By TIOL News Service

MUMBAI, APR 16, 2015: THE appellant is engaged in the manufacture of motor vehicles which are cleared through various depots that are also Regional Sales offices (RSO). Some of the vehicles are sold from the depot but in certain circumstances some of the vehicles are transferred from one RSO to another RSO and goods are sold from the latter RSO. The appellant are discharging the excise duty at the time of clearance of the vehicle from the factory at the price prevailing at the RSO where the vehicles are initially cleared. However, subsequently some of the vehicles are transferred to another RSO, where the prevailing price of the vehicle is higher and vehicle is sold at that higher price.

Various show cause notices came to be issued wherein the differential excise duty was proposed to be demanded on the prevailing price of the vehicle at the depot (RSO) from where the actual sale of the vehicle took place and price at which excise duty was discharged at the time of clearance of the vehicle from the manufacturing unit.

The Adjudicating authority, after some adjustment, on quantification confirmed the demand holding that under Rule 7 of Valuation Rules, 2000, price prevailing at the depot from where the goods are actually sold at the time of clearance of the goods from the factory shall apply and not price, which is prevailing at the depot where the goods initially cleared.

As the Commissioner (Appeals)upheld the order-in-original of the adjudicating authority, the appellant is before the CESTAT.

The appellant inter alia submitted that in terms of Rule 7 the price prevailing at the place from where the goods are to be sold shall be the correct assessable value; that when the motor vehicle is cleared from the factory first time to a particular depot the goods are supposed to be sold from the said first depot and, therefore, price prevailing at first depot shall be correct transaction value in terms of Rule 7; that though the motor vehicles were transferred from first depot to another depot, since motor vehicle while clearing the goods from the factory was meant for sale from the first depot the price prevailing at the first depot shall apply and the price prevailing another depot, from where the motor vehicle is sold will be irrelevant.

The AR reiterated the findings of the lower authorities and while relying on the decision in Brakes India Ltd. - 2005-TIOL-1472-CESTAT-MAD also submitted that CBEC Circular No. 251/85/96-CX dated 14/10/1996 on point of doubt, clarifies that "in case of inter depot transfer of goods, duty may be initially charged with reference to place of removal from where the goods are actually removed/intended to be sold and by charging differential duty, if any, on the basis of assessable value prevalent at the actual "place of removal" i.e. storage depot etc. from which the goods are finally sold". Inasmuch as the prevailing at the time of clearance of the goods at the depot from where the goods actually sold, shall be the correct assessable value.

The Bench after considering the submissions extracted rule 7 of the Valuation Rules, 2000 and observed -

Merits:

++ On careful reading of the said rule we are of the view that price prevailing at that depot from where the goods is sold shall apply.

++ Contention of the appellant is not acceptable that at the time of initial clearance of motor vehicle to first depot, goods are intended to be sold from the first depot irrespective whether the motor vehicle first cleared to particular depot and subsequent transferred to another depot.

++ The fact remains that the goods are sold from the subsequent depot, and not from first depot, therefore, in terms of Rule 7 a depot from where the goods is actually sold, the price prevailing at that depot at the time of clearance of the goods from factory shall be the correct transaction value for charging the excise duty.

++ We are also of the view that after enactment of amended Section 4 of Central Excise Act, 1944 w.e.f. 1/7/2000 and Central Excise Valuation (determination of price of excisable goods) Rules, 2000 there is no room for concept of notional value or for normal sale price.

++ Accordingly, in terms of Rule 7, in case goods are not sold from the factory but transferred to the depot the price prevailing at depot at the time of removal of the goods from the factory shall apply as transaction value. Where the goods are cleared to first depot and thereafter transferred to second depot or in the case directly supplied to second depot in both the cases since goods is sold from second depot in terms of Rule 7 i.e. "goods are to be sold after there first clearance from the place of removal" shall mean that only that depot or a place from where the goods is sold shall be considered as place of sale. In this scenario, price prevailing at the first depot has no relevance for the purpose of valuation of the excisable goods in terms of Rule 7.

The case laws cited by the appellant were held as not applicable since the facts were not same and that cited by the AR along with the Board Circular was noted as pertaining to old section 4 and were only persuasive.

As regard the submission of appellant that in some of the cases, the motor vehicle were sold at higher price than the price prevailing at the depot of sale and, therefore, the demand is not sustainable, the Bench held that those clearances of vehicles were not subject matter of the present case.

Limitation:

++ As regard first SCN dated 19.7.2005, the fact regarding movement of their vehicle, that is removal from factory to their one depot and from there transfer to 2 nd depot and sale of vehicle from 2 nd depot was not disclosed to the Department. This fact was detected by the audit officers, therefore, is it clear that there is suppression of fact on the part of the appellant. Once the fact during a period was suppressed, demand of that period can be raised up till 5 years. In the present case, the demand for the period prior to audit observation raised on January 2001 can be raised up to 5 years as there was clear suppression during that period. Hence, the demand of duty for the period up to January 2001 is correct and legal.

++ Further, when the fact of the issue came to the notice of the Department in January, 2001, subsequent to that it cannot be said that there was suppression on the part of the appellant. Therefore, in our considered view, the demand for the period February 2001 to June 2004 becomes time-barred, hence the same is dropped. So also proviso to section 11 A is not invokable in respect of the demand raised during the period July 2004 to March 2013. Consequently, penalty imposed under section 11 AC for the said period is not correct and legal and, therefore, dropped.

Conclusion:

++ Though demand of duty for period involved in the appeals (except for the period February, 2001 to June 2004) is sustainable on merit, however, demand of duty pertaining to the period February 2001 to June 2004 is hereby dropped being time barred. Penalty imposed under Section 11AC commensurate to duty demand for the period July, 2004 to March, 2013 is hereby dropped.

++ The Adjudicating Authority shall re-quantify the duty, interest and penalty and recover the same from the Appellant, in accordance with law.

The Appeals were disposed of.

(See 2015-TIOL-684-CESTAT-MUM)