1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.72407248 OF 2009
THE COMMISSIONER OF CENTRAL
EXCISE, CUSTOMS AND SERVICE TAX,
CALICUT …Appellant
Versus
M/S. CERA BOARDS AND DOORS, KANNUR
KERALA ETC. ETC. …Respondents
WITH
CIVIL APPEAL Nos.86158620 OF 2009
CIVIL APPEAL Nos.22362253 OF 2011
CIVIL APPEAL Nos.32273230 OF 2011
CIVIL APPEAL Nos.32313233 OF 2011
CIVIL APPEAL Nos.65646567 OF 2011
CIVIL APPEAL Nos.99889991 OF 2011
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J U D G M E N T
V. Ramasubramanian,J.
Introduction
1. All the appeals on hand are by the Commissioners of
Central Excise, Customs & Service Tax of different
Commissionerates, filed 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. 72407248 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
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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. 72407248 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. 72407248 of 2009 are
taken as the lead case.
Facts in Civil Appeal Nos. 72407248 of 2009
3. M/s. CERA Boards and Doors, Kannur, which is the
assessee concerned in this batch of cases, admittedly
manufactures plywood/block boards. Searches were conducted
by the Directorate General of Central Excise Intelligence (DGCEI)
at their factory premises at Kannur, Kerala and their depot at
Bangalore, on 17.10.2002 and on subsequent days. Searches
were also conducted at the residences of the partners of the firm,
the residences of some of their employees and the premises of
some of their dealers.
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4. CERA Boards and Doors is a partnership firm comprising
of one Mr. K. S. Harris and Smt. K. P. Rashida as partners. Their
Bangalore depot was managed by its manager, Sh. T. S.
Bhaskar.
5. The investigation that followed the searches revealed that
the assessee had undervalued the goods manufactured by them
and cleared the goods from their factory, resulting in the evasion
of Central Excise duty to the tune of Rs. 4,29,01,384 during the
period from 01.12.1998 to 05.12.2002.
6. After the search, CERA Boards made payment of a sum of
Rs. 12,50,000 towards shortfall in duty for the clearances
effected during the relevant period. Thereafter, show cause
notices dated 07.04.2003 and 22.12.2003 were issued. The show
cause notice dated 07.04.2003 was for the proposed confiscation
of the goods seized from CERA Boards, M/s. Ply Home, M/s. Gee
Ply, M/s. Decowood Interiors, M/s. Arihant Marketing and M/s.
Krishna Agencies, respectively valued at Rs. 12,80,926, Rs.
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27,961, Rs. 34,332, Rs. 2,88,585, Rs. 32,829 and Rs. 1,00,000.
This was under Rule 25 of the Central Excise Rules, 2002.
7. The show cause notice dated 22.12.2003 was for
(i) payment of differential duty to the tune of Rs. 4,29,01,384
under Section 11A(1) of the Central Excise Act, 1944, (ii) interest
under Section 11AB of the Act, (iii) appropriation of the amount
of Rs. 12,50,000 voluntarily paid by them immediately after the
search, towards duty liability, (iv) penalty in terms of Section
11AC of the Act and also under Rule 173Q of the erstwhile
Central Excise Rules, 1944/ Rule 25 of the Central Excise Rules,
2002, and (v) imposition of penalty on the Managing Partner and
Manager of the firm under Rule 209A of the erstwhile Central
Excise Rules, 1944/ Rule 26 of the Central Excise Rules, 2002.
8. The material forming the basis of the aforesaid show cause
notices were: (i) the loose sheets recovered from a Sales
Executive by name Mr. Dayanandan, (ii) computer print outs
containing “overdue bills” statements, (iii) the price lists
containing the actual rate per square feet of plywood/block
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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 Basheer (a purchaser), (viii)
Mr. B. Narayan Rao (a purchaser), (ix) Mr. Riyas Mayalakkare
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(purchaser), (x) Mr. Jagdish S. Patel (purchaser), (xi) Mr. G. M.
Aggarwal (purchaser), (xii) Mr. Sunny John (purchaser), (xiii) Mr.
Kailash Kumar (purchaser), (xiv) Mr. Arvind L. Patel (purchaser),
(xv) Mr. T. V. G. Ganesan (purchaser) and (xvi) Mr. Abdul
Khayoom (purchaser).
10. In response to the two show cause notices referred to
above, the assessee sent two replies, one dated 09.08.2005 and
another dated 24.08.2005. Through these replies, the assessee
sought permission to crossexamine all those whose statements
were recorded by the DGCEI and took a stand that there was no
undervaluation.
11. The assessee contended in their replies that they were
effecting supplies not only to the dealers and consumers in
Bangalore but also to dealers in Tamil Nadu and Kerala and that
based upon a few documents seized in relation to the
transactions in Bangalore depot, an allegation of undervaluation
by 70% on all transactions, cannot be made.
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12. It was also contended that though the Department sought
to rely upon private documents allegedly maintained by two of
their staff members at the Bangalore depot, by name Suresh and
Deepak Dhiman, they were not examined. According to the
assessee, they were transacting with 153 dealers during the
period 20012002 and 3 dealers during the period 20022003,
and that the Department was not entitled to reach a conclusion
on the basis of the statements recorded from just 2 of those
dealers in Karnataka and only one out of 56 dealers in Kerala.
13. It was also contended by the assessee that in so far as the
period prior to 01.07.2000 is concerned, what is relevant is the
normal price, namely the price at which the goods are sold at the
factory there. This was in terms of Section 4(1)(a) of the Act as it
stood prior to 01.07.2000. Hence they contended that even if
they had realised a higher price from certain buyers, the same
would be irrelevant, as regards the period before 01.07.2000.
14. In so far as the period post 01.07.2000 is concerned, it was
contended by the assessee in their replies that the transaction
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value should be arrived at on the basis of the price indicated in
each invoice.
15. After the receipt of the replies from the assessee, the
Commissioner of Central Excise and Customs, Calicut, held
personal hearings, allowed the crossexamination of witnesses,
perused the case law relied upon by the assessee and then
passed an OrderinOriginal No. 14/2006 dated 09.05.2006. By
this OrderinOriginal, the Commissioner (i) confirmed the
demand of duty in a sum of Rs. 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 Rs. 79,21,663
under Section 11AC read with Rule 25, (iv) directed the
confiscation of goods seized from the assessee, valued at Rs.
12,80,926 with an option to redeem the same upon payment of
fine of Rs. 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 Rs. 2,500 to
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Rs. 15,000, (vi) imposed a penalty of Rs. 5,000 each, upon the
assessee and five of the dealers and (vii) imposed a penalty of Rs.
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 contained in the
show cause notice was for the imposition of differential Central
Excise duty to the tune of Rs. 4,29,01,384 for the period between
01.12.1998 and 05.12.2002. But, the adjudicating authority
confirmed the demand only to the extent of Rs. 79,21,663. The
findings recorded by the adjudicating authority, and the reasons
given therefor are as follows:
I. That as per the statements recorded from the dealers, the
assessee was usually showing a lesser amount in the
invoices than the actual sale consideration and was in the
habit of collecting the differential amount by way of cash;
II. That though some of the dealers retracted from their
original statements, the retractions happened only during
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crossexamination that happened after several years and
hence, the original statements could be taken into account;
III. That the documentary evidence such as the loose slips,
computer printouts, notebooks, diaries, receipt books, etc.
seized by the DGCEI together with the statements recorded
from the depot Manager and Sales Executives clearly
showed underinvoicing;
IV. That though the Department had demanded differential
duty to the tune of Rs. 4,29,01,384 on the actual sales
turnover for the period in question, the department
collected evidence only in respect of 11 customers and not
from all customers whose names were mentioned in
Annexure D to the show cause notice;
V. That therefore, the calculation of differential duty had to be
confined only to the sales turnover relatable to the
aforesaid 11 customers and the turnover relatable to 3
more customers whose confession statements had been
recorded;
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VI. That in view of the law laid down by this Court in
Collector of Customs, Madras vs. D. Bhoormall,
1
the
Department could not plead its inability to examine all the
dealers to come to the conclusion of undervaluation in all
transactions;
VII. That in respect of those 14 dealers, a clear case was made
out by the Department about the gross undervaluation of
the sales price, and
VIII. That therefore, the differential duty corelatable to the sales
turnover in respect of those 14 dealers could be demanded.
17. Aggrieved by the OrderinOriginal No. 14/2006 dated
09.05.2006, one appeal was filed by the assessee, one appeal
was filed by its Managing Partner, one appeal was filed by the
Manager 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
1 (1983) 13 ELT 1546 (SC)
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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 Rs.
4,29,01,384 made in the show cause notice, the adjudicating
authority confirmed the demand only to the extent of Rs.
79,21,663.
19. By Final Order Nos. 245253/2009 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 differential duty, interest,
and penalty and remanded the matter for requantification of
duty in light of the findings given. The appeal filed by the
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Revenue also followed the fate of the three appeals filed by the
assessee, its Managing Partner and its Manager.
20. The effect of the Final Orders passed by CESTAT is (i) that
the appeals of the dealers against confiscation with the option of
redemption stood rejected and (ii) that the substantive appeals
arising out of the imposition of differential duty, interest,
penalty, etc. stood allowed and remanded back to the
adjudicating authority for a fresh consideration.
21. The findings recorded and the reasons therefor, as given by
CESTAT, are as follows:
I. That there was overwhelming evidence to show underinvoicing;
II. That in light of the statements made by depot officials as
well as dealers, the finding of the Adjudicating Authority
that 30% of the actual value alone was mentioned in the
invoice cannot be interfered with;
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III. That as per Section 4(1)(a), as it stood before 01.07.2000,
duty was payable on the normal price, namely the price at
which such goods were ordinarily sold in the course of
wholesale trade; and hence the Commissioner was obliged
to find out what the normal price in the course of wholesale
trade was for the clearances made prior to 01.07.2000;
IV. That in respect of the sales made prior to 01.07.2000, the
adjudicating authority should adopt the normal pricing
method;
V. That for the clearances made after 01.07.2000, the
transaction value had to be determined in respect of each
transaction and the differential duty confined only to the
evidence available on record;
VI. That the stand of the Revenue that 70% should be added to
the invoice value uniformly in respect of all clearances,
could not be accepted and,
VII. That therefore, the matter required readjudication.
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22. Therefore, the Revenue has come up with this batch of
nine appeals, Civil Appeal Nos. 72407248 of 2009.
Facts in Civil Appeal Nos. 86158620 of 2009
23. The facts of this batch of appeals are similar to those in
Civil Appeal Nos. 72407248 of 2009. M/s. Prestige Boards Pvt.
Ltd., Kannur which is the assessee concerned in this batch of
cases, also manufactures plywood/block boards. Similar
searches conducted at their premises revealed that the assessee
had grossly undervalued the goods cleared by them from their
factory, resulting in evasion of Central Excise duty to the tune of
Rs. 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 Rs. 2,72,03,232
under Section 11A(1) of the Act, interest, penalty, etc. were
issued.
