Eveready Industries India Ltd vs CE & CGST Noida
- Court
- Customs, Excise and Service Tax Appellate Tribunal
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.II
Excise Appeal No.71114 of 2018
(Arising out of Order-In-Appeal No.NOI-EXCUS-001-APP-0075-2018-19, dated
17.05.2018passed by Commissioner (Appeals) Central Tax, Noida)
..…
Appellant
M/s Eveready Industries India Ltd.
(B-1, Sector-80, Phase-II
Noida, Uttar Pradesh 201301)
VERSUS
Commissioner, CGST, Noida
..… Respondent
(C-56/42, Sector 62, Noida, Uttar Pradesh)
AND
Excise Appeal No.70395 of 2021
(Arising out of Order-In-Appeal No.NOI-EXCUS-001-APP-28-21-22, dated -
31.05.2021 passed by Commissioner (Appeals) Central Tax, Noida)
M/s Eveready Industries India Ltd.
..… Appellant
(B-1, Sector-80, Phase-II
Noida, Uttar Pradesh 201301)
VERSUS
Commissioner, CGST, Noida
..… Respondent
(C-56/42, Sector 62, Noida, Uttar Pradesh)
A PPEARANCE :
Shri Atul Gupta, Advocate for the Appellant
Shri Abhishek Mukherjee, Authorized Representative for the Respondent
HON’BLE MR. P. A. AUGUSTIAN, MEMBER (JUDICIAL)
CORAM:
HON’BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.-70320-70321/2026
DATE OF HEARING:
28.07.2026
01.09.2026
DATE OF DECISION:
SANJIV SRIVASTAVA:
These appeals are directed against the Order-In-Appeal
passed by the Commissioner (Appeals) Central Tax, Noida as
detailed in the table below:-
E/71114/2018 &
2
E/70395/2021
S. No. Appeal No. Order-In-Appeal No.
1. E/71114/2018 NOI-EXCUS-001-APP-0075-2018-19, dated 17.05.2018
2. E/70395/2021 NOI-EXCUS-001-APP-0028-2021-22, dated 31.05.2021
2.1 The Appellant is engaged in the manufacture of primary
cell and primary batteries classifiable under Heading 85061000
of schedule to Central Excise Tariff Act, 1985 and are registered
with the Central Excise & Service Tax Department.
2.2 During the course of audit of the records of the Appellant it
was observed that:-
(i) Primary Cell & Primary batteries allotted a code
which read as DBB and the same was cleared to general
customers through depot/distributor network. The said
excisable goods being removed in the aforesaid manner
were on payment of Central Excise duty arrived on the basis
of assessable value arrived on the basis of the retail sale
price affixed on the package of the said goods as per the
provisions of Section 4A of CEA 1944.
(ii) Primary Cell & Primary batteries allotted a code which
read as AAMJ and the same was removed to general
customers through depot/distributor network including
Lucknow Depot of the noticee on payment of Central Excise
duty arrived on the basis of assessable value arrived on the
basis of the retail sale price affixed on the package of the
said goods as per the provisions of Section4A of CEA 1944.
(iii) Primary Cell & Primary batteries allotted a code which
read as AAMJ 1015 which was bang removed to their factory
located at Aishbag, Lucknow on payment of Central Excise
duty on the assessable value arrived on the basis of CAS 4
costing under the provisions of Section 4 of CEA 1944.
The said goods were being further cleared for being co-
packed with Torches manufactured by their own unit.
(iv) Primary Cell & Primary batteries coded as AAMJ 1015
are also removed to M/s PMS Flashmatics (P) Ltd, Haridwar
E/71114/2018 &
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and M/s ELIN Electronics Ltd., Solan (11P) on payment of
Central Excise duty on the assessable value arrived under
the provisions of Section 4 of CEA 1944 on the basis of
contractual price.; both buyers availing area based
Exemption.
(v) That M/s PMS Flashlight Pvt. Ltd. and M/s Ellin
Electronics Ltd. are manufactures of Torches who are co-
packing the Torches manufactured by them with AAMJ 1015
batteries purchased from the noticee. That the Torches co-
packed with the batteries are sold to the noticee who in turn
are doing the final sale of the co-packed products to the
customers.
2.3 On further investigation of the matter, Appellant was
asked to provide details as follows:-
(i) Difference between weight, manufacturing process and
quantity/value of raw material contained in the batteries
cleared u/s 4 of CEA 1944 (against POs) to M/s PMS
Flashmatics (P) Ltd Haridwar/ M/s Ellin Electronics Ltd,
Solan (H.P.) and those cleared under stock transfer to their
Aishbagh unit at Lucknow(under CAS4).
(ii) The marketing pattern in respect of goods sold to M/s
PMS Flashmatics(P)Ltd. Haridwar and M/s Ellin Electronics
Ltd, Solan (H.P.), and the manner in which the said goods
were sold to the ultimate consumers.
2.4 On examination of the sales invoices it was revealed that
the noticee has cleared identical batteries to units located in
Haridwar and Solan having same physical & chemical properties
at two different prices i.e. at the rate of Rs. 2.13 per piece for
1015TFN1134 and at the rate of Rs. 2.20 per piece for R6 Power
battery 1134-3UP. Further examination also revealed that the
same said batteries i.e. 1015TFN1134 & R6 Power battery 1134-
3UP have been removed at higher rate of Rs. 2.90 and Rs. 2.81
per piece to their Lucknow unit adopting CAS-4 method treating
the value as transaction value under CEA 1944.
E/71114/2018 &
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E/70395/2021
2.5 The Appellant was summoned and asked to provide
following documents:-
1) Copy of Agreement executed between M/s Eveready
Industries with M/s PMS Haridwar & M/s ELLIN Solan for
supply of batteries to be sold by them co packed with
torches.
2) MRP of torches manufactured by M/s PMS Haridwar &
M/s ELLIN Solan which are copacked with batteries
supplied by M/s Eveready Industries, Noida.
3) MRP of torches manufactured at their unit located in
Lucknow which are sold Co-packedwith batteries on
stock transfer by you under CAS-4.
4) All evidences and records /documents in support of their
above contention.
2.6 On scrutiny of the documents provided, it was observed
that:-
• There is no difference in weight, process of manufacture,
capacity and quantity are quality of raw materials
contained in the batteries that are removed to M/s PMS
Flashmatics (P)Ltd, Haridwar & M/s Ellin Electronics Ltd,
Solan(H.P.) with those batteries that are removed by them
con the basis of stock transfer to their own torch
manufacturing plant located at Ashbagh Lucknow.
• torches manufactured by M/s PMS Flashmatic (P) Ltd
Haridwar and M/s Ellin Electronics Ltd Solan(H.P) are
packed with the batteries sold by them to the said two
units and the Torches packed along with the said batteries
are once again sold back to them by the said two
units.That the said batteries packed along with the torches
purchased by them are sold to the customers by them.
2.7 On examination of the Memorandum of Understanding
dated 01.07.2007 entered into between M/s Eveready Industries
India Limited (the noticee) and M/s PMS Flashmatics Pvt. Ltd.,
Haridwar and Memorandum of Understanding dated 01/01/2007
entered into between M/s Eveready Industries India Limited (the
E/71114/2018 &
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noticee) and M/s Ellin Electronics Limited reveal that the Torches
are manufactured by M/s PMS Flashmatics Pvt. Ltd., Haridwar
and M/s Elin Electronics Limited as per the design and
specification of M/s Eveready Industries India Limited(the
noticee). That packing/Labelling and affixation of the Trade Mark
on the products manufactured by M/s PMS Flashmatics Pvt. Ltd.,
Haridwar and M/s Elin Electronics Limited have to be strictly as
per the instruction and specification given by M/s Eveready
Industries India Limited (the noticee). That the said the delivery
of the products has to be made to Eveready Industries India
Limited (the noticee) and that the said manufacturers of the
Torches shall not supply the products sold to M/s Evercady
Industries India Limited to any third party whatsoever.
2.8 On the basis of the above, Revenue prima facie concluded
that there was mutuality of business interest between the
Appellant and M/s PMS Flashmatics Pvt. Ltd. Haridwar & M/s Elin
Electronics Limited, Solan.
2.9 In view of the mutuality of business interest which so
existed, it was alleged that the Appellant and the said two
buyers of the battery were related to each other as per Section
4(3)(b)(iv) of the Central Excise Act, 1994 and the price at which
the batteries were being sold by the Appellant to these two
persons was not the sole consideration for the sale of goods.
