2018 (10) TMI 264 - AT - Central Excise

Valuation - Job-work - processing of Grey Fabrics manufactured and supplied by Ms GSML - Related person or not? - third proviso to Section 4(1)(a) of Central Excise Act - demand of differential duties on the value of difference between sale price to the related person and the value adopted by Appellant at the time of clearance of goods. Held that - It appears that the OIA dated 18.09.2003, in as much as it relates to the Appellant has attained finality and the findings made therein cannot be interfered with. The Revenue by not filing an appeal against the said OIA dated 18.09.2003 against the Appellant has not contested the findings made by the Commissioner (Appeals) and hence the demand of ₹ 24,154,40/- against the Appellant cannot be allowed to be sustained - the Revenue has no ground to make demand of aforesaid amount against the Appellant. Demand of ₹ 6031775.30 raised against the Appellant vide Show Cause Notice dated 12.05.1998 - The Revenue s case is that the Appellant and M/s SPL are related persons and has under-valued the goods manufactured by them and supplied to each other by paying excise duty on cost construction method, i.e. by adding landed cost of raw material and job work charges - Held that - It is not a disputed fact that the Appellant and M/s SPL have sold the similar excisable goods to other independent buyers. In such case, when the other buyers of the similar goods are available, the assessable value cannot be determined in terms of Section 4(1)(a) as the same is applicable only when the goods are sold only through related persons, which is not the case here. Even if the demands are to be made the same should have been computed by taking assessable value of the goods to the nearest ascertainable equivalent value thereof determined in such manner, as may be prescribed - Since there is no major difference between the goods sold to independent buyers and allegedly related person M/s SPL and the prices are comparable after taking into consideration the discount and other expenses, we do not find any reason to demand duty from the Appellant. The discounts by the Appellant to M/s SPL are normal business transaction as has been upheld by the Tribunal in various judgments in the case of CCE Vs. Indian Turpentine Resin Co. Ltd 1987 (2) TMI 334 - CEGAT, NEW DELHI - the demands raised against the Appellant does not sustain and are set aside. Time Limitation - Held that - In the case of Show Cause Notice dt 12.05.1998, the period involved is April 1993 to March 1998 and the Appellants were under bona-fide belief that in case of job work, the concept of related persons is not applicable and the value has to be determined as per Hon ble Supreme Court judgment in the case of Ujagar Prints 1989 (1) TMI 124 - SUPREME COURT OF INDIA . Thus, the Appellant had bona-fide belief for valuation of goods manufactured under job work. The demands beyond normal period of limitation are thus held to be patently time barred. Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Determination of "related person" status under Section 4(1)(a) of the Central Excise Act.
2. Validity of the demand for differential duties.
3. Applicability of the cost construction method for assessable value.
4. Finality of previous orders and appeals.
5. Time-barred demands and penalties.

Detailed Analysis:

1. Determination of "Related Person" Status:
The primary issue was whether M/s Garden Silk Mills Ltd (GSML) and M/s Special Prints Ltd (SPL) could be considered "related persons" under the third proviso to Section 4(1)(a) of the Central Excise Act. The adjudicating authority confirmed the existence of a relationship, which led to the demand for differential duties. However, the Tribunal had previously set aside this determination, stating that in the case of job work, the concept of related persons is not applicable.

2. Validity of the Demand for Differential Duties:
The demands in question were ?60,31,775.30 and ?24,15,440/-. The Tribunal had earlier set aside the demands, but the matter was remanded back by the Supreme Court for determining the relationship. The adjudicating authority confirmed the demands again, but the Tribunal found that the adjudicating authority failed to consider the Tribunal's directions and previous set-aside orders, rendering the 2007 adjudication order ineffective.

3. Applicability of the Cost Construction Method for Assessable Value:
The Revenue argued that the assessable value should be based on the resale price by the related person rather than the cost construction method. The Tribunal found that the prices charged by GSML to SPL were comparable to those charged to independent buyers, indicating no significant undervaluation. The Tribunal cited judgments supporting that the assessable value should be based on actual transactions with independent buyers when available.

4. Finality of Previous Orders and Appeals:
The Tribunal noted that the Order-in-Appeal dated 18.09.2003, which set aside the demand of ?24,15,440/- against GSML, had attained finality as the Revenue did not file an appeal against GSML. The Tribunal emphasized that the findings in the 2003 order could not be interfered with, and the demand against GSML could not be sustained.

5. Time-Barred Demands and Penalties:
The Tribunal found that the demands were time-barred, as the period involved was April 1993 to March 1998, and GSML had a bona fide belief based on the Supreme Court's judgment in Ujagar Prints that the concept of related persons was not applicable in job work cases. The Tribunal also noted that the correct valuation method only became clear with the Supreme Court's judgment in CCE Vs S. Kumars Ltd in 2005.

Conclusion:
The Tribunal set aside the demands against GSML and SPL, as well as the penalties and confiscations against GSML's director, Shri Soli Bhesania, and SPL's director, Shri Bipin Modi. The Tribunal emphasized that the adjudicating authority had repeatedly disregarded the Tribunal's directions, leading to the conclusion that the demands and penalties were not sustainable. All appeals were allowed with consequential reliefs.