2014 (4) TMI 1115 - AT - Central Excise

Valuation - adoption of profit margin - requirement of pre-deposit - Held that - As submitted by the learned counsel, there is no basis for adopting the profit margin of 41.48%. Commissioner himself has observed that the profit margin has been taken on the basis of the highest price at which the appellant has been able to sell the goods. Taking notice of the fact that there are three types of raw materials imported, different types of goods manufactured, the adoption of the highest price without considering the type of material and other transaction does not appear to be supported by any legal provisions. The rule itself provides for normal transaction value and determination of normal transaction value which has been given a go-bye by the learned Commissioner. In the order as well as in the show cause notice, there is absolutely no disclosure as to what were sales made to independent purchasers and at what price and who are the purchasers and there is also no discussion as to why such price could not have been adopted. There is also no evidence to show that the manufacturer and buyer and the job worker are related. In such a situation, we do not find that Department has made out a clear case of undervaluation against the appellant. Going by the submissions made by the learned counsel, which shows that in substantial no of transactions, the appellant had made profits would also support the case of the learned counsel and his other submissions also show that appellant has made out a prima facie case in their favour. Under these circumstances, the requirement of pre-deposit is waived and stay against recovery is granted during the pendency of appeal.

Summary

Issues:
Valuation of imported raw materials under Target Plus Scheme (TPS) for manufacturing goods by job workers, application of Rule 11 of Central Excise (Valuation) Rules, undervaluation allegations, imposition of penalty under Section 11AC, applicability of Rule 10A of Central Excise (Valuation) Rules.

Valuation under Target Plus Scheme (TPS):
The appellant imported raw materials under TPS and utilized them for manufacturing goods through job workers. The conditions required the goods to be used by the appellant or job workers for manufacturing, not to be sold as imported. The investigation revealed discrepancies, leading to the Commissioner determining assessable value using Rule 11 of Central Excise (Valuation) Rules, adding a profit margin of 41.48%. The differential duty was demanded, alleging undervaluation amounting to Rs. 1,52,83,090 for the period December 2007 to January 2009, along with penalty under Section 11AC and interest.

Arguments and Submissions:
The appellant's counsel argued that there was no evidence of job workers being related to the appellant, and the profit addition was unjustified. The Chartered Accountant's oversight in considering Cenvat credit led to higher cost calculations. Only a small portion of sales were below cost, with the appellant showing significant profits. The Department contended that the transaction value was rightly denied due to goods being sold at lower prices to job workers. The cost of production, even without profit margin, was sometimes lower than the selling price to independent buyers.

Application of Rule 10A and Tribunal's Analysis:
The Tribunal analyzed Rule 10A of Central Excise (Valuation) Rules, determining that the issue fell under Rule 10A(1) as goods were sold by the principal manufacturer from job workers' factory. Lack of evidence of related parties and price being the sole consideration supported this view. The Chartered Accountant's oversight regarding Cenvat credit was noted, affecting cost calculations. The Commissioner's adoption of a 41.48% profit margin without considering material types or transactions was criticized. The absence of details on sales to independent buyers, pricing, and relationships between parties weakened the Department's undervaluation case. The Tribunal found in favor of the appellant, waiving the pre-deposit requirement and granting a stay against recovery during the appeal.

Conclusion:
The Tribunal's analysis highlighted the importance of accurate valuation under TPS and the need for proper consideration of all factors affecting cost calculations. The judgment emphasized the necessity of providing clear evidence and rationale for valuation decisions, ensuring fairness and compliance with legal provisions in excise valuation matters.