2023-VIL-1288-CESTAT-AHM-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Valuation of goods cleared from EOU to DTA – Appellant (100% EOU) cleared excisable goods i.e. bulk drugs to related DTA unit adopting valuation in terms of Rule 8 of Central Excise valuation Rules, 2000 - Revenue of the view that the valuation must be done in accordance with Section 14 and the Customs valuation Rules by taking the comparable price of the similar goods at which the goods were sold to unrelated buyers - whether the value adopted by the appellant in respect of clearance of bulk drug to their own unit or its subsidiary for purpose of payment of Excise Duty is correct or otherwise - demand invoking extended period of limitation – HELD – In terms of Section 14(1) of the Customs Act, 1962, if the goods is cleared to a person other than related person, the duty is payable on the transaction value. In the present case, the goods were cleared to a related person therefore, the valuation of the goods shall be governed by Customs Valuation (Determine of Value of Imported Goods) Rules, 2007 - applying Rule 3 and Rule 4 of Customs Valuation Rules, 2007, revenue has adopted the valuation on the basis of highest value of the identical goods sold to unrelated parties. In a case where the similar goods were not sold to unrelated buyers, the Revenue has adopted the value by taking the profit margin in the range of 40% to 80% - the department has arbitrarily considered the highest clearance and on that basis the differential duty was worked out and demanded - as per the statutory provision in terms of Rule 4(3) of Customs Valuation Rules, only the lowest of such values of the identical goods shall be taken to determine the value of goods cleared to the related party – Further, the Revenue has applied the highest price of identical goods sold to unrelated party in India. However, for applying Rule 4 of Customs Valuation Rules the price of actual import of identical goods in India must be taken – it is settled that even in case of clearance of identical goods by an EOU to a related party the value of imported identical goods has to be applied, in absence of the same the method adopted by the revenue by applying the same price of the goods sold in India by EOU is incorrect and illegal - for the goods is cleared to related DTA parties, which is identical to the goods sold to the unrelated party, the value adopted by the appellant is correct and legal and on the basis of price of goods cleared to unrelated DTA parties demand of differential duty is illegal – the demand of excise duty in the present case is not sustainable on multiple counts – the impugned orders are set aside and the appeal is allowed - As regard the cases where goods were cleared to related parties by the appellant’s EOU unit but those goods were not sold to unrelated parties, the Adjudicating Authority straight away jumped to Rule 8 without making any effort to determine the value in terms of Rule 4 to 7 of Customs Valuation Rules. Therefore, the valuation determined by the department under Rule 8 cannot be accepted – Further, in a case where the goods are manufactured in India the profit of indigenously manufactured product as provided under Rule 8 (b), cannot be applied. By strictly interpreting Rule 8 the cost of manufacture and profit margin can be taken of the goods manufactured out of India, the same cannot be taken by the cost & profit applying of the goods products in India. In the present case taking inference from Rule 4 even though the transaction value of the identical imported goods is available even the same cannot be applied straight away. Even in such cases different aspects of different commercial level, different quantities has to be kept in mind and the adjustment of such aspects is permitted to be made for increase or decrease of value. Therefore, in terms of Rule 8 also as provided in said rule the profit margin in the cost of production has to be taken of the goods manufactured out of the India - Since addition of profit margin in terms of Rule 8 cannot be made of the goods manufactured in India. Therefore, the most appropriate profit margin must be taken 10% which is prescribed as notional profit in Rule 8 of Central Excise Valuation Rules, 2000 - it is made clear that it does not mean that Rule 8 of Central Excise Valuation Rules is applicable, however, taking into consideration that the legislators with a conscious mind thought appropriate to keep 10% profit margin in case of goods manufactured in India, no different parameter can be applied only because the goods manufactured in a 100% exports oriented unit which is also located in India. Therefore, the appellant’s valuation of goods i.e. 110% of the cost of manufacture is correct and legal and no further addition can be made in such value – Further, in respect of goods supplied against Advance Release Order, it is clearly covered under exemption under Sr.No.22 of Notification No. 23/2003-CE dated 31.03.2003. Therefore, when the supplies itself is exempted from the payment of the duty the differential duty demand cannot be sustainable. For this reason also the demand of differential duty in respect of supplies made against Advance Release Order to the appellant’s related parties is liable to be set aside.
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