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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 OrderinOriginal No. 10/2006 dated 27.03.2006, by which, he (i)
confirmed the demand of duty to the extent of Rs. 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
Rs. 1,50,23,911 under Section 11AC read with Rule 25, (iv)
directed the confiscation of goods seized from the assessee,
valued at Rs. 14,24,286 with an option to redeem the same upon
payment of fine of Rs. 1,50,000, (v) directed the confiscation of
goods seized from M/s. Prestige Traders, valued at Rs. 5,49,176,
with an option to redeem the same upon payment of fine of Rs.
50,000, (vi) directed the confiscation of goods seized from M/s.
Ply Home, valued at Rs. 29,270, with an option to redeem the
same upon payment of fine of Rs. 3000, (vii) directed the
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confiscation of goods seized from M/s. Gee Ply, valued at Rs.
38,268, with an option to redeem the same upon payment of fine
of Rs. 3500, (viii) ordered outright release of Rs. 2,50,000 seized
from Sh. P. K. Shakeer, (ix) imposed a penalty of Rs. 5,000 each
on M/s. Prestige Traders, M/s. Ply Home and M/s. Gee Ply, and
(x) imposed a penalty of Rs. 50,000 each on Sh. K. S.
Mohammad Ali (Managing Director) and Sh. Kunjuraman
(Manager, Bangalore depot).
26. The Commissioner held that there was evidence to prove
undervaluation, but the demand had to be confined only to the
transactions that the assessee had with 20 customers from
whom alone evidence had been collected. Like the OrderinOriginal passed in the case of CERA Boards, the Commissioner
ruled in this case also that (i) with respect to the period prior to
01.07.2000, the normal price should include the price indicated
in the invoice plus the amount collected by way of cash, and (ii)
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for the period post 01.07.2000, the transaction value was
nothing but the invoice value plus the amount collected in cash.
27. Aggrieved by the OrderinOriginal No. 10/2006 dated
27.03.2006, the assessee, its Managing Director (Sh. K. S.
Mohammad Ali), its Sales Manager (Sh. Kunjuraman), M/s.
Prestige Traders and the two dealers from whom seizure of
material was effected, filed six appeals before the CESTAT.
28. By Final Order Nos. 414419/2009 dated 21.04.2009, the
CESTAT (i) allowed the three appeals filed by the assessee, its
Managing Director and Sales Manager challenging the demand
for differential duty, interest and penalty, and remanded the
matter for requantification of duty in light of the findings given,
and (ii) rejected the appeals filed by M/s. Prestige Traders and
the two dealers challenging the orders of confiscation.
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29. The findings recorded and the reasons therefor, as given by
CESTAT, are as follows:
I. That there was overwhelming evidence to show underinvoicing;
II. That in respect of the sales made prior to 01.07.2000, 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. 86158620 of 2009.
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Facts in Civil Appeal Nos. 22362253 of 2011
31. Searches were conducted by the officers of the Directorate
General of AntiEvasion (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 issued. The first show cause
notice was against M/s. Universal Wood Crafts, Kumbla, M/s.
Wood Crafts, Kumbla, M/s. Uniwoods, Kumbla, M/s. National
Boards, Kumbla, M/s. Darvesh Plywoods, Kumbla, Sri K.
Mohammed Arabi, Kumbla, Sri Khaleel Rahiman, Kayarkulam
and Sri Mansoorul Huck, Kayarkulam, proposing the
confiscation of the seized plywood and the seized Indian
currency, demand drafts and cheques.
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33. The second show cause notice quantified the duty short
paid by the seven plywood units, namely M/s. National Boards,
M/s. Darvesh Plywoods, M/s. Uniwoods, M/s., Wood Crafts,
M/s. Universal Wood Craft Co., M/s. Mailatty Wood Industries
and M/s. National Wood Products, at Rs. 7,59,24,737 and the
duty short paid by the chemical unit by name M/s. Bharath
Chemicals, at Rs. 9,12,375, for the period from 19941995 to
19992000 (up to June 1999). The notice also proposed the levy
of interest and penalty, apart from confiscation.
34. Subsequently, twelve periodical show cause notices were
issued to the plywood manufacturing/dealing units for different
periods of time.
35. After the receipt of the replies from the assessees and their
proprietors/partners to the two show cause notices, the
Commissioner of Central Excise, Calicut, held an enquiry and
passed an OrderinOriginal No. 10/2005 dated 30.06.2005,
wherein he confirmed the duty demanded from the units in
question, named in column 1 of the table below, to the extent
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indicated in column 2 thereof. The Adjudicating Authority also
imposed penalties on each of them, to the extent indicated in
column 3 of the table:
Name Duty Demanded Penalty
M/s. National Boards Rs 28,95,584/ Rs 28,95,584/
M/s. Darvesh Plywoods Rs. 86,01,648/ Rs. 86,01,648/
M/s. Uniwoods Rs. 72,15,522/ Rs. 72,15,522/
M/s. Wood Crafts Rs. 73,59,665/ Rs. 73,59,665/
M/s. Universal Wood
Crafts Co.
Rs. 26,73,758/ Rs. 26,73,758/
M/s. Mailatty Wood
Industries
Rs. 23,24,056/ Rs. 23,24,056/
M/s. National Wood
Products
Rs. 61,14,236/ Rs. 61,14,236/
M/s. Bharath
Chemicals
Rs. 5,52,839/ Rs. 5,52,839/
36. In addition to the above, the Adjudicating Authority
confirmed the demand of interest under Section 11AB, ordered
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the confiscation of material with an option to redeem the same
on payment of fine and imposed penalties. However, (1) the
currency of Rs. 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 OrderinOriginal 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/11451161/2005 were disposed of by CESTAT,
by a common order dated 01.04.2010.
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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 operated secret price lists for
sale of their finished products and paid duty on a much
lower value and also resorted to innovative methods of
accounting;
III. That the previous decisions of the Tribunal in the case of
CERA Boards, Noble Ply and Prestige Boards, with regard
to the fixation of normal price in respect of the clearances
made prior to 01.07.2000, should be followed and the
matter remanded back;
IV. That as regards Bharat Chemicals, the demand of
differential duty of Rs. 9,12,375 together with other penal
liabilities, was liable to be confirmed and their appeal liable
to be dismissed;
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V. That as regards the clandestine clearances made by M/s.
Wood Crafts, M/s. Uniwoods, M/s. Darvesh Plywood, M/s.
National Boards, M/s. National Wood Products, M/s.
Mailatty Wood Industries and M/s. Universal Wood Crafts
Co., the matter had to be remanded back to the
Commissioner, for the purpose of adjudicating whether the
turnover reckoned by the Adjudicating Authority included
proceeds of sale of nonexcisable goods;
VI. That as a consequence of the remand, the penalties
imposed on the seven units (whose names are indicated in
the preceding point) should also be readjudicated after the
requantification of the liability;
VII. That the appeals filed against the confiscation of plywood
valued at Rs. 2,86,389.20 seized from Khaleel Rehman
Glass Centre, the appeals filed against the confiscation of
plywood sheets valued at Rs.15,056.20 seized from
Mansarool Huck, with an option to redeem upon payment
of fine, and the appeals filed against the individual
27
penalties imposed upon Khaleel Rehman and Mansarool
Huck were also liable to be rejected, and
VIII. That all the other appeals are to be allowed, and the matter
remanded for readjudication on the terms indicated above.
40. Aggrieved by the said order, the Revenue has come up with
this batch of appeals, Civil Appeal Nos. 22362253 of 2011.
Facts in Civil Appeal Nos. 32273230 of 2011
41. Similar to the preceding cases, M/s. Mysore Chipboards
Ltd., which is the assessee concerned in this batch of cases, also
manufactures plywood/block boards/particle boards. Searches
conducted by the DGCEI at their premises revealed that the
assessee had undervalued the goods manufactured by them and
cleared them from their factory, resulting in the evasion of
Central Excise duty to the tune of Rs. 7,51,53,570 during the
period from 01.07.2000 to 28.08.2003.
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42. A show cause notice dated 21.07.2005 was issued,
demanding differential duty of Rs. 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 OrderinOriginal No. 06/CCE/2006 dated
05.10.2006. By this OrderinOriginal, the Commissioner (i)
confirmed the demand of duty in a sum of Rs. 81,01,637 from
the assessee under the proviso to Section 11A(1) of the Act, (ii)
directed appropriation of Rs. 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 Rs. 81,01,637 under Section 11AC read
with Rule 25 and (v) imposed a penalty of Rs. 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 Rs. 3,79,452 in respect of the
invoices raised by the factory at Mysore, (ii) to the extent of Rs.
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29,677 relating to the six slips from the Lucknow office and (iii)
to the extent of Rs. 5,02,26,106 with respect to sales through
assessee’s consignment agent, M/s. Kela Brothers. The
Adjudicating Authority further ruled that the evidence in respect
of undervaluation in sales through M/s. Umiya Enterprises,
M/s. Balaji Glass & Plywoods, M/s. Rohini Plywood &
Laminates, and the Ludhiana and Delhi office of the assessee
was insufficient.
45. Aggrieved by the OrderinOriginal No. 06/CCE/2006
dated 05.10.2006, three appeals were filed, one by the assessee,
another by its Resident Director and the third by the
Commissioner of Central Excise, Mysore, before the CESTAT.
46. The assessee challenged the maintainability of the appeal
filed by the Commissioner of Central Excise, Mysore, on the
ground that as per the decision of the Committee of Chief
Commissioners, it was only the Mangalore Commissioner and
not the Mysore Commissioner who was entitled to file an appeal.
30
47. In response to the said objection, the Commissioner of
Central Excise, Mysore then filed a Miscellaneous Application in
its appeal before the CESTAT, placing on record, a corrigendum
to the order of the Committee of Commissioners authorising the
Mysore Commissioner to file the appeal.
48. By a Final Order passed in the three regular appeals and
one miscellaneous application, namely Final Order Nos. 985
987/2010 dated 07.07.2010 and Miscellaneous Order No.
300/2010 dated 07.07.2010, the CESTAT (i) allowed the appeals
filed by the assessee and its Resident Director challenging the
demand for differential duty, interest and penalty and remanded
the matter to the Adjudicating Authority for requantification of
duty; (ii) allowed the appeal filed by the Revenue and remanded
the matter for fresh adjudication (except on the clearances
relating to Umiya enterprises and sales from the Delhi branch)
and (iii) allowed the Miscellaneous Application relating to the
maintainability of the appeal filed by the Mysore Commissioner.
31
49. The findings recorded and the reasons therefor, as given by
CESTAT, are as follows:
I. That the demand of Rs. 60,712 for the differential value of
Rs. 3,79,452 in respect of the clearances reflected in the
InterOffice memo was rightly confirmed by the
Adjudicating Authority, by rejecting the retractions of the
statements 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 Rs. 4748 on the differential
value of Rs. 29,677 with respect to clearances from the
Lucknow branch was liable to be sustained;
III. That the demand of Rs. 80,36,177 on the differential value
of Rs. 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;
32
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.
50. Aggrieved by the said order, the Revenue has come up with
this batch of 4 appeals, Civil Appeal Nos. 32273230 of 2011.
