2018 (7) TMI 766 - AT - Central Excise

Valuation - enhancement of value - related party transaction - Held that - The bulk of the clearances are exported and therefore does not provide comparable transaction value for ascertaining undervaluation in clearances to M/s Ornet Dyestuff Industries - No justification has been adduced in the show cause notice for enhancement of the value and, consequently, the demand by the jurisdictional authorities is not based on law - appeal dismissed - decided against Revenue.

Summary

Issues:
Challenge against order-in-appeal regarding dropping of demand and penalties on goods cleared to related party.

Analysis:
The appeal filed by Revenue challenges the dropping of demand of ?26,37,028 on goods cleared to a related party, M/s Ornet Dyestuff Industries, along with penalties imposed. The jurisdictional authorities sought to adopt the difference between the consideration received by M/s Ornet Dyestuff Industries and paid to the appellant as the assessable value. However, the first appellate authority set aside the demand and penalties, highlighting that the proportion of transfer to M/s Ornet Dyestuff Industries was insignificant compared to other clearances that were exported. It was also noted that the appellant did not sell the product entirely through M/s Ornet Dyestuff Industries, and even though the Directors of the appellant-company were partners in M/s Ornet Dyestuff Industries, both entities were legally distinct.

The Authorized Representative relied on a circular from the Central Board of Excise & Customs prescribing the manner of determining assessable value for clearances to related persons. Upon reviewing the records and submissions, the Tribunal found that the majority of clearances were exported, making it difficult to ascertain undervaluation in clearances to M/s Ornet Dyestuff Industries using comparable transaction values. The show cause notice lacked justification for enhancing the value, leading to the conclusion that the demand by the jurisdictional authorities was not legally sound. Consequently, the Tribunal dismissed the appeal filed by Revenue, upholding the order-in-appeal that dropped the demand and penalties.