Accordingly, the transaction/contractual price needs to be
rejected and the valuation of the goods needs to be done on the
basis of the cost of manufacture in terms of Rule 8 read with
Rule 4 of the Central Excise (Valuation) Rules. The relevant para
of the Show Cause Notice with regards to the allegation against
the Appellant are reproduced below:-
“20. Further, the facts regarding assessment and payment
of Central Excise duty on the bus is of contractual price
instead of value arrived on the basis of costing method in
respect of sales macie to related persons, in the manner
mentioned in the forgone paras, was not declared to the
department in any manner whatsoever. It was revealed only
E/71114/2018 &
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E/70395/2021
during the course of that the party was determining the
assessable in respect of goods sold to related persons on
the basis of contractual price instead of resorting to cost of
production method and it was also revealed that they had
mutuality of interest in the business of the buyers and vice
versa. They did not declare the above facts of in their ER-Is
submitted to the department. This fact came into notice of
the department at the time of audit, from examination of
the Memorandum of Understanding, the marketing pattern
of goods, invoices issued and the valuation of identical
goods on the basis of costing adopted for stock transfer to
their own unit It appears that the party has willfully
suppressed the facts to evade the payment of duty
inasmuch as with clear intent to evade payment of duty and
therefore provisions under subsection(4) to Section 11A of
the Central Excise Act, 1944 were attracted for invoking the
extended period of five years for demand and recovery of
the duty liability of Rs.4447291 along with interest under
the provisions of Section 11AA of the said act. The party
have also rendered them liable for penal action under Rule
25 of the Central Excise Rules, 2002 read with Section 11AC
of the Central Excise Act, 1944 in as much as they have
contravened the following provisions of Central Excise Rules
2002 with the intent to evade payment of Central Excise
duty.
(i). Rule-4, Rule-6 and Rule-8 of the Central Excise Rules,
2002 by not making correct assessment and payment of
appropriate central excise duty in accordance with the
provisions of Section 4 of the Central Excise Act-1944 read
with provisions of Rule 8 and Rule of
Valuation(Determination of Price of Excisable Goods) Rules
2000.”
2.10 Show Cause Notice dated 05.08.2016 for the period
November, 2013 to November 2014 was issued to the Appellant
asking them to show cause as to why:-
E/71114/2018 &
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E/70395/2021
(i) An amount of duty for Rs. 5,36,350/-, (Rupee Five lacs
thirty six thousand three hundred fifty only) and Rs
3910941/- (Rupees thirty nine lacs ten thousand nine
hundred forty one only) totaling to Rs. 4447291/-(Rupees
Forty Four Lakhs Forty Seven Thousand Two Hundred
Ninety one only) short paid should not be demanded and
recovered from them under Section 11A (4) of the Central
Excise Act. 1944 in case of excisable goods removed to
M/s PMS Flashmatics(P)Ltd Haridwar (As per Annexure-A
& B)
(ii) Interest at applicable rates on amount at Sl No. (i) above,
should not be demanded and recovered from them under
Section 11AA of Central Excise Act, 1944.
(iii) Penalty should not be imposed on them in terms of Rule
25 of the Central Excise Rules, 2002 read with Section
11AC of Central Excise Act 1944 for the contraventions for
provisions of CEA, 1944 & Central Excise Rules 2002.
2.11 Another Show Cause Noticed dated 03.12.2016 for the
Period December 2014 to March 2016 stating the same facts and
grounds was issued to the Appellant asking them to show cause
as to why:-
(i) An amount of Rs. 6,22,770/- (Rs Six lakhs Twenty Two
Thousand Seven Hundred and Seventy) [including cesses]
and another amount of Rs.41,25,915/- (Rs Forty One
Lakhs Twenty Five Thousand Nine Hundred and Fifteen)
[including cesses] totaling to Rs.47,48,685/-.(Forty Seven
Lakhs Forty Eight Thousand Six Hundred and Eighty Five)
[including cesses] short paid should not be demanded and
recovered from them under Section 11A(1) of the Central
Excise Act' 1944 in respect of clearances made to M/s
PMS Flashmatics (P) Ltd, Haridwar and M/s Elin
Electronics Ltd- Solan. as per Annexure-A.
(ii) Interest at applicable rates on the amount at S.No. (i)
above should not be demanded and recovered from them
under Section 11AA of the Central Excise Act' 1944.
E/71114/2018 &
8
E/70395/2021
(iii) Penalty should not be imposed upon them in terms of
Rule 25 of the Central Excise Rules'2002 read with
Section 11AC of Central Excise Act'1944.
2.12 First two Show Cause Notices were adjudicated by the
Order-In-Original No.72-73/DC/D-V/N-I/2016-17 dated
31.03.2017 holding as follows:-
ORDER
(i) I confirm the demand & order for recovery of Central Excise
duty as short paid and aggregating to an amount of Rs.
91,96,976/- (Rs. Ninety One Lakh Ninety Six Thousand Nine
Hundred and Seventy Six only) under Section 11A (4) of the
Central Excise Act, 1944 along with interest at appropriate
rate under Section 11AA of the Act, ibid, for the period from
Nov.'13 to March'16 against M/s. Eveready Industries India
Ltd., B-1/2, Sector-80, Phase-II, Noida, issued vide Show
Cause Notices bearing C.Nos. V(1)Meerut-II/Tech/
SCN/Eveready/ 63/2014/874 dated 05.08.2016 and V(15)
Adj/Eveready/D-V/N-I/135/2016/7077-79 dated
30.12.2016.
(ii) I also impose a penalty of Rs. 91,96,976/- (Rs. Ninety One
Lakh Ninety Six Thousand Nine Hundred and Seventy Six
only) upon M/s. Eveready Industries India Ltd., B-1/2,
Sector-80, Phase-II, Noida, under Rule 15 of the CENVAT
Credit Rules, 2004 read with Section 11AC of the Central
Excise Act, 1944 for the violation of Rule 4, 6 and 8 of the
Central Excise Rules, 2002 read with Rule 8 and Rule 9 of
the Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000. If the duty as determined
and interest payable thereon is paid within thirty days of the
date of communication of this order, the amount of penalty
liable to be paid by such person shall be twenty five per
cent of duty so determined, subject to the condition that
such reduced penalty is also paid within the period so
specified.
E/71114/2018 &
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E/70395/2021
2.13 Statement of demand dated 15.02.2018 was issued to the
Appellant demanding duty as follows:-
Amount in Rs
Period Diff. Assessable Value Excise Duty @ 12.5%, demanded
01.04.16 to 31.03.17 29334310 3666789
01.04.17 to 30.06.17 6701841 837741
3,60,36,151 45,04,530
2.14 Aggrieved Appellant filed appeal before the Commissioner
(Appeals) against the order in original dated 31.03.2017 who
modified the order to the extent of reducing the penalty imposed
under Section 11AC for the period up to 14.05.2015 to 50%, by
impugned order in appeal in Appeal No. E/71114/2018
2.15 Statement of demand was adjudicated as per Order-In-
Original dated 07.08.2020 holding as follows:-
ORDER
(i) I confirm the demand & order for recovery of Central
Excise duty as short paid of duty Amounting to Rs.
45,04,530/- (Rs. Forty Five Lakh Four Thousand Five
Hundred and Thirty only) under Section 11A (1) of the
Central Excise Act, 1944 for the period from 01.04.16 to
30.06.2017 against M/s Eveready Industries India Ltd., B-
1/2, Sector-80, Phase-II, Noida, issued vide Show Cause
Notices bearing C.No.V (30) Tech/DSCN/Eveready/D-
V/N/66/2017/ 924 dated 16.02 2018.
ii. I confirm the demand of interest at appropriate rates
on Rs. 45,04,530/- (Rs. Forty Five Lakh Four Thousand Five
Hundred and Thirty only) under Section 11AA of the Central
Excise Act, 1944.
(iii) I also Impose a penalty of Rs 45,04,530/- (Rs. Forty
Five Lakh Four Thousand Five Hundred and Thirty only)
upon M/s. Eveready Industries India Ltd B- 1/2, Sector-80,
Phase-II, Noida under Rule 15 of the CENVAT Credit Rules,
2004 read with Section 11AC of the Central Excise Act, 1944
for the violation of Rule 4, 6 and '8 of the Central Excise
Rules, 2002 read with Rule 8 and Rule 9 of the Central
E/71114/2018 &
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E/70395/2021
Excise Valuation (Determination of Price of Excisable Goods)
Rules, 2000.
The dues so adjudged to be paid forthwith.
