2026-VIL-1539-CESTAT-ALH-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise – Assessment under Section 4 of Central Excise Act, 1944 - Clearances to related parties at price below cost of manufacture – Appellant cleared identical batteries to two vendors at Rs 2.13 and Rs 2.20 per piece while clearing same batteries to its own Lucknow unit at Rs 2.90 and Rs 2.81 per piece under CAS-4 costing – MoU showed buyback arrangement where vendors manufactured torches as per appellant's design and specification and sold them back to appellant – Department invoked extended period alleging relationship and mutuality of interest – Appellant contended that prices were charged on transaction value under Section 4 of Central Excise Act and buyers were independent entities not related parties - Whether identical batteries cleared to different buyers at significantly different prices where buyback arrangement exists is assessable on contractual price or whether cost-of-manufacture method applies - HELD – Where price at which goods are sold is exceptional and substantially below cost of manufacture, such price cannot be accepted as normal price for purposes of Section 4(1)(a) of CEA. The expression ‘ordinarily sold’ excludes extraordinary or unusual transactions. Where there is clear indication that extra-commercial consideration has entered into sale transaction, such as perpetual loss-making transactions, the price cannot be sole consideration contemplated under Section 4(1)(a) - In present case, battery prices were significantly lower than cost of manufacture and sales were made continuously, indicating extra-commercial consideration. The buyback agreement and nature of transaction indicate price not at arm's length - Where all three conditions of Section 4(1)(a) namely normal price, ordinarily sold and sole consideration are not satisfied, valuation must be done under Section 4(1)(b) read with Central Excise Valuation Rules - On extended period, where agreements and documents regarding related transactions are available on record and already known to Department through its own investigation, the conditions for invoking extended period are not satisfied as there is no wilful suppression. However, normal period of limitation being barred by date of SCN, demands within normal period are upheld along with interest. Penalties imposed under Section 11AC were set aside as they were wrongly imposed under Rule 15 of CENVAT Credit Rules which is inapplicable to undervaluation cases - The appeals are partly allowed
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