2007 (6) TMI 406 - AT - Central Excise

Summary

Issues:
1. Duty demand and penalty imposition on clearance of Aluminum Extruded Sections below cost of production.
2. Interpretation of normal price under Section 4 of the Central Excise Act, 1944.
3. Consideration of abnormal sales below cost of production in determining normal price.

Analysis:

1. The case involved a duty demand of Rs. 84,85,740/- and a penalty of Rs. 2000/- imposed on the clearance of 4487 MTs. of Aluminum Extruded Sections below the cost of production. The lower Appellate Authority had set aside the duty demand and penalty, leading to an appeal by the Department.

2. The Department argued that the impugned consignments were cleared below the cost of production, as confirmed by Special Cost Auditors. The lower Appellate Authority, however, allowed the appeal of the respondents, stating that the goods were cleared after submitting a price declaration to the Department. The Department contended that the value of goods for excise duty levy should include all costs and expenses that give the article its marketability, citing relevant case laws.

3. Upon perusal of the case records and considering the definition of normal price under Section 4 of the Central Excise Act, 1944, the Tribunal found that a price below the cost of production cannot be accepted as the normal price in the ordinary course of trade. Normal price, as per the Hon'ble Supreme Court decision in a relevant case, should be based on sales in the ordinary course of trade, where a manufacturer would recover at least the cost of production and a reasonable profit. Sales below cost of production are considered abnormal and cannot be deemed as part of the ordinary course of trade. Therefore, the lower Appellate Authority was deemed to have misdirected in accepting the below-cost price as the normal price, leading to the setting aside of the impugned order and restoration of the Order-in-Original.

4. As a result of the above analysis, the appeal filed by the Department was allowed, and the penalty imposed by the original authority was upheld as it was considered a small amount not warranting any reduction.

This judgment clarifies the interpretation of normal price under the Central Excise Act, emphasizing that prices below the cost of production cannot be considered normal in the ordinary course of trade, and such abnormal sales do not form the basis for determining the assessable value for excise duty levy.