33
Facts in Civil Appeal Nos. 32313233/2011
51. M/s. Plama Boards Pvt. Ltd., Mangalore, which is the
assessee concerned in this batch of cases, manufactures
plywood/ block boards. Searches conducted by the DGCEI at
their premises revealed, according to the Revenue, that (i) the
assessee had fraudulently undervalued the goods manufactured
and cleared, (ii) that the actual value of clearances had crossed
the Small Scale Industries exemption limit of Rs. 1,00,00,000
and (iii) that the assessee had thus, evaded Central Excise duty
to the tune of Rs. 2,13,70,618 during the period from
01.10.2000 to 28.04.2004.
52. A show cause notice dated 22.11.2005 was issued
demanding differential duty of Rs. 2,13,70,618 under Section
11A(1) of the Central Excise Act, 1944, interest, penalty, etc.
53. After the receipt of the replies from the assessee, the
Commissioner of Central Excise, Mangalore, held an enquiry and
passed an OrderinOriginal No. 10/2006 dated 29.05.2006, in
and by which, he (i) confirmed the demand of duty in a sum of
34
Rs. 1,37,81,152 from the assessee under the proviso to Section
11A(1) of the Act, (ii) directed appropriation of Rs. 5,00,000
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 Rs.
1,37,81,152 under Section 11AC read with Rule 25, (v) imposed
a penalty of Rs. 1,00,000 under Rule 173Q/ Rule 25 (vi) imposed
a penalty of Rs. 10,00,000 under Rule 2019/ Rule 26, and (v)
imposed a penalty of Rs. 10,00,000 on Sh. P. M. A. Razak, the
Managing Director of the assessee.
54. The Commissioner recorded a finding that the evidence on
record proved that the assessee had undervalued the goods sold
through Shree Shyam Plywoods by about 75% and those sold
through other dealers by about 70%.
55. Aggrieved by the OrderinOriginal No. 10/2006 dated
29.05.2006, the assessee, its Managing Director and the
Commissioner of Central Excise, Mangalore filed three appeals
before the CESTAT.
35
56. By Final Order Nos. 11451147/2010 dated 26.08.2010,
the CESTAT allowed all the three appeals and remanded the
matter for requantification of duty in the light 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;
36
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 few
dealers;
VI. That no concrete evidence of undervaluation and evasion
with reference to any particular clearance had been found
by the Adjudicating Authority;
VII. That as seen from the statement of the Managing Director,
there was no doubt about undervaluation and payment of
lesser duty than what was due, and
37
VIII. That since the dispute was for clearances after 01.07.2000,
the value had to be determined based on each transaction.
58. Aggrieved by the said order, the Revenue has come up with
this batch of 3 appeals, Civil Appeal Nos. 32313233 of 2011.
Facts in Civil Appeal Nos. 65646567/2011
59. M/s. Thumbay Holdings Pvt. Ltd., Mangalore, which is the
assessee concerned in this batch of cases, admittedly
manufactures plywood/block boards and is also engaged in
construction and sale of immovable properties. Searches similar
to the ones in the previous batches of appeals were conducted by
the DGCEI at their premises, which revealed that the assessee
had undervalued the goods manufactured by them and cleared
them from their factory, resulting in the evasion of Central
Excise duty to the tune of Rs. 8,37,019 during the period from
01.04.2003 to 31.03.2004.
38
60. Thereafter, a show cause notice dated 11.10.2006 was
issued, demanding differential duty of Rs. 8,37,019, interest,
penalty, etc.
61. Unlike in the other batches of cases, the Joint
Commissioner of Central Excise, Mangalore, was the
Adjudicating Authority in this batch, in view of the monetary
value of the demand. After receipt of the assessee’s reply to the
show cause notice, he held an enquiry and passed an OrderinOriginal No. 20/2007 dated 29.06.2007. By this OrderinOriginal, the Joint Commissioner (i) confirmed the demand of
duty in a sum of Rs. 7,21,568 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 Rs. 7,21,568
under Section 11AC, (iv) imposed a penalty of Rs. 50,000 under
Rule 25 and (v) imposed a penalty of Rs. 50,000 each on Sh. B.
Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin
under Rule 26.
39
62. The Adjudicating Authority held that there was
undervaluation on assessee’s part and that therefore, Section
4(1)(a) was not applicable to the assessee’s transactions and that
the 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 OrderinOriginal 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.
40
66. By Final Order Nos. 15051508 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 witnesses and hence evasion of Central
Excise duty to an extent of 67% stood proved;
III. That since only 3 out of 25 dealers had recorded their
statements and only one of those clearly incriminated the
assessee, which had also been later retracted, the total
evidence available may not be adequate to quantify evasion
by the assessee for a whole year;
41
IV. That an analysis of the provisions of the Bankers’ Book
Evidence Act, 1891 showed that the Adjudicating Authority
was not barred from requisitioning the bank statement;
V. That the Adjudicating Authority rightly held that the show
cause notice was not barred by limitation;
VI. That however, the finding of evasion of duty could not be
applied to all the clearances by the assessee, and that if the
standard of preponderance of probability was applied in
that respect, it would contain an element of arbitrariness,
and
VII. That the Adjudicating Authority’s quantification of duty
due based on a formula worked out on the basis of the
slips and a few invoices, was not permissible, and that
transaction value had to be calculated with respect to each
removal, in terms Section 4 of the Act.
68. Aggrieved by the said order, the Revenue has come up with
this batch of 4 appeals, Civil Appeal Nos. 65646567 of 2011.
Facts in Civil Appeal Nos. 99889991 of 2011
42
69. The facts of this last batch of appeals are also similar to
the preceding cases. M/s. Hajee Timber Complex, Mangalore,
which is the assessee concerned in this batch of cases,
manufactures plywood/block boards. Searches conducted by the
DGCEI at their premises revealed that the assessee had
undervalued the goods manufactured and cleared by them,
resulting in the evasion of Central Excise duty to the tune of Rs.
50,42,761 during the period between 01.07.2001 to 31.03.2004.
70. A show cause notice dated 10.10.2006 was issued
demanding differential duty of Rs. 50,42,761 under Section
11A(1) of the Central Excise Act, 1944, interest, penalty, etc.
71. After the receipt of the reply from the assessee, the
Commissioner of Central Excise, Mangalore, held an enquiry and
passed an OrderinOriginal No. 08/2007 dated 29.03.2007,
wherein he (i) confirmed the demand of duty in a sum of Rs.
40,46,923 from the assessee under the proviso to Section 11A(1)
43
of the Act, (ii) directed appropriation of Rs. 2,00,000 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 Rs. 40,46,923 on the assessee
under Section 11AC, (v) imposed a penalty of Rs. 2,00,000 on
the assessee under Rule 25 of the 2002 Rules and (vi) imposed a
penalty of Rs. 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 OrderinOriginal 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.
44
74. By Final Order Nos. 15091512/2010 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 price list recovered from the BA group of
companies and the statements obtained from the dealers
and employees of the BA group, revealed the modus
operandi followed by the assessee in undervaluation of
excisable goods;
II. That the initial statements of the witnesses were voluntary
and hence, valid evidence;
III. That the test of preponderance of probability could not be
applied to judicially quantify the duty short paid during the
entire period of the dispute relying upon one slip showing
actual price in respect of few transactions;
45
IV. That the proviso to Section 11A(1) was applicable to the
present case and the show cause notice was not barred by
limitation, and
V. That each impugned clearance was assessable to duty on
the particular price (transaction value) charged for each
removal.
76. Aggrieved by the said order, the Revenue has come up with
this batch of 4 appeals, Civil Appeal Nos. 99889991 of 2011.
Common Issues arising in these appeals
77. It may be seen from the facts involved in these batches of
cases that there is a common thread that runs along the fabric
of these cases. This common thread is that the assessees in
these cases allegedly undervalued the goods, sold them for a
much higher price than what was reflected in the invoices and
thereby they evaded the excise duty actually payable. Though
the assessees uniformly denied the said allegation, the CESTAT
has recorded a categorical finding in all the cases that there was
46
undervaluation and evasion of excise duty. The said finding has
not been challenged by the assessees and hence it has attained
finality. Therefore, what arises for adjudication is only the
manner of determining the value of the goods removed by the
assessees for sale to or through dealers.
78. In other words, the entire dispute now revolves around the
question of valuation of excisable goods, for the purposes of
charging of duty. But for finding an answer to the said question,
it is necessary for us to take note of the period of assessment. In
some of these cases, the period of assessment was both prior to
and after 01.07.2000 and in other cases, the period was after
01.07.2000. According to the respondents, the method of
determination of value before 01.07.2000 was different from the
method of valuation after 01.07.2000, since Section 4 of the
Central Excise Act, 1944 was amended with effect from
01.07.2000 under 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.
47
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
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
their value, then, on each removal
of the goods, such value shall—
(a) in a case where the goods
are sold by the assessee, for
delivery at the time and place
of the removal, the assessee
and the buyer of goods are not
related and the price is the sole
consideration for the sale, be
48
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 normal practice of the
wholesale trade in such
goods, such goods are sold
by the assessee at different
prices to different classes of
buyers (not being related
persons) each such price
shall, subject to the
existence of the other
circumstances specified in
clause (a), be deemed to be
the normal price of such
goods in relation to each
such class of buyers;
(ia) where the price at which
such goods are ordinarily
sold by the assessee is
different for different places
of removal, each such price
shall, subject to the
existence of other
circumstances specified in
clause (a), be deemed to be
the normal price of such
the transaction value;
(b) in any other case, including
the case where the goods are
not sold, be the value
determined in such manner as
may be prescribed.
Explanation.— For the removal of
doubts, it is hereby declared that
the pricecumduty of the
excisable goods sold by the
assessee shall be the price
actually paid to him for the goods
sold and the money value of the
additional consideration, if any,
flowing directly or indirectly from
the buyer to the assessee in
connection with the sale of such
goods, and such pricecumduty,
excluding sales tax and other
taxes, if any, actually paid, shall
be deemed to include the duty
payable on such goods.
(2) The provisions of this section
shall not apply in respect of any
excisable goods for which a tariff
value has been fixed under subsection (2) of Section 3.
(3) For the purpose of this section
—
49
goods in relation to each
such place of removal;
(ii) where such goods are sold
by the assessee in the
course of wholesale trade
for delivery at the time and
place of removal at a price
fixed under any law for the
time being in force, or at a
price, being the maximum,
fixed under any such law,
then, notwithstanding
anything contained in
clause (iii) of this proviso,
the price or the maximum
price, as the case may be,
so fixed, shall, in relation to
the goods so sold, be
deemed to be the normal
price thereof;
(iii) where the assessee so
arranges that the goods are
generally not sold by him in
the course of wholesale
trade except to or through a
related person, the normal
price of the goods sold by
the assessee to or through
such related person shall be
deemed to be the price at
which they are ordinarily
sold by the related person
in the course of wholesale
(a) “assessee” means [...];
(b) persons shall be deemed to
be “related” if— [...]
