2006 (7) TMI 44 - AT - Central Excise

Central Excise Valuation Goods sold to related person for captive consumption - Assessable value of goods sold to related person to be determined under Rule 11 on the basis of cost construction method prescribed under Rule 8 Penalty imposed on the assessee under Rule 25 on the ground of violation of Rules 4 and 6

Summary

Issues:
Valuation of product "Epichlorohydrin" supplied to a related company, applicability of Central Excise Valuation Rules, imposition of duty, penalty, and interest.

Valuation Dispute:
The dispute centered around the valuation of "Epichlorohydrin" (ECH) supplied by the assessee to a Joint Venture Company, which later saw a constitutional change. The Department questioned the valuation method post-constitutional change, alleging the parties were "related persons." The Department raised differential duty demands based on cost of production. The Tribunal found the assessee and the Joint Venture Company to be "related" under Section 4(3)(b)(iv) of the Central Excise Act. It held that Section 4(1)(b) would govern valuation, rejecting the applicability of Rules 8, 9, and 10, and directed valuation under Rule 11.

Commissioner's Decision:
The Commissioner confirmed a duty demand of over Rs. 4.4 crores against the assessee, imposed a penalty of Rs. 50,000 under Rule 25 of the Central Excise Rules, and demanded interest under Section 11AB. The assessee challenged this decision, arguing against the adoption of the cost of production as the basis for valuation and urging acceptance of the sale price to the Joint Venture Company as the assessable value under Rule 11.

Tribunal's Analysis:
The Tribunal noted that the Commissioner's valuation method using the Cost Construction Method under Rule 8 was within the scope of Rule 11. It emphasized that Rule 11 required a reasonable means consistent with the Act's provisions. The Tribunal found the valuation correctly done pursuant to its remand order, as no alternative method was suggested by the assessee. The challenge against the assessment was rejected, upholding the duty demand.

Penalty and Interest:
Regarding the penalty, the Tribunal found violations of Rules 4 and 6 not established, as the goods were correctly assessed and duty paid. The penalty under Rule 25 was set aside, but the demand for interest under Section 11AB was upheld. The appeal was allowed to the extent of setting aside the penalty, modifying the impugned order accordingly.

In conclusion, the Tribunal upheld the duty demand but set aside the penalty imposed by the Commissioner, while affirming the interest demand. The decision was pronounced on 11.07.2006.