2.16 Aggrieved appellant filed appeal against this order which
has been disposed of vide Order-In-Appeal No.NOI-EXCUS-001-
APP-28-21-22 dated 31.05.2021 rejecting the appeal filed by the
Appellant.
2.17 Aggrieved by the two Order-In-Appeal Appellant has filed
these appeals.
3.1 We have heard Shri Atul Gupta, Advocate appearing on
behalf of the Appellant and Shri Abhishek Mukherjee, Authorized
Representative appearing on behalf of the Revenue.
3.2 Arguing for the Appellant, learned counsel submits that:-
a. The Impugned Order suffers from legal infirmities,
inasmuch it was passed without considering the
submissions made by the Appellant. Reliance has been
placed on Kranti Associates Pvt. Ltd. & Another v. Sh.
Masood Ahmed Khan & Others, 2011 (273) E.L.T. 345
(S.C.).
b. The appellant and the Torch manufacturing vendors are
not within the realm of "related parties" as there is no
direct or indirect mutuality of interest and the transactions
were on principal-to-principal basis. Reliance has been
placed on the following judgments:-
• CCE, Aurangabad v. Goodyear South Asia Tyres Pvt.
Ltd 2015 (322) E.L.T. 389 (S.C.).
• Union of India vs. Atic Industries Ltd., 1984 (17)
ELT 323 (SC)
• Modi Senator (I) Pvt. Ltd. vs. C.C. (Imports and
General), New Delhi 2009 (247) ELT 313 (Tri- Delhi)
maintained by Supreme Court 30.09.2009
• Bilag Industries Pvt. Ltd. Vs. CCE, Daman
[2023(384) ELT 494 (S.C.)]
E/71114/2018 &
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E/70395/2021
• Hello Mineral Water (P) Ltd. Versus Commissioner
Of C. Ex., Noida reported at 2011 (266) E.L.T. 355
(Tri.- Del.)
• TTK Healthcare Ltd. v. CCE, Guntur reported at
2007 (207) E.L.T. 453 (Tri.- Bang.)
• Food & Health Care Specialities v. CCE, DELHI-IV,
reported at [2015 (328) E.L.T. 92 (Tri. -Del.)]
• Eastern Bakeries Pvt. Ltd. v. Commr. Of C.Ex.,
Kolkata-VII reported at 2013 (293) E.L.T. 593 (Tri.-
Kolkata).
c. The Appellant has correctly assessed the batteries sold to
Torch manufacturing vendors at the transaction value and
paid applicable duty. No differential duty is payable.
d. The prices for goods sold to PMS & Elin are comparable to
the prices at which similar goods were sold to various
other independent buyers.
e. Invocation of extended period of limitation under Section
11A(4) is not sustainable. Reliance has been placed on
following judgements:-
• Anand Nishikawa Co. Ltd. v. CCE, 2005 (188) ELT
149 (SC)
• Commissioner of service tax-1, Kolkata v. Surya
Vistacom Pvt. Ltd 2022 (66) G.S.T.L. 290 (Cal.)
• Continental Foundation v. CCE, 2007 (216) ELT 177
(SC);
• CCE v. Damnet Chemicals Ltd., 2007 (216) ELT 3
(SC).
• Collector of Central Excise, Hyderabad v. Chemphar
Drugs and Liniments, 1989 (40) ELT 276 (SC)
• Padmini Products v. Collector of Central Excise,
Bangalore, 1989(43) ELT 195 (SC)
• Cosmic Dye Chemical v. Collector of Central Excise,
Bombay, 1995 (75) ELT 721 (SC)
E/71114/2018 &
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E/70395/2021
• Pushpam Pharmaceuticals Company v. Collector of
Central Excise, Bombay, 1995 (78) ELT 401 (SC).
• Prolite Engineering Co. v. Union of India -1995 (75)
E.L.T. 257 (Guj.)
• Pushpam Pharmaceuticals Company v. Collector of
Central Excise, Bombay, 1995 (78) ELT 401 (SC)
• Ispat Industries Ltd. v. CCE, 2006 (199) ELT 509
(Tri.-Mum.)
• NRC Ltd. v. CCE, 2007 (209) ELT 22 (Tri.-Mum.)
• Chemicals &Fibres of India Ltd. v. CCE, 1988 (33)
ELT 551 (Tri.-Del)
f. Imposition of Penalty is not sustainable. Reliance is placed
on the judgement of the Hon’ble Supreme Court in the
case of UOI v. Rajasthan Spinning and Weaving Mills Ltd.,
2009 (238) ELT 3 (SC)
g. The impugned order travels beyond the show cause notice
h. No interest is payable
3.3 Learned Authorized Representative for the Revenue
reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned order alongwith the
submissions made in the appeal and during the course of
argument.
4.2 As the issues involved in both the appeals are identical, in
fact the second appeal is in respect of the proceeding initiated by
a statement of demand made following the Show Cause Notices
considered in Excise Appeal No.71114 of 2018 we are referring
to Order-In-Appeal in first appeal only. The impugned order
records findings as follows:-
“4. I have gone through the material available on
record and appeal memorandum. The matter spans
over the period November 2013 to November 2014
and December 2014 to March 2016 and is covered
under two SCNs dated 05-08-2016 and 30-12-2016,
E/71114/2018 &
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E/70395/2021
respectively. The department's contention is based
upon mutuality of business interest between the
appellant and M/s PMS and M/s Elin. Both M/s PMS
and M/s Elin received batteries from the appellant
and after co-packing it with the torches manufactured
by them sold them back to the appellant for ultimate
sale to customers. Batteries being an MRP product is
sold to M/s PMS and M/s Elin on transaction value
under Section 4 of the CX Act. It has been noticed and
even not controverted by the appellant that similar
products are being sold to Lucknow unit of appellant
at higher price under Section 4 of the CX Act. The
appellant has contended that the difference is
occurring due to the difference of transactions with
the two vendors in comparison to other vendors. This
does not sound a credible reason.
The appellant have entered into contract
exclusively with M/s PMS and M/s Elin with specific
purpose of combining their product with torch under
their brand name. The torch is also being
manufactured under design and specification of the
appellant. The product so produced cannot be sold to
anyone except the appellant. This single factor is
enough to indicate that there is some mutuality of
interest between the appellant and the alleged
related party. Therefore the department's contentions
are right. It is also not a case of interpretation of law.
The most obvious way in which the assessable
value of goods can be ascertained is by comparing the
clearance value with the ones which are being sold to
independent buyers. In the present case, the
department has arrived upon the differential duty by
difference between actual duty paid and duty payable
as per CAS-4 value of identical goods removed to
E/71114/2018 &
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Lucknow unit of appellant. This appears reasonable
too.
I agree with the differentiation arrived by the
adjudicating authority in the impugned order, from the
cases of M/s Atic Industries, Food & Healthcare Specialties,
Goodyear South Asia Tyres Pvt. Ltd., Onida Saka Ltd.,
Leamak Healthcare Pvt. Ltd. and TTK Healthcare Ltd.
(supra) which have been cited by the appellant in their
support.
In the case of Hello Mineral Water (P) Ltd. (supra) the
dispute pertained to the much higher price difference
between the price at which the goods were sold to dealers
and the price of goods at which the goods were sold by such
dealers. In M/s Eastern Bakeries Pvt. Ltd. (sapra) case the
manufacturer manufactured goods on behalf of M/s
Britannia Industries Ltd. and supplied the same to them as
per their specification.
None of these cited cases deals with a situation
when the difference is happening in pricing of
identical products cleared to different buyers. In the
present case, the difference has been worked out
from the details available from the very records of
appellant themselves. Further none of these cases
deals with a situation where goods are sold to a buyer
who co-packs the goods received and sells back the
goods wherefrom the goods are sold to ultimate
customers. Amid the peculiar circumstances of the
case, the revenue's stand is more reasonable. In
Dynamic Electronics Ltd. (supra) case dispute
pertained to a period from 09-03-1997 to 02-11-
1998, i.e. before the introduction of Central Excise
Valuation (Determination of Price of Excisable Goods)
Rules, 2000.
The appellant have also quoted a number of cases
against extended period invocation, facts being in
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E/70395/2021
knowledge of the department through ER-1 returns, non-
disclosure not amounting to suppression, being under bona
fide belief, and matter of interpretation only. In this regard,
I am of the view that mere mention of figures in periodic
return is not enough to decide upon various issues
particularly valuation aspect. The pattern of valuation
cannot be adjudged by mere periodic returns. Such facts
can only be unearthed during preventive measures like
audit. Also one cannot be relieved of one's responsibility to
discharge the duty liability mere by incorporating the figures
in returns. The appellant, at one place is contending that
there is no provision in the format of ER-1 returns to
separately mention the clearances to related parties, at the
same time they are seeking refutation of extended period
invocation on the premise of ER-1 return filing.
