2015 (10) TMI 2402 - AT - Central Excise

Valuation of goods - Undervaluation of goods - Job works - conversion of DTA unit into EOU unit - Benefit of notification 23/2003 - Held that - During investigations of contract between one party and the respondents was recovered. In terms of the contract with M/s Sulakhi Limited it is clear that it is valid for 10 years from 1 may 2003 as per clause 2.1 and 11.2 of the agreement. It prescribes in paragraph 4 that the material supplied by the respondents to the processor would be the property of the respondent, proper records of the raw materials will be made and reported to the respondents by the processes. It described in paragraph 4 and 5 that the product will be of a particular specification, failing which the processor has to pay damages. The agreement also fixes the processing charges for the job. There was however, no such agreement recovered in respect of M/s Sahastra and M/s Sangadeep. During the examination of various employees of the respondent and one of the processors following has emerged. From the statements recorded it is apparent that the price at which spent goods were being cleared from the respondent s premises was linked to the price at which the processed goods were to be sold back to the respondents. This is clear from the statements recorded and from the terms of the contract. In the circumstances it cannot be said that the price negotiated between the respondent and the processors was price determined on an arm s length. The price of spent goods was directly linked to the price of the processed goods received back from the Processor. There may or may not have been a written contract between the parties to the contract but there was a clear understanding. Therefore in addition to the sale by the respondents to the processor not being an international transaction, it was also not at arm s length. - The Commissioner has failed to appreciate that the transaction in case of a DTA sale is a local transaction price whereas in case of clearance of an EOU unit the assessable value should be the price in the course of International trade. Having arrived at the conclusion that the domestic transaction value is to be accepted as the assessable value, due consideration has not been given to the arguments regarding alternate method of valuation in case the domestic transaction value is not accepted as assessable value. The respondents have raised many issues, like using common processing charges for calculations, regarding the method adopted in the show cause notice which have not been answered in the order of Commissioner as he has accepted the domestic sale price as the assessable value. - Cenvat credit rules limit the amount of credit available in respect of duty paid by EOU and therefore credit of entire duty is not available to the processor and hence it is not the revenue neutral situation. From the above it is clear that it is not a case of revenue neutral situation and Commissioners observation regarding with any neutrality is misplaced. Extended period has been invoked on account of recovery of the contract between the respondents and one of the processor s in the year 2008. The said agreement was not in the knowledge of the revenue and the terms of transaction between the respondents and the processor s were not in the knowledge of the Department and were not declared to the Department. I find that the terms between the respondents and it processor s are of extreme importance in determining the assessable value and therefore non-consideration and nondisclosure of the said terms amounts to misdeclaration and suppression. - impugned order is set aside and the matter is remanded to adjudicating authority for ascertainment of the assessable value after giving due consideration to the arguments of the respondent in this regard. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the spent IPA+DMF mixture and spent DMF are excisable goods and attract central excise duty.
2. Whether the assessable value determined by the noticee is correct or it is required to be determined as proposed in the notices.
3. Whether the extended period invoked for demanding duty is justifiable.
4. Whether penalty is imposable as proposed under various clauses in the notices.

Issue-wise Detailed Analysis:

1. Excisable Goods and Central Excise Duty:
The Commissioner decided in favor of the appellants on this issue, and the revenue did not appeal, thus settling the issue.

2. Assessable Value Determination:
The Commissioner observed:
- No evidence of extra consideration flowing from the processor to the appellants.
- Income tax and sales tax authorities did not challenge the transaction values.
- The reduction in price post-EOU conversion is insufficient to establish undervaluation.
- No comparative prices of similar goods are available.
- The DTA unit cleared similar goods to the same processor at a lower price, which was not challenged.

The Commissioner concluded that the transaction value between the assessee and the processor should be accepted as the assessable value. However, the appellate authority noted that the domestic sale price cannot be treated as a price in the course of international trade, as per the decision in Morarjee Brembana Ltd Vs. CCE, Nagpur. The price negotiation was not at arm's length, and the assessable value should be determined using an alternate method, considering the import price of fresh DMF/IPV.

3. Justifiability of Extended Period for Demanding Duty:
The Commissioner relied on revenue neutrality, which was contested by the appellate authority. The appellate authority noted that the responsibility of declaring the correct assessable value lies with the respondents. The non-disclosure of the contract terms and the interlinked nature of transactions amounted to suppression and misdeclaration. The decision in Rathi Steel and Power Ltd. supported the invocation of the extended period due to willful suppression of material facts.

4. Imposability of Penalty:
The Commissioner observed no strong evidence to prove collusion, fraud, or intent to evade duty. However, the appellate authority noted that the respondents' conduct amounted to suppression and misdeclaration, justifying the invocation of the extended period and the imposition of penalties.

Conclusion:
The appellate authority set aside the impugned order and remanded the matter to the adjudicating authority for re-determination of the assessable value, considering the arguments of the respondents and allowing them to present actual transaction data. The cross-objection was also disposed of.