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TMI Blog2020 (8) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of remand passed by the Tribunal, though for completely different reasons, were justified - Hence the appeals are liable to be disposed of, confirming the orders of remand passed by CESTAT, with a clarification on the legal issues so that the Adjudicating Authorities know how to proceed. However, while carrying out the exercise of re adjudication, the Adjudicating Authorities should keep in mind the principles enumerated hereunder: Cases where the period of assessment is prior to 01.07.2000 First ascertain the price at which such goods are ordinarily sold by the assessee to a buyer who is not related to him, in the course of wholesale trade, at the time and place of removal and also find out whether the price is the sole consideration for the sale. If the Adjudicating Authority is able to find this out, he may take such price as the normal price and treat the case as covered by Section 4(1)(a), applying, wherever permissible, the prescriptions contained in the proviso to clause (a) of sub -section (1) of Section 4. If Value is not ascertainable, then follow the Rules. The phrase for any other reason appearing in Section 4(1) (b) would include cases where the price charged in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 35L(1)(b) of the Central Excise Act, 1944 (hereinafter referred to as "the Act"), questioning the correctness of the orders passed by Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore (CESTAT) in seven different batches of cases, but arising out of similar facts and raising identical questions. 2. For the purpose of convenience, the facts out of which the first batch of cases in Civil Appeal Nos. 7240-7248 of 2009 (which we may call the lead case) arise, are recorded in detail. The facts in the other batches of cases are brought on record in brief and to the extent that they have some distinguishing features. As a matter of fact, the batch of cases relating to the assessee by name, M/s. CERA Boards and Doors (the respondents in Civil Appeal Nos. 7240-7248 of 2009), was decided first by CESTAT. Thereafter, CESTAT decided the other 6 batches of cases on the basis of the ratio laid down in CERA Boards. This is why Civil Appeal Nos. 7240-7248 of 2009 are taken as the lead case. Facts in Civil Appeal Nos. 7240-7248 of 2009 3. M/s. CERA Boards and Doors, Kannur, which is the assessee concerned in this batch of cases, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) computer print outs containing "overdue bills" statements, (iii) the price lists containing the actual rate per square feet of plywood/block boards of different thicknesses, (iv) certain slips containing the details of the sales made during the relevant period, (v) copies of statements of expenses, (vi) copies of periodical cash statements and the statement of cash sent through one Mr. Xavier, (vii) collection books, (viii) a red colour notebook containing partywise details of invoiced amounts and the amounts payable in cash, (ix) a notebook containing details of transactions with various dealers, (x) a green colour notebook and two receipt books, (xi) the diary of the Sales Executive, Mr. Dayanandan, and certain other items. 9. Apart from the above documents seized during the searches, the show cause notices also relied upon the statements recorded from (i) Mr. Dayanandan (Sales Executive), (ii) Mr. Cyril D'Souza (Sales Executive), (iii) Mr. M. P. Narayanan, (iv) Mr. K. S. Harris (Managing Partner), (v) Mr. K. S. Mohammad Ali (brother of K. S. Harris), (vi) Mr. Gajanan K. Kadolkar (one of the purchasers), (vii) Mr. K. S. Abdul Bashee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal hearings, allowed the crossexamination of witnesses, perused the case law relied upon by the assessee and then passed an Order-in-Original No. 14/2006 dated 09.05.2006. By this Order-in-Original, the Commissioner (i) confirmed the demand of duty in a sum of ₹ 79,21,663 from the assessee under the proviso to Section 11A(1) of the Act, (ii) levied interest at the appropriate rate for the belated payment of the duty under Section 11AB of the Act, (iii) imposed a penalty of ₹ 79,21,663 under Section 11AC read with Rule 25, (iv) directed the confiscation of goods seized from the assessee, valued at ₹ 12,80,926 with an option to redeem the same upon payment of fine of ₹ 25,000, (v) directed the confiscation of goods seized from five different dealers, however, with an option to redeem the same upon payment of fine amounts ranging from ₹ 2,500 to ₹ 15,000, (vi) imposed a penalty of ₹ 5,000 each, upon the assessee and five of the dealers and (vii) imposed a penalty of ₹ 5,000 each on the Managing Partner of the assessee and its Manager at the Bangalore depot. 16. It is relevant to note that the proposal as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ager of the Bangalore depot of the assessee, one appeal each was filed by five dealers from whom seizure of material was effected and one appeal was filed by the Commissioner himself. Thus, there were 9 appeals, 8 of which were at the instance of assessee, its Managing Partner, its Manager, and the five dealers, and the last of which was by the Commissioner of Central Excise. 18. While the 8 appeals filed at the instance of the assessee and its coterie were directed against the demand for differential duty, interest, penalty and confiscation, with an option of redemption, the appeal filed by the Commissioner was on the ground that as against the proposal for a differential duty of ₹ 4,29,01,384 made in the show cause notice, the adjudicating authority confirmed the demand only to the extent of ₹ 79,21,663. 