2019 (3) TMI 788 - AT - Central Excise

Valuation - related party transaction - clearance of goods to sister concerns - Section 4 of the Central Excise Act, 1944 - Held that - If the transactions are to related parties, in terms of Section 4 of the Central Excise Act, the transaction value can be rejected and there is no requirement of flow back directly or indirectly. In such cases, the transaction value can be rejected and the value can be determined in terms of Central Excise Valuation Rules following Rules 4 through 11 - in the instant case, the extent of alleged undervaluation varied from invoice to invoice and the complete picture can only be found if duty paid with respect to each clearance to the related buyer and the transaction of unrelated buyer used for comparison is available - the SCN is vague inasmuch as the basis for alleging the undervaluation and calculating the extent of differential duty payable are not clear. Validity of subsequent SCN - Held that - There is nothing on record to show as to why a highest transaction value should form the basis for clearances to related parties. Thus, in both cases, the show cause notices do not indicate as to how the differential duty was worked out, invoice wise and which invoice value was used for comparison. There is a gap of 6 months between the two invoices. Further, the annexure to this show cause notice which gives the breakup of the differential duty of ₹ 1,04,221/- demanded for the period 2009-10 shows that there was no clearance during April, 2009 and from August, 2009 onwards. There were clearances only in May, June and July, 2009. The differential duty has been worked out with respect to these clearances to related parties compared with the highest transaction value (presumably during the month). There is nothing on record to show as to why a highest transaction value should form the basis for clearances to related parties - There is nothing on record to show as to why a highest transaction value should form the basis for clearances to related parties. Thus, in both cases, the SCNs do not indicate as to how the differential duty was worked out, invoice wise and which invoice value was used for comparison. The impugned order is set aside on the ground that SCN is vague - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Valuation of goods cleared to related parties at lower prices.
2. Rejection of transaction values and determination of value under Central Excise Valuation Rules.
3. Demand of short paid duty, interest, and penalties.
4. Arguments regarding rejection of transaction value, limitation, and basis of demands.

Analysis:
1. The appeals were filed against an Order-in-Original dated 06.07.2011 concerning the appellant, a steel ingots manufacturer, clearing goods to related parties at lower prices. The department issued a show cause notice proposing to reject transaction values and determine the value of goods cleared to related parties under Central Excise Valuation Rules. The demands included short paid duty, interest, and penalties, leading to the appeals.

2. The learned Commissioner confirmed the demands in the impugned order-in-original. The appellant contested the demand, arguing that the rejection of transaction value due to being interconnected undertakings was incorrect. They also claimed the demand was time-barred and based on incorrect reports. The departmental representative supported the lower authority's findings.

3. The Tribunal considered both sides' arguments and records. It noted that if transactions are with related parties, transaction values can be rejected under the Central Excise Act. However, the demand was based on a report collected behind the appellant's back, making the show cause notice vague and unclear. The extent of undervaluation varied, and the demands lacked clarity in calculating the differential duty payable.

4. The subsequent show cause notice was also found lacking clarity in determining the extent of undervaluation. The Tribunal observed gaps between invoices, inconsistencies in the differential duty calculations, and the absence of clear basis for comparison. The show cause notices did not specify how the differential duty was calculated invoice-wise, leading to the impugned order being set aside on grounds of vagueness and lack of clarity.

In conclusion, the appeals were allowed, and the impugned order was set aside due to the vague and unclear nature of the show cause notices and the basis for demanding the differential duty.