In Ispat Industries Ltd. (supra) case the fact of
availing the balance 50 per cent credit in the subsequent
financial year were available in the monthly returns. In NRC
Ltd. (supra) case CESTAT under recall proceedings set aside
the impugned order. The case dealt with the interpretation
of legal proceedings as to whether the appellant could be
considered as clearing and forwarding agents. Chemicals Sr
Fibres of India Ltd. (supra) case was centered on
classification list and case was supported with
correspondences available on record.
The normal period of limitation for issuance of SCN
was raised from one year to two years vide the Finance Act,
2016. SCN dated 30-12-2016 was issued after enactment of
the Finance Act, 2016 thus it appropriately covers the
demand for the period December 2014 to March 2016.
Further, it is a well settled law that in case of taxing
statute, various penal provisions are in the nature of civil
obligations and do not require any mens rea or willful
intention. Hon'ble High Court of Madras in the case of
Commissioner of Customs (Exports), Chennai Versus Bansal
E/71114/2018 &
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E/70395/2021
Industries reported in 2007 (207) ELT 0346 (Mad.)
observed that,-
"7. It is oft-repeatedly held that mens rea is not an
essential ingredient for contravention of the provisions of a
civil law. The Apex Court recently in Chairman, SEBI v.
Shriram Mutual Fund [(2006) &SCC 361] held as under:
Mens rea is not an essential ingredient for
contravention of the provisions of a civil Act. Unless the
language of the statute indicates the need to establish the
element of mens rea, it is generally sufficient to prove that
a default to complying with the statute has occurred and it
is wholly unnecessary to ascertain whether such a violation
was intentional or not. The breach of a civil obligation which
attracts a penalty under the provisions of an Act would
immediately attract the levy of penalty irrespective of the
fact whether the contravention was made by the defaulter
with any guilty intention or not."
As far as interest liability is concerned once the duty
portion of a demand is confirmed the liability to pay interest
is automatic and the assessee is bound to pay interest on
the amount of duty, confirmed.
Explanation 1 to Section 11AC clarifies that in any
case of non-levy, short-levy, non-payment, short-payment
or erroneous refund where no SCN has been issued before
the date on which the Finance Bill, 2015 receives the assent
of the President shall be governed by the provisions of
section 11AC as amended by the Finance Act, 2015. Both
the demand notices in present appeal have been issued
after 14-05-2015, hence provisions of amended Section
11AC will be applicable in the case.
Proviso to amended Section 11AC(1)(c) stipulates that
in respect of the cases where the details relating to such
transactions are recorded in the specified record for the
period beginning with the 8th April, 2011 up to the date on
which the Finance Bill, 2015 (i.e. 14-05-2015) receives the
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assent of the President (both days inclusive), the penalty
shall be fifty percent of the duty so determined.
The use of "shall" in above proviso depicts that the
benefit of above proviso is available to the appellant. Since
the demand in present case falls within applicability of
above proviso, the benefit of fifty percent penalty is
extended to the appellant in terms of Section 11AC(1)(c).
No exact date-wise data is available in the file.
In view of the above discussion, order dated 31-
03-2017 is upheld to the "extent of demand and
interest confirmation. However, penalty is reduced to
fifty percent of the duty demand for the period upto
14-05-2015, in terms of proviso to Section
11AC(1)(c) of the CX Act. For remaining period
penalty equal to the duty confirmed shall be payable
by the appellant. Order dated 31-03-2017 is modified
to this effect.”
4.3 We find that the issue involved in the present case is
related to determination of the value of the batteries cleared by
the Appellant to the two units namely M/s PMS Flashmatics (P)
Ltd., Haridwar & M/s Elin Electronics Ltd., Solan, Himachal
Pradesh. Whether on the basis of the contractual price agreed
mutually between the Appellant and the said units or on the
basis of similar/like goods cleared by the Appellant after
determination of the value as per Rule 8 of the Central Excise
(Valuation) Rules (CAS-4) read with Rule 4 of the Central Excise
Rules, Appellant have sought in the arguments made to project
that the case is in relation to determination of value of the goods
sold to the related persons.
4.4 We find from the tenure of the order that there exists
buyback agreement between the Appellant and the two said
units. Though the Order-In-Original records that there exists a
relationship but the same is not the basis for determination of
the value. If that was so, the valuation would have been
proposed under Rule 9 of the Central Excise (Valuation) Act.
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4.5 We have reproduced the allegations made against the
Appellant in Show Cause Notice in Para 2 above. Rule 4 & Rule 8
of the Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000 is reproduced below for ready
reference:-
RULE 4.The value of the excisable goods shall be based on
the value of such goods sold by the assessee for delivery at
any other time nearest to the time of the removal 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 8. Where whole or part of 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 of such goods that are consumed shall be
one hundred and ten per cent of the cost of production or
manufacture of such goods.
4.6 We at this juncture take the documents produced by the
appellant before the audit and also in course of enquiries for
examination. Two documents which need to be examined are
Memorandum of Understanding and the letter dated 15.02.2015
of the appellant in response to the queries made by the audit.
The memorandum of understanding between the appellant and
PMS Flashlight and ELIN Electronics Limited are identically
worded. Though the MOU produced in the appeal is effective
from 01.01.2007 for the period of five years i.e. upto
01.01.2012, we do not find any objection to the said MOU relied
in the show cause notice and any stage of proceedings. They
admit that they were operating as per the said MOU throughout
the period in dispute. On sample basis we reproduce the MOU
with ELIN below:
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From the perusal of the above MOU it is evident that the M/s
ELIN Electronics was manufacturing Flashlights in their premises
and was co-packing the batteries supplied by the appellant along
with their manufactured goods, packing and affixing the brand,
trade mark of the appellant. The Flashlights co-packed with
batteries were to be sold only to appellant.
4.7 We observe that appellant has in response to query made
vide their letter dated 10.02.2015 reproduced below responded
as follows:
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4.8 The facts that flashlights co-packed with the batteries
supplied by the appellant were sent back to the appellant is
admitted by the appellant in the letter above. From this letter it
is also evident that appellant was clearing the same batteries to
their own manufacturing unit (The Eveready Flashlight Plant
Aishbag Lucknow) under stock transfer by determining the value
under Rule 8 of Central Excise Valuation (Determination of Price
of Excisable Goods) Rules, 2008 as per CAS-4. The price
determined on the basis of CAS-4 (cost amounting standards)
which was much higher than that price at which the same goods
were cleared to the said two units. If the Appellant was selling
these goods at the price much less than the cost price of the
batteries manufactured then they were incurring loss in
perpetuity which could not have been the design for any
business set up.
4.9 Admittedly, the Appellant was selling these batteries to the
two buyers who in terms of the MOU were bound to manufacture
torches as per specifications etc. prescribed by the Appellant and
co-pack them alongwith these batteries, hence sell them to the
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Appellant. Even if we conclude that there was no mutuality of
interest between the Appellant and the two buyers contrary to
the finding recorded in the impugned order, we are of the view
that for such buyback agreement the price in respect of these
two identified batteries was not at arm’s length for the reason it
was below the cost of manufacture of the said batteries.
4.10 The Hon’ble Supreme Court in the case of Commissioner of
Central Excise, Mumbai V/s Fiat India Pvt. Ltd. reported in 2012
(283) E.L.T. 161 (S.C.) has held as follows:-
“43. What can be construed from the plain reading of
Section 4 of the Act and the interpretation that is given by
this Court on the expression ‘normal value’ is, where excise
duty is chargeable on any excisable goods with reference to
value, such value shall be deemed to be the price at which
such goods are ordinarily sold by the assessee to a buyer in
the course of wholesale trade for delivery at the time and
place of removal and where the assessee and the buyer
have no interest directly or indirectly in the business of each
other and the price is the sole consideration for the sale.