19. By Final Order Nos. 245-253/2009 dated 24.03.2009, the CESTAT (i) rejected all the five appeals filed by the five dealers challenging the orders of confiscation of the seized goods with the option for redemption and (ii) allowed the three appeals filed respectively by the assessee, its Managing Partner and its Manager, challenging the demand for differentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods cleared by them from their factory, resulting in evasion of Central Excise duty to the tune of ₹ 2,72,03,232 during the period between 01.12.1998 and 17.10.2002. 24. Show cause notices (i) dated 08.04.2003, for confiscation of the material and cash, imposition of penalty, etc., and (ii) dated 22.12.2003, demanding differential duty of ₹ 2,72,03,232 under Section 11A(1) of the Act, interest, penalty, etc. were issued. 25. After the receipt of the replies from the assessee to the two show cause notices, the Commissioner of Central Excise and Customs, Calicut, held an enquiry and passed an Order-in-Original No. 10/2006 dated 27.03.2006, by which, he (i) confirmed the demand of duty to the extent of ₹ 1,50,23,911 from the assessee under the proviso to Section 11A(1) of the Act, (ii) levied interest at the appropriate rate for the belated payment of duty under Section 11AB of the Act, (iii) imposed a penalty of ₹ 1,50,23,911 under Section 11AC read with Rule 25, (iv) directed the confiscation of goods seized from the assessee, valued at ₹ 14,24,286 with an option to redeem the same upon payment of fine of ₹ 1,50,000, (v) directed the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.07.2000, the Adjudicating Authority should have adopted the normal pricing method; III. That for the clearances made after 01.07.2000, the transaction value has to be determined in respect of each transaction and the differential duty confined only to the evidences available on record; IV. That the stand of the Revenue that 70% should be added to the invoice value uniformly in respect of all clearances, cannot be accepted. 30. Aggrieved by the said order, the Revenue has come up with this batch of six appeals, Civil Appeal Nos. 8615-8620 of 2009. Facts in Civil Appeal Nos. 2236-2253 of 2011 31. Searches were conducted by the officers of the Directorate General of Anti-Evasion (Central Excise) on 23.09.1997, simultaneously at the premises of eleven plywood manufacturing units located at Kumbla, Kasargod District, on the basis of intelligence reports that they were indulging in undervaluation and evading payment of central excise duty. 32. After recovering incriminating evidence and recording the statements of proprietors/partners, employees and dealers of the units in question, two show cause notices, one dated 23.03.1998 and another dated 02.08.1999 were is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (1) the currency of ₹ 20,66,940 and the demand drafts and cheques seized from Sh. Mohammed Arabi was directed to be released and (2) the proceedings envisaged in the twelve show cause notices on account of clubbing the value of clearances of all the units, were dropped. 37. The Adjudicating Authority ruled that there was sufficient evidence to prove undervaluation. However, he took the view that since the units were registered separately with the Departments of Industries, Sales Tax and the Income Tax, their clearances could not be clubbed to deny them the benefit of Small Scale Industries exemption under Notification No. 1/93. 38. As against the aforesaid Order-in-Original dated 30.06.2005, 17 appeals were filed by the eight units and their partners and proprietors. These 17 appeals in Central Excise Appeals Nos. E/1145-1161/2005 were disposed of by CESTAT, by a common order dated 01.04.2010. 39. In and by the said order, the CESTAT came to the following conclusions: I. That the finding of the Adjudicating Authority about undervaluation and clandestine clearance of goods resulting in evasion of duty, was unassailable; II. That the units in question op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tune of ₹ 7,51,53,570 during the period from 01.07.2000 to 28.08.2003. 42. A show cause notice dated 21.07.2005 was issued, demanding differential duty of ₹ 7,51,53,570 under Section 11A(1) of the Central Excise Act, 1944, interest, penalty, etc. 43. After the receipt of the reply from the assessee, the Commissioner of Central Excise, Mysore held an enquiry and passed an Order-in-Original No. 06/CCE/2006 dated 05.10.2006. By this Order-in-Original, the Commissioner (i) confirmed the demand of duty in a sum of ₹ 81,01,637 from the assessee under the proviso to Section 11A(1) of the Act, (ii) directed appropriation of ₹ 16,00,000 voluntarily paid by the assessee, (iii) levied interest at the appropriate rate for the belated payment of the duty under Section 11AB of the Act, (iv) imposed a penalty of ₹ 81,01,637 under Section 11AC read with Rule 25 and (v) imposed a penalty of ₹ 10,00,000 on Sh. Shyam Daga, the Resident Director of the assessee. 