2015 (10) TMI 442 - SC - Central Excise

Valuation - Principal of natural justice - demand based of statement of dealers - cross-examine the dealers whose statements were relied upon by the Adjudicating Authority - Held that - not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guesswork as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price-list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. If the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show-Cause Notice. - Order set aside - Decided in favor of assessee.

Summary

Issues:
1. Determination of excise duty value based on ex-factory and delivery basis prices.
2. Rejection of appeal by Tribunal due to sales from depots and price fluctuations.
3. Denial of cross-examination rights to the appellant.
4. Appeal challenging the Tribunal's order.

Issue 1: Determination of excise duty value based on ex-factory and delivery basis prices:
The appellant, having a factory in South Andamans, sold products from there and depots across the country. The Revenue found price discrepancies between ex-factory sales and depot sales, leading to a Show-Cause Notice. The Adjudicating Authority confirmed the demand based on depot price-lists for excise duty valuation. The Tribunal upheld this decision citing minimal ex-factory sales and price fluctuations in depot sales.

Issue 2: Rejection of appeal by Tribunal due to sales from depots and price fluctuations:
The Tribunal dismissed the appeal despite the appellant's argument that ex-factory prices should be considered the normal price under Section 4 of the Central Excise Act. The rejection was based on the majority of sales from depots and price variations over time in depot sales, deviating from static ex-factory prices.

Issue 3: Denial of cross-examination rights to the appellant:
The appellant contested the reliance on witness statements without the opportunity to cross-examine them, violating principles of natural justice. The Tribunal's denial of cross-examination was deemed flawed as it assumed the appellant had no additional material to present. The Supreme Court emphasized the importance of cross-examination to challenge witness credibility and the need for a fair process.

Issue 4: Appeal challenging the Tribunal's order:
The Supreme Court held that denying cross-examination rights to the appellant rendered the order null and void, violating natural justice principles. Discrediting witness testimony without allowing cross-examination left the Revenue with insufficient justification for the Show-Cause Notice. The Court set aside the Tribunal's order, emphasizing the importance of fair procedures and the right to challenge evidence.

In conclusion, the Supreme Court allowed the appeal, highlighting the critical importance of cross-examination in upholding principles of natural justice and ensuring a fair adjudication process.