Valuation of alleged Clandestinely removed Goods b/w related buyers cannot be based on Transaction Value b/w Unrelated Buyers: CESTAT [Read Order]

In a recent ruling, the Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that valuation of goods alleged to be clandestinely removed to related parties cannot be based on the transaction value of sales made to unrelated buyers.

The decision was rendered by the CESTAT while jointly disposing off multiple excise appeals involving Surat Metallics Ltd. and the Commissioner of C.E. & S.T.-Surat-I. The facts follow the appellant’s part clearance of goods to unrelated buyers and partly to related buyers, for which the appellant had paid duty on the transaction value.

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The Revenue contended that the valuation of clearance of excisable goods made to related parties should be done as per on cost construction method embodied under Rule 8 of Central Excise Valuation Rules, 2000. Hence, the Revenue contended that using the transaction value method to determine duty for transactions with both, related and unrelated buyers resulted in short payment of duty paid.

Consequently, the Revenue passed an order confirming a duty demand of ₹58,129 for alleged clandestine removal, and an additional duty of ₹5,63,540 based on the valuation of goods sold to related parties under Rule 8 of the Central Excise Valuation Rules, 2000.

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Mukesh Soni, appearing for the appellant argued that the company had cleared goods to both unrelated and related parties, while applying the same transaction value in both cases. It was contended that Rule 8 is applicable only when all goods are exclusively cleared to related parties or are captively consumed, not in cases involving mixed clearances.

Conversely, A.K Samota, Superintendent appearing on behalf of the Revenue reiterated the finding of the impugned order.

The Tribunal, comprising Judicial Member Ramesh Nair and Technical Member C.L. Mahar, upheld the smaller duty demand of ₹58,129 related to clandestine removal, noting that the appellant had not effectively contested it.

In terms of the demand of differential duty on the valuation of goods sold to related and unrelated buyers, the Bench observed that in the present case, since the assessee sold goods to both related and unrelated parties and applied the same transaction value across both categories, the invocation of Rule 8 was not justified.

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Citing the decision in Ispat Industries Ltd vs. Commissioner (2007), the Tribunal clarified that Rule 8 shall be applicable only when goods are not sold but captively consumed or exclusively transferred to related entities for further manufacture. In such regard, the Bench proceeded to set aside the duty demand of ₹5,36,540.

Observing that the major portion of the duty demand was annulled by virtue of the decision, the Bench proceeded to set aside the personal penalties imposed on the company’s directors as well under Rule 26 of the Central Excise Rules, 2002.

To Read the full text of the Order CLICK HERE

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