2019 (7) TMI 163 - AT - Central Excise

Valuation - Extended period of limitation - related party transaction - inter-connected undertakings - it was alleged that M/s. Khoday India Ltd. and M/s. Khoday RCA Industries are related to the appellant - valuation to be done in terms of Section 4 of Central Excise Act, 1944 or in accordance with the provisions of proviso to Rule 9 read with Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000? - HELD THAT - The appellant has been clearing the goods to its sister concerns as well as to 3rd party buyers. Further the stand of the appellant is that he has rightly followed the valuation rules. Further there were sales to other buyers in substantial proportions. Further the appellants have given detailed information regarding the clearances to the sister concerns as well as to 3rd party independent buyers but the Department did not examine those sales to the independent buyers and has only taken the clearances to their sister concern and confirmed the demand. We further note that the appellant has attached the audit report of two audits conducted in June 2006 and November 2006 wherein the audit party did not raise any objections with regard to this issue of valuation and clearances made to the sister concern. Further we find that the Department has not brought any evidence on record to show that there was suppression of facts with intent to evade payment of duty. Extended period of limitation - HELD THAT - In the present case, invocation of extended period of limitation is not sustainable because the Department was aware about the clearances made by the appellant in June 2002 itself but they issued show-cause notice only in 2010 after 8 years which according to us is completely barred by limitation of time. Since the entire demand is barred by limitation, we do not think it appropriate to give findings on merit. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Valuation of goods for Central Excise duty, Allegations of undervaluation and evasion of duty, Related party transactions, Imposition of penalties, Limitation period for issuing show-cause notice.

Analysis:
Valuation of goods: The case involved the valuation of glass bottles for alcoholic drinks cleared by the appellants to related parties and third-party buyers. The Commissioner alleged that the valuation should have been based on the CAS-4 Certificate under Central Excise Valuation Rules, which the appellants did not follow. The appellants argued that they followed the correct valuation rules under Section 4(1)(b) of the Central Excise Act, providing detailed information on clearances to related and third-party buyers. They contended that Rule 9 was not applicable when selling to both related and independent buyers, citing relevant case law to support their position.

Allegations of undervaluation and evasion of duty: The Department accused the appellants of misleading them to evade duty by not adopting the correct valuation rules, resulting in undervaluation and evasion of Central Excise duty. Specific allegations were made against the Vice President of the appellant company for providing misleading statements, leading to undervaluation and evasion of duty.

Related party transactions: The case highlighted transactions between the appellants and related entities, raising concerns about the adoption of appropriate valuation rules for such transactions. The Department asserted that the appellants did not follow the Valuation Rule while clearing goods to related parties, leading to the confirmation of the demand by the Commissioner.

Imposition of penalties: The Commissioner confirmed the demand of Central Excise duty along with interest and imposed penalties under relevant sections of the Central Excise Act. Additionally, a penalty was imposed on the Vice President of the appellant company under Rule 26 of the Central Excise Rules, 2002.

Limitation period for issuing show-cause notice: The appellants argued that the entire demand was time-barred, citing the lapse of time from the initial knowledge of the Department about the transactions with related parties to the issuance of the show-cause notice. They relied on case law to support their contention that the extended period of limitation should not apply without evidence of willful misdeclaration or suppression of facts.

Judgment: The Tribunal found that the Department was aware of the transactions with related parties since 2002 but issued the show-cause notice in 2010, after an 8-year delay. As the demand was barred by limitation, the Tribunal set aside the impugned order based on limitation alone. Consequently, the penalties on the appellants and the Vice President were dropped. The consistent legal principle established by the Apex Court regarding the invocation of the extended period of limitation was crucial in the Tribunal's decision to allow both appeals.