2018 (3) TMI 766 - AT - Central Excise

Valuation - the goods cleared by Unit-I (100% EOU) to Unit-II (DTA) were undervalued - Some goods were cleared clandestinely without payment of duty from Unit-I to Unit-II. Undervaluation - entire basis for rejecting the transaction value at which goods were cleared from appellant to Unit-II is the relationship between them - Held that - Merely because the two units are related persons, the same would not ipso facto be the ground for rejecting the transaction value. Rule 3(3)(a) of the Customs Valuation Rules, 2007 specifically provides that where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price - The comparison of values can only be made in respect of consignments which compares in terms of identity of the goods as well as the quantity of the transaction. Hence, this comparison is not a valid basis for rejecting the transaction value. Clandestine removal - Held that - there is no corroborative evidence on record to substantiate the stand of the Department that the goods reflected in the diary titled as MONARK were clandestinely cleared. The Department also has not carried out investigation regarding the purchase of extra raw material required for manufacture of such additional quantity of Unit-I. During the verification of record at Unit-I and Unit-II, no discrepancies have been noticed in respect of quantity of raw material or finished goods vis-a-vis the statutory documents - the charge of clandestine clearance cannot be upheld only on the basis of the seized private record especially in view of the fact that the statements admitting clandestine clearance of such goods stand retracted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Allegations of undervaluation of goods cleared between two units of the same company.
2. Allegations of clandestine clearance of goods without payment of duty between the same units.

Analysis:

Undervaluation Allegation:
The case involved M/s Autolite India Limited, with one unit being a 100% EOU manufacturing Halogen Bulbs and Capsules, and another unit using these capsules for further manufacture. The Department alleged undervaluation of goods cleared between the units, demanding differential duty. The Tribunal found the Department's valuation method incorrect, as it invoked Rule 7(3) of the Customs Valuation Rules based on the relationship between the units. The Tribunal emphasized that related person clearance does not automatically warrant rejecting transaction value. It cited Rule 3(3)(a) of the Customs Valuation Rules, stating that if the relationship did not influence the price, transaction value should be accepted. The Tribunal ruled that the Department's comparison with imported goods was flawed, as the quantities differed significantly. Without valid reasons, the Tribunal set aside the demand for differential duty due to undervaluation.

Clandestine Clearance Allegation:
Regarding the charge of clandestine clearance, the Department relied on a private note book titled "MONARK" recovered from Unit-II, indicating receipt of goods from Unit-I without proper documentation. Statements from employees were used as evidence, but the General Manager of Unit-I retracted his statement. The Tribunal noted the lack of corroborative evidence and discrepancies in the Department's case. No investigation into the procurement of extra raw materials was conducted, and no discrepancies were found during record verification. Consequently, the Tribunal held that the charge of clandestine clearance was not substantiated solely based on the seized private record and retracted statements. Thus, the Tribunal set aside the impugned order and allowed the appeals.

This judgment highlights the importance of valid reasons for rejecting transaction value and the necessity of corroborative evidence in allegations of clandestine activities. The Tribunal's detailed analysis ensures a fair adjudication process based on legal principles and evidentiary standards.

This comprehensive analysis of the legal judgment covers the issues of undervaluation and clandestine clearance, providing a detailed breakdown of the Tribunal's reasoning and decision-making process.