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TMI Blog2022 (12) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... d silicon manganese to its related parties (i) Vandana Ispat Ltd. [Vandana], Raipur & (ii) Shivali Udyog (I) Ltd. [Shivali] at prices lower than the prices at which it sold them to independent buyers. The department also took a view that the goods sold to Vandana and Shivali must be valued as per Section 4 read with Rule 11 read with Rules 4 & 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 [Valuation Rules] and issued show cause notice [SCN] dated 28th October, 2015 to the appellant invoking extended period of limitation under Section 11A of the Central Excise Act, 1944 [Act] demanding an amount of Rs. 10,65,505/- towards the differential Central Excise duty along with interest. Penalty under Section 11AC read with Rule 25 of the Central Excise Rules [Excise Rules], 2002 was also proposed. 3. The appellant contested the SCN both on merits and on limitation but in his Order-in-Original, the Additional Commissioner confirmed the full demand as proposed along with interest and imposed penalty equal to 50% of the duty demanded. In the impugned order, Commissioner (Appeals) upheld this order and hence this appeal. 4. Learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use notice, valuation was proposed in terms of Valuation Rule 11 read with Valuation Rules 4 & 7. It is therefore not clear as to which valuation rules were applied. (f) As the appellant's final products were raw materials to Vandana and Shivali the entire exercise is revenue neutral. (g) The show cause notice covered the period October, 2010 to July 2015 of which the demand up to September 2014, is time barred and no case has been made out of for invoking extended period as per Section 11A. (h) The demand does not survive and therefore the interest and penalty also need to be set aside. 5. Learned Authorised Representative for Revenue supports the impugned order and submits that the impugned order is fair and proper and calls for no interference. 6. We have considered the submissions on both sides and perused the records. Since the Valuation Rules had undergone significant changes in 2013 during the period of dispute, we proceed to address the question of extended period of limitation first so that the appeal can be examined as per the Valuation Rules applicable during the relevant period. Limitation 7. It is not in dispute that Section 11A provides for a limitati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elements of fraud, collusion, etc. He held that the appellant had knowingly opted for undervaluation of the goods sold to related buyers to evade Central Excise duty and also deliberately suppressed facts. The relevant extract of this order is as follows: "21.10. The Noticee cited a number of decisions in their defense to support their arguments but none of it is relevant to the facts and circumstances discussed as above. The fact of deliberate undervaluation of goods sold to the related buyers being lower in price than the 'normal transaction value' of the same goods sold to the independent buyers at the same date or nearest date of greatest aggregate quantity of the same goods sold to the independent buyers. The mala fide intention of the Noticee cannot be ruled out. This is not a case of procedural lapses to be ignored on technical grounds. It is a case of authenticity of duty that has to paid on the 'normal transaction value' of the goods sold to the related buyers like that of the goods sold to the independent buyers. The Noticee knowingly opted for undervaluation of the goods sold to the related buyers to evade the payment of Central Excise duty. The deeds of the Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in ER-1, but also provide for scrutiny of the returns by the officers. Duty of excise is charged on excisable goods manufactured or produced in India (Section 3) but the duty becomes payable on removal (Excise Rule 4). The assessee has to self- assess (Excise Rule 6) the duty and pay it by the fifth day or sixth day (in case of electronic payment) of the following month (Excise Rule 8) and file Returns (Excise Rule 12) as per the form. The officers have to scrutinize the returns [Excise Rule 12(3)] and can, for the purpose call for documents and records which the assessee is bound to produce [Excise Rule 12(4)]. The relevant extracts of these Rules are reproduced below: Rule 4. Duty payable on removal.- (1) Every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided Xxxxxxx Rule 6. Assessment of duty.- The assessee shall him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant date to calculate the limitation is the date on which the Return is filed by the assessee or if it is not filed, the last date by which it was required to be filed because only when the return is filed, the officer can scrutinise it and raise demands for any short paid duty and if no return is filed by due date, the officer is expected to initiate steps to call for records and determine if the duty has been paid. From this date, the officer can issue an SCN within one year. 16. Lastly, the ER-1Return is filed online and it has certain columns which do not include any declaration if there was any sale to related parties nor was there any requirement of declaration of the nature of relationship. Thus, the assessee was not only NOT REQUIRED to disclose the relationship but it was also not possible for it to disclose the relationship in ER1. 17. To sum up, while the assessee was required to self-assess duty and file ER-1 return, a check against such self-assessment was the scrutiny which the officers were mandated to do by Rules. Audit is the next level of check against the scrutiny. If the audit points out some wrong assessment which was not pointed out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 6 deals with situations where there is an additional consideration for sale. (f) Rule 7 deals with situations where there is no sale and the goods are transferred to the assessee's own depot not at the premises of the consignment agent. (g) Rule 8 deals with situations whether goods are captively consumed by the assessee or on its behalf in which case, the valuation has to be done at 115% of the cost of production. (h) Rule 9 deals with the situations where the assessee and the buyer are related persons as per sub-Clauses (ii) (iii) or (iv) of Clause (b) of subSection (iii) of Section 4. (i) Rule 10 (a) deals with situations related persons as per sub-Clause (i) of Clause (b) of subSection (iii) of Section 4 also known as 'interconnected undertakings' where the assessee and the buyer are, in addition also related persons as per sub-Clause (ii) or (iii) or (iv) or the buyer is the holding company or a subsidiary company. (j) Rule 10 (b) deals with situations where the assessee and the buyer are interconnected undertakings as per sub-Clause (i), but they are not also related persons in terms of sub-Clauses (ii) (iii) or (iv) nor is the buyer holding f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the cost of production or manufacture of such goods. The value shall be one hundred and ten per cent of the cost of production or manufacture of such goods. 