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Commissioner of Central Excise and Service Tax, Rohtak vs. Merino Panel Product Ltd. - (Supreme Court) (05 Dec 2022)

Assessable value for the related party sales can be established by referring to the normal price under Section 4(1)(a) of the Central Excise Act



The present Civil Appeal originates from the impugned order passed by the Customs, Excise and Service Tax Appellate Tribunal, Chandigarh (“CESTAT”). The CESTAT set aside the show cause notice issued by the Appellant-Revenue to the Assessee- Respondent, on the ground that it had invoked an incorrect method of valuing related party transactions. The Assessee is involved in the manufacture of decorative laminates and other like materials.

The assessable value for the related party sales can be established by referring to the normal price under Section 4(1)(a) of the Central Excise Act, 1944 (CEA), which is readily available in the present case. This is, the true meaning and intention underlying the Circular of 01.07.2002. The reference to Rule 11 in Point No. 12 of the Circular simply mandates the usage of “reasonable means” keeping in mind Section 4(1)(a) of the CEA and Rule 9 of the CEVR. This is merely a method by which the Revenue is required to apply its mind to a case of partial sales to both independent and related parties.

In fact, the Commissioner’s order proceeds to determine the value of the sales made by the Respondent-Assessee to its sister concerns on the basis of the value of its sales to independent parties. This is entirely consistent with the actual intent of the Circular dated 01.07.2002, which is not in contravention with either the CEA or the CEVR.

The justification of extending the period of limitation depends upon whether the Respondent-Assessee has suppressed facts and failed to provide accurate information regarding its sales to the Revenue. To this extent, there is a finding of fact against the Assessee. At the same time, since the Revenue itself appeared to be unclear on the correct method of valuation of the goods, it is not appropriate to saddle the Respondent with additional liability, namely, other than the excise duty. Hence, though present Court confirm the demand made by the Appellant, present Court do not approve the levy of interest and penalties upon the Respondent, and direct that these amounts be reduced from the total recoverable amount from the Assessee.

Point No. 12 in the Circular of 01.07.2002 is not contrary to the intent of the CEA and CEVR and the object behind it is to merely use “reasonable means” as outlined under Rule 11 of the CEVR, in conformity with Section 4(1)(a) of the CEA and Rule 9 of the CEVR, so as to reach the assessable value of goods for determination of excise duty.

When the normal price that is ordinarily charged in dealings where the price itself is the sole consideration of the transaction is available, as it is here, that price can be transposed onto the related party purchases as well, to arrive at the assessable value. Hence, the order of the Commissioner regarding the value of the goods sold to the Respondent’s sister concerns is in consonance with this Court’s earlier judgments and the Circular dated 01.07.2002. Appeal allowed.


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