2022 (11) TMI 1444 - AT - Central Excise

Clandestine removal - undervaluation or not/short payment of duty - value shown on the Central Excise Invoices at the time of removal of excisable goods is 'transaction value' or not - price escalation clause - clandestine removal of excisable goods manufactured at their Satara factory in the disguise of goods shown to have been manufactured by KC Goa - Demand on the basis of presumptions - liability to pay CENVAT duty on escalation bills issued. HELD THAT - The appellant are not in business of supply of the off the shelf goods or consuming the goods captively or supplying the goods through the any of their related person. Admittedly in all the case the appellant have supplied the goods to their customer against contractual agreement and the goods have been tailor made as per the requirements/ specifications of the Customer. In the present case after analyzing the Contracts impugned order adopts the value as determined by the cost auditor, for the demanding the duty. It is settled preposition in law that in case of the supplies made under the contractual agreement the contract price is the basis for determination of the assessable value as per section 4 of the Central Excise Act, 1944. During the course of arguments revenue has relied upon the decision of the Hon ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, MUMBAI VERSUS M/S FIAT INDIA PVT LTD ANR 2012 (8) TMI 791 - SUPREME COURT . It is not the case that the appellant was selling the goods at price lower than the cost of production and incurring loss. Even the cost auditor has not concluded that the appellant was selling the goods and earning loss. Hence the ratio of this decision cannot be directly applied to the present case. Demand on the basis of presumptions - HELD THAT - Commissioner has in the impugned order nowhere concluded that appellants had in case of any contract received any amount over and above the agreed contractual value. That being so there cannot be any reason for the rejection of the transaction value/ contractual value. Commissioner has in the impugned order referred to 41 contracts against which the supplies were made by the appellant to their customers, but have no where concluded to this effect in a single case. Interestingly it is seen that such a conclusion has not been arrived in the impugned order even in the cases where the supplies were made to the group companies. The demand seem to be made on the basis of the presumptions only contrary to values determined as per the contract/ agreement entered into by the purchaser and seller. The said approach is totally contrary to the concept of transaction value introduced from 2000 - Impugned order seeks to reject the contract value/ transaction value without even showing what was additional commercial consideration flowing from the buyer to seller for the sale of the goods. The impugned order nowhere concludes that appellant has received any amounts over and above the declared transaction value for the payment of duty. The demand thus made contrary to the settled position in law cannot be sustained. Charge of undervaluation has been made against the appellant on the basis of the cost auditor report who has concluded that appellant was supplying the bought out items bought from various entities - HELD THAT - The entire analysis done is not as per any prescribed standard of The Institute of Cost and Work Accountant of India and is also not based on the CAS-4, standard prescribed for determining the cost of production - The cost auditor report relied upon being bereft of the analysis of the cost records and the cost statement cannot have much sanctity in law. The costing studies could have been done either contract wise or the project wise, in case of company undertaking turnkey projects, whereas the cost auditor has in general determined the quantum of undervaluation only by referring to the total cost of sales and sales revenue - The cost auditor report do not point to any accounting standard and the accounting policies of the appellant which are the part of Financial Statements of the company. Accordingly the reliance placed on the Cost Audit report in the impugned order, is contrary to the specific direction given by the tribunal while remanding the matter back to original authority. The show cause notice not only makes the demand by alleging the undervaluation of the manufactured goods by overvaluing the brought out items, it also alleges that appellant has removed the clandestinely removed the bought out items as per the cost auditor report from their premises clandestinely - HELD THAT - The difference between the selling price and purchase price is claimed to be trading profit by the appellant. The total value of the bought out items as per the show cause notice which have been purchased by the appellant from their sister concern as percentage of the total purchase value of bought out items is in range of 17% to 28% for the three years where the data is free from defect. In the year 2003-04 and 2004-05 the purchases from sister concern exceed the total purchase value of bought out item hence left out from the analysis. Further from the figures as above it is observed that constantly from the year 2000-01 to 2003-04 the purchase value of bought out items have declined - Further as per the terms of contract, appellant were required to produce the invoices/ gate passes of the sub vendor to the purchaser to claim the duty paid against the said supplies and the goods/ the sub vendor facilities were open for inspection by the purchaser before dispatch. The findings recorded in the impugned order go contrary to this extent as provided in the contract. No instance has been pointed out where the purchaser has raised any query for non fulfillment of said conditions. Alleged clandestine clearance of the goods, by showing them as manufacture of Kay Chandra Goa - It is also the case of the revenue while alleging undervaluation, that the Appellant 1, was overvaluing the value of bought items from M/s Kay Chandra Goa, while issuing the invoices in respect of these goods to the purchaser - HELD THAT - While alleging the goods to be clandestinely cleared by the Appellant the duty is being demanded on the purchase value of the goods from Goa Unit and not on the sale value indicated in the invoices issued by the appellant. If these goods were the manufactured at Satara unit, then the transaction value between the appellant and its customer at the time and place of clearance as per section 4 of the Central excise Act, 1944 would be the sale price of the impugned goods and CENVAT duty paid on the purchase price would be available as CENVAT Credit to the appellant. Even if the charge of clandestine clearance of the goods in garb of the goods manufactured at Goa is to be upheld, tribunal has categorically held that the amounts paid at Goa need to be offset against the duty payable by the appellant at Satara. There is no challenge to the above by the revenue and accordingly in our view the amount paid at Goa needs to be offset against the amount payable by the appellant in respect of the goods alleged to be cleared clandestinely. Undisputedly against the impugned order records that an amount of Rs 95,01,741/- has been paid by K C Goa against the clearance of the said goods. A demand of Rs 1,02,69,756/-, has been made and confirmed against the appellant. Thus after offsetting the amount paid in the name of K C Goa registered with Goa Commissionerate during the relevant period an amount of Rs 7,68,015/- is demandable from the appellant 1. Demand made on the escalation bills - HELD THAT - The escalation bills are not even finalized till today. On the contrary applicant has produced the letter dated 03.03.2008 from the Commissioner for Cane Development and Director of Sugar Bangalore. Against the escalation bills raised by the appellant as reflecting in Show Cause Notice to M/s Shree Dhanalaxmi SSK for an amount of Rs 1,77,83,308/- having duty component of Rs. 28,45,330/- as per the letter dated 03.03.2008, the escalation amount allowed is Rs. 29,88,940/- having the component of duty and taxes of Rs 7,08,565/-. This clearly establishes that the escalation amount as claimed by the appellant in the escalation bills is not the amount received by them but is the amount which is subsequently determined and agreed to by the purchaser - Undisputedly the appellant is required to pay the duty on the escalation amount received by them along with the interest from the date when the goods against which these escalation bills are raised were cleared by them from the place of clearance as have been held by the Hon ble Supreme Court in M/S. STEEL AUTHORITY OF INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIPUR 2019 (5) TMI 657 - SUPREME COURT - the demand made in respect of undetermined escalation amount is pre-matured and needs to be set aside. Demand on the issue of limitation and penalties on the two appellant - HELD THAT - The demand made cannot be upheld on the merits of the case except for adjustment which is indicated with regard to escalation price, the issue of limitation and penal action becomes irrelevant and is not discussed further. Appeal disposed off.

