Custom, Excise & Service Tax Tribunal
Cadila Healthcare Ltd vs Vadodara-I on 4 December, 2023
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
Excise Appeal No. 10320 of 2020 - DB
(Arising out of OIO-VAD-EXCUS-001-COM-12-19-20 dated 09/12/2019 passed by
Commissioner of Central Excise, Customs and Service Tax-VADODARA-I)
CADILA HEALTHCARE LTD ........Appellant
Plot No. 26-29 & 31,253, Dabhasa- Umaraya,
Vill: Dabhasa, Tal: Padra
Vadodara, Vadodara, Gujarat
VERSUS
C.C.E. & S.T.-VADODARA-I ......Respondent
1st Floor...Central Excise Building, Race Course Circle, Vadodara, Gujarat- 390007 With Excise Appeal No. 10329 of 2020 - DB (Arising out of OIO-VAD-EXCUS-001-COM-13-19-20 dated 11/12/2019 passed by Commissioner (Appeals) Commissioner of Central Excise, Customs and Service Tax-
VADODARA-I)
CADILA HEALTHCARE LTD ........Appellant
Ploy No. 26-29, 31, 253, Dabhasa Umraya Road,
Village Dabhasa, Taluka Padra
Vadodara, Vadodara ,Gujarat
VERSUS
C.C.E. & S.T.-VADODARA-I ......Respondent
1st Floor...Central Excise Building,
Race Course Circle,
Vadodara, Gujarat- 390007
APPEARANCE:
Shri T Vishwanathan, Shri Anand Nainawati, Shri Manish Jain & Ms. Shruti Khanna, Advocates for the Appellant Shri P K Rameshwaram, Assistant Commissioner (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR Final Order No. 12702-12703/2023 DATE OF HEARING: 18.08.2023 DATE OF DECISION: 04.12.2023 RAMESH NAIR The brief facts of the case are that the appellant is 100% Export Oriented Unit (EOU) and engaged in the manufacture of Bulk Drugs falling under Chapter 28 and 29 of the Central Excise Tariff Act, 1985. The appellant avails the benefit of Notification No. 23/2003-CE dated 31.03.2003, while clearing the bulk drugs to the domestic market. The appellant as per the DTA entitlement clear the bulk drugs to their own DTA 2 E/10320,10329/2020-DB unit and its subsidiary unit M/s Zydus Healthcare Ltd. and also cleared the bulk drugs to other buyers in DTA. The clearance of bulk drugs was also made in DTA under Advance Release Order (ARO) in terms of para 4.1.11 of Foreign Trade Policy (FTP). The appellant have cleared the goods to their own DTA and its subsidiaries on payment of Excise duty at a value i.e. 110% of the cost of production in terms of Rule 8 of Central Excise Valuation Rules, 2000.
1.1 The case of the department is that the method opted by the appellant is not correct and legal and according to the department the valuation of the goods cleared in DTA should be done in terms of Rule 3 (3)(b),4 and Rule 8 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. By way of present impugned orders, the department has rejected the value adopted on the basis of 110% of cost of production and re-determined the valuation as under:
a) In terms of Rule 4 of Customs Valuation Rules, wherever there was clearances of identical bulks drugs to unrelated party was available;
or
b) In terms of Rule 8 of Custom Valuation Rules, wherever there was clearances of identical bulk drugs to unrelated party was not available, in this method, the department has applied profit margin in range of 40% to 80% based on cost Audit Report.
