The Supreme Court, on Monday upheld the validity of the circular issued by the Central Board of Excise and Customs (CBEC), now CBIC, and held that the circular dated 1.7.2002 regarding valuation of when goods which are sold partly to related persons and partly to independent buyers, is not violative of the Central Excise Act and the Central Excise Valuation Rules.
The point no. 12 of the circular stated that in case of such sales, transaction value in respect of sales to unrelated buyers cannot be adopted for sales to related buyers since as per section 4(1) transaction value is to be determined for each removal. For sales to unrelated buyers valuation will be done as per section 4(1)(a) and for sale of the same goods to related buyers recourse will have to be taken to the residuary rule 11 read with rule 9 (or 10). Rule 9 cannot be applied in such cases directly since it covers only those cases where all the sales are to be related to buyers only.
The petitioner, Merino Panel Product Ltd, was aggrieved by the the show cause notice and the order of the Commissioner who held that Section 4(1)(b) is applicable as the Assessee and MIL and MSL are related parties.
Holding that section 4(1)(a) was deemed to be inapplicable as it addresses situations where the parties are not related, Justice Surya Kant and Justice J.B. Pardiwala observed that “having held so, we can now bring this matter to a close. For the purposes of current dispute, it suffices for us to clarify that Point No. 12 in the Circular of 01.07.2002 is not contrary to the intent of the CEA and CEVR and the object behind it is to merely use “reasonable means” as outlined under Rule 11 of the CEVR, in conformity with Section 4(1)(a) of the CEA and Rule 9 of the CEVR, so as to reach the assessable value of goods for determination of excise duty.”
“When the normal price that is ordinarily charged in dealings where the price itself is the sole consideration of the transaction is available, as it is here, that price can be transposed onto the related party purchases as well, to arrive at the assessable value. Hence, the order of the Commissioner regarding the value of the goods sold to the Respondent’s sister concerns is in consonance with this Court’s earlier judgments and the Circular dated 01.07.2002,” the Court concluded.
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