Summary

Issues Involved:
1. Under-valuation of excisable goods.
2. Clandestine removal of excisable goods.
3. Non-payment of duty on escalation bills.

Detailed Analysis:

1. Under-valuation of Excisable Goods:
The primary issue was whether the value shown on the Central Excise Invoices at the time of removal of excisable goods was the 'transaction value' and whether the appellant had under-valued excisable goods. The appellant was accused of under-valuing excisable goods manufactured by them, resulting in short payment of excise duty. The contracts entered into by the appellant with various customers were analyzed, revealing that the price breakup provided was a formality, and individual transaction values were not negotiated. The Cost Audit Report indicated that the appellant over-valued bought-out goods and under-valued manufactured goods, leading to evasion of excise duty.

The tribunal found that the Commissioner did not provide specific findings on undervaluation for any individual contract or purchase order. It was noted that the appellant had entered into contracts for supply on a turnkey basis, and the contract price should be the basis for determining the assessable value as per Section 4 of the Central Excise Act, 1944. The tribunal concluded that the demand based on the cost of production determined by the Cost Auditor was contrary to the concept of 'transaction value' and could not be sustained.

2. Clandestine Removal of Excisable Goods:
The second issue was whether the appellant clandestinely removed excisable goods manufactured at their Satara factory in the guise of goods shown to have been manufactured by their sister concern in Goa. The investigation revealed that the goods shown as bought out from KC Goa were actually manufactured by the appellant at Satara. Evidence included statements from employees, lack of manufacturing activity at KC Goa, and fabricated transport documents.

The tribunal noted that the goods in question were cleared against duty-paying documents issued by KC Goa, and no notice was issued to KC Goa. The tribunal held that even if the charge of clandestine clearance was upheld, the duty paid at Goa must be offset against the duty payable by the appellant at Satara. The tribunal modified the demand to Rs. 7,68,015/- after offsetting the duty paid by KC Goa.

3. Non-payment of Duty on Escalation Bills:
The third issue was the non-payment of duty on escalation bills raised by the appellant. The appellant contended that duty becomes payable only on finalization of escalation bills, not at the time of issuance. The tribunal found that the escalation bills had not been finalized and the amounts claimed were not agreed upon by the purchasers. The tribunal held that the demand for duty on escalation bills was premature and set it aside.

Conclusion:
- The demand based on the cost of production determined by the Cost Auditor was set aside.
- The demand for alleged clandestine clearance was modified to Rs. 7,68,015/- after offsetting the duty paid by KC Goa.
- The demand for duty on escalation bills was set aside as premature.
- The penalties imposed on the appellants were set aside.

Additional Notes:
- Miscellaneous Application for placing additional evidence on record was allowed.
- The tribunal emphasized that the contractual agreements must be considered, and the transaction value should be the basis for determining the assessable value unless influenced by additional commercial considerations.