2. Shri T Vishwanathan, Learned Counsel with Shri Anand Nainawati, Shri Manish Jain and Ms. Shruti Khanna, Advocates appearing on behalf of the appellant submits that transaction value cannot be rejected merely on the basis of comparison of DTA sale price and without resorting to value of contemporaneous imports of identical goods into India. 2.1 He submits that for DTA clearance by EOU, the value must be determined in terms of Proviso (2) Section 3 (1) of the Central Excise Act, 3 E/10320,10329/2020-DB 1944. As per this provision, the value of the goods cleared in DTA by the EOU is to be determined in terms of Section 14 of the Customs Act, 1962 read with Custom Valuation Rules, 2007. For applying Rule 4 of the Customs Valuation Rules, 2007, the contemporaneous price of actual imports into India of the identical goods must be applied to arrive at the value in respect of clearance of the goods in DTA. In this case the department has not taken any price on the basis of NIDB, whereas the price at which the identical goods were sold in India by the appellant was adopted. Therefore, entire basis for enhancing the valuation is incorrect and against the law. He placed reliance on following decision:
Nagreeka Exports Ltd. Vs. Commissioner of Central Excise, Pune, 2003 (159) ELT 891 (Tri.-Mumbai) Commissioner of Central Excise, Mumbai Vs. I.G.P. Ltd.- 2003 (156) ELT 917 (Tri.-Mumbai) Hanila Era Textiles Ltd. V. Commissioner Of Central Excise, Raigad-
2005 (192) ELT 1109 (Tri.-Mumbai) Commissioner of Central Excise, Nasik V. Krishna Filaments- 2005 (189) ELT 175 (Tri.-Mumbai) STL Exports Ltd V. Commissioner of Central Excise- 2004 (178) ELT 307 (Tri.- Del.) Commissioner of Customs, Bangalore V. Wipro GE Medical Systems Pvt. Ltd.- 2008 (242) ELT 275 (Tri.- Bang.) Commissioner of Central Excise, Raigad V. I.G. Petrochemicals- 2006 (201) ELT 294 (Tri- Mumbai) Commissioner of Central Excise, Nagpur V. Morarjee Bremban Ltd.- 2015 (318) ELT 600 (SC) Shri Ahima Mine & Minerals Ltd V. Commr. Of C.Ex. Jaipur- 2016 (343) ELT 529 (Tri.-Del.) 4 E/10320,10329/2020-DB Autoline India Ltd V. Commissioner of Central Excise, Jaipur-I- 2015 (328) ELT 460 (Tri.-Del.) 2.2 He further submits that even in case of clearance made to the related person, it has to be established that relationship has influenced the price in respect of the clearances made to related person in DTA which is absent in this case. He submits that the margin of 10% is sufficient as far as the appellant's unit produces the excisable good is concerned. The appellant unit has adopted CAS-4 prescribed by the CBEC for determining the value for excise purpose under Rule 8 of Central Excise Rules for captive consumption. In the present case also the goods were cleared for captive consumption. Therefore, the Excise duty paid in terms of Proviso (2) to Section 3(1) is valid and acceptable. He placed reliance on the judgment reported in 2006 (205) ELT 773 given by this Tribunal in the case of Incowax, an EOU unit. 2.3 He submits that this Hon'ble CESTAT in the similar instances, in case of import of goods from related party has held that 10% or even less profit margin is reasonable and sustainable profit margin. In support, he placed reliance on the following judgment:
Rehau Polymers Ltd. V. Commissioner of Cus. (Import), Mumbai-
2014 (301) ELT 116 (Tri.- Mumbai) New Holland Tractors (India) Pvt. Ltd. V. Commr. Of Cus., New Delhi-
2002 (144) ELT 410 (Tri.-Del.) 2.4 Without prejudice to the above submission, he further submits that even the principle applied by the department is incorrect in as much as for computing the differential duty, the department has arbitrarily proceeded and considered the highest value of identical goods sold to unrelated parties in DTA by the appellant and have adopted that value for the entire clearance 5 E/10320,10329/2020-DB based on that highest value. He submits that Rule 4 of Customs Valuation Rules provides that the value of identical goods should be at or about the same time of import of goods being valued. Further the said Rules also provides that if more than one value of identical goods exists, lowest must be adopted. Thus the demand is contrary to Rule 4 of Customs Valuation Rules itself.
2.5 He further submits that with regards to demand raised under Rule 8 of Customs Valuation Rules, 2007. It is admitted that the profit margins for each year calculated by the Assistant Director (Cost), Central Excise and Customs are based on the trial balance of the appellant's company and are not based on the profit margin on the same class and kind of goods in question which is completely in violation of the procedure prescribed under Rule 8 of the Customs Valuation Rules, 2007. It is his submission that in any case profit margin adopted in show cause notice is contrary to profit margin noted in the EA-2000 Audit Report dated 22.06.2017.
