2015 (5) TMI 332 - AT - Central Excise

Undervaluation of goods - Mutuality of interest - interconnected undertaking - Burden of proof - Held that - It is established fact on record that partners of the appellant are the directors of the buyer company i.e. NGA Steels Pvt. Ltd. But to prove mutuality of interest, causing prejudice to the interest of revenue, the essential ingredient of influence over price of the appellant is absent. Show-cause notice does not speak about the mode of transport resulting in undervaluation. Mere allegation that there was mutuality of interest remained unproved when burden of proof was on Revenue in this regard. - Invoking of Rule 10 of the Valuation Rules on the allegation of interconnected undertaking would have been appreciated had there been material brought on record to show that such an interconnection caused prejudice to Revenue by undervaluation made by the appellant. But, that is also not the case. - Decided in favour of assessee.

Issues: Allegation of undervaluation due to directorship in buyer company, mutuality of interest, undervaluation of goods due to transport cost, evidence provided by CAS4 report, Rule 10 of Valuation Rules.

Allegation of Undervaluation Due to Directorship in Buyer Company:
The case involved a duty demand of &8377; 60,86,596/- on the appellant based on allegations of undervaluation due to the fact that partners of the appellant were directors in the buyer company. The appellant argued that despite supplying 100% of its production to the buyer, there was no undervaluation. The appellant provided evidence showing that their prices were higher compared to other suppliers during the same period. The Tribunal noted that while the directorship existed, there was no evidence of influence over the appellant's pricing by the buyer company, and the burden of proof was on the Revenue to establish mutuality of interest, which they failed to do.

Undervaluation of Goods Due to Transport Cost:
The Revenue contended that undervaluation occurred when the appellant supplied goods to the buyer using their own transport, alleging that the freight cost was not included in the valuation. However, the Tribunal held that the mere mode of transport used did not automatically lead to undervaluation, especially since transport costs are not dutiable. The Revenue failed to provide substantial evidence to support their claim in this regard.

Evidence Provided by CAS4 Report:
The Revenue relied on a CAS4 report to prove undervaluation against the appellant. However, the Tribunal found that the show-cause notice did not specify how the appellant undervalued the goods, making it difficult for the appellant to rebut the report effectively. The Tribunal emphasized the importance of clear allegations in the notice to allow for a proper defense, which was lacking in this case.

Rule 10 of Valuation Rules:
The Revenue invoked Rule 10 of the Valuation Rules based on the allegation of interconnected undertakings causing undervaluation. However, the Tribunal observed that there was a lack of material on record to demonstrate that such interconnection led to prejudice to the Revenue through undervaluation by the appellant. Without concrete evidence of undervaluation resulting from the alleged interconnected undertakings, Rule 10 could not be applied.

In conclusion, the Tribunal allowed all four appeals, highlighting the insufficiency of evidence to establish undervaluation and mutuality of interest, as well as the failure to support the allegations with concrete proof as required by the law.

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