(c) “place of removal” means—
(i) a factory or any other
place or premises 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 where the excisable
goods are to be sold after
their clearance from the
factory;
from where such goods are
removed;
50
trade at the time of removal,
to dealers (not being related
persons) or where such
goods are not sold to such
dealers, to dealers (being
related persons) who sell
such goods in retail;
(b) where the normal price of
such goods is not
ascertainable for the reason
that such goods are not sold
or for any other reason, the
nearest ascertainable
equivalent thereof determined
in such manner as may be
prescribed.
(2) Where, in relation to any
excisable goods the price thereof
for delivery at the place of
removal is not known and the
value thereof is determined with
reference to the price for delivery
at a place other than the place of
removal, the cost of
transportation from the place of
removal to the place of delivery
shall be excluded from such
price.
(3) [...]
(cc) “time of removal”, in
respect of the excisable goods
removed from the place of
removal referred to in subclause (iii) of clause (c), shall be
deemed to be the time at which
such goods are cleared 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.
51
(4) For the purposes of this
section—
(a) “assessee” means [...];
(b) “place of removal” means—
(i) a factory or any other
place or premises 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
52
respect of goods removed
from the place of removal
referred to in subclause (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
53
made, the trade discount
(such discount not being
refundable on any account
whatsoever) allowed in
accordance with the
normal practice of the
wholesale trade at the time
of removal in respect of
such goods sold or
contracted for sale.
Explanation.—[...]
(e) “wholesale trade” means
sales to dealers, industrial
consumers, Government,
local authorities and other
buyers, who or which
purchase their
requirements/otherwise than
in retail.
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 subsection (1) of Section 4,
where the emphasis was on normal price, the
determination of which corelated to ordinary sale in the
54
course of wholesale trade (satisfying certain conditions),
and
(ii) another covered by clause (b) of subsection (1) of Section
4, which related to cases where there were no sales, and
cases where normal price could not be ascertained for any
other reason.
81. The prescriptions contained in clause (a) of subsection (1)
of Section 4, before amendment in 2000, are summarized as
follows:
I. As a first rule, the normal price, namely the price at which
such goods are ordinarily sold in the course of wholesale
trade shall be taken as the value, if the buyer is not a
related person and the price is the sole consideration for
the same.
II. But in cases where different prices are charged to different
classes of buyers, each such price should be taken to be
the normal price in relation to each such class of buyers.
55
III. Similarly, if different prices are charged at different places
of removal, the normal price shall be the price charged in
relation to each such place of removal.
IV. Where the goods are generally not sold in the course of
wholesale trade, except to or through a related person, the
normal price shall be the price at which the goods are
ordinarily sold by the related person, in the course of
wholesale trade to other dealers.
82. Thus it is clear that under Section 4(1)(a), as it stood before
01.07.2000, the method of valuation prescribed therein was
directly linked to the normal price for an ordinary sale in
the course of wholesale trade. But in cases where normal price
was not ascertainable, the same would fall under Section 4(1)(b)
and the valuation in such cases had to be done in terms of the
Valuation Rules of the year 1975. Clause (b) identifies one
situation, namely where goods are not sold, in which, the normal
price may not be ascertainable. In addition, clause (b) also
recognises the fact that there may be cases where normal price
56
is not ascertainable for any other reason. These cases may
perhaps include sales otherwise than in the course of
wholesale trade.
83. Though the words “normal price” were used in Section 4(1)
(a), the proviso to clause (a) recognised the fact that the normal
price need not be the same universally, but could vary from one
class of buyers to another or from one place of removal to
another.
84. By the amendment under Act 10 of 2000, with effect from
01.07.2000, the words “normal price” and the words “in the
course of wholesale trade” were removed. Instead, the words
“transaction value” were inserted in Section 4(1)(a).
85. As rightly pointed out by the learned Additional Solicitor
General, the third question referred to the Constitution bench in
CCE vs. Grasim Industries Limited2
was whether or not the
concept of “transaction value” makes any material departure
from the deemed normal price concept of the erstwhile Section
2 (2018) 7 SCC 233
57
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 difference, namely that the
focus of Section 4(1)(a) prior to 01.07.2000 was on finding
out the normal price in respect of sales made ordinarily in
the course of wholesale trade. The method of valuation,
58
wherever there was no sale, was to be on the basis of the Rules,
in view of Section 4(1)(b). Even in cases where there was a sale—
(i) in the course of wholesale trade but the conditions
stipulated in clause (a) were not satisfied or
(ii) the normal price could not be ascertained for any other
reason,
the method of valuation was left under clause (b) of subsection
(1) of Section 4 to the rule making authority to stipulate. The
implication flowing out of the words “for any other reason”
found in clause (b) before amendment is of significance in this
regard. After the amendment under Act 10 of 2000, the normal
pricing method was gone, as the focus shifted from sale in the
course of wholesale trade.
87. While clause (a) of subsection (1) of Section 4, as it stood
before amendment, laid emphasis on normal price, clause (a) of
subsection (1) of Section 4, as it stands after amendment,
speaks about transaction value. Clause (b) of subsection (1),
both before and after the amendment, leaves it to the delegated
59
legislation to prescribe the method of valuation, for cases not
covered by clause (a).
88. For the valuation under Section 4(1) to follow the
“transaction value”, (after amendment) the three conditions
stipulated in clause (a), namely (i) that the goods are sold for
delivery at the time and place of removal, (ii) that the assessee
and buyer are not related and (iii) that the price is the sole
consideration for the sale, should be satisfied.
89. If the three conditions, enumerated in clause (a), (indicated
above) are not satisfied, then the case would fall under clause (b)
of subsection (1) of Section 4, which starts with the words “in
any other case”. In other words, in cases not covered by clause
(a), the value can be determined in such manner as may be
prescribed.
90. After the amendment under Act 10 of 2000, the Central
Government issued a new set of rules called the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules,
60
2000. These rules were issued in exercise of the power conferred
by Section 37, in supersession of the 1975 Valuation Rules.
91. Rule 3 of the aforesaid 2000 Rules makes it clear 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
subsection (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 subsection (3) of
Section 4. But if a case is not covered by clause (a) of subsection (1) of Section 4, then the value of the excisable goods
should be determined in accordance with the 2000 Rules.
61
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 subsection (1) of Section 4.
94. In cases where there is a sale and the three conditions
stipulated in clause (a) of subsection (1) of Section 4 are
satisfied, the adjudicating authority should determine the value
based upon the transaction value. But (i) in cases where there is
no sale and (ii) in cases where there is a sale but the three
conditions stipulated in clause (a) are not satisfied, then the
adjudicating authority should fall back upon the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules,
2000.
What the Adjudicating Authority and the Tribunal had and had
not done in these cases
62
95. First, let us see what they did, before looking at what they
did not. Broadly, in the batches of cases on hand (with one or
two exceptions), the Adjudicating Authorities came to the
following conclusions:
(i) that there was undervaluation and evasion of duty;
(ii) that in respect of sales effected both before and after
01.07.2000, the invoice value, together with the cash paid
over and above the invoice value, would represent the
normal price or the transaction value, as the case may be,
and
(iii) that in cases where there was evidence to show that a
dealer had paid more than the invoice value, the amount
found to have been paid by such a dealer, though relatable
only to a few out of the several transactions that he had
with the assessee, should be taken to be the normal price
or the transaction value, as the case may be, applicable to
all the transactions that the particular dealer had with the
assessee.
63
96. Similarly, what the CESTAT did in all these cases is:
(i) to uphold the finding of undervaluation and evasion of
duty;
(ii) to hold that invoice price need not be taken as the normal
price in respect of cases prior to 01.07.2000 and that
wherever a particular amount is actually found to have
been paid by a dealer, the same could be taken to be the
transaction value, for cases after 01.07.02000; and
(iii) to hold that the determination of the normal price or the
transaction value, as the case may be, should be confined
only to the evidence available on record, but not to all the
transactions across the board.
97. But the Adjudicating Authorities as well as CESTAT are
also guilty of failure to do something in these batches of cases.
They are:
(i) Failure to find out, in cases covered by Section 4(1) as it
stood prior to 01.07.2000, whether there were sales in the
course of wholesale trade, satisfying the 3 conditions
64
prescribed therein, falling under clause (a) of subsection
(1) or whether the sales in question fell under clause (b) of
subsection (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 subsection (1) of Section 4;
(iii) Failure to find out, in the event of the sales in question
falling under clause (b) of subsection (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.
65
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 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.
Conclusion
99. In fine, these appeals are disposed of, confirming the
impugned orders of CESTAT setting aside the OrdersinOriginal
passed by the Adjudicating Authorities and remanding the
matters back for readjudication. However, while carrying out
the exercise of readjudication, the Adjudicating Authorities
should keep in mind the principles enumerated hereunder:
A. Cases where the period of assessment is prior to 01.07.2000
66
I. 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 subsection (1) of Section 4.
II. If the normal price is not ascertainable, either for the
reason that the goods are not sold or for any other reason,
then he may take it that the case would fall under Section
4(1)(b) and take recourse in such cases, to the Central
Excise (Valuation) Rules, 1975.
III. The phrase “for any other reason” appearing in Section 4(1)
(b) would include cases where the price charged in the
course of wholesale trade is not discernible or where the
same, though discernible, cannot be linked to delivery at
67
the time and place of removal or where the price is not the
sole consideration for the sale, even though the price
charged in the course of wholesale trade for delivery at the
time and place of removal are available.
IV. If the case falls under Section 4(1)(b) and the Adjudicating
Authority takes recourse to the method of valuation
prescribed in the 1975 Rules, he shall find out which
among the relevant rules would apply to the cases on hand
before proceeding with the valuation.
B. Cases where the period of assessment is after 01.07.2000
I. First ascertain the “transaction value”, with particular
reference to the definition of the said expression contained
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
68
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 4(1)(a) (after the amendment), as the definition of
69
“transaction value” under Section 4(3)(d) means the price
actually paid or payable.
D. The Adjudicating Authority shall keep in mind the fact that
while the expression “normal price” was not defined in
Section 4(1) before amendment, the expression “transaction
value” is defined very exhaustively in Section 4(3)(d) and this
definition is both inclusive as well as exhaustive.
E. Wherever there is a finding that a particular dealer/ customer
has paid a consideration over and above what is reflected in
the invoice, the additional payment made by him together
with the invoice value shall be taken to be the transaction
value, for all the transactions that the particular
dealer/customer had with the assessee. In simple terms, if a
dealer/customer has made 10 purchases during the period in
question, for a particular value stated in the invoice, the
transaction value determined on the basis of material
relatable to a few out of those transactions, can be applied to
all the transactions of that customer/dealer across the board
70
for that period. However, the same value cannot be applied to
the other dealers/ customers. This principle shall be followed
in respect of cases arising after the amendment.
F. Since the matters are more than a decade old, the
Adjudicating Authorities may conduct hearings, afford
adequate opportunities to the parties and pass orders in
original as early as possible.
The appeals are disposed of accordingly. There will be no
order as to costs.
[
…………....................CJI.
(S. A. Bobde)
..…………....................J.
(A. S. Bopanna)
…..………......................J.
