2017 (2) TMI 835 - AT - Central Excise

Valuation - rejection of transaction value - related party transaction - Held that - The various public sector units including OMCs are mandated by the Central Vigilance Commissioner to adopt the open tender procedure for procurement of goods. Such procedure is mandated with the objective of transparency in procurement and the possibility of lowest price discovery by open competition. Since the price of procurement of PIB for supply to BPCL has been decided by such an open tender procedure, it cannot be said that the transaction value has been influenced by the relationship between KRL and BPCL - From the chart submitted by KRL, it is seen that KRL has supplied the same product PIB not only to BPCL but also to other OMCs such as IOCL, HPCL, IBP, etc. During the disputed period, the product has been supplied at the same price to various other OMCs as for BPCL. Appeal allowed - decided in favor of assessee.

Issues: Valuation of Poly Iso Butane (PIB) for excise duty purposes, applicability of Central Excise Valuation Rules, related party transaction, imposition of penalty under Section 11AC

Valuation of PIB and Related Party Transaction:
The case involved a dispute regarding the valuation of Poly Iso Butane (PIB) for excise duty purposes between a manufacturer and a related party, where the manufacturer supplied PIB to a public sector undertaking (PSU) through a competitive bidding process. The manufacturer argued that the transaction value should be accepted as it was determined through a transparent competitive bidding process mandated by the Central Vigilance Commission. They presented evidence showing that prices to various PSUs, including the related party, were comparable or even lower in some instances. The Tribunal held that the transaction value should be accepted as there was no evidence to suggest that the price was not the sole consideration for the sale, and other independent buyers were also offered similar or lower prices during the disputed period.

Application of Central Excise Valuation Rules:
The manufacturer challenged the Commissioner's adoption of Central Excise Valuation Rules in determining the assessable value and demanding differential duty. They argued that the valuation method used exceeded the scope of the show-cause notice, which proposed a different approach. The Tribunal, however, found that since the transaction value was acceptable, there was no need to apply the Central Excise Valuation Rules. Therefore, they did not delve into the detailed arguments raised by the manufacturer regarding the procedure followed in the impugned order.

Imposition of Penalty under Section 11AC:
The Revenue had appealed against the penalty imposed under Section 11AC, arguing that it should have been equal to the duty evaded. The Tribunal, while setting aside the impugned order and allowing the manufacturer's appeal, dismissed the Revenue's appeal, thereby upholding the penalty imposed by the Commissioner. The Tribunal did not find it necessary to discuss the arguments raised on the ground of time bar due to their decision on the valuation issue.

Precedents and Legal References:
The manufacturer relied on various case laws to support their contentions, including judgments such as Aquamall Water Solutions Ltd. vs. CCE, Hyderabad and CCE, Chandigarh vs. Bharti Telecom Ltd. These cases were cited to strengthen the manufacturer's arguments regarding the valuation and related party transaction issues.

Conclusion:
Ultimately, the Tribunal ruled in favor of the manufacturer, stating that the transaction value should be accepted for the disputed period and set aside the impugned order. The appeal filed by the manufacturer was allowed, while the Revenue's appeal was dismissed. This decision highlighted the importance of transparent competitive bidding processes in determining transaction values and emphasized the need for evidence to support claims of preferential pricing in related party transactions.

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