Normal price, therefore, is the amount paid by the buyer for
the purchase of goods. In the present case, it is the stand of
the revenue that ‘loss making price’ cannot be the ‘normal
price’ and that too when it is spread over for nearly five
years and the consideration being only to penetrate the
market and compete with other manufacturers who are
manufacturing more or less similar cars and selling at a
lower price. The existence of extra commercial consideration
while fixing the price would not be the ‘normal price’ as
observed by this Court in Xerographic Ltd.’s case (supra). If
price is the sole consideration for the sale of goods and if
there is no other consideration except the price for the sale
of goods, then only provisions of Section 4(1)(a) of the Act
can be applied. In fact, in Metal Box’s case (supra) this
Court has stated that under sub-Section (1)(a) of Section 4
of the Act, the ‘normal price’ would be the price which must
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be the sole consideration for the sale of goods and there
cannot be any other consideration except the price for the
sale of goods and it is only under such situation Sub-Section
(1)(a) of Section 4 would come into play. In the show cause
notices issued, the Revenue doubts the normal price of the
wholesale trade of the assessees. They specifically allege,
which is not disputed by the assessees, that the ‘loss
making price’ continuously for a period of more than five
years while selling more than 29000 cars, cannot be the
normal price. It is true that in notices issued, the Revenue
does not allege that the buyer is a related person, nor do
they allege element of flow back directly from the buyer to
the seller, but certainly, they allege that the price was not
the sole consideration and the circumstance that no prudent
businessman would continuously suffer huge loss only to
penetrate the market and compete with other manufacturer
of more or less similar cars. A prudent businessman or
woman and in the present case, a company is expected to
act with discretion to seek reasonable income, preserve
capital and, in general, avoid speculative investments. This
court in the case of Union of India v. Hindalco Industries -
2003 (153) E.L.T. 481 , has observed that, ‘if there is
anything to suggest to doubt the normal price of the
wholesale trade, then recourse to clause (b) of sub-section
(1) of Section 4 of the Act could be made’. That the price is
not the normal price, is established from the following three
circumstances which the assessees themselves have
admitted; that the price of the cars was not based on the
manufacturing cost and manufacturing profit, but have fixed
at a lower price to penetrate the market; though the normal
price for their cars is higher, they are selling the cars at a
lower price to compete with the other manufacturers of
similar cars. This is certainly a factor in depressing the sale
price to an artificial level; and, lastly, the full commercial
cost of manufacturing and selling the cars was not reflected
in the lower price. Therefore, merely because the assessee
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has not sold the cars to the related person and the element
of flow back directly from the buyer to the seller is not the
allegation in the show cause notices issued, the price at
which the assessees had sold its goods to the whole sale
trader cannot be accepted as ‘normal price’ for the sale of
cars.
44. We now deal with the second limb of the argument of
Shri Bhattacharya, learned ASG that the loss price at which
the goods are sold by the assessee clearly indicates or
reflects that these goods are not “ordinarily sold” in terms
of Section 4(1)(a) of the Act. He submits that admittedly
assessees are selling their goods at 100% loss continuously
for five years i.e. from the year 1996 to 2001 and therefore,
the transactions of the assessees cannot fit into description
of expression ‘ordinarily sold’. While countering this
argument, Shri Joseph Vellapally would submit that the
selling price at which the goods are sold in the ordinary
course of business by the assessee to all the buyers is the
same or uniform without any exception. He would,
therefore, contend that the goods are ordinarily sold in
terms of Section 4(1)(a) of the Act. While adopting the
submission of Shri Vellapally, Shri Lakshmi Kumaran would
further contend, relying on Ship Breaker’s case (supra) that
this Court while explaining the meaning of the expression
‘ordinarily sold’, occurring in Section 14 of the Customs Act,
1962 which is in parimateria with Section 4 of the Act,
would mean the sale where the goods are sold to un-related
persons and price is the sole consideration. He would also
contend that Section 4 of the Act was amended with effect
from 1st April, 2000, to incorporate ‘transaction value’ as an
‘assessable value’ instead of ‘normal price’ and the
expression ‘ordinarily’ was omitted. Therefore, the new
Section is applicable to the transactions which took place for
the period from July 2000 to June 2001. He would submit
by relying on the decision of this Court in Elgi Equipment
Pvt. Ltd.’s case (supra), that the word ‘ordinarily sold’ would
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mean the normal practice or the practice followed by
majority of persons in the wholesale trade in the concerned
goods. He would submit that in the present cases, the
assessees are better placed as the entire sale is at the same
price or rate, so the condition of the expression ‘ordinarily
sold’ is being satisfied.
45. The expression ‘ordinarily sold’ is again not defined
under the Act, but came up for consideration before this
Court while construing the said expression under the
Customs Act. This Court in Eicher Tractors Ltd., Haryana v.
Commissioner of Customs, Mumbai, (2001) 1 SCC 315 =
2000 (122) E.L.T. 321 (S.C.) has held :
“6. Under the Act customs duty is chargeable on goods.
According to Section 14(1) of the Act, the assessment of
duty is to be made on the value of the goods. The value
may be fixed by the Central Government under Section
14(2). Where the value is not so fixed, the value has to be
determined under Section 14(1). The value, according to
Section 14(1), shall be deemed to be the price at which
such or like goods are ordinarily sold, or offered for sale, for
delivery at the time and place of importation - in the course
of international trade. The word “ordinarily” necessarily
implies the exclusion of “extraordinary” or “special”
circumstances. This is clarified by the last phrase in Section
14 which describes an “ordinary” sale as one “where the
seller and the buyer have no interest in the business of each
other and the price is the sole consideration for the sale
....”. Subject to these three conditions laid down in Section
14(1) of time, place and absence of special circumstances,
the price of imported goods is to be determined under
Section 14(1-A) in accordance with the Rules framed in this
behalf.”
46. In Ispat Industries Ltd. v. Commissioner of Customs,
Mumbai, (2006) 12 SCC 583 = 2006 (202) E.L.T. 561
(S.C.), it is held :
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“14. From a perusal of the above provisions (quoted
above), it is evident that the most important provision for
the purpose of valuation of the goods for the purpose of
assessment is Section 14 of the Customs Act, 1962. Section
14(1), has already been quoted above, and a perusal of the
same shows that the value to be determined is a deemed
value and not necessarily the actual value of the goods.
Thus, Section 14(1) creates a legal fiction. Section 14(1)
states that the value of the imported goods shall be the
deemed price at which such or like goods are ordinarily sold,
or offered for sale, for delivery at the time and place of
importation in the course of international trade. The word
“ordinarily” in Section 14(1) is of great importance. In
Section 14(1) we are not to see the actual value of the
goods, but the value at which such goods or like goods are
ordinarily sold or offered for sale for delivery at the time of
import. Similarly, the words “in the course of international
trade” are also of great importance. We have to see the
value of the goods not for each specific transaction, but the
ordinary value which it would have in the course of
international trade at the time of its import.”
47. In Varsha Plastics Private Limited &Anr. v. Union of
India &Ors., (2009) 3 SCC 365 (at page 371) = 2009 (235)
E.L.T. 193 (S.C.), it is observed :
“19. Section 14(1) of the Act prescribes a method for
determination of the value of the goods. It is a deeming
provision. By legal fiction incorporated in this section, the
value of the imported goods is the deemed price at which
such or like goods are ordinarily sold or offered for sale for
delivery at the time and place of importation in the course
of international trade.
20. The word “ordinarily” in Section 14(1) is a word of
significance. The ordinary meaning of the word “ordinarily”
in Section 14(1) is “non- exceptional” or “usual”. It does not
mean “universally”. In the context of Section 14(1) for the
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purpose of “valuation” of goods, however, by use of the
word “ordinarily” the indication is that the ordinary value of
the goods is what it would have been in the course of
international trade at the time of import. Section 14(1),
thus, provides that the value has to be assessed on the
basis of price attached to such or like goods ordinarily sold
or offered for sale in the ordinary course of events in
international trade at the time and place of transportation.”
48. In Rajkumar Knitting Mills (P) Ltd. v. Collector of
Customs, Bombay (1998) 3 SCC 163 (at page 165) = 1998
(98) E.L.T. 292 (S.C.), it is held :
“7. ... The words “ordinarily sold or offered for sale” do not
refer to the contract between the supplier and the importer,
but to the prevailing price in the market on the date of
importation or exportation.”
49. In Ashok Leyland Ltd. v. Collector of Central Excise,
Madras, (2002) 10 SCC 344 (at page 348) = 2002 (146)
E.L.T. 503 (S.C.), it is held :
“The price of that commodity will remain the normal price at
which those goods are ordinarily sold by the assessee to the
public, in other words, the price at which they are sold in
the market.”