(V. Ramasubramanian)
AUGUST 19, 2020
NEW DELHI
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.72407248 OF 2009
THE COMMISSIONER OF CENTRAL
EXCISE, CUSTOMS AND SERVICE TAX,
CALICUT …Appellant
Versus
M/S. CERA BOARDS AND DOORS, KANNUR
KERALA ETC. ETC. …Respondents
WITH
CIVIL APPEAL Nos.86158620 OF 2009
CIVIL APPEAL Nos.22362253 OF 2011
CIVIL APPEAL Nos.32273230 OF 2011
CIVIL APPEAL Nos.32313233 OF 2011
CIVIL APPEAL Nos.65646567 OF 2011
CIVIL APPEAL Nos.99889991 OF 2011
2
J U D G M E N T
V. Ramasubramanian,J.
Introduction
1. All the appeals on hand are by the Commissioners of
Central Excise, Customs & Service Tax of different
Commissionerates, filed 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. 72407248 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
3
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. 72407248 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. 72407248 of 2009 are
taken as the lead case.
Facts in Civil Appeal Nos. 72407248 of 2009
3. M/s. CERA Boards and Doors, Kannur, which is the
assessee concerned in this batch of cases, admittedly
manufactures plywood/block boards. Searches were conducted
by the Directorate General of Central Excise Intelligence (DGCEI)
at their factory premises at Kannur, Kerala and their depot at
Bangalore, on 17.10.2002 and on subsequent days. Searches
were also conducted at the residences of the partners of the firm,
the residences of some of their employees and the premises of
some of their dealers.
4
4. CERA Boards and Doors is a partnership firm comprising
of one Mr. K. S. Harris and Smt. K. P. Rashida as partners. Their
Bangalore depot was managed by its manager, Sh. T. S.
Bhaskar.
5. The investigation that followed the searches revealed that
the assessee had undervalued the goods manufactured by them
and cleared the goods from their factory, resulting in the evasion
of Central Excise duty to the tune of Rs. 4,29,01,384 during the
period from 01.12.1998 to 05.12.2002.
6. After the search, CERA Boards made payment of a sum of
Rs. 12,50,000 towards shortfall in duty for the clearances
effected during the relevant period. Thereafter, show cause
notices dated 07.04.2003 and 22.12.2003 were issued. The show
cause notice dated 07.04.2003 was for the proposed confiscation
of the goods seized from CERA Boards, M/s. Ply Home, M/s. Gee
Ply, M/s. Decowood Interiors, M/s. Arihant Marketing and M/s.
Krishna Agencies, respectively valued at Rs. 12,80,926, Rs.
5
27,961, Rs. 34,332, Rs. 2,88,585, Rs. 32,829 and Rs. 1,00,000.
This was under Rule 25 of the Central Excise Rules, 2002.
7. The show cause notice dated 22.12.2003 was for
(i) payment of differential duty to the tune of Rs. 4,29,01,384
under Section 11A(1) of the Central Excise Act, 1944, (ii) interest
under Section 11AB of the Act, (iii) appropriation of the amount
of Rs. 12,50,000 voluntarily paid by them immediately after the
search, towards duty liability, (iv) penalty in terms of Section
11AC of the Act and also under Rule 173Q of the erstwhile
Central Excise Rules, 1944/ Rule 25 of the Central Excise Rules,
2002, and (v) imposition of penalty on the Managing Partner and
Manager of the firm under Rule 209A of the erstwhile Central
Excise Rules, 1944/ Rule 26 of the Central Excise Rules, 2002.
8. The material forming the basis of the aforesaid show cause
notices were: (i) the loose sheets recovered from a Sales
Executive by name Mr. Dayanandan, (ii) computer print outs
containing “overdue bills” statements, (iii) the price lists
containing the actual rate per square feet of plywood/block
6
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 Basheer (a purchaser), (viii)
Mr. B. Narayan Rao (a purchaser), (ix) Mr. Riyas Mayalakkare
7
(purchaser), (x) Mr. Jagdish S. Patel (purchaser), (xi) Mr. G. M.
Aggarwal (purchaser), (xii) Mr. Sunny John (purchaser), (xiii) Mr.
Kailash Kumar (purchaser), (xiv) Mr. Arvind L. Patel (purchaser),
(xv) Mr. T. V. G. Ganesan (purchaser) and (xvi) Mr. Abdul
Khayoom (purchaser).
10. In response to the two show cause notices referred to
above, the assessee sent two replies, one dated 09.08.2005 and
another dated 24.08.2005. Through these replies, the assessee
sought permission to crossexamine all those whose statements
were recorded by the DGCEI and took a stand that there was no
undervaluation.
11. The assessee contended in their replies that they were
effecting supplies not only to the dealers and consumers in
Bangalore but also to dealers in Tamil Nadu and Kerala and that
based upon a few documents seized in relation to the
transactions in Bangalore depot, an allegation of undervaluation
by 70% on all transactions, cannot be made.
8
12. It was also contended that though the Department sought
to rely upon private documents allegedly maintained by two of
their staff members at the Bangalore depot, by name Suresh and
Deepak Dhiman, they were not examined. According to the
assessee, they were transacting with 153 dealers during the
period 20012002 and 3 dealers during the period 20022003,
and that the Department was not entitled to reach a conclusion
on the basis of the statements recorded from just 2 of those
dealers in Karnataka and only one out of 56 dealers in Kerala.
13. It was also contended by the assessee that in so far as the
period prior to 01.07.2000 is concerned, what is relevant is the
normal price, namely the price at which the goods are sold at the
factory there. This was in terms of Section 4(1)(a) of the Act as it
stood prior to 01.07.2000. Hence they contended that even if
they had realised a higher price from certain buyers, the same
would be irrelevant, as regards the period before 01.07.2000.
14. In so far as the period post 01.07.2000 is concerned, it was
contended by the assessee in their replies that the transaction
9
value should be arrived at on the basis of the price indicated in
each invoice.
15. After the receipt of the replies from the assessee, the
Commissioner of Central Excise and Customs, Calicut, held
personal hearings, allowed the crossexamination of witnesses,
perused the case law relied upon by the assessee and then
passed an OrderinOriginal No. 14/2006 dated 09.05.2006. By
this OrderinOriginal, the Commissioner (i) confirmed the
demand of duty in a sum of Rs. 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 Rs. 79,21,663
under Section 11AC read with Rule 25, (iv) directed the
confiscation of goods seized from the assessee, valued at Rs.
12,80,926 with an option to redeem the same upon payment of
fine of Rs. 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 Rs. 2,500 to
10
Rs. 15,000, (vi) imposed a penalty of Rs. 5,000 each, upon the
assessee and five of the dealers and (vii) imposed a penalty of Rs.
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 contained in the
show cause notice was for the imposition of differential Central
Excise duty to the tune of Rs. 4,29,01,384 for the period between
01.12.1998 and 05.12.2002. But, the adjudicating authority
confirmed the demand only to the extent of Rs. 79,21,663. The
findings recorded by the adjudicating authority, and the reasons
given therefor are as follows:
I. That as per the statements recorded from the dealers, the
assessee was usually showing a lesser amount in the
invoices than the actual sale consideration and was in the
habit of collecting the differential amount by way of cash;
II. That though some of the dealers retracted from their
original statements, the retractions happened only during
11
crossexamination that happened after several years and
hence, the original statements could be taken into account;
III. That the documentary evidence such as the loose slips,
computer printouts, notebooks, diaries, receipt books, etc.
seized by the DGCEI together with the statements recorded
from the depot Manager and Sales Executives clearly
showed underinvoicing;
IV. That though the Department had demanded differential
duty to the tune of Rs. 4,29,01,384 on the actual sales
turnover for the period in question, the department
collected evidence only in respect of 11 customers and not
from all customers whose names were mentioned in
Annexure D to the show cause notice;
V. That therefore, the calculation of differential duty had to be
confined only to the sales turnover relatable to the
aforesaid 11 customers and the turnover relatable to 3
more customers whose confession statements had been
recorded;
12
VI. That in view of the law laid down by this Court in
Collector of Customs, Madras vs. D. Bhoormall,
1
the
Department could not plead its inability to examine all the
dealers to come to the conclusion of undervaluation in all
transactions;
VII. That in respect of those 14 dealers, a clear case was made
out by the Department about the gross undervaluation of
the sales price, and
VIII. That therefore, the differential duty corelatable to the sales
turnover in respect of those 14 dealers could be demanded.
17. Aggrieved by the OrderinOriginal No. 14/2006 dated
09.05.2006, one appeal was filed by the assessee, one appeal
was filed by its Managing Partner, one appeal was filed by the
Manager 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
1 (1983) 13 ELT 1546 (SC)
13
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 Rs.
4,29,01,384 made in the show cause notice, the adjudicating
authority confirmed the demand only to the extent of Rs.
79,21,663.
19. By Final Order Nos. 245253/2009 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 differential duty, interest,
and penalty and remanded the matter for requantification of
duty in light of the findings given. The appeal filed by the
14
Revenue also followed the fate of the three appeals filed by the
assessee, its Managing Partner and its Manager.
20. The effect of the Final Orders passed by CESTAT is (i) that
the appeals of the dealers against confiscation with the option of
redemption stood rejected and (ii) that the substantive appeals
arising out of the imposition of differential duty, interest,
penalty, etc. stood allowed and remanded back to the
adjudicating authority for a fresh consideration.
21. The findings recorded and the reasons therefor, as given by
CESTAT, are as follows:
I. That there was overwhelming evidence to show underinvoicing;
II. That in light of the statements made by depot officials as
well as dealers, the finding of the Adjudicating Authority
that 30% of the actual value alone was mentioned in the
invoice cannot be interfered with;
15
III. That as per Section 4(1)(a), as it stood before 01.07.2000,
duty was payable on the normal price, namely the price at
which such goods were ordinarily sold in the course of
wholesale trade; and hence the Commissioner was obliged
to find out what the normal price in the course of wholesale
trade was for the clearances made prior to 01.07.2000;
IV. That in respect of the sales made prior to 01.07.2000, the
adjudicating authority should adopt the normal pricing
method;
V. That for the clearances made after 01.07.2000, the
transaction value had to be determined in respect of each
transaction and the differential duty confined only to the
evidence available on record;
VI. That the stand of the Revenue that 70% should be added to
the invoice value uniformly in respect of all clearances,
could not be accepted and,
VII. That therefore, the matter required readjudication.
16
22. Therefore, the Revenue has come up with this batch of
nine appeals, Civil Appeal Nos. 72407248 of 2009.
Facts in Civil Appeal Nos. 86158620 of 2009
23. The facts of this batch of appeals are similar to those in
Civil Appeal Nos. 72407248 of 2009. M/s. Prestige Boards Pvt.
Ltd., Kannur which is the assessee concerned in this batch of
cases, also manufactures plywood/block boards. Similar
searches conducted at their premises revealed that the assessee
had grossly undervalued the goods cleared by them from their
factory, resulting in evasion of Central Excise duty to the tune of
Rs. 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 Rs. 2,72,03,232
under Section 11A(1) of the Act, interest, penalty, etc. were
issued.
