2023 (11) TMI 254 - AT - Central Excise

Valuation of excisable goods - sale by assessee to buyer who is not related - price not being consideration for the sale - section 4(1)(a) of Central Excise Act, 1944 - HELD THAT - None of the mechanisms in Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 that relate to sale may be invoked in the present dispute thus ruling out rule 6 as well as rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 leaving only rule 8 and rule 11 among those that may be. There are no doubt that the decision of the Hon ble Supreme Court in COMMISSIONER OF CENTRAL EXCISE SERVICE TAX, ROHTAK VERSUS MERINO PANEL PRODUCT LTD. 2022 (12) TMI 453 - SUPREME COURT has held that exercise of statutory power is not vitiated by any error in citing the source of that power. However, the proposition of Learned Authorized Representative fails to find advancement with the requirement of sale appended to the rule urged by him to be invoked. Furthermore, from a perusal of the judgement, it would appear that the privilege of deviating from facts in the notice is not extended even if the provisions may be; principles of natural justice dictates that the facts, as detailed in the show cause notice, alone may be utilized for detrimental consequence to assessee even if the provision that applies had not been invoked in the notice. Within that restricted framework, it is permissible, in the light of the decision in re Merino Panel Product Ltd, to examine the applicability of the two remaining rules available. The appellant has also failed to establish that rule 8 has been conformed to even while contending that formulation in the decision of the Hon ble Supreme Court, pertaining to a time when these rules did not exist, had been. It is necessary to determine the assessable value for the purpose of discharge of duty liability in accordance with section 4 of Central Excise Act, 1944 and the rules framed thereunder. The appellant must, needless to state, be accorded opportunity to contest facts and inferences that may be to their detriment. To enable such, the impugned order is set aside and matter remanded to the original authority for fresh determination as to the correct duty liability - appeal allowed by way of remand.

Summary

Issues Involved:
1. Recovery of short-levied duty.
2. Applicability of valuation rules.
3. Determination of assessable value.
4. Relationship between entities and its impact on valuation.

Summary:

1. Recovery of short-levied duty:
The dispute involves two entities, M/s Kilitch Co (Pharma) Ltd and M/s Kilitch Drugs (India) Ltd, both held liable for the same set of goods, which contradicts the Central Excise Act, 1944. The lower authorities' proceedings were flawed due to their narrow focus on valuation rules, leading to the setting aside of the demand.

2. Applicability of valuation rules:
The appellants argued compliance with the Supreme Court's formulation in Ujagar Prints v. Union of India, which was yet to be tested against the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The show cause notice's mechanism was inappropriate, necessitating identification of the correct valuation rule, with the Learned Authorized Representative pressing for rule 9, which was not substantiated by evidence.

3. Determination of assessable value:
The tax authorities sought to enhance the assessable value based on the cost of free supplies received and processing charges, which included profit margins. The first appellate authority concluded that various expenses, including marketing and technical know-how, were not included in the assessable value as required under section 4(1)(b) of the Central Excise Act, 1944, read with rule 6 of the Central Excise Valuation Rules, 2000.

4. Relationship between entities and its impact on valuation:
The contention that the formula in Ujagar Prints applied was challenged by the Supreme Court's decision in Commissioner of Central Excise, Indore v. S Kumars Ltd, which emphasized the need to consider relationships between entities. The original authority discarded the appellant's reliance on a circular, concluding that the selling prices of M/s Kilitch Drugs (India) Ltd should form the assessable value.

Conclusion:
The Tribunal found that the lower authorities failed to establish the correct duty liability and the relationship between the entities. The matter was remanded to the original authority for fresh determination, excluding M/s Kilitch Drugs (India) Ltd from liability under section 11A of the Central Excise Act, 1944. Appeals were allowed by way of remand.