50. In the context of Section 4(1)(a) of the Act, the word
‘ordinarily’ does not mean majority of the sales; what it
means is that price should not be exceptional. In our
considered opinion, the word ‘ordinarily’, by no stretch of
imagination, can include extra-ordinary or unusual. In the
instant cases, as we have already noticed, the assessees
sell their cars in the market continuously for a period of five
years at a loss price and claims that it had to do only to
compete with the other manufacturers of cars and also to
penetrate the market. If such sales are taken as sales made
in the ordinary course, it would be anathema for the
expression ‘ordinarily sold’. There could be instances where
a manufacturer may sell his goods at a price less than the
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cost of manufacturing and manufacturing profit, when the
company wants to switch over its business for any other
manufacturing activity, it could also be where the
manufacturer has goods which could not be sold within a
reasonable time. These instances are not exhaustive but
only illustrative. In the instant cases, since the price
charged for the sale of cars is exceptional, we cannot accept
the submission of the learned counsel to give a meaning
which does not fit into the meaning of the expression
‘ordinarily sold’. In other words, in the transaction under
consideration, the goods are sold below the manufacturing
cost and manufacturing profit. Therefore, in our view, such
sales may be disregarded as not being done in the ordinary
course of sale or trade. In our view, for the purpose of
Section 4(1)(a) all that has to be seen is : does the sale
price at the factory gate represent the wholesale cash price.
If the price charged to the purchaser at the factory gate is
fair and reasonable and has been arrived at only on purely
commercial basis, then that should represent the wholesale
cash price under Section 4(1)(a) of the Act. This is the price
which has been charged by the manufacturer from the
wholesale purchaser or sole distributor. What has to be seen
is that the sale made at arms length and in the usual course
of business, if it is not made at arms length or in the usual
course of business, then that will not be real value of the
goods. The value to be adopted for the purpose of
assessment to duty is not the price at which the
manufacturer actually sells the goods at his sale depots or
the price at which goods are sold by the dealers to the
customers, but a fictional price contemplated by the section.
This Court in Raj Kumar Knitting Mills case (supra), while
construing the said expression, has held that the word
‘ordinarily sold’ do not refer to contract between the
supplier and the importer, but, the prevailing price in the
market on the date of importation and exportation. Excise
duty is leviable on the value of goods as manufactured. That
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takes into account manufacturing cost and manufacturing
profit.
51. Excise is a tax on the production and manufacture of
goods and Section 4 of the Act provides for arriving at the
real value of such goods. When there is fair and reasonable
price stipulated between the manufacturer and the
wholesale dealer in respect of the goods purely on
commercial basis that should necessarily reflect a dealing in
the usual course of business, and it is not possible to
characterise it as not arising out of agreement made at
arms length. In contrast, if there is an extra-ordinary or
unusual price, specially low price, charged because of extra-
commercial considerations, the price charged could not be
taken to be fair and reasonable, arrived at on purely
commercial basis, as to be counted as the wholesale cash
price for levying excise duty under Section 4(1)(a) of the
Act.
52. The next submission of Shri Bhattacharya, learned
ASG, is that the price at which the cars sold by the
assessees is not the sole consideration as envisaged under
Section 4(1)(a) of the Act. He would contend that
admittedly there exists a consideration other than the price,
that is, to penetrate the market. He would also submit that
the lower price would enable the assessee to generate
higher turnover and this higher turnover is monetary
consideration for the assessee received directly from various
buyers. In other words, he would submit, the intention to
penetrate the market is intertwined with receiving a higher
monetary turnover. Therefore, the price is not the sole
consideration. However, it is contended by learned senior
counsel Shri Vellapally that the reason for the assessees for
selling their cars at a lower price than the manufacturing
cost was because the assessees had no foothold in the
Indian market and, therefore, had to sell at a lower price
than the manufacturing cost and profit in order to compete
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in the market. He would submit that the intention of the
assessees to penetrate the market cannot be treated as
extra commercial consideration as it does not flow from the
buyer to the seller. Therefore, there is no additional
consideration flowing from buyer to seller and whole
transaction is bona fide.
53. Now what requires to be considered is what is the
meaning of the expression ‘sole consideration’.
Consideration means something which is of value in the
eyes of law, moving from the plaintiff, either of benefit to
the plaintiff or of detriment to the defendant. In other
words, it may consist either in some right, interest, profit or
benefit accruing to the one party, or some forbearance,
detriment, loss or responsibility, given, suffered or
undertaken by the other, as observed in the case of Currie
v. Misa, (1875) LR 10 Ex. 153.
54. Webster’s Third New International Dictionary
(unabridged) defines, consideration thus :
“Something that is legally regarded as the equivalent or
return given or suffered by one for the act or promise of
another.”
55. In volume 17 of Corpus Juris Secundum (p.420-421
and 425) the import of ‘consideration’ has been described
thus :
“Various definitions of the meaning of consideration are to
be found in the text-books and judicial opinions. A sufficient
one, as stated in Corpus Juris and which has been quoted
and cited with approval is “a benefit to the party promising
or a loss or detriment to the party to whom the promise is
made..... At common law every contract not under seal
requires a consideration to support it, that is, as shown in
the definition above, some benefit to the promisor, or some
detriment to the promisee.”
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56. In Salmond on Jurisprudence, the word ‘consideration’
has been explained in the following words.
“A consideration in its widest sense is the reason, motive or
inducement, by which a man is moved to bind himself by an
agreement. It is for nothing that he consents to impose an
obligation upon himself, or to abandon or transfer a right. It
is in consideration of such and such a fact that he agrees to
bear new burdens or to forego the benefits which the law
already allows him.”
57. The gist of the term ‘consideration’ and its legal
significance has been clearly summed up in Section 2(d) of
the Indian Contract Act which defines ‘consideration’ thus :
“When, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is
called a consideration to the promise.”
58. From a conspectus of decisions and dictionary
meaning, the inescapable conclusion that follows is that
‘consideration’ means a reasonable equivalent or other
valuable benefit passed on by the promisor to the promisee
or by the transferor to the transferee. Similarly, when the
word ‘consideration’ is qualified by the word ‘sole’, it makes
consideration stronger so as to make it sufficient and
valuable having regard to the facts, circumstances and
necessities of the case.
59. To attract Section 4(1)(a) of the Act what is required
is to determine the ‘normal price’ of an excisable article
which price will be the price at which it is ordinarily sold to a
buyer in the course of wholesale trade. It is for the Excise
authorities to show that the price charged to such selling
agent or distributor is a concessional or specially low price
or a price charged to show favour or gain in return extra-
commercial advantage. If it is shown that the price charged
to such a sole selling agent or distributor is lower than the
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real value of the goods which will mean the manufacturing
cost plus manufacturing profit, the Excise authorities can
refuse to accept that price.
60. Since under new Section 4(1)(a) the price should be
the sole consideration for the sale, it will be open for the
Revenue to determine on the basis of evidence whether a
particular transaction is one where extra-commercial
consideration has entered and, if so, what should be the
price to be taken as the value of the excisable article for the
purpose of excise duty and that is what exactly has been
done in the instant cases and after analysing the evidence
on record it is found that extra-commercial consideration
had entered into while fixing the price of the sale of the cars
to the customers. When the price is not the sole
consideration and there are some additional considerations
either in the form of cash, kind, services or in any other
way, then according to Rule 5 of the 1975 Valuation Rules,
the equivalent value of that additional consideration should
be added to the price shown by the assessee. The important
requirement under Section 4(1)(a) is that the price must be
the sole and only consideration for the sale. If the sale is
influenced by considerations other than the price, then,
Section 4(1)(a) will not apply. In the instant case, the main
reason for the assessees to sell their cars at a lower price
than the manufacturing cost and profit is to penetrate the
market and this will constitute extra commercial
consideration and not the sole consideration. As we have
already noticed, the duty of excise is chargeable on the
goods with reference to its value then the normal price on
which the goods are sold shall be deemed to be the value,
provided : (1) the buyer is not a related person and (2) the
price is the sole consideration. These twin conditions have
to be satisfied for the case to fall under Section 4(1)(a) of
the Act. We have demonstrated in the instant cases, the
price is not the sole consideration when the assessees sold
their cars in the wholesale trade. Therefore, the assessing
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authority was justified in invoking clause(b) of Section 4(1)
to arrive at the value of the exercisable goods for the
purpose of levy of duty of excise, since the proper price
could not be ascertained. Since, Section 4(1)(b) of the Act
applies, the valuation requires to be done on the basis of
the 1975 Valuation Rules.
61. After amendment of Section 4 :- Section 4 lays
down that the valuation of excisable goods chargeable to
duty of excises on ad-valorem would be based upon the
concept of transaction value for levy of duty. ‘Transaction
value’ means the price actually paid or payable for the
goods, when sold, and includes any amount that the buyer
is liable to pay to the assessee in connection with the sale,
whether payable at the time of sale or at any other time,
including any amount charged for, or to make provisions for
advertising or publicity, marketing and selling, and storage
etc., but does not include duty of excise, sales tax, or any
other taxes, if any, actually paid or payable on such goods.