17
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 OrderinOriginal No. 10/2006 dated 27.03.2006, by which, he (i)
confirmed the demand of duty to the extent of Rs. 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
Rs. 1,50,23,911 under Section 11AC read with Rule 25, (iv)
directed the confiscation of goods seized from the assessee,
valued at Rs. 14,24,286 with an option to redeem the same upon
payment of fine of Rs. 1,50,000, (v) directed the confiscation of
goods seized from M/s. Prestige Traders, valued at Rs. 5,49,176,
with an option to redeem the same upon payment of fine of Rs.
50,000, (vi) directed the confiscation of goods seized from M/s.
Ply Home, valued at Rs. 29,270, with an option to redeem the
same upon payment of fine of Rs. 3000, (vii) directed the
18
confiscation of goods seized from M/s. Gee Ply, valued at Rs.
38,268, with an option to redeem the same upon payment of fine
of Rs. 3500, (viii) ordered outright release of Rs. 2,50,000 seized
from Sh. P. K. Shakeer, (ix) imposed a penalty of Rs. 5,000 each
on M/s. Prestige Traders, M/s. Ply Home and M/s. Gee Ply, and
(x) imposed a penalty of Rs. 50,000 each on Sh. K. S.
Mohammad Ali (Managing Director) and Sh. Kunjuraman
(Manager, Bangalore depot).
26. The Commissioner held that there was evidence to prove
undervaluation, but the demand had to be confined only to the
transactions that the assessee had with 20 customers from
whom alone evidence had been collected. Like the OrderinOriginal passed in the case of CERA Boards, the Commissioner
ruled in this case also that (i) with respect to the period prior to
01.07.2000, the normal price should include the price indicated
in the invoice plus the amount collected by way of cash, and (ii)
19
for the period post 01.07.2000, the transaction value was
nothing but the invoice value plus the amount collected in cash.
27. Aggrieved by the OrderinOriginal No. 10/2006 dated
27.03.2006, the assessee, its Managing Director (Sh. K. S.
Mohammad Ali), its Sales Manager (Sh. Kunjuraman), M/s.
Prestige Traders and the two dealers from whom seizure of
material was effected, filed six appeals before the CESTAT.
28. By Final Order Nos. 414419/2009 dated 21.04.2009, the
CESTAT (i) allowed the three appeals filed by the assessee, its
Managing Director and Sales Manager challenging the demand
for differential duty, interest and penalty, and remanded the
matter for requantification of duty in light of the findings given,
and (ii) rejected the appeals filed by M/s. Prestige Traders and
the two dealers challenging the orders of confiscation.
20
29. The findings recorded and the reasons therefor, as given by
CESTAT, are as follows:
I. That there was overwhelming evidence to show underinvoicing;
II. That in respect of the sales made prior to 01.07.2000, 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. 86158620 of 2009.
21
Facts in Civil Appeal Nos. 22362253 of 2011
31. Searches were conducted by the officers of the Directorate
General of AntiEvasion (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 issued. The first show cause
notice was against M/s. Universal Wood Crafts, Kumbla, M/s.
Wood Crafts, Kumbla, M/s. Uniwoods, Kumbla, M/s. National
Boards, Kumbla, M/s. Darvesh Plywoods, Kumbla, Sri K.
Mohammed Arabi, Kumbla, Sri Khaleel Rahiman, Kayarkulam
and Sri Mansoorul Huck, Kayarkulam, proposing the
confiscation of the seized plywood and the seized Indian
currency, demand drafts and cheques.
22
33. The second show cause notice quantified the duty short
paid by the seven plywood units, namely M/s. National Boards,
M/s. Darvesh Plywoods, M/s. Uniwoods, M/s., Wood Crafts,
M/s. Universal Wood Craft Co., M/s. Mailatty Wood Industries
and M/s. National Wood Products, at Rs. 7,59,24,737 and the
duty short paid by the chemical unit by name M/s. Bharath
Chemicals, at Rs. 9,12,375, for the period from 19941995 to
19992000 (up to June 1999). The notice also proposed the levy
of interest and penalty, apart from confiscation.
34. Subsequently, twelve periodical show cause notices were
issued to the plywood manufacturing/dealing units for different
periods of time.
35. After the receipt of the replies from the assessees and their
proprietors/partners to the two show cause notices, the
Commissioner of Central Excise, Calicut, held an enquiry and
passed an OrderinOriginal No. 10/2005 dated 30.06.2005,
wherein he confirmed the duty demanded from the units in
question, named in column 1 of the table below, to the extent
23
indicated in column 2 thereof. The Adjudicating Authority also
imposed penalties on each of them, to the extent indicated in
column 3 of the table:
Name Duty Demanded Penalty
M/s. National Boards Rs 28,95,584/ Rs 28,95,584/
M/s. Darvesh Plywoods Rs. 86,01,648/ Rs. 86,01,648/
M/s. Uniwoods Rs. 72,15,522/ Rs. 72,15,522/
M/s. Wood Crafts Rs. 73,59,665/ Rs. 73,59,665/
M/s. Universal Wood
Crafts Co.
Rs. 26,73,758/ Rs. 26,73,758/
M/s. Mailatty Wood
Industries
Rs. 23,24,056/ Rs. 23,24,056/
M/s. National Wood
Products
Rs. 61,14,236/ Rs. 61,14,236/
M/s. Bharath
Chemicals
Rs. 5,52,839/ Rs. 5,52,839/
36. In addition to the above, the Adjudicating Authority
confirmed the demand of interest under Section 11AB, ordered
24
the confiscation of material with an option to redeem the same
on payment of fine and imposed penalties. However, (1) the
currency of Rs. 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 OrderinOriginal 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/11451161/2005 were disposed of by CESTAT,
by a common order dated 01.04.2010.
25
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 operated secret price lists for
sale of their finished products and paid duty on a much
lower value and also resorted to innovative methods of
accounting;
III. That the previous decisions of the Tribunal in the case of
CERA Boards, Noble Ply and Prestige Boards, with regard
to the fixation of normal price in respect of the clearances
made prior to 01.07.2000, should be followed and the
matter remanded back;
IV. That as regards Bharat Chemicals, the demand of
differential duty of Rs. 9,12,375 together with other penal
liabilities, was liable to be confirmed and their appeal liable
to be dismissed;
26
V. That as regards the clandestine clearances made by M/s.
Wood Crafts, M/s. Uniwoods, M/s. Darvesh Plywood, M/s.
National Boards, M/s. National Wood Products, M/s.
Mailatty Wood Industries and M/s. Universal Wood Crafts
Co., the matter had to be remanded back to the
Commissioner, for the purpose of adjudicating whether the
turnover reckoned by the Adjudicating Authority included
proceeds of sale of nonexcisable goods;
VI. That as a consequence of the remand, the penalties
imposed on the seven units (whose names are indicated in
the preceding point) should also be readjudicated after the
requantification of the liability;
VII. That the appeals filed against the confiscation of plywood
valued at Rs. 2,86,389.20 seized from Khaleel Rehman
Glass Centre, the appeals filed against the confiscation of
plywood sheets valued at Rs.15,056.20 seized from
Mansarool Huck, with an option to redeem upon payment
of fine, and the appeals filed against the individual
27
penalties imposed upon Khaleel Rehman and Mansarool
Huck were also liable to be rejected, and
VIII. That all the other appeals are to be allowed, and the matter
remanded for readjudication on the terms indicated above.
40. Aggrieved by the said order, the Revenue has come up with
this batch of appeals, Civil Appeal Nos. 22362253 of 2011.
Facts in Civil Appeal Nos. 32273230 of 2011
41. Similar to the preceding cases, M/s. Mysore Chipboards
Ltd., which is the assessee concerned in this batch of cases, also
manufactures plywood/block boards/particle boards. Searches
conducted by the DGCEI at their premises revealed that the
assessee had undervalued the goods manufactured by them and
cleared them from their factory, resulting in the evasion of
Central Excise duty to the tune of Rs. 7,51,53,570 during the
period from 01.07.2000 to 28.08.2003.
28
42. A show cause notice dated 21.07.2005 was issued,
demanding differential duty of Rs. 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 OrderinOriginal No. 06/CCE/2006 dated
05.10.2006. By this OrderinOriginal, the Commissioner (i)
confirmed the demand of duty in a sum of Rs. 81,01,637 from
the assessee under the proviso to Section 11A(1) of the Act, (ii)
directed appropriation of Rs. 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 Rs. 81,01,637 under Section 11AC read
with Rule 25 and (v) imposed a penalty of Rs. 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 Rs. 3,79,452 in respect of the
invoices raised by the factory at Mysore, (ii) to the extent of Rs.
29
29,677 relating to the six slips from the Lucknow office and (iii)
to the extent of Rs. 5,02,26,106 with respect to sales through
assessee’s consignment agent, M/s. Kela Brothers. The
Adjudicating Authority further ruled that the evidence in respect
of undervaluation in sales through M/s. Umiya Enterprises,
M/s. Balaji Glass & Plywoods, M/s. Rohini Plywood &
Laminates, and the Ludhiana and Delhi office of the assessee
was insufficient.
45. Aggrieved by the OrderinOriginal No. 06/CCE/2006
dated 05.10.2006, three appeals were filed, one by the assessee,
another by its Resident Director and the third by the
Commissioner of Central Excise, Mysore, before the CESTAT.
46. The assessee challenged the maintainability of the appeal
filed by the Commissioner of Central Excise, Mysore, on the
ground that as per the decision of the Committee of Chief
Commissioners, it was only the Mangalore Commissioner and
not the Mysore Commissioner who was entitled to file an appeal.
30
47. In response to the said objection, the Commissioner of
Central Excise, Mysore then filed a Miscellaneous Application in
its appeal before the CESTAT, placing on record, a corrigendum
to the order of the Committee of Commissioners authorising the
Mysore Commissioner to file the appeal.
48. By a Final Order passed in the three regular appeals and
one miscellaneous application, namely Final Order Nos. 985
987/2010 dated 07.07.2010 and Miscellaneous Order No.
300/2010 dated 07.07.2010, the CESTAT (i) allowed the appeals
filed by the assessee and its Resident Director challenging the
demand for differential duty, interest and penalty and remanded
the matter to the Adjudicating Authority for requantification of
duty; (ii) allowed the appeal filed by the Revenue and remanded
the matter for fresh adjudication (except on the clearances
relating to Umiya enterprises and sales from the Delhi branch)
and (iii) allowed the Miscellaneous Application relating to the
maintainability of the appeal filed by the Mysore Commissioner.
31
49. The findings recorded and the reasons therefor, as given by
CESTAT, are as follows:
I. That the demand of Rs. 60,712 for the differential value of
Rs. 3,79,452 in respect of the clearances reflected in the
InterOffice memo was rightly confirmed by the
Adjudicating Authority, by rejecting the retractions of the
statements 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 Rs. 4748 on the differential
value of Rs. 29,677 with respect to clearances from the
Lucknow branch was liable to be sustained;
III. That the demand of Rs. 80,36,177 on the differential value
of Rs. 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;
32
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.
50. Aggrieved by the said order, the Revenue has come up with
this batch of 4 appeals, Civil Appeal Nos. 32273230 of 2011.