44. The adjudicating authority held that undervaluation was established only (i) to the extent of ₹ 3,79,452 in respect of the invoices raised by the factory at Mysore, (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of Sh. K. Sridhar and Sh. Umeedmal Jain who had admitted to undervaluation and collecting differential amounts in cash; II. That the demand of duty of ₹ 4748 on the differential value of ₹ 29,677 with respect to clearances from the Lucknow branch was liable to be sustained; III. That the demand of ₹ 80,36,177 on the differential value of ₹ 5,02,26,106 for the clearances made to M/s. Kela Brothers was to be confirmed on the principle of preponderance of probability regarding undervaluation by the assessee; IV. That since the demand was towards differential duty, the same should have been correlated to particular invoices covering such clearances, which the Adjudicating Authority had not done; V. That the Adjudicating Authority rightly dropped the demand relating to M/s. Umiya Enterprises; VI. That the Adjudicating Authority was correct in not applying the charge and level of undervaluation in respect of all the clearances, and VII. That differential duty could be demanded only where undervaluation was established and in the light of transaction value introduced w.e.f. 01.07.2000, such evidence had to be available in respect of each removal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of the findings given. 57. The findings recorded and the reasons therefor, as given by CESTAT, are as follows: I. That the statements given by third parties in the course of investigation stood in contrast to the statements given by the employees of the assessee and that once retracted, the statements of third parties would lose their evidentiary value; II. That the pocket planner recovered from Sh. Ashraf was not an official record of the assessee but a private diary; III. That the prices written on the letterhead of M/s. Shree Shyam Plywoods were not corroborated by the dealers and even the statement of the proprietor could not be taken as corroboration, as the said statement was retracted; IV. That the price lists recovered from M/s. Plydeal could not be relied upon as M/s. Plydeal did not purchase plywood from the assessee; V. That the Adjudicating Authority's decision to confirm undervaluation to the extent of 75% to M/s. Shree Shyam Plywoods and 70% to the other dealers was not appropriate and that undervaluation could not be presumed in respect of all the clearances made by the assessee during the material period, by just examining clearances of only a fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessable value had to be ascertained in terms of Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. 63. Aggrieved by the Order-in-Original No. 20/2007 dated 29.06.2007, the assessee, Sh. B. Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin filed four separate appeals before the Commissioner of Central Excise (Appeals). 64. The Commissioner of Central Excise (Appeals) dismissed the appeals. 65. Aggrieved by the OrdersinAppeal dated 18.09.2008, the assessee, Sh. B. Abdul Salam (Managing Director), Sh. J. M. Ashraf (Chief Executive Officer) and Sh. Manoj Kumar Amin (Marketing Executive), filed four appeals before the CESTAT. 66. By Final Order Nos. 1505-1508 dated 07.12.2010, the CESTAT allowed all the four appeals and remanded the matter for requantification of duty liability and penal liability in light of the findings given. 67. The findings recorded and the reasons therefor, as given by CESTAT, are as follows: I. That retraction by the witnesses of their statements at a belated stage was not acceptable; II. That the entries in the slips had been corroborated by statements of the witn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, (iii) levied interest at the appropriate rate for the belated payment of the duty under Section 11AB of the Act, (iv) imposed a penalty of ₹ 40,46,923 on the assessee under Section 11AC, (v) imposed a penalty of ₹ 2,00,000 on the assessee under Rule 25 of the 2002 Rules and (vi) imposed a penalty of ₹ 2,00,000 each on Sh. B. Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin under Rule 26 of the 2002 Rules. 72. The Adjudicating Authority held that the documentary evidence and witness statements clearly showed that the assessee had grossly undervalued their products. 73. Aggrieved by the Order-in-Original No. 08/2007 dated 29.03.2007, the assessee, Sh. B. Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin filed four appeals before the CESTAT. 74. By Final Order Nos. 1509-1512/2010 dated 08.12.2010, the CESTAT allowed all the four appeals and remanded the matter for requantification of duty liability and penal liability in the light of the findings given. 75. The findings recorded and the reasons therefor, as given by CESTAT, are as follows: I. That the slips and price lists recovered from one of the dealers, the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Act 10 of 2000. The amended Section 4 also underwent some changes in the years 2003 and 2012. We are not concerned with the changes brought forth in 2012. 79. Therefore, let us first take note of how the statutory prescription stood before 01.07.2000 and after the said date. The relevant portion of Section 4 as it stood before 01.07.2000 and as it stands after 01.07.2000 is presented in a tabular column as follows: Section 4 as it stood before 01.07.2000 Section 4 as it stands after 01.07.2000, including the amendment in 2003 but not including the amendment in 2012 4. Valuation of excisable goods for purposes of charging of duty of excise.- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section be deemed to be- (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale: Provided that- (i) where in accordance with the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; (iii) A depot, premises of a consignment agent or any other place or premises from the excisable goods are to be sold after their clearances from the factory and, from where such goods are removed; (ba) "time of removal", in respect of goods removed from the place of removal referred to in sub-clause (iii) of clause (b), shall be deemed to be the time at which such goods are cleared from the factory; (c) "related person" means [...] (d) "value", in relation to any excisable goods- (i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee. Explanation.