Therefore, each removal is a different transaction and duty
is charged on the value of each transaction. The new
Section 4, therefore, accepts different transaction values
which may be charged by the assessee to different
customers for assessment purposes where one of the three
requirements, namely; (a) where the goods are sold for
delivery at the time and place of delivery; (b) the assessee
and buyers are not related; and (c) price is the sole
consideration for sale, is not satisfied, then the transaction
value shall not be the assessable value and value in such
case has to be arrived at, under the Central Excise Valuation
(Determination of Price of Excisable Goods) Rules 2000 (‘the
Rules 2000’ for short) which is also made effective from 1st
July, 2000. Since the price is not the sole consideration for
the period even after 1st July, 2000, in our view, the
assessing authority was justified in invoking provisions of
the Rules 2000.
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62. Reference to the Citations : Shri Bhattacharya, learned
ASG, submits that in view of the decision of this Court in
Bombay Tyre International case (supra), the nominal price
of the goods, even if it is sold for a loss price, for the
purpose of assessable value under Section 4 of the Act, at
least the manufacturing cost and manufacturing profit
should be taken into consideration. In view of this decision,
the learned counsel goes to the extent of saying the
judgments relied upon by the opposite side on the decision
of this Court in Guru Nanak Refrigeration (supra) and Bisleri
International (supra) should be treated as per-incuriam. We
cannot agree. In Bombay Tyre’s case, the issue before the
Court was whether the value of an article for the purpose of
excise duty had to be determined by reference exclusively
to the manufacturing cost and manufacturing profit of the
manufacturer or should be represented by the wholesale
price charged by the manufacturer which would include
post-manufacturing expenses and post-manufacturing
profits arising between the completion of manufacturing
process and the point of sale by the manufacturer. It is
relevant to notice at this stage, in the Bombay Tyre’s case,
this Court considered the scope of Section 4 before its
amendment and after the new Section 4 was substituted
with effect from 1-10-1975. This Court in the said case,
after detailed consideration of rival contentions and after
referring to several precedents of this Court has concluded
that the levy of excise duty was on the manufacture or
production of goods, the stage of collection need not in
point of time synchronise with the completion of the
manufacturing process while the levy had the status of a
constitutional concept, the point of collection was located
where the statute declared it would be. The Court further
went on to observe when enacting the measure to serve as
a standard for assessing the levy, legislature need not
contour it along lines which spell out the character of the
levy itself. From this stand point, it is not possible to accept
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the contention that because the levy of excise is a levy on
goods manufactured or produced, the value of the excisable
article must be limited to the manufacturing cost plus the
manufacturing profit. The Court further was of the opinion,
that a broad-based standard of reference may be adopted
for the purpose of determining the measure of levy. Any
standard which maintains a manner with the essential
character of levy could be regarded as a valid basis for
assessing the measure of levy. This Court in this decision
also distinguished the view expressed in A.K. Roy &Anr. v.
Voltas Ltd., 1977 (1) E.L.T. (J177) (S.C.), wherein this
Court had held that the value for the purpose of Section 4
would include only the manufacturing cost plus
manufacturing profit and exclude post-manufacturing cost
plus manufacturing profit but exclude post-manufacturing
cost and profit arising from post-manufacturing operation by
observing that this Court in the aforesaid decision intended
to say was that entire cost of the article plus profit minus
trade discount would represent the assessable value and in
that decision there was no issue on the question of including
the post manufacturing cost and post-manufacturing profits.
In conclusion, insofar as amended Section 4 of the Act, the
Court has observed that the assessable value will be the
price at which the goods are ordinarily sold by the assessee
to the buyer in the course of wholesale trade at the factory
gate. However, firstly, the buyer should not be a related
person and the price should be sole consideration for the
same. This proposition is subject to Section 4(1)(a).
Secondly, if the price of the excisable goods cannot be
ascertained either because the goods are not sold or for any
other reason, the value will have to be determined as per
the Central Excise Valuation Rules.
63. Our attention was also drawn by learned counsel Shri
Bhattacharya to the decision of this Court in Assistant
Collector of Central Excise &Ors. v. M.R.F. Ltd., 1987 (27)
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E.L.T. 553 (S.C.), wherein the Court dealt with concept of
post-removal expenses.
64. Shri Vellapally and Shri Lakshmi Kumaran learned
Counsel by placing reliance on Guru Nanak’s case (supra)
and Bisleri’s case (supra) contends that the issue raised in
these appeals is no more res integra. We cannot agree. In
Guru Nanak’s case, the facts are : the assessee therein was
engaged in the manufacture of refrigeration and air-
conditioning machinery. They had cleared the goods after
approval of the price list by the department. The
adjudicating authority being of the view that the assessable
value declared by the assessee was low as compared to the
cost of material used in the manufacture of the said
machinery, had issued a show cause, to show cause why
the assessable value should not be re-fixed and the duty
fixed on the re-fixed assessable value after taking into
consideration the cost of raw material plus manufacturing
cost plus reasonable profit margin. The adjudicating
authority after considering the reply filed had confirmed the
show cause notice and had directed the assessee to pay the
difference in excise duty. In the appeal filed before the
Tribunal, the assessee had succeeded. In the appeal filed by
the department, this Court was of the view that since in the
show cause notice issued by the adjudicating authority there
was no allegation that the wholesale price to the buyers was
for consideration other than the one at which it was
purported to be sold or that it was not at arms length and
further, there was no allegation that there was any flow
back from the buyer to the assessee and therefore, the
department cannot take a stand that the normal price was
not ascertainable for the purpose of valuation under Section
4(1)(a) of the Act and therefore, the Tribunal was justified
in accepting the whole sale price as the correct price.
65. In Bisleri’s case, the issue as noted by the Court was,
whether the assessee had undervalued the aerated water
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(Beverages) by excluding two items, namely, the amounts
received under credit notes as price support incentive and
rent on containers as assessable value. The Court after
referring to provisions of Section 4(1)(a) of the Act and the
decision of this Court in Bombay Tyre’s case (supra) has
held that the amounts received under credit notes as price
support incentives from supplier of raw materials cannot be
included in the assessable value, since the department
failed to prove that there was flow back of additional
consideration from buyers of aerated waters to the assessee
and further, the price was not uniformly maintained and
favour of exra-commercial consideration was shown to the
buyers of aerated waters (beverages). The Court has also
observed that under Section 4, the price and sale are
related concepts. The value of the excisable article has to be
computed with reference to the price charged by the
manufacturer, the computation being made in accordance
with Section 4. In every case, it will be for the revenue to
determine on evidence whether the transaction is one where
extra-commercial consideration have entered and if so,
what should be the price to be taken into account as the
value of the excisable article for the purpose of excise duty.
66. In our considered view, either the decision of Guru
Nanak’s case (supra) or the decision in Bisleri’s case (supra)
would assist the assessee in any manner whatsoever. We
say so for the reason, that, in Guru Nanak’s case, the
department had accepted the price declared by the assessee
and the narration of the facts both by the Tribunal and this
Court would reveal that it was one time transaction and
lastly, this Court itself has specifically observed that the
view that they have taken, is primarily based on the facts
and circumstances of the case. In the instant cases, the
department never accepted the declared value. It is for this
reason, provisional assessments were completed instead of
accepting declared price by the assessee under Rule 9B of
the Rules inter alia holding that during the enquiry, the
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assessees had admitted that they did not have any basis to
arrive at the assessable value but they are selling their
goods at ‘loss price’ only to penetrate the market. Secondly,
as we have already noticed that for nearly five years the
assessee was selling its cars in the wholesale trade for a
‘loss price’ and therefore, the conditions envisaged under
Section 4(1)(a) of the Act, namely; the normal price,
ordinarily sold and sole consideration are not satisfied. We
further hold that the decision in Bisleri’s case (supra) will
also not assist the assessees for the reason that the issue
that came up for consideration is entirely different from the
legal issue raised in these civil appeals. Before we conclude
on this issue, we intend to refer to the often quoted truism
of Lord Halsbury that a case is only an authority for what it
actually decides and not for what may seem to follow
logically from it. We may also note the view expressed by
this Court in the case of Sushil Suri v. Central Bureau of
Investigation &Anr. (2011) 5 SCC 708, wherein this Court
has observed, “Each case depends on its own facts and a
close similarity between one case and another is not enough
because either a single significant detail may alter the entire
aspect. In deciding such cases, one should avoid the
temptation to decide cases (as said by Cardozo) by
matching the colour of one case against the colour of
another. To decide, therefore, on which side of the line a
case falls, the broad resemblance to another case is not at
all decisive.” We do not intend to overload this judgment by
referring to other decisions on this well settled legal
principle.
