2013 (4) TMI 185 - AT - Central Excise

Undervaluation of goods - The case of Revenue is that the two distributors SVA and JKA were fictitious firms and the price at which goods were shown to be sold by these firms should be adopted for valuation of the goods. In the case of sale through consignment agent the argument is that the goods were being sold for the first time only by the consignment agent and the price at which consignment agent sold the goods less admissible deductions should be the assessable value rather than the value adopted for stock transfer pursuant to which demand along with interest and penalties u/s 173Q, 11AC of the Act arise. Held that - The adjudicating authority is directed to verify the calculations if any submitted by the appellants within 30 days and re-calculate the liability to ensure that demand corresponds to the quantity of goods cleared from the factory during the relevant period and based on prices at which goods were billed by SVA and JKA taking the prices of SVA and JKA as cum-duty price. In the price at the premises of consignment agent becomes relevant only from 28-09-96 when the definition of place of removal in section 4 of Central Excise Act was amended. The contention of Revenue is that the goods sold through consignment agent was BHC 50% in drum packing and such goods in the same packing was not being sold at the factory gate. I also find that the Show Cause Notice shows that deduction of freight at the rate of Rs. 250 per Metric ton has been allowed. No argument is raised that this deduction is not fair and the actual freight amount is more. So I do not see any merit in the argument of the appellant in this regard. However if there is any benefit that may accrue due to price of goods in different packages being sold the assesse through consignment agents the appellant may submit worksheet showing such difference to the adjudicating authority which shall also be examined by him for appropriate decision. In the matter of penalty of we do not find any reason to interfere. In the case of penalty under section 11AC for the balance period the penalty is reduced to 25% of the duty liability for that period if such penalty is paid within 30 days of receipt of communication showing correct duty liability. If payments are not made within the period laid down penalty equal to duty evaded will be payable. Thus the appeal is allowed partially to the extent indicated above.

Summary

Issues:
Under-valuation of goods manufactured by the appellant and cleared through distributors and a consignment agent, confirmed demand, penalties imposed under Rule 173Q and section 11AC, defense of separate existence of distributors, calculation of duty based on distributor's sale price, relevance of consignment agent's price post-amendment, verification of calculations, reduction of penalty under section 11AC.

Analysis:
The appeal revolves around the under-valuation of goods by the appellant, M/s Sri Vasavi Pesticides Pvt. Ltd., cleared through distributors and a consignment agent. The Revenue contends that the distributors, M/s Sri Vasai Agencies (SVA) and M/s J.K. Agencies (JKA), were fictitious firms, and the prices at which goods were sold by them should be adopted for valuation. Additionally, for sales through a consignment agent, M/s P.L. Agro Tech (PLAT), the argument is based on the first-time sale by the consignment agent. The confirmed demand against the appellant includes penalties imposed under Rule 173Q and section 11AC of the Act.

The case against the appellant is supported by evidence regarding the operations of SVA, JKA, and PLAT. The facts relied upon in the case of SVA and JKA highlight discrepancies in their operations, including the absence of stock, investments, and separate establishments. The appellant's defense emphasizes the separate existence of SVA and JKA, citing their registration under TNGST/CST and acceptance for sales tax and income tax purposes. However, the tribunal finds that the distributors were established to suppress excise duty payments, evident from the lack of genuine operations and the flow of funds between entities.

Regarding the calculation of duty based on distributor's sale price, the tribunal accepts the appellant's plea to consider the price as cum-duty price and rework the duty liability. The tribunal directs the adjudicating authority to verify calculations and recalculate the liability based on distributor prices. In the case of sales through consignment agents, the relevance of the consignment agent's price post-amendment is discussed, with the tribunal finding no merit in the appellant's arguments.

The tribunal allows the appeal partially, directing the adjudicating authority to comply with the appellant's request for document copies for correct calculations. The penalty under section 11AC is reduced if paid within the specified period, emphasizing the importance of accurate duty liability calculations. The judgment provides a detailed analysis of the issues involved, addressing the under-valuation of goods, defense of distributor's separate existence, calculation of duty, and penalties imposed, ensuring a comprehensive review of the case.