33
Facts in Civil Appeal Nos. 32313233/2011
51. M/s. Plama Boards Pvt. Ltd., Mangalore, which is the
assessee concerned in this batch of cases, manufactures
plywood/ block boards. Searches conducted by the DGCEI at
their premises revealed, according to the Revenue, that (i) the
assessee had fraudulently undervalued the goods manufactured
and cleared, (ii) that the actual value of clearances had crossed
the Small Scale Industries exemption limit of Rs. 1,00,00,000
and (iii) that the assessee had thus, evaded Central Excise duty
to the tune of Rs. 2,13,70,618 during the period from
01.10.2000 to 28.04.2004.
52. A show cause notice dated 22.11.2005 was issued
demanding differential duty of Rs. 2,13,70,618 under Section
11A(1) of the Central Excise Act, 1944, interest, penalty, etc.
53. After the receipt of the replies from the assessee, the
Commissioner of Central Excise, Mangalore, held an enquiry and
passed an OrderinOriginal No. 10/2006 dated 29.05.2006, in
and by which, he (i) confirmed the demand of duty in a sum of
34
Rs. 1,37,81,152 from the assessee under the proviso to Section
11A(1) of the Act, (ii) directed appropriation of Rs. 5,00,000
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 Rs.
1,37,81,152 under Section 11AC read with Rule 25, (v) imposed
a penalty of Rs. 1,00,000 under Rule 173Q/ Rule 25 (vi) imposed
a penalty of Rs. 10,00,000 under Rule 2019/ Rule 26, and (v)
imposed a penalty of Rs. 10,00,000 on Sh. P. M. A. Razak, the
Managing Director of the assessee.
54. The Commissioner recorded a finding that the evidence on
record proved that the assessee had undervalued the goods sold
through Shree Shyam Plywoods by about 75% and those sold
through other dealers by about 70%.
55. Aggrieved by the OrderinOriginal No. 10/2006 dated
29.05.2006, the assessee, its Managing Director and the
Commissioner of Central Excise, Mangalore filed three appeals
before the CESTAT.
35
56. By Final Order Nos. 11451147/2010 dated 26.08.2010,
the CESTAT allowed all the three appeals and remanded the
matter for requantification of duty in the light 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;
36
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 few
dealers;
VI. That no concrete evidence of undervaluation and evasion
with reference to any particular clearance had been found
by the Adjudicating Authority;
VII. That as seen from the statement of the Managing Director,
there was no doubt about undervaluation and payment of
lesser duty than what was due, and
37
VIII. That since the dispute was for clearances after 01.07.2000,
the value had to be determined based on each transaction.
58. Aggrieved by the said order, the Revenue has come up with
this batch of 3 appeals, Civil Appeal Nos. 32313233 of 2011.
Facts in Civil Appeal Nos. 65646567/2011
59. M/s. Thumbay Holdings Pvt. Ltd., Mangalore, which is the
assessee concerned in this batch of cases, admittedly
manufactures plywood/block boards and is also engaged in
construction and sale of immovable properties. Searches similar
to the ones in the previous batches of appeals were conducted by
the DGCEI at their premises, which revealed that the assessee
had undervalued the goods manufactured by them and cleared
them from their factory, resulting in the evasion of Central
Excise duty to the tune of Rs. 8,37,019 during the period from
01.04.2003 to 31.03.2004.
38
60. Thereafter, a show cause notice dated 11.10.2006 was
issued, demanding differential duty of Rs. 8,37,019, interest,
penalty, etc.
61. Unlike in the other batches of cases, the Joint
Commissioner of Central Excise, Mangalore, was the
Adjudicating Authority in this batch, in view of the monetary
value of the demand. After receipt of the assessee’s reply to the
show cause notice, he held an enquiry and passed an OrderinOriginal No. 20/2007 dated 29.06.2007. By this OrderinOriginal, the Joint Commissioner (i) confirmed the demand of
duty in a sum of Rs. 7,21,568 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 Rs. 7,21,568
under Section 11AC, (iv) imposed a penalty of Rs. 50,000 under
Rule 25 and (v) imposed a penalty of Rs. 50,000 each on Sh. B.
Abdul Salam, Sh. J. M. Ashraf and Sh. Manoj Kumar Amin
under Rule 26.
39
62. The Adjudicating Authority held that there was
undervaluation on assessee’s part and that therefore, Section
4(1)(a) was not applicable to the assessee’s transactions and that
the 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 OrderinOriginal 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.
40
66. By Final Order Nos. 15051508 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 witnesses and hence evasion of Central
Excise duty to an extent of 67% stood proved;
III. That since only 3 out of 25 dealers had recorded their
statements and only one of those clearly incriminated the
assessee, which had also been later retracted, the total
evidence available may not be adequate to quantify evasion
by the assessee for a whole year;
41
IV. That an analysis of the provisions of the Bankers’ Book
Evidence Act, 1891 showed that the Adjudicating Authority
was not barred from requisitioning the bank statement;
V. That the Adjudicating Authority rightly held that the show
cause notice was not barred by limitation;
VI. That however, the finding of evasion of duty could not be
applied to all the clearances by the assessee, and that if the
standard of preponderance of probability was applied in
that respect, it would contain an element of arbitrariness,
and
VII. That the Adjudicating Authority’s quantification of duty
due based on a formula worked out on the basis of the
slips and a few invoices, was not permissible, and that
transaction value had to be calculated with respect to each
removal, in terms Section 4 of the Act.
68. Aggrieved by the said order, the Revenue has come up with
this batch of 4 appeals, Civil Appeal Nos. 65646567 of 2011.
Facts in Civil Appeal Nos. 99889991 of 2011
42
69. The facts of this last batch of appeals are also similar to
the preceding cases. M/s. Hajee Timber Complex, Mangalore,
which is the assessee concerned in this batch of cases,
manufactures plywood/block boards. Searches conducted by the
DGCEI at their premises revealed that the assessee had
undervalued the goods manufactured and cleared by them,
resulting in the evasion of Central Excise duty to the tune of Rs.
50,42,761 during the period between 01.07.2001 to 31.03.2004.
70. A show cause notice dated 10.10.2006 was issued
demanding differential duty of Rs. 50,42,761 under Section
11A(1) of the Central Excise Act, 1944, interest, penalty, etc.
71. After the receipt of the reply from the assessee, the
Commissioner of Central Excise, Mangalore, held an enquiry and
passed an OrderinOriginal No. 08/2007 dated 29.03.2007,
wherein he (i) confirmed the demand of duty in a sum of Rs.
40,46,923 from the assessee under the proviso to Section 11A(1)
43
of the Act, (ii) directed appropriation of Rs. 2,00,000 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 Rs. 40,46,923 on the assessee
under Section 11AC, (v) imposed a penalty of Rs. 2,00,000 on
the assessee under Rule 25 of the 2002 Rules and (vi) imposed a
penalty of Rs. 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 OrderinOriginal 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.
44
74. By Final Order Nos. 15091512/2010 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 price list recovered from the BA group of
companies and the statements obtained from the dealers
and employees of the BA group, revealed the modus
operandi followed by the assessee in undervaluation of
excisable goods;
II. That the initial statements of the witnesses were voluntary
and hence, valid evidence;
III. That the test of preponderance of probability could not be
applied to judicially quantify the duty short paid during the
entire period of the dispute relying upon one slip showing
actual price in respect of few transactions;
45
IV. That the proviso to Section 11A(1) was applicable to the
present case and the show cause notice was not barred by
limitation, and
V. That each impugned clearance was assessable to duty on
the particular price (transaction value) charged for each
removal.
76. Aggrieved by the said order, the Revenue has come up with
this batch of 4 appeals, Civil Appeal Nos. 99889991 of 2011.
Common Issues arising in these appeals
77. It may be seen from the facts involved in these batches of
cases that there is a common thread that runs along the fabric
of these cases. This common thread is that the assessees in
these cases allegedly undervalued the goods, sold them for a
much higher price than what was reflected in the invoices and
thereby they evaded the excise duty actually payable. Though
the assessees uniformly denied the said allegation, the CESTAT
has recorded a categorical finding in all the cases that there was
46
undervaluation and evasion of excise duty. The said finding has
not been challenged by the assessees and hence it has attained
finality. Therefore, what arises for adjudication is only the
manner of determining the value of the goods removed by the
assessees for sale to or through dealers.
78. In other words, the entire dispute now revolves around the
question of valuation of excisable goods, for the purposes of
charging of duty. But for finding an answer to the said question,
it is necessary for us to take note of the period of assessment. In
some of these cases, the period of assessment was both prior to
and after 01.07.2000 and in other cases, the period was after
01.07.2000. According to the respondents, the method of
determination of value before 01.07.2000 was different from the
method of valuation after 01.07.2000, since Section 4 of the
Central Excise Act, 1944 was amended with effect from
01.07.2000 under 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.
47
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
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
their value, then, on each removal
of the goods, such value shall—
(a) in a case where the goods
are sold by the assessee, for
delivery at the time and place
of the removal, the assessee
and the buyer of goods are not
related and the price is the sole
consideration for the sale, be
48
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 normal practice of the
wholesale trade in such
goods, such goods are sold
by the assessee at different
prices to different classes of
buyers (not being related
persons) each such price
shall, subject to the
existence of the other
circumstances specified in
clause (a), be deemed to be
the normal price of such
goods in relation to each
such class of buyers;
(ia) where the price at which
such goods are ordinarily
sold by the assessee is
different for different places
of removal, each such price
shall, subject to the
existence of other
circumstances specified in
clause (a), be deemed to be
the normal price of such
the transaction value;
(b) in any other case, including
the case where the goods are
not sold, be the value
determined in such manner as
may be prescribed.
Explanation.— For the removal of
doubts, it is hereby declared that
the pricecumduty of the
excisable goods sold by the
assessee shall be the price
actually paid to him for the goods
sold and the money value of the
additional consideration, if any,
flowing directly or indirectly from
the buyer to the assessee in
connection with the sale of such
goods, and such pricecumduty,
excluding sales tax and other
taxes, if any, actually paid, shall
be deemed to include the duty
payable on such goods.
(2) The provisions of this section
shall not apply in respect of any
excisable goods for which a tariff
value has been fixed under subsection (2) of Section 3.
(3) For the purpose of this section
—
49
goods in relation to each
such place of removal;
(ii) where such goods are sold
by the assessee in the
course of wholesale trade
for delivery at the time and
place of removal at a price
fixed under any law for the
time being in force, or at a
price, being the maximum,
fixed under any such law,
then, notwithstanding
anything contained in
clause (iii) of this proviso,
the price or the maximum
price, as the case may be,
so fixed, shall, in relation to
the goods so sold, be
deemed to be the normal
price thereof;
(iii) where the assessee so
arranges that the goods are
generally not sold by him in
the course of wholesale
trade except to or through a
related person, the normal
price of the goods sold by
the assessee to or through
such related person shall be
deemed to be the price at
which they are ordinarily
sold by the related person
in the course of wholesale
(a) “assessee” means [...];
(b) persons shall be deemed to
be “related” if— [...]
