2017 (2) TMI 364 - AT - Central Excise

Valuation - sale price charged to oil marketing companies - Section 4(1)(b) of the Central Excise Act 1944 read with provisions of Section 4(3)(b) - related party transaction or not? - Held that - there is nothing on record to establish that the marketing companies whether in any way related to the appellant satisfying any of the elements of Section 4(3)(b) of the Central Excise Act 1944 - In absence of any evidence to show that the buyer and seller were mutually interested to make gain at the cost of Revenue undervaluation of clearances is inconceivable - appeal allowed - decided in favor of appellant.

Summary

Issues: Valuation of goods under Section 4(1)(b) of the Central Excise Act, 1944 for sales to oil marketing companies; Allegation of undervaluation and inter-connection between parties; Applicability of Section 4(3)(b) of the Central Excise Act, 1944; Justification for adopting prices charged to normal buyers for sales to marketing companies; Mutuality of interest between parties in valuation process.

Valuation of Goods for Sales to Oil Marketing Companies:
The appellant contended that the sale price charged to oil marketing companies did not satisfy the requirements of Section 4(1)(b) of the Central Excise Act, 1944. The appellant argued that there was no evidence to establish any relationship between the parties as an inter-connected undertaking, relative, buyer, or distributor. Without such a relationship being proven, the valuation of goods under Section 4(1)(b) would not be applicable.

Allegation of Undervaluation and Inter-Connection:
The Revenue's contention was that prices charged to normal buyers should be adopted for sales to marketing companies since the price charged to the latter was lower. The Revenue claimed that there was a connection between the parties and that the depletion of assessable value prejudiced the Revenue. However, the order was deemed unsustainable due to the lack of justification from the appellant and the absence of evidence establishing a relationship between the parties.

Applicability of Section 4(3)(b) and Mutuality of Interest:
The appellant argued that the adjudication order went beyond the scope of the show cause notice by alleging that the parties were related persons based on mutuality of interest. However, there was nothing on record to prove that the marketing companies were related to the appellant as per the elements of Section 4(3)(b) of the Central Excise Act, 1944. Therefore, the law relating to Section 4(1)(b) was deemed inapplicable in the absence of evidence of any relationship between the parties.

Justification for Adopting Prices Charged to Normal Buyers:
The fundamental principle of valuation was highlighted, emphasizing that clearance at the point of sale and at the point of time were crucial criteria. The adjudicating authority failed to provide any material showing discriminatory pricing at the same time and point of sale. Without evidence of mutual interest between the buyer and seller to gain at the cost of Revenue, undervaluation of clearances was deemed inconceivable, leading to the conclusion that the order of the authority below was unsustainable, resulting in the appeal being allowed.