, that the process employed by them does not amount to manufacture, then too, the rule 8 will be applicable on them. This is because the words used in the rule 8 are the “production or manufacture”. This implies that even if the process employed by the related person does not amount to manufacture then also the activity will be counted as production as the term “production” has wider scope than the term “manufacture”. The language employed by rule 8 was also cited in the reply to show cause notice. Thus, it is clear that rule 8 uses not only the term “manufacture” but also “production”. Hence, even if it is alleged that the process employed by M/s Oliver Micron does not amount to manufacture then too the rule 8 is applicable as the process employed is definitely covered in the wide term “production”. Further, as already stated above also that the conveyor belt/ rubber sheet supplied by them is not fit for use unless the processing is done on the same and as such the process changes the character of the product. They reiterated that the term “production” is wider than the term “manufacture” and if the said processing does not fall under the ambit of manufacture, it will definitely fall under the definition of production and thereby under Rule 8. Reliance was placed on following cases: -

·         PSL Corrosion Control services Ltd. Vs CCE.[2008(12) STR 504 (Tri.-Ahmd)

·         Midas care pharmaceuticals vs CCE [2008(12) STR 500 (Tri. Mumbai)

In both of these cases, it was held that the term “production” is wider than the term “manufacture” and every production may not be the manufacture within the meaning given in Central Excise Act, 1944. Following the same, it can be contended that there processing may not fall under manufacture but it definitely fall under production and as such Rule 8 will be applicable if the valuation rules are to be referred to. This discussion was done in the reply to show cause notice as well as in the written submissions but it is not considered while passing the impugned order. Thus, the order has turned out as a non speaking and non-reasoned order which is not justified in the light of following decision –

·         CCE Vs M/s Cable Corporation Of India Ltd [2010-TIOL-607-HC-MUM-CX]

They again submit that they have correctly assessed their duty liability and that the valuation rules are not to be considered in their case as per foregoing decisions. But the impugned order is applying Rule 9. However, the above contentions point out that if it all valuation rules are to be referred to, then also, they will be governed by the provisions of Rule 8. But these contentions were not considered by the learned Adjudicating Authority. Therefore, a non-speaking order has been passed which is not justified in the light of above referred decision.
The appellant further submit that in the impugned order, the learned Adjudicating Authority has denied the applicability of decision of the Learned Commissioner (Appeal) vide Order-in-Appeal No. 69(CB)CE/JPR-II/2011 dated 17.03.2011 by holding that the said case is distinguishable from the facts of the present case inasmuch as the said order was passed with a finding that nowhere it is stated that goods in the said case were sold only through the related person however, in the present case, they have failed to substantiate that goods have also been sold to parties other than M/s Oliver Micon Inc., Jodhpur. In this regard, it is submitted that if the department alleges that rule 9 is invokable, onus lies on it to prove that the goods were exclusively sold to or through the related person; they cannot be asked to prove the negative. Reliance placed on the following decision:-

·         M/s Aviat Health Care Pvt Ltd Vs CC & CE, Belapur [2008-TIOL-1924-CESTAT-MUM.]

In the light of above decision, it is ample clear that where the revenue raises an allegation, it should be proved by department only, they cannot be asked to prove the contrary. In this case also, it is alleged that they have failed to substantiate that goods have also been sold to parties other than related person. Such a demand to prove negative on their part is not sustainable in the light of above decision. Hence the impugned order is not justified and is liable to be set aside.
Without prejudice to above it is submitted that they have been genuine enough to prove that the rule 9 is not applicable on them as they had also sold the goods to independent buyers. Their sales were duly checked by the audit party on whose audit paras this demand is based upon. However, it is submitted that there has been sale to the independent buyers also. The sale of goods to independent buyers is very less but nevertheless it is there. Therefore, even if the quantum of sale is very less, there is sale to an independent buyer. It is further submitted that even in case where the sale to independent buyer is less than 5%, then also the valuation rules will not be applicable. This has been held in many cases. The judgments of the case laws are as under:

·         M/s Cosmo Films Ltd v/s CCE, Vadodara [2009-TIOL-2206-CESTAT-AHM]

·         Pepsico India Holdings Ltd v/s Commissioner of central Excise, Mumbai [2011-TIOL-1601-CESTAT-MUM]

·         SAVITA CHEMICALS LTD Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI-VI [2000 (119) E.L.T. 394 (Tribunal)]

·         ESSEL PACKAGING LIMITED VersusCOMMISSIONER OF CENTRAL EXCISE, MUMBAI [2001 (133) E.L.T. 166 (Tri. - Mumbai)]

·         COMMISSIONER OF CENTRAL EXCISE, COCHIN Versus EXCEL THREAD INDUSTRIES [2005 (186) E.L.T. 219 (Tri. - Bang.)]

·         EXIDE INDUSTRIES LTD Versus COMMISSIONER OF CENTRAL EXCISE, KOLKATA-III [2008 (232) E.L.T. 365 (Tri. - Kolkata)]

·         JAY FORMULATIONS LTD Versus COMMR. OF C. EX., AHMEDABAD [2010 (261) E.L.T. 641 (Tri. - Ahmd.)]

·         COMMISSIONER OF CENTRAL EXCISE, MUMBAI Versus UNIVERSAL LUGGAGE MFG. CO. LTD [2005 (190) E.L.T. 3 (S.C.)]

