2017 (6) TMI 807 - AT - Central Excise

Valuation - Section 4(1)(b) of the Central Excise Act, 1944 - The entire clearance was made to Pallavaram Unit. About 98% of the goods so cleared are consumed by the Pallavaram Unit for manufacture of various final products. 2% of the same are sold by Pallavaram unit as spares at a higher rate to various customers? - Held that - no mens ria can be attached to the Appellants in respect of the said action by their Pallavaram Unit - the submission of the Appellant that the Pallavaram Unit while captively consuming in production 98% of the pumps supplied by the Appellant had sold the impugned items as replacement spares meet certain emergency requirements and had paid duty in respect of such removals on their selling price should have been positively taken into consideration by the Learned Adjudicating Authority, which has not been done - appeal dismissed - decided against Revenue.

Issues: Assessable value calculation based on price declarations filed by different units, adoption of comparable prices for valuation, duty demand confirmation, gross undervaluation allegation, rejection of differential duty payment claim, captively consumed goods, sale of goods as spares at higher prices.

Assessable Value Calculation: The case involved a dispute over the assessable value calculation for goods manufactured and cleared by the appellants to their Pallavaram Unit. The department contended that comparable prices should be adopted based on the price declarations filed by the Pallavaram unit. Show cause notices were issued, leading to duty demand confirmation by the original authority, which was later set aside by the Commissioner (Appeals). The key issue was whether the assessable value should be based on the prices declared by the appellants or the higher rate at which goods were sold by the Pallavaram Unit as spares.

Gross Undervaluation Allegation: The appellant argued that there was a significant difference between the actual selling price of goods sold as spares by the Pallavaram Unit and the declared price adopted by the appellants. The appellant contended that the method of valuation based on cost construction should only be used when prices of comparable goods are not available. The department alleged gross undervaluation and insisted on adopting the prices at which goods were sold as spares. The Commissioner (Appeals) accepted the appellant's argument that the goods sold as spares formed only a small percentage and could not be considered as comparable prices.

Captively Consumed Goods: It was established that about 98% of the goods cleared by the appellants were consumed by the Pallavaram Unit for manufacturing final products, while only 2% were sold as spares at a higher rate. The department argued that the prices of goods sold as spares should be adopted for the entire clearance, including the captively consumed goods. However, the Tribunal noted that the show cause notice was issued against the Pondicherry unit and not the Pallavaram unit. The Tribunal agreed with the Commissioner (Appeals) that the prices of goods sold as spares should not be applied to the captively consumed goods.

Differential Duty Payment Rejection: The appellant's claim for rejecting the differential duty payment based on the prices at which goods were sold as spares by the Pallavaram Unit was not accepted. The Tribunal concurred with the Commissioner (Appeals) that there was no basis to attach mens rea to the appellants for the actions of the Pallavaram Unit in selling goods as replacement spares. The Tribunal emphasized that only a small quantity, 2% of the goods supplied by the appellants, was sold as replacement spares, and the majority was captively consumed for production.

In conclusion, the Tribunal dismissed the appeal, upholding the decision of the Commissioner (Appeals) regarding the assessable value calculation and rejecting the department's claim for differential duty payment based on the prices of goods sold as spares by the Pallavaram Unit.

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