67. Reference to Valuation Rules : Shri Bhattacharya,
the learned ASG, contends that the assessees are not
fulfilling the conditions enumerated in Section 4(1)(a) of the
Act and therefore, the valuation has to be done in
accordance with Section 4(1)(b) read with the 1975
Valuation Rules. He would submit that since the price of the
cars sold by the assessee was not ascertainable, the
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Revenue is justified in computing the assessable value of
the goods for the levy of excise duty under Section 4(1)(b)
of the Act and the relevant rules. He would further submit
that the Valuation Rules need not be applied sequentially.
He would contend that all the Rules 3, 4, 5, 6 and 7 of the
1975 Valuation Rules specifically use the expression
“shall...be determined”, “shall be based” or “shall determine
the value” and nowhere word “sequentially” occurs in these
Rules, unlike Rule 3(ii) of the Customs Valuation Rules,
1988. He would submit that merely the presence of word
“shall” does not imply that all the Rules has to be applied
sequentially. He would further submit that in the facts and
circumstances of the present cases, Rule 7 is the only
applicable Rule in view of the decision in Bombay Tyre’s
case and assessing authority as well as the first appellate
authority correctly adopted the application of this Rule.
68. Per Contra, Shri Joseph Vellapally, would submit that
only when the normal price is not ascertainable in terms of
Section 4(1)(a), then Section 4(1)(b) read with the 1975
Valuation Rules would come into play to determine the
nearest equivalent assessable value of the goods. He would
contend that the Valuation Rules have to be applied
sequentially, i.e. first, Rules 4 and 5 should be invoked in
order to determine the assessable value and if Rules 4 and
5 are not applicable or assessable, value cannot be
ascertained by applying the said Rules, and then only Rule 6
can be invoked. He would further submit that it is only Rule
6(b)(ii) of the 1975 Valuation Rules which contemplates
determining of assessable value on the basis of cost of
manufacture, only when the goods are captively consumed
by the manufacturer and value of comparable goods
manufactured by the assessee or any other assessee are
not available.
69. Under Section 4(1)(b) of the Act, 1944, any goods
which do not fall within the ambit of Section 4(1)(a) i.e. if
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the ‘normal price’ cannot be ascertained because the goods
are not sold or for any other reason, the ‘normal price’
would have to be determined in the prescribed manner i.e.
prior to 1st day of July, 2000, in accordance with Rules,
1975 and after 1st day of July 2000, in accordance with
Rules, 2000.
70. Rule 2 of the 1975 Valuation Rules provides for
definition of certain terms, such as “proper officer”, “value”
etc., Rule 3 of the above Rules, provides that the value of
any excisable goods, for the purposes of Clause (b) of Sub-
Section (1) of Section 4 of the Act be determined in
accordance with these Rules. Rule 4 provides that the value
of the excisable goods shall be based on the value of such
goods by the assessee for delivery at any other time
nearest to the time of removal of goods under assessment.
Rule 5 provides that when the goods are sold in the
circumstances specified in Clause (a) of Sub-Section (1) of
Section (4) of the Act except that the price is not the sole
consideration, the value of such goods shall be based on the
aggregate price and the amount of the money value of any
additional consideration flowing directly or indirectly from
the buyer to the assessee. Rule 6 provides, that, if the value
of the excisable goods under assessment cannot be made,
then to invoke provisions of Rule 6 of the Rules, wherein
certain adjustments requires to be made as provided
therein. Rule 7 is in the nature of residuary clause. It
provides that if the value of excisable goods cannot be
determined under Rule 4, 5 and 6 of the Rules, the
adjudging authority shall determine the value of such goods
according to the best of his judgment and while doing so, he
may have regard to any one or more methods provided
under the aforesaid Rules. A bare reading of these rules
does not give any indication that the adjudging authority
while computing the assessable value of the excisable
goods, he had to follow the rules sequentially. The rules
only provides for arriving at the assessable value under
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different contingencies. Again, Rule 7 of the Valuation Rules
which provides for the best judgment assessment gives an
indication that the assessing authority while quantifying the
assessable value under the said Rules, may take the
assistance of the methods provided under Rules 4, 5 or 6 of
the Valuation Rules. Therefore, contention of the learned
counsel that the assessing authority before invoking Rule 7
of the 1975 Valuation Rules, ought to have invoked Rules 4,
5 and 6 of the said Rules cannot be accepted. In our view,
since the assessing authority could not do the valuation with
the help of the other rules, has resorted to best judgment
method and while doing so, has taken the assistance of the
report of the ‘Cost Accountant’ who was asked to conduct
special audit to ascertain the correct price that requires to
be adopted during the relevant period. Therefore, we cannot
take exception of the assessable value of the excisable
goods quantified by the assessing authority.”
4.11 From the above decision of the Hon’ble Supreme Court it is
quite evident that the price at which the goods were being sold
even if to the independent buyers and that price being much
below the cost of manufacture then the same needs to be
rejected and the value for determination for excise duty should
be adopted as per the cost of manufacture in term of determined
as per CAS-4.
4.12 In view of the specific and direct decision of the Hon’ble
Supreme Court elucidating the issue involving the present appeal
we do not find it necessary to determine with regards to
existence of relationship between the Appellant and the buyers
of the goods. Even if we hold that there was no relationship than
also the value could not have been much less than the cost of
manufacture in perpetuity.
4.13 We find that the Appellant was duly registered with the
Department filing all the returns as required in terms of the
Central Excise Act and Rules there under.
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4.14 We find that the agreement etc. were all on record and the
Revenue was well aware of the facts hence invocation of
extended period of limitation for making the demand would not
be proper. Thus, in respect of the Show Cause Notice dated
05.08.2016, we find that the entire demand is barred by
limitation having being issued after the prescribed period of
limitation.
4.15 Demands made for the subsequent period i.e. December
2014 to 2016 by Show Cause Notice dated 30.12.2016 and
statement of demand dated 15.02.2018 for the period 2016-17
to 2017-18 is within the normal period of limitation. Accordingly,
taking note of the decisions sited by the Appellant with regards
to the invocation of extended period of limitation, we set aside
the entire demand made for the period November 2013 to
November 2014 and uphold the demand made for the
subsequent period by the Show Cause Notice dated 30.12.2016
and for the period 2016-17 to 2017-18 by Statement of Demand
dated 15.02.2018.
4.16 As we have held that extended period could not have been
invoked, penalties imposed upon the Appellant by invoking
Section 11AC needs to be set aside in lieu of the observations
made by the Hon’ble Supreme Court in the case of Union of
India V/s Rajasthan Spinning & Weaving Mills reported at
2009 (238) E.L.T. 3 (S.C.)
4.17 We also observe that penalty by Order-In-Original dated
31.03.2017 & 07.08.2020 has been imposed upon the Appellant
by invoking the provisions of Rule 15 of CENVAT Credit Rules,
2004 read with Section 11AC of the Central Excise Act, 1944 for
violation of Rule 4, 6 & 8 of the Central Excise Rules, 2002. The
Commissioner (Appeals) has also upheld such penalties. It is not
understood how can Rule 15 of CENVAT Credit Rules, 2004 be
invoked in such a situation whereas Rule 15 is applicable only in
the case where CENVAT Credit has been wrongly taken or
utilized. The Adjudicating Authority and Commissioner (Appeals)
have failed to take note of the fact that neither this Rule was not
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invoked in the Show Cause Notice or Statement of Demand nor
is applicable in case of undervaluation of the goods. The penalty
under show cause notice was proposed under Rule 25 of Central
Excise Rules, 2002 read with Section 11AC for various
contraventions but has been imposed under Rule 15 of CENVAT
Credit Rules, 2004 read with Section 11AC. This penalty needs to
be set aside for this reason itself.
4.18 In view of the above, we modify the impugned orders by:-
(i) Setting aside the demand made by invoking the
extended period.
(ii) Demands issued within normal period of limitation
along with interest are upheld.
(iii) Penalties imposed under Section 11AC are set aside.
5.1 Both the appeals are partly allowed in the manner stated
in para 4.15
(Pronounced in open court on 01.09.2026)
Sd/-
(P. A. AUGUSTIAN)
MEMBER (JUDICIAL)
Sd/-
(SANJIV SRIVASTAVA)
MEMBER (TECHNICAL)
Nihal