2007 (1) TMI 17 - AT - Central Excise

Valuation (Central Excise) Alleged that appellant were undervalued the products(cigarettes) on account of indirect consideration flowing from aforesaid deposit scheme and accordingly demand differential duty and penalty After considering detail authority reject the appeal and uphold the impugned order

Issues Involved:
1. Validity of show cause notices issued during provisional assessment.
2. Inclusion of notional interest on security deposits in the assessable value of cigarettes.
3. Applicability of Section 4(1)(a) price for determining assessable value.
4. Relevance of precedents and principles from previous judgments.

Issue-wise Detailed Analysis:

1. Validity of Show Cause Notices Issued During Provisional Assessment:
The respondents argued that the show cause notices were invalid as they were issued before the finalization of provisional assessments. The Commissioner rejected this contention, referencing the case of Serai Kella Glass Works Pvt. Ltd. However, the Supreme Court's decision in CCE, Mumbai v. ITC Ltd. clarified that show cause notices issued during provisional assessments are illegal. The Tribunal agreed with the respondents, stating that the show cause notices dated 20-7-1983 were bad in law and without jurisdiction, as they were issued when the assessments were provisional.

2. Inclusion of Notional Interest on Security Deposits in the Assessable Value of Cigarettes:
The department contended that the notional interest on interest-free security deposits from wholesale dealers should be included in the assessable value of cigarettes. The Commissioner, however, decided the issue on merits in favor of the respondents, applying the ratio of the Apex Court's judgment in VST Industries Ltd. v. CCE, Hyderabad. The Tribunal upheld this view, noting that the scheme was optional and the price was the same for wholesale dealers who did not furnish any security deposit and those who did.

3. Applicability of Section 4(1)(a) Price for Determining Assessable Value:
The Commissioner held that when Section 4(1)(a) price is available, no other price is relevant. Sales to dealers who did not opt for giving security deposits ranged between 5% to 8%. The Tribunal agreed, noting that there was no evidence to suggest that sales to wholesale dealers who had not opted for the deposit scheme were not sales to independent buyers under Section 4(1)(a). Therefore, the price declared by the respondents for such sales was considered the normal price under Section 4(1)(a).

4. Relevance of Precedents and Principles from Previous Judgments:
The Tribunal referenced several judgments to support its decision:
- VST Industries Ltd. v. CCE, Hyderabad: The optional nature of the scheme and the same price for all customers were key factors.
- A. K. Roy v. Voltas Ltd.: The quantum of goods sold on a wholesale basis is irrelevant for determining the normal price under Section 4(1)(a).
- Indian Aluminium Cables v. CCE: When the normal price under Section 4(1)(a) is available, it should be applied.
- UOI v. Bombay Tyre International Ltd.: Recourse to Rule 5 of the Valuation Rules is permissible only if the assessable value is determined under Section 4(1)(b).
- Indian Oxygen Ltd.: Confirmed that Section 4(1)(b) is inapplicable when the price under Section 4(1)(a) is available.

The Tribunal also distinguished the present case from others cited by the Revenue, such as Metal Box India Ltd. v. CCE and Hero Honda Motors Ltd. v. CCE, where different circumstances influenced the assessable value.

Conclusion:
The Tribunal upheld the Commissioner's order, rejecting the appeal by the Revenue. It confirmed that the show cause notices were without jurisdiction and that the assessable value should be determined based on the price under Section 4(1)(a), as the sales to wholesale dealers who did not opt for the security deposit scheme were considered sales to independent buyers. The Tribunal's decision was pronounced in court on 2-1-2007.

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