CX - Law of land takes precedence over circulars issued by CBEC and also any letters issued by Revenue by way of audit or by show-cause notice: CESTAT
By TIOL News Service
MUMBAI, OCT 26, 2017: THIS is a Revenue appeal.
The AR submitted that the respondents were supplying goods to their own subsidiary and they were also selling the said goods in the open market to unrelated buyers.
It is pointed out that the respondents were recovering the balance amount of the difference between the price at which they were selling to the unrelated parties and the assessable value arrived at by the cost construction method (following rule 8 of the CE Valuation Rules, 2000) through debit note; that this additional consideration was to be included in the assessable value. It is also argued that original adjudicating authority has wrongly dropped the demand, by wrongly interpreting the circular of CBEC 643/34/2002-CX dated 01/07/2002.
The respondent argued that they were earlier paying duty on the basis of the transaction value while selling the goods to their subsidiary as it corresponds to their sale price to independent buyers.
However, the audit party had in its letter dated 08/05/2001 raised following objection -
| "The assessee has cleared inputs/semi-finished goods to their sister concern M/s. Sterlite Telelink, Silvassa and other units of the assessee. With effect from 01/07/2000, as per the provisions of the Transaction value, the goods should be cleared 115% of the landed cost of the product. The total amount of duty payable on such clearances amounting to Rs.8,04,303/- (as per annex. VIII) needs to be paid". |
Consequently, they had started assessing the goods on the basis of Rule 8 of Valuation Rules, as advised.
Inasmuch as since the Revenue itself was insisting on assessment on the basis of Rule 8 of Valuation Rules, it cannot change its stand and demand duty on the basis of transaction value , the respondent submitted. It is also emphasized that the demand is time barred since Revenue was in the know of all facts.
The Bench observed that the issue regarding the manner of assessment when part of the goods are sold to independent buyers and part are consumed or captively sold to related persons had been dealt with by the Larger Bench in the case of Ispat Industries Ltd., - 2007-TIOL-245-CESTAT-MUM-LB concluding that Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers; that provisions of rule 4 would apply and has to be preferred over the provisions of rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also because application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.
The CESTAT concluded thus –
Merits:
++ The correct method of assessment, in these circumstances, would be adoption of the price at which the said goods were sold to independent buyers. In the instant case, the demand has been raised on the transaction value for sale to related buyers . The law of the land takes precedence over the circulars issued by the CBEC and also any letters issued by the Revenue by way of audit or by show-cause notice.
++ The allegation of revenue regarding additional consideration is baseless as CBEC Circular itself regarded the transaction value as irrelevant for the purpose of arriving at assessable value for sales to related persons.
Limitation:
++ We find that the method of valuation was adopted by the appellants on the directions of audit. The CBEC Circular dated 01/07/2002 also prescribed the same method of assessment. Thus, not only the facts were known to revenue but the appellants acted on the direction of revenue. In these circumstances, the invocation of extended period is also not justified.
The Revenue appeal was dismissed.
(See 2017-TIOL-3800-CESTAT-MUM)
