2003 (1) TMI 400 - AT - Central Excise

Summary

Issues Involved:
1. Whether the sale price to the related person is acceptable as the normal transaction value.
2. Suitability and applicability of Rules 4 and 7 of Valuation Rules, 2000 against Rule 9.
3. Determination of the assessable value based on the wholesale price to independent distributors.
4. Imposition of penalty under Rule 173Q.

Summary:

Issue 1: Sale Price to Related Person
The appellants argued that the relationship with M/s. Eureka Forbes Ltd. (EFL) did not influence the price, and thus, the transaction value should be accepted. They cited various case laws and emphasized that the difference in price (30-32%) was a discount and not indicative of price influence. The Commissioner, however, determined that the price charged from the independent buyer should be the normal transaction value, satisfying the ingredients of Section 4 of the Central Excise Act, 1944.

Issue 2: Applicability of Rules 4 and 7 vs. Rule 9
The Commissioner found that Rules 9 and 10 were not applicable and instead applied Rule 4 read with Rule 7 of the Valuation Rules, 2000. This was based on the price at which the goods were sold by the appellants to independent dealers. The appellants contested this, arguing that the commercial levels of both classes of buyers were not considered. However, the Tribunal upheld the Commissioner's application of Rule 4 and Rule 7, noting that the appellants failed to provide evidence for further deductions based on commercial levels.

Issue 3: Assessable Value Based on Wholesale Price
The Commissioner determined the assessable value using the price charged to independent buyers, abating taxes to arrive at the transaction value. The Tribunal found no infirmity in this assessment, stating that the appellants did not provide sufficient evidence to challenge the best judgment assessment made by the Commissioner.

Issue 4: Imposition of Penalty
The Commissioner imposed a penalty of Rs. 10,00,000/- under Rule 173Q, despite acknowledging that there was no clandestine removal, wilful evasion, fraud, or collusion. The Tribunal found this contradictory and concluded that the penalty was unsustainable. The appeal was thus disposed of, with the penalty being set aside.

Conclusion:
The Tribunal upheld the Commissioner's valuation and duty demands but set aside the penalty imposed, finding it inconsistent with the Commissioner's own findings regarding the absence of fraudulent intent or wilful evasion.