-[...] (ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the factory; (d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organisation expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. 80. In simple terms, 2 different methods of valuation were prescribed in Section 4 as it stood prior to 01.07.2000: (i) one covered by clause (a) of sub-section (1) of Section 4, where the emphasis was on normal price, the determination of which corelated to ordinary sale in the course of wholesale trade (satisfying certain conditions), and (ii) another covered by clause (b) of sub-section (1) of Section 4, which related to cases where there were no sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor General, the third question referred to the Constitution bench in CCE vs. Grasim Industries Limited (2018) 7 SCC 233 was whether or not the concept of "transaction value" makes any material departure from the deemed normal price concept of the erstwhile Section 4(1)(a) of the Act. In the penultimate paragraph of its decision, the Constitution bench answered this question in the following manner: "Further, we hold that "transaction value" as defined in Section 4(3)(d) brought into force by the Amendment Act, 2000, statutorily engrafts the additions to the "normal price" under the old Section 4 as held to be permissible in Bombay Tyre International Ltd. (supra) besides giving effect to the changed description of the levy of excise introduced in Section 3 of the Act by the Amendment of 2000. In fact, we are of the view that there is no discernible difference in the statutory concept of "transaction value" and the judicially evolved meaning of "normal price"." 86. Though the Constitution Bench in Grasim Industries noted the shift, at least in the language, of Section 4(1), from "normal price" to "transaction value", the Constitution Bench did not take note of one major area of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the value of excisable goods, for the purposes of clause (b) of subsection (1) of Section 4, should be determined in accordance with the said Rules. Therefore, it is clear that the valuation as per the Rules is permissible only in cases covered by Section 4(1)(b) and not by Section 4(1)(a). For the purpose of the issues on hand, it may not be necessary for us to dwell deep into the aforesaid rules. 92. Suffice it to say, that if a sale is covered by clause (a) of sub-section (1) of Section 4 (after amendment), the value of excisable goods shall be the 'transaction value'. This expression 'transaction value' is defined in clause (d) of sub-section (3) of Section 4. But if a case is not covered by clause (a) of sub-section (1) of Section 4, then the value of the excisable goods should be determined in accordance with the 2000 Rules. 93. Therefore, in essence, an adjudicating authority is obliged to do the following, in respect of transactions that took place after 01.07.2000: (i) first, he must see whether there is a sale and (ii) next, he must see if such sale satisfies the three conditions stipulated in clause (a) of sub-section (1) of Section 4. 94. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les in the course of wholesale trade, satisfying the 3 conditions prescribed therein, falling under clause (a) of sub-section (1) or whether the sales in question fell under clause (b) of sub-section (1) of Section 4; (ii) Failure to find out, in cases covered by Section 4(1) as it stands amended by Act 10 of 2000 with effect from 01.07.2000, whether the sales in question fell under clause (a) or clause (b) of sub-section (1) of Section 4; (iii) Failure to find out, in the event of the sales in question falling under clause (b) of sub-section (1) of Section 4 (before or after the amendment), whether the valuation had to be done only in accordance with the Rules (1975 Rules or the 2000 Rules, as the case may be), and (iv) Failure to find out, in cases covered by Section 4(1)(b), the specific rule that is applicable among the 1975 or 2000 Rules, as there are different rules covering different contingencies, both in the 1975 Rules and in the 2000 Rules. 98. Since the Adjudicating Authorities as well as the CESTAT failed to make a determination as indicated above, we are of the view that the orders of remand passed by the Tribunal, though for completely diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in Section 4(3)(d). II. Apply the transaction value so ascertained, to cases where three conditions, namely (i) the goods are sold for delivery at the time and place of removal, (ii) the assessee and buyer are not related and (iii) the price is the sole consideration, are satisfied. This is because such cases will fall under Section 4(1)(a). III. In cases where one or more of the aforesaid three conditions are not satisfied, and also in cases where there is no sale, the Adjudicating Authority should treat the cases as falling under Section 4(1)(b) and hence take recourse to the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. IV. If a case falls under Section 4(1)(b) and the Adjudicating Authority takes recourse to the method of valuation prescribed in the 2000 Rules, he shall find out which among the relevant rules would apply to the case on hand before proceeding with the valuation. Principles applicable in common (both pre and post amendment) C. The Adjudicating Authority may treat any amount received either in cash or otherwise, over and above the invoice value, as the value of excisable goods even in cases falling under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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