2011 (11) TMI 564 - AT - Central Excise

Duty demand - Valuation of goods - appellants had undervalued the excisable goods cleared to their subsidiary units - As per Revenue, the assessable value of goods cleared to their subsidiary units are required to be determined on the basis of value of comparable goods under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 - Held that - demand is for the period October, 1996 to June, 2000. During this period appellants were clearing the same goods at a higher value to independent buyers than cleared to their subsidiary units. This fact is not in dispute. The appellants were paying duty on the goods cleared to their subsidiary units at the weighted average price which was lower than the value charged to independent buyers. In these circumstances, it cannot be said that the dealings were at arms length. From July, 2000, the appellants started paying duty in respect of the goods cleared to the subsidiary units by taking into consideration the cost of production 15% as provided under the Central Excise Valuation Rules for captively consumed goods. As the comparable price of the goods is available during the period in dispute, as the same were being cleared to independent buyers, therefore we find no infirmity in the impugned order whereby the duty is demanded on the same price in respect of the goods cleared to their subsidiary units - Decided against assessee.

Summary

Issues:
Demand of duty on undervalued goods cleared to subsidiary units, applicability of arms length principle, intent to evade payment of duty, compliance with Central Excise Valuation Rules.

Analysis:
The appellants challenged an order confirming a duty demand of Rs. 34,80,214/- with interest and penalty under Section 11AC of the Central Excise Act, 1944. The dispute arose from the alleged undervaluation of goods cleared to subsidiary units compared to independent buyers. The Revenue contended that the appellants charged a higher price to independent buyers than to subsidiary units, indicating undervaluation. The appellants argued that the dealings with the subsidiary units were at arms length, denying any intent to evade duty. The Revenue highlighted that post the disputed period, the appellants adjusted the value for subsidiary units as per Valuation Rules, suggesting prior undervaluation.

The Tribunal examined the period from October 1996 to June 2000, noting the price disparity in goods sold to independent buyers versus subsidiary units. The appellants paid duty on subsidiary unit goods at a lower weighted average price than that charged to independent buyers, indicating non-arms length dealings. Post July 2000, the appellants adjusted the value for subsidiary unit goods in compliance with Valuation Rules. The Tribunal found no fault in the duty demand based on comparable prices to independent buyers during the disputed period, upholding the impugned order due to the lack of arms length dealings and apparent undervaluation.

The Tribunal dismissed the appeal and disposed of cross objections, affirming the duty demand on goods cleared to subsidiary units based on comparable prices to independent buyers. The decision rested on the non-arms length nature of dealings during the disputed period, leading to the conclusion that the appellants undervalued goods with intent to evade duty. The compliance post-July 2000 with Valuation Rules further supported the upheld duty demand, emphasizing the importance of adhering to valuation principles in excise matters.

(Order pronounced in Court on 24-11-2011)