2009 (12) TMI 749 - AT - Central Excise

Valuation - HDPE resin - related party transaction - Held that - while valuation done of sale price of RIL to RCIL of resin cannot be the starting point since RIL and RCIL are related persons - the valuation is to be done as per Rule 8 (i.e. 115% of cost of resin manufacture of duct). Accordingly, the value arrived is much lower than the assessable value on which the duty has already been paid by RIL on duct. - appeal allowed.

Issues Involved:
1. Confirmation of duty demand and penalty on M/s. Reliance Industries Ltd. (RIL).
2. Penalty imposed on M/s. Reliance Communication Infrastructure Ltd. (RCIL).
3. Valuation method for ducts manufactured by RIL and supplied to RCIL.
4. Time-barred nature of certain demands.
5. Applicability of Rule 26 for imposing penalties on RCIL.

Issue-wise Detailed Analysis:

1. Confirmation of Duty Demand and Penalty on RIL:
- Background: RIL manufactured ducts using HDPE resin sold to RCIL and availed credit for the duty paid on the resin. The valuation of ducts was based on the Ujagar Prints formula.
- Commissioner's Findings: The Commissioner added certain elements to the declared value of ducts, treating RIL and RCIL as related persons, and applied the Ujagar Prints formula. However, the Commissioner did not cite a specific provision for the valuation method used.
- Appellants' Argument: The appellants argued that the valuation should be under Rule 11 read with the proviso to Rule 9 and Rule 8 of the Valuation Rules, as upheld by the Supreme Court in S. Kumars, since RIL and RCIL are related persons.
- Tribunal's Decision: The Tribunal agreed with the appellants, holding that the correct formula for arriving at the assessable value is Rule 8 (i.e., 115% of the cost of resin and cost of manufacture of ducts). The duty already paid by RIL was found to be in excess of this value.

2. Penalty Imposed on RCIL:
- Background: Penalties were imposed on RCIL under Rule 26 for their involvement in the transactions with RIL.
- Appellants' Argument: The appellants contended that Rule 26 cannot be invoked to impose penalties on companies and that no goods were held liable for confiscation, which is a prerequisite for imposing penalties under Rule 26.
- Tribunal's Decision: The Tribunal found that the imposition of penalties on RCIL under Rule 26 was incorrect and unsustainable, as there was no evidence of 'mens rea' or knowledge that the goods were liable for confiscation.

3. Valuation Method for Ducts Manufactured by RIL and Supplied to RCIL:
- Background: The valuation was disputed, with the Commissioner applying the Ujagar Prints formula, while the appellants argued for valuation under Rule 11 read with Rule 9 and Rule 8.
- Appellants' Argument: The appellants cited the Supreme Court's judgment in S. Kumars, which held that the Ujagar Prints formula does not apply if the job worker and the principal manufacturer are related.
- Tribunal's Decision: The Tribunal held that the valuation should be done as per Rule 8 (i.e., 115% of the cost of resin and manufacture of ducts), as RIL and RCIL are related persons. The duty already paid by RIL was found to be higher than the duty payable under this method.

4. Time-barred Nature of Certain Demands:
- Background: The appellants argued that certain demands were time-barred as all necessary facts were disclosed to the department.
- Tribunal's Decision: The Tribunal found that the demands were indeed time-barred as the department had sufficient information to raise objections earlier but failed to do so.

5. Applicability of Rule 26 for Imposing Penalties on RCIL:
- Background: Penalties were imposed on RCIL under Rule 26.
- Appellants' Argument: The appellants contended that Rule 26 cannot be applied to companies and that no goods were held liable for confiscation.
- Tribunal's Decision: The Tribunal agreed with the appellants, setting aside the penalties imposed under Rule 26, as there was no evidence of 'mens rea' or knowledge of liability for confiscation.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals, holding that the correct valuation method is Rule 8 (i.e., 115% of the cost of resin and manufacture of ducts). The penalties imposed on RCIL under Rule 26 were also set aside. The appellants were not entitled to any consequential relief as they had already paid excess duty.

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