2.6 Without prejudice, he further submits that the supplies of goods to DTA was made under Advance Release Order (ARO), such supplies are exempted in terms of Sr. No. 22 of Notification No. 23/2003-CE. He submits that regardless of the enhancement of the value by department the price for the purpose of debiting advance authorization remain the same, which is equivalent to CIF value in case of import. Thus demand in respect of supplies against ARO is not sustainable. In this regard he placed reliance on the following judgments:
Sham Lal & Co. Vs. Collector of Customs, New Delhi- 2003 (161) ELT 1060 (Tri.-Del.) Union of India and Others Vs. Glaxo Industries (Inida) Ltd. - 1948 (17) ELT 284 (Bom.) 6 E/10320,10329/2020-DB 2.7 Without prejudice to the above submission, he further submits that demand for extended period is clearly time barred as there is no suppression of facts. In the present case the appellant were under bonafide belief that in case of supplies made to related person, Rule 8 of Central Excise Valuation Rules needs to be followed as nature of duty is Excise duty. The appellant were regularly intimating the Development Commissioner, with regards to domestic clearance of goods all the details of clearances were reflecting in ER-2 return filed by the appellant from time to time. The unit of appellant was subjected to EA-2000 Audit at regular intervals. Hence, any short payment of duty if any could be due to bonafide error and not due to willful mis-statement or suppression of fact. Therefore, the demand for the extended period is time barred. In support, he placed reliance on the decision of this Tribunal in the case of Fiberweb India Ltd. Vs. CCE & ST-
Daman vide final order No. A/11176-11177/2023 dated 11.05.2023. 2.8 He further submits that demand is revenue neutral, as the goods are cleared to their own unit and subsidiary and clearances to ARO holders are entitled for refund of terminal Excise duty in terms of Para 8.3 and 8.4 of FTP. Thus, the short payment of demand if any was a bonafide error and not due to any suppression of facts or willful mis-statement. In this regard he relied upon the following judgment:
The Commissioner, Central Excise and Customs and another Vs. M/s Reliance Industries Ltd. and Commissioner of Central Excise and Service Tax V. M/s Reliance Industries Ltd - 2023 (7) TMI 196- SC B. R. Steel Products Pvt. Ltd V. Commissioner of C.Ex. Navi Mumbai-
2021 (378) ELT 275 (Tri.- Mumbai) Commr. Of Cus. Banglore V. Wipro Ge Medical Systems Pvt. Ltd.-
2009 (242) ELT 275 (Tri.- Bang.) 7 E/10320,10329/2020-DB STI Industries V. Commissioner of C. Ex. Daman- 2015 (327) ELT 514 (Tri. Ahmd.) 2.9 The appellant, post hearing also filed an additional submission dated 05.09.2023 and dated 17.11.2023 which are also taken on record.
3. On the other hand Shri PK Rameshwaram, Learned Additional Commissioner (AR) appearing on behalf of Respondent/Revenue reiterates the finding of the impugned orders. He submits that in case of the goods cleared by the appellant to their own unit or its subsidiary, the valuation done by the appellant under Rule 8 of Central Excise Valuation Rules, 2000 is incorrect, for the reason that the clearance from the EOU the rate of Custom duty as well as value are governed by the Customs Act and Rules made thereunder. Therefore, the valuation proposed by the Revenue and determined by the Adjudicating Authority in accordance with Customs Act, 1962 is in order and legal, therefore, the demand was rightly confirmed. In support, he placed reliance on the following judgments:
SACI ALLIED PRODUCTS LTD V. COMMISSIONER OF C.EX.MERRUT-
2005(183) E.L.T 225 (S.C) COMMISSIONER OF C.EX.AND S.T.,ROHTAK V. MERINO PANEL PRODUCT LTD.2023(383) E.L.T. 129 (S.C.) STAR INDUSTRIES V. COMMISSIONER OF CUSTOMS (IMPORTS), RAIGAD 2015(354) E.L.T 656 (S.C.)
4. We have carefully considered the submission made by both the sides and perused the records. In the present matters the issue to be decided is that whether the value adopted by the appellant being 100% EOU 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 and whether the demand for 8 E/10320,10329/2020-DB the extended period is hit by limitation. The fact of the case is not under dispute that the appellant for the clearance of their excisable goods i.e. bulk drug to their related DTA unit was done in terms of Rule 8 of Central Excise valuation Rules, 2000 according to which the value is 110% of the cost of manufacture of the bulk drug. The revenue is of the view that the valuation must be done in accordance with Section 14 and the Customs valuation Rules made their under by taking the comparable price of the similar goods at which the goods were sold to unrelated buyers applying the Section 14 and Customs Valuation Rules issued there under. The revenue has adopted the valuation on the basis of highest value of the identical goods one particular stray case of Bulk drugs 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% based upon letter dated 04.07.2017 of the Assistant Director (Cost) Central Excise and Customs.
4.1 The contention of the Revenue is that in terms of Section 3 of Central Excise Act, 1944 the valuation of the goods cleared by 100% EOU to DTA is governed by Proviso to Section 3(1) of the Central Excise Act, 1944. The same is reproduced below:
"[SECTION 3. Duty specified in the Fourth Schedule to be levied. -- (1) There shall be levied and collected in such manner as may be prescribed a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the Fourth Schedule :
Provided that the duty of excise which shall be levied and collected on any excisable goods which are produced or manufactured by a hundred per cent. export-oriented undertaking and brought to any other place in India, shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if imported into 9 E/10320,10329/2020-DB India, and where the said duties of customs are chargeable by reference to their value, the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975 (51 of 1975).
Explanation 1. -- Where in respect of any such like goods, any duty of customs leviable for the time being in force is leviable at different rates, then, such duty shall, for the purposes of this proviso, be deemed to be leviable at the highest of those rates.
Explanation 2. -- For the purposes of this sub-section, --
(i) "hundred per cent. export-oriented undertaking" means an undertaking which has been approved as a hundred per cent. export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;
(ii) "Special Economic Zone" shall have the meaning assigned to it in clause (za) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005)." 4.2 In view of the above Section 3(1) proviso, the value of goods manufactured by 100% EOU shall be determined in accordance with the provisions of Customs Act, 1962. The provision for valuation of goods under Customs Act is provided under Section 14 of the Customs Act, 1962, which is reproduced below:
"SECTION [14. Valuation of goods. -- (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf :
Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence 10 E/10320,10329/2020-DB fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf :
Provided further that the rules made in this behalf may provide for,-
(i) the circumstances in which the buyer and the seller shall be deemed to be related;
(ii) the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case;
(iii) the manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this section :
[(iv) the additional obligations of the importer in respect of any class of imported goods and the checks to be exercised, including the circumstances and manner of exercising thereof, as the Board may specify, where, the Board has reason to believe that the value of such goods may not be declared truthfully or accurately, having regard to the trend of declared value of such goods or any other relevant criteria :] Provided also that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case may be, is presented under section 50.
(2) Notwithstanding anything contained in sub-section (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value.
Explanation. -- For the purposes of this section --
(a) "rate of exchange" means the rate of exchange -- (i) determined by the Board, or
(ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;
(b) "foreign currency" and ''Indian currency" have the meanings respectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).]"
11
E/10320,10329/2020-DB 4.3 In terms of above Section 14(1), if the goods is cleared to a person other than related person, the duty is payable on the transaction value. In the present case admittedly 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. The relevant Rule 3 and 4 of Customs Valuation Rules, 2007 are reproduced below:
"3. Determination of the method of valuation. -- (1) Subject to rule 12, the value of imported goods shall be the transaction value adjusted in accordance with provisions of rule 10;
(2) Value of imported goods under sub-rule (1) shall be accepted :
Provided that -
(a) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which -
(i) are imposed or required by law or by the public authorities in India; or
(ii) limit the geographical area in which the goods may be resold; or
(iii) do not substantially affect the value of the goods;
(b) the sale or price is not subject to some condition or consideration for which a value cannot be determined in respect of the goods being valued;
(c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of rule 10 of these rules; and
(d) the buyer and seller are not related, or where the buyer and seller are related, that transaction value is acceptable for customs purposes under the provisions of sub-
rule (3) below.
(3) Where the buyer and seller are related, the
(a) transaction value shall be accepted provided that
the examination of the circumstances of the sale of
the imported goods indicate that the relationship
did not influence the price.
(b) In a sale between related persons, the transaction
value shall be accepted, whenever the importer
demonstrates that the declared value of the goods
being valued, closely approximates to one of the
following values ascertained at or about the same
time.
(i) the transaction value of identical goods, or of similar goods, in sales to unrelated
buyers in India;
(ii) the deductive value for identical goods or similar goods;
(iii) the computed value for identical goods or similar goods :
Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of rule 10 and cost incurred by the seller in sales in which he and the buyer are not related;12
E/10320,10329/2020-DB
(c) substitute values shall not be established under the provisions of clause (b) of this sub-rule.
(4) If the value cannot be determined under the provisions of sub-rule (1), the value shall be determined by proceeding sequentially through rule 4 to 9.
4. Transaction value of identical goods. --
(1)(a) Subject to the provisions of rule 3, the value of imported goods shall be the transaction value of identical goods sold for export to India and imported at or about the same time as the goods being valued :
Provided that such transaction value shall not be the value of the goods provisionally assessed under section 18 of the Customs Act, 1962.
(b) In applying this rule, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the value of imported goods.
(c) Where no sale referred to in clause (b) of sub-rule (1), is found, the transaction value of identical goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value.
(2) Where the costs and charges referred to in sub-rule (2) of rule 10 of these rules are included in the transaction value of identical goods, an adjustment shall be made, if there are significant differences in such costs and charges between the goods being valued and the identical goods in question arising from differences in distances and means of transport.
(3) In applying this rule, if more than one transaction value of identical goods is found, the lowest such value shall be used to determine the value of imported goods."
4.4 The Revenue in the present case applying Rule 3 and Rule 4 contended that in a case where value of the identical goods sold to unrelated DTA parties are available, the same should be adopted for valuation of the identical goods cleared to the related parties. In case of identical goods were not sold to unrelated buyers, the value should be determined on the computing value in terms of Rule 3(3) read with Rule 8 of customs valuation Rules. We find that in case of applying the price of comparable goods namely Paroxetine Hydrochloride Hemihydrate (PHH) the department has taken the value of Rs 2,53,320/- at which 1 Kg of bulk drugs was sold to M/s Lupin Ltd. As regard to the value of Rs. 2,53,320/- of the bulk drugs also the department has adopted the highest value as per the submission of the 13 E/10320,10329/2020-DB Learned Counsel, this is one stray case where this minuscule quantity was sold to M/s Lupin Ltd for R & D purpose.
4.5 As against the total quantity of bulk drugs namely Paroxetine Hydrochloride Hemihydrate (PHH) of 6907.48 Kg to their own DTA units as well as various unrelated parties in the DTA. The appellants have cleared PHH to their own DTA units at the rate of Rs. 18,180/- per Kg during 2015- 16 except for a single clearance of 0.20 Kg. valued at Rs. 25,197/- per Kg. Whereas, for other unrelated parties in DTA the Appellants have cleared PHH at a price ranging from Rs. 9,050/- per Kg to Rs 32,000/- per kg. 4.6 We find that the department has arbitrarily considered the highest clearance value of PHH available i.e., clearance of 1Kg. valued at Rs. 2,53,320/-. Similarly in other drugs also the highest price of identical goods was taken and on that basis the deferential duty was worked out and demanded. On the strict reading of Rule 4 of Customs Valuation Rules on which the Revenue has relied upon, it clearly stipulates under Sub Rule (3) of Rule 4 which reads as:
"In applying this rule if more than one transaction value of identical goods is found the lowest such vale shall be used to determine the value of imported goods".
4.7 In the present case, taking the case of bulk drug- PHH it is admitted fact that among various sale price to unrelated parties the lowest price is Rs. 9,050/- per Kg, and similar facts in other identical drugs. Therefore, as per the unambiguous statutory provision in terms of Rule 4(3) reproduced above only the lowest of such values of the identical goods shall be taken to determine the value of goods cleared to the related party. Therefore, since the appellant have cleared their bulk drugs to their related parties 14 E/10320,10329/2020-DB undisputedly at a lower price than the price adopted by department, clearly establish that there is no reason to disturb the value of goods to determine the value of the goods cleared by the appellant to their related person. 4.8 Without prejudice to the above, we also find that 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. Since in the present case no value of actual import was applied the entire basis of invoking Rule 4 of Customs Valuation Rules is wrong and the valuation determined on that basis cannot be sustained, for this reason also the demand of differential duty will not survive. The issue that whether the price of indigenously manufactured identical goods sold is applicable or transaction value of contemporaneous import of identical goods shall apply, this Tribunal in the case of Shri Ahima Mine and Minerals Ltd (supra) decided as under:
"3. The only point of dispute in this case is as to whether the value of the DTA clearances made by a 100% EOU should be the transaction value at which the goods have been sold to domestic buyers or it has to be the FOB value at which the same goods had been exported out of India. Though Shri M.S. Negi, the learned DR relying upon the Tribunal's judgments in the case of Tata Coffee