2016 (12) TMI 775 - AT - Central Excise

Valuation - There is no dispute by the appellant that the transactions made by it during the impugned period were with its related party. This attracted section 4(1)(b) of the Central Excise Act, 1944, read with Section 4(3)(b) thereof. For such reason, Rule 9 of the Central Excise (Valuation) Rules 2000, was applied - Rule 9 requires that the value of related party transactions shall be determined in the manner prescribed by that Rule, which requires that reasonable means consistent with the principles and general provisions of valuation rules read with section 4(1) of the Central Excise Act, 1944 is to be followed. Held that - In view of the application of Rule 9, the adjudicating authority has to re-determine the value of the related party transactions in accordance with law prescribed by Rule 4 to 7 of the valuation Rules. Appellant is entitled to know the methodology sought to be adopted by the adjudicating authority to lead its defence - It is expected that the authority shall issue notice to the appellant within three months of receipt of this order and hear the appellant on merits. Granting reasonable opportunity of hearing to the appellant, he shall consider the defence plea and pass a reasoned and speaking order within three months of the last date of hearing. He shall expressly record in his order that the rule he applies for valuation is consistent with the principles of law laid down in the valuation Rules. Appeal allowed by way of remand.

Summary

Issues:
1. Application of Rule 9 of the Central Excise (Valuation) Rules 2000 to related party transactions.
2. Requirement for the adjudicating authority to re-determine the value of related party transactions.
3. The authority's obligation to issue notice, hear the appellant, and pass a reasoned order.
4. Addressing quantification errors in the impugned order.

Analysis:
The judgment dealt with the application of Rule 9 of the Central Excise (Valuation) Rules 2000 to related party transactions under section 4 of the Central Excise Act, 1944. It was acknowledged that the transactions in question were with a related party, triggering the application of Rule 9. The rule stipulates that the value of such goods shall be the normal transaction value at which they are sold by the related person at the time of removal to buyers, not being related persons. Furthermore, Rule 9 mandates that the value of related party transactions should be determined in a manner consistent with the principles and general provisions of valuation rules and the Act.

The judgment emphasized that the adjudicating authority must re-determine the value of related party transactions in accordance with the law prescribed by Rules 4 to 7 of the valuation Rules. The appellant was entitled to be informed of the methodology to be adopted by the authority to present its defense effectively. The authority was directed to issue a notice to the appellant within three months, provide a reasonable opportunity for a hearing, consider the defense plea, and pass a reasoned order within three months of the last date of hearing. It was crucial for the authority to explicitly state in the order the rule applied for valuation and its consistency with the principles of law laid down in the valuation Rules.

Regarding quantification errors raised by the appellant in the impugned order, the judgment clarified that any discrepancies pointed out should be examined by the adjudicating authority during the readjudication process. Ultimately, the appeal was allowed by way of remand, indicating a decision to send the case back to the lower authority for further consideration and action in line with the directions provided in the judgment.