7 Rule 9- Goods sold to a 'related person' as per sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act Only when goods are not sold except to or through a related person as per sub-clauses (ii), (iii) or (iv). The price shall be the price at which the related person sells to other non-related persons. If the related person consumes the goods, valuation should be done as per Rule 8. Where whole or part of the excisable goods are sold by the assessee to or through a related person as per subclauses (ii), (iii) or (iv). Rest is the same. 8. Rule 10(a)- Goods sold to an 'interconnected undertaking' , as per sub-clause (i) of clause (b) of subsection 3 of section 4 of the Act who are also related persons in terms of subclauses (ii) or (iii) or (iv) or the buyer is a holding company or a subsidiary company of the assessee Only when the assessee so arranges that the excisable goods are not sold by him except to or through an interconnected undertaking. Valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with the Rule 11 of the said Rules at the value at which the aggregate value of identical excisable goods were sold by them to other independent buyers as detailed in the Annexure A to the Show Cause Notice. 25. The allegation in the SCN is that the appellant and Vandana and Shivali were related persons. It is also the allegation that price was not the sole consideration for sale. It is further the contention that Valuation Rules 9 & 10 do not apply to this case and value should be determined as per Rule 11 read with Rules 4 & 7. 26. Valuation Rule 4 deals with cases where goods are sold but not the time of removal. Valuation Rule 7 deals with cases where the goods are sold but not at the place of removal. It is neither alleged nor established that the goods were not sold at the time of removal or at the place of removal in this case. We are at a loss to understand as to why these Rules were invoked in the SCN because there is no dispute regarding the place of removal or time of removal. 27. It is further interesting that in paragraph 2.8 of the SCN it is alleged that price was not the sole consideration for sale. Valuation Rule 6 deals with additional considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced below: 6.1 I find that in the instant case the question to be answered is whether the goods cleared by the appellant during the period from 2010-11 (from 10/2010) to 2015-16( upto Jul'15) to M/s. Vandana Ispat Ltd. Raipur and M/s. Shivali Udyog (for brevity hereinafter called the concerned units) are to be assessed to Central Excise duty on the basis of the cost of production in terms of Rule 11 (read with Rule 8,9 and 10) of the Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 (hereinafter referred to as the Valuation Rules) especially when the goods are sold to the independent buyers. (emphasis supplied) 32. We have already found that extended period of limitation cannot be applied in the facts of this case and therefore, the demand up to September 2014 cannot be sustained. For the period October 2014 to July 2015, even if the goods are sold partly to related buyers and partly to independent buyers, Valuation Rules 9 and 10 of the Valuation Rules apply which have not been invoked and a demand cannot be confirmed under Valuation Rule 11 which has been invoked. No demand has been made or confirmed under Valuation Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other body corporate in any other manner; (D) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm, - (I) hold, directly or indirectly, not less than fifty per cent. of the shares, whether preference or equity, of the body corporate; or (II) exercise control, directly or indirectly, whether as director or otherwise, over the body corporate; (E) if one is owned by a body corporate and the other is owned by a firm having bodies corporate as its partners, if such bodies corporate are under the same management; (F) if the undertakings are owned or controlled by the same person or by the same group; (G) if one is connected with the other either directly or through any number of undertakings which are inter-connected undertakings within the meaning of one or more of the foregoing sub-clauses. Explanation 1. - For the purposes of this clause, two bodies corporate shall be deemed to be under the same management, - (i) if one such body corporate exercises control over the other or both are under the control of the same group or any of the constituents of the same group; or (ii) if the managing direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrol over a body corporate, that body corporate and every other body corporate, which is a constituent of, or controlled by, the group shall be deemed to be under the same management. Explanation III. - If two or more bodies corporate under the same management hold, in the aggregate, not less than one-fourth equity share capital in any other body corporate, such other body corporate shall be deemed to be under the same management as the first mentioned bodies corporate. Explanation IV. - In determining whether or not two or more bodies corporate are under the same management, the shares held by financial institutions in such bodies corporate shall not be taken into account. Illustration Undertaking B is inter-connected with undertaking A and undertaking C is inter-connected with undertaking B. Undertaking C is interconnected with undertaking A; if undertaking D is inter-connected with undertaking C, undertaking D will be inter-connected with undertaking B and consequently with undertaking A; and so on. Explanation V. - For the purposes of this clause, "group" means a group of- (i) two or more individuals, associations of individuals, firms, trusts, trustees or bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertakings. 38. Even if they are inter-connected undertakings but are not related persons in any of the other ways indicated in section 4, valuation must be done as if they are not related persons [Valuation Rule 10(b)] and so the demand will not sustain on merits. 39. To sum up: a) The demand for the period prior to September 2014 is time barred. b) The fact that the appellant was working under self-assessment is not a ground on which extended period of limitation can be invoked as per Section 11A and such an interpretation of Section 11A renders the provision related to the normal period of limitation under section 11A otiose. c) The assessee can make mistakes in self-assessment but the Rules mandate the officers to scrutinize the returns and call for documents and records from the assessee. d) Scrutiny by the officers is a check provided under the Rules against any mistakes in self-assessment. If any duty escapes assessment, a demand can be issued within the normal period of limitation. e) The period of limitation under section 11A is to be reckoned from the date of filing of the Return or the last date for filing the Return. If the Return is filed, the officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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