(c) “place of removal” means—
(i) a factory or any other
place or premises 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 where the excisable
goods are to be sold after
their clearance from the
factory;
from where such goods are
removed;
50
trade at the time of removal,
to dealers (not being related
persons) or where such
goods are not sold to such
dealers, to dealers (being
related persons) who sell
such goods in retail;
(b) where the normal price of
such goods is not
ascertainable for the reason
that such goods are not sold
or for any other reason, the
nearest ascertainable
equivalent thereof determined
in such manner as may be
prescribed.
(2) Where, in relation to any
excisable goods the price thereof
for delivery at the place of
removal is not known and the
value thereof is determined with
reference to the price for delivery
at a place other than the place of
removal, the cost of
transportation from the place of
removal to the place of delivery
shall be excluded from such
price.
(3) [...]
(cc) “time of removal”, in
respect of the excisable goods
removed from the place of
removal referred to in subclause (iii) of clause (c), shall be
deemed to be the time at which
such goods are cleared 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.
51
(4) For the purposes of this
section—
(a) “assessee” means [...];
(b) “place of removal” means—
(i) a factory or any other
place or premises 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
52
respect of goods removed
from the place of removal
referred to in subclause (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
53
made, the trade discount
(such discount not being
refundable on any account
whatsoever) allowed in
accordance with the
normal practice of the
wholesale trade at the time
of removal in respect of
such goods sold or
contracted for sale.
Explanation.—[...]
(e) “wholesale trade” means
sales to dealers, industrial
consumers, Government,
local authorities and other
buyers, who or which
purchase their
requirements/otherwise than
in retail.
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 subsection (1) of Section 4,
where the emphasis was on normal price, the
determination of which corelated to ordinary sale in the
54
course of wholesale trade (satisfying certain conditions),
and
(ii) another covered by clause (b) of subsection (1) of Section
4, which related to cases where there were no sales, and
cases where normal price could not be ascertained for any
other reason.
81. The prescriptions contained in clause (a) of subsection (1)
of Section 4, before amendment in 2000, are summarized as
follows:
I. As a first rule, the normal price, namely the price at which
such goods are ordinarily sold in the course of wholesale
trade shall be taken as the value, if the buyer is not a
related person and the price is the sole consideration for
the same.
II. But in cases where different prices are charged to different
classes of buyers, each such price should be taken to be
the normal price in relation to each such class of buyers.
55
III. Similarly, if different prices are charged at different places
of removal, the normal price shall be the price charged in
relation to each such place of removal.
IV. Where the goods are generally not sold in the course of
wholesale trade, except to or through a related person, the
normal price shall be the price at which the goods are
ordinarily sold by the related person, in the course of
wholesale trade to other dealers.
82. Thus it is clear that under Section 4(1)(a), as it stood before
01.07.2000, the method of valuation prescribed therein was
directly linked to the normal price for an ordinary sale in
the course of wholesale trade. But in cases where normal price
was not ascertainable, the same would fall under Section 4(1)(b)
and the valuation in such cases had to be done in terms of the
Valuation Rules of the year 1975. Clause (b) identifies one
situation, namely where goods are not sold, in which, the normal
price may not be ascertainable. In addition, clause (b) also
recognises the fact that there may be cases where normal price
56
is not ascertainable for any other reason. These cases may
perhaps include sales otherwise than in the course of
wholesale trade.
83. Though the words “normal price” were used in Section 4(1)
(a), the proviso to clause (a) recognised the fact that the normal
price need not be the same universally, but could vary from one
class of buyers to another or from one place of removal to
another.
84. By the amendment under Act 10 of 2000, with effect from
01.07.2000, the words “normal price” and the words “in the
course of wholesale trade” were removed. Instead, the words
“transaction value” were inserted in Section 4(1)(a).
85. As rightly pointed out by the learned Additional Solicitor
General, the third question referred to the Constitution bench in
CCE vs. Grasim Industries Limited2
was whether or not the
concept of “transaction value” makes any material departure
from the deemed normal price concept of the erstwhile Section
2 (2018) 7 SCC 233
57
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 difference, namely that the
focus of Section 4(1)(a) prior to 01.07.2000 was on finding
out the normal price in respect of sales made ordinarily in
the course of wholesale trade. The method of valuation,
58
wherever there was no sale, was to be on the basis of the Rules,
in view of Section 4(1)(b). Even in cases where there was a sale—
(i) in the course of wholesale trade but the conditions
stipulated in clause (a) were not satisfied or
(ii) the normal price could not be ascertained for any other
reason,
the method of valuation was left under clause (b) of subsection
(1) of Section 4 to the rule making authority to stipulate. The
implication flowing out of the words “for any other reason”
found in clause (b) before amendment is of significance in this
regard. After the amendment under Act 10 of 2000, the normal
pricing method was gone, as the focus shifted from sale in the
course of wholesale trade.
87. While clause (a) of subsection (1) of Section 4, as it stood
before amendment, laid emphasis on normal price, clause (a) of
subsection (1) of Section 4, as it stands after amendment,
speaks about transaction value. Clause (b) of subsection (1),
both before and after the amendment, leaves it to the delegated
59
legislation to prescribe the method of valuation, for cases not
covered by clause (a).
88. For the valuation under Section 4(1) to follow the
“transaction value”, (after amendment) the three conditions
stipulated in clause (a), namely (i) that the goods are sold for
delivery at the time and place of removal, (ii) that the assessee
and buyer are not related and (iii) that the price is the sole
consideration for the sale, should be satisfied.
89. If the three conditions, enumerated in clause (a), (indicated
above) are not satisfied, then the case would fall under clause (b)
of subsection (1) of Section 4, which starts with the words “in
any other case”. In other words, in cases not covered by clause
(a), the value can be determined in such manner as may be
prescribed.
90. After the amendment under Act 10 of 2000, the Central
Government issued a new set of rules called the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules,
60
2000. These rules were issued in exercise of the power conferred
by Section 37, in supersession of the 1975 Valuation Rules.
91. Rule 3 of the aforesaid 2000 Rules makes it clear 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
subsection (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 subsection (3) of
Section 4. But if a case is not covered by clause (a) of subsection (1) of Section 4, then the value of the excisable goods
should be determined in accordance with the 2000 Rules.
61
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 subsection (1) of Section 4.
94. In cases where there is a sale and the three conditions
stipulated in clause (a) of subsection (1) of Section 4 are
satisfied, the adjudicating authority should determine the value
based upon the transaction value. But (i) in cases where there is
no sale and (ii) in cases where there is a sale but the three
conditions stipulated in clause (a) are not satisfied, then the
adjudicating authority should fall back upon the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules,
2000.
What the Adjudicating Authority and the Tribunal had and had
not done in these cases
62
95. First, let us see what they did, before looking at what they
did not. Broadly, in the batches of cases on hand (with one or
two exceptions), the Adjudicating Authorities came to the
following conclusions:
(i) that there was undervaluation and evasion of duty;
(ii) that in respect of sales effected both before and after
01.07.2000, the invoice value, together with the cash paid
over and above the invoice value, would represent the
normal price or the transaction value, as the case may be,
and
(iii) that in cases where there was evidence to show that a
dealer had paid more than the invoice value, the amount
found to have been paid by such a dealer, though relatable
only to a few out of the several transactions that he had
with the assessee, should be taken to be the normal price
or the transaction value, as the case may be, applicable to
all the transactions that the particular dealer had with the
assessee.
63
96. Similarly, what the CESTAT did in all these cases is:
(i) to uphold the finding of undervaluation and evasion of
duty;
(ii) to hold that invoice price need not be taken as the normal
price in respect of cases prior to 01.07.2000 and that
wherever a particular amount is actually found to have
been paid by a dealer, the same could be taken to be the
transaction value, for cases after 01.07.02000; and
(iii) to hold that the determination of the normal price or the
transaction value, as the case may be, should be confined
only to the evidence available on record, but not to all the
transactions across the board.
97. But the Adjudicating Authorities as well as CESTAT are
also guilty of failure to do something in these batches of cases.
They are:
(i) Failure to find out, in cases covered by Section 4(1) as it
stood prior to 01.07.2000, whether there were sales in the
course of wholesale trade, satisfying the 3 conditions
64
prescribed therein, falling under clause (a) of subsection
(1) or whether the sales in question fell under clause (b) of
subsection (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 subsection (1) of Section 4;
(iii) Failure to find out, in the event of the sales in question
falling under clause (b) of subsection (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.
65
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 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.
Conclusion
99. In fine, these appeals are disposed of, confirming the
impugned orders of CESTAT setting aside the OrdersinOriginal
passed by the Adjudicating Authorities and remanding the
matters back for readjudication. However, while carrying out
the exercise of readjudication, the Adjudicating Authorities
should keep in mind the principles enumerated hereunder:
A. Cases where the period of assessment is prior to 01.07.2000
66
I. 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 subsection (1) of Section 4.
II. If the normal price is not ascertainable, either for the
reason that the goods are not sold or for any other reason,
then he may take it that the case would fall under Section
4(1)(b) and take recourse in such cases, to the Central
Excise (Valuation) Rules, 1975.
III. The phrase “for any other reason” appearing in Section 4(1)
(b) would include cases where the price charged in the
course of wholesale trade is not discernible or where the
same, though discernible, cannot be linked to delivery at
67
the time and place of removal or where the price is not the
sole consideration for the sale, even though the price
charged in the course of wholesale trade for delivery at the
time and place of removal are available.
IV. If the case falls under Section 4(1)(b) and the Adjudicating
Authority takes recourse to the method of valuation
prescribed in the 1975 Rules, he shall find out which
among the relevant rules would apply to the cases on hand
before proceeding with the valuation.
B. Cases where the period of assessment is after 01.07.2000
I. First ascertain the “transaction value”, with particular
reference to the definition of the said expression contained
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
68
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 4(1)(a) (after the amendment), as the definition of
69
“transaction value” under Section 4(3)(d) means the price
actually paid or payable.
D. The Adjudicating Authority shall keep in mind the fact that
while the expression “normal price” was not defined in
Section 4(1) before amendment, the expression “transaction
value” is defined very exhaustively in Section 4(3)(d) and this
definition is both inclusive as well as exhaustive.
E. Wherever there is a finding that a particular dealer/ customer
has paid a consideration over and above what is reflected in
the invoice, the additional payment made by him together
with the invoice value shall be taken to be the transaction
value, for all the transactions that the particular
dealer/customer had with the assessee. In simple terms, if a
dealer/customer has made 10 purchases during the period in
question, for a particular value stated in the invoice, the
transaction value determined on the basis of material
relatable to a few out of those transactions, can be applied to
all the transactions of that customer/dealer across the board
70
for that period. However, the same value cannot be applied to
the other dealers/ customers. This principle shall be followed
in respect of cases arising after the amendment.
F. Since the matters are more than a decade old, the
Adjudicating Authorities may conduct hearings, afford
adequate opportunities to the parties and pass orders in
original as early as possible.
The appeals are disposed of accordingly. There will be no
order as to costs.
[
…………....................CJI.
(S. A. Bobde)
..…………....................J.
(A. S. Bopanna)
…..………......................J.
(V. Ramasubramanian)
AUGUST 19, 2020
NEW DELHI
