The Commissioner Of Central … vs M/S. Cera Board And Doors, Kannur, … on 19 August, 2020


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Supreme Court of India

The Commissioner Of Central … vs M/S. Cera Board And Doors, Kannur, … on 19 August, 2020

Author: Hon’Ble The Justice

Bench: Hon’Ble The Justice, A.S. Bopanna, V. Ramasubramanian

                                              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
Signature Not Verified

Digitally signed by
Sanjay Kumar
Date: 2020.08.19
15:50:38 IST
Reason:
                                       2




                             JUDGMENT

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 party­

wise 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 under­

invoicing;

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 Order­in­

Original 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 Order­in­

Original 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 under­

invoicing;

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 Rs. 26,73,758/­    Rs. 26,73,758/­
Crafts Co.

M/s.    Mailatty   Wood Rs. 23,24,056/­    Rs. 23,24,056/­
Industries

M/s.    National   Wood Rs. 61,14,236/­    Rs. 61,14,236/­
Products

M/s.            Bharath Rs. 5,52,839/­     Rs. 5,52,839/­
Chemicals



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 Order­in­

Original No. 20/2007 dated 29.06.2007. By this Order­in­

Original, 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 Section 4 as it stands after
01.07.2000 01.07.2000, including the
amendment in 2003 but not
including the amendment in
2012

4. Valuation of excisable goods 4. Valuation of excisable goods for
for purposes of charging of duty purposes of charging of duty of
of excise.— excise. —

(1) Where under this Act, the (1) Where under this Act, the duty
duty of excise is chargeable on of excise is chargeable on any
any excisable goods with excisable goods with reference to
reference to value, such value, their value, then, on each removal
shall, subject to the other of the goods, such value shall—
provisions of this section be
deemed to be—

(a) the normal price thereof, (a) in a case where the goods
that is to say, the price at are sold by the assessee, for
which such goods are delivery at the time and place
ordinarily sold by the assessee of the removal, the assessee
to a buyer in the course of and the buyer of goods are not
wholesale trade for delivery at related and the price is the sole
consideration for the sale, be
48

the time and place of removal, the transaction value;

where the buyer is not a
related person and the price is
the sole consideration for the (b) in any other case, including
sale: the case where the goods are
not sold, be the value
determined in such manner as
Provided that— may be prescribed.

Explanation.— For the removal of

(i) where in accordance with
doubts, it is hereby declared that
the normal practice of the
the price­cum­duty of the
wholesale trade in such
excisable goods sold by the
goods, such goods are sold
assessee shall be the price
by the assessee at different
actually paid to him for the goods
prices to different classes of
sold and the money value of the
buyers (not being related
additional consideration, if any,
persons) each such price
flowing directly or indirectly from
shall, subject to the
the buyer to the assessee in
existence of the other
connection with the sale of such
circumstances specified in
goods, and such price­cum­duty,
clause (a), be deemed to be
excluding sales tax and other
the normal price of such
taxes, if any, actually paid, shall
goods in relation to each
be deemed to include the duty
such class of buyers;

payable on such goods.

(ia) where the price at which (2) The provisions of this section
such goods are ordinarily shall not apply in respect of any
sold by the assessee is excisable goods for which a tariff
different for different places value has been fixed under sub­
of removal, each such price section (2) of Section 3.

   shall,    subject     to   the
   existence        of      other
   circumstances specified in       (3) For the purpose of this section
   clause (a), be deemed to be      —
   the normal price of such
                                 49


  goods in relation to each
  such place of removal;
                                      (a) “assessee” means [...];


(ii) where such goods are sold
    by the assessee in the            (b) persons shall be deemed to
    course of wholesale trade             be “related” if— [...]
    for delivery at the time and
    place of removal at a price
    fixed under any law for the       (c) “place of removal” means—
    time being in force, or at a
    price, being the maximum,
    fixed under any such law,            (i) a factory or any other
    then,        notwithstanding         place    or    premises of
    anything      contained      in      production or manufacture
    clause (iii) of this proviso,        of the excisable goods;
    the price or the maximum
    price, as the case may be,           (ii) a warehouse or any
    so fixed, shall, in relation to      other place or premises
    the goods so sold, be                wherein the excisable goods
    deemed to be the normal              have been permitted to be
    price thereof;                       deposited without payment
                                         of duty,

 (iii) where the assessee so
   arranges that the goods are           (iii) a depot, premises of a
   generally not sold by him in          consignment agent or any
   the course of wholesale               other place or premises
   trade except to or through a          from where the excisable
   related person, the normal            goods are to be sold after
   price of the goods sold by            their clearance from the
   the assessee to or through            factory;
   such related person shall be
   deemed to be the price at
   which they are ordinarily             from where such goods are
   sold by the related person            removed;
   in the course of wholesale
                                  50


trade at the time of removal, (cc) “time of removal”, in
to dealers (not being related respect of the excisable goods
persons) or where such removed from the place of
goods are not sold to such removal referred to in sub­
dealers, to dealers (being clause (iii) of clause (c), shall be
related persons) who sell deemed to be the time at which
such goods in retail; such goods are cleared from
the factory;

(b) where the normal price of (d) “transaction value” means
such goods is not the price actually paid or
ascertainable for the reason payable for the goods, when
that such goods are not sold sold, and includes in addition to
or for any other reason, the the amount charged as price,
nearest ascertainable any amount that the buyer is
equivalent thereof determined liable to pay to, or on behalf of,
in such manner as may be the assessee, by reason of, or in
prescribed. connection with the sale,
whether payable at the time of
the sale or at any other time,
including, but not limited to, any
(2) Where, in relation to any amount charged for, or to make
excisable goods the price thereof provision for, advertising or
for delivery at the place of publicity, marketing and selling
removal is not known and the organisation expenses, storage,
value thereof is determined with outward handling, servicing,
reference to the price for delivery warranty, commission or any
at a place other than the place of other matter; but does not
removal, the cost of include the amount of duty of
transportation from the place of excise, sales tax and other taxes,
removal to the place of delivery if any, actually paid or actually
shall be excluded from such payable on such goods.
price.

(3) […]
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 sub­

section (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 sub­

section (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



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