·         INDIAN ALUMINIUM CABLES LTD Versus COLLECTOR OF CENTRAL EXCISE [1989 (40) E.L.T. 86 (Tribunal)]

·         SOUTHERN BOTTLERS PRIVATE LTD Versus COLLECTOR OF C. EX [1989 (43) E.L.T. 427 (Tribunal)]

·         STATE OF KARNATAKA versus UNION OF INDIA [1978 (2) E.L.T. (J 564) (Kar.)]

Thus, it is clear that the Valuation Rules will not apply in this case as there has been sale to independent buyers also. In the light of these decisions, the impugned order should be set aside and the appeal should be allowed.
The appellant further submit that in the impugned order, penalty of Rs. 4500/- has been imposed on them in terms of Rs. 25(1) (a) of the Central Excise Rules, 2002. In this regard, they submit that a perusal of Rule 25(1) this Rule provides that if contravention is there then the impugned goods will be liable for confiscation and the defaulter assessee will be liable for penalty. However, in the present case the goods were not held liable to be confiscated, therefore, the penalty under Rule 25 cannot be imposed on them. Therefore, the penalty is required to be set aside.
The appellant further submit that there was no mala fide intention to evade duty or to suppress facts from the department. Further, suppression of facts means something is required under the law to disclose but one does not discloses which is not their case is as it can be seen that they had submitted the details in this regard in their ER-1 returns. They have not violated any provisions of the Act. Further, they had also provided the details of the clearances and replied to the queries raised by the department. If there was any intent to suppress facts, they would have not acted in such manner. The department has also issued the show cause on the basis of the figures submitted by them. If there was such intention to evade any duty payment or short payment of duty then the figures required by the department would have never been submitted by them. Further in the show cause notice the department has agreed to this fact that the details were submitted by them for the period September 09 to July 10 vide their letter dated 9.8.10. They had also relied upon the decision in the case of Sundram Fasteners Ltd. Vs Comm. of Cus. & C. Ex., Hyderabad-I [2009 (237) E.L.T. 55 (Tri. - Bang.)] that as the transfer of goods to sister units known to department and monthly returns filed regularly, intention to evade duty is absent. Therefore, the above cited case is squarely applicable to them and so the benefit of decision should be extended to them. Similar decision was given in the following cases: -

·         CST, Bangalore Vs M/s Atria Convergence Technologies Pvt Ltd [2009-TIOL-2020-CESTAT-BANG]

·         M/s Goran Pharma Pvt Ltd Vs CCE, Bhavnagar [2009-TIOL-1515-CESTAT-AHM]

·         M/s DNH Spinners Vs CCE, Vapi [2009-TIOL-1447-CESTAT-AHM]

In the above referred cases, penalties were set aside because the mala fide intention was not proved by the department. In the present case, as the mala fide intentions were not proved, no penalty was required to be imposed on them.
In continuation to above it is submitted that the instant case involves the interpretation of legal provisions. In the cases where interpretation of legal provisions is involved no penalty is imposable. Reliance placed on following decision of hon’ble Apex Court –

·         Uniflex CablesLtd v/s Commissioner of Central Excise, Surat-II [2011-TIOL-85-SC-CX]

In the light of above decision, since the case is based upon the interpretation of legal provisions, no penalty is imposable on them. On the basis of these submissions made by them it is crystal clear the impugned Order is not viable and it should be quashed and the appeal should be allowed.

Reasoning of the Commissioner (Appeals):-

The Commissioner (Appeals) held that in this case adjudicating authority has confirmed the demand of duty on value as determinable under rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2009 as the goods have been sold to related concern. The appellant has contented that Rule 9 of Valuation Rules is attracted only when the 100% sale is to the related party. But this is not the case of appellant as they are also selling the goods to the other independent buyers. They have relied on the case of Birdi Steels V/s CCE, Ludhiana reported in 2005 (179) ELT 82 (Tri - Delhi) in which Tribunal has categorically held that the provisions of Rule 9 ibid are applicable only in the case when the goods are sold wholly to the related person or when the entire sale is affected through the related person. They also contend that rule 8 ibid is applicable to their case instead of rule 9. Since the process undertaken by their sister concern amounts to manufacture. In this regard they held that from the reading of provisions of Rule 9 of the C. Ex. Valuation (Determination of Price of Excisable Goods) Rules, 2000, it is crystal clear that this rule is applicable only when excisable goods are not sold except to or through a related person. They also find from impugned order that no where it is stated that goods in the present case are sold only through the related person. Thus, they find force in the contention of appellant that rule 9 of the Valuation Rules is attracted only when the 100% sale is to the related person whereas they are also selling the goods to other parties. There are number of decision of the higher forum holding that when excisable goods are assessable under Section 4 (1) (a) of the Central Excise Act, 1994 itself there is no need to go for valuation under Section 4 (1) (b) ibid. The case law reported at 2005 (179) ELT 82 (Tri. Delhi) in the case of Birdi Steels V/s CCE, Ludhiana is squarely applicable on the facts of this case therefore, respectfully following the decision of Tribunal, the impugned order does not sustain under law and therefore liable to be set aside. Further penalty is also not imposable.

Decision:- The appeal is allowed.

Conclusion:- The essence of this case is that when entire sales are not made to the related party, valuation under Rule 9 cannot be resorted to because Rule 9 applies only when entire sales are being made to the related party. As in the instant case, some of the sales were also being made to independent buyers, Rule 9 cannot be held to be applicable and the valuation as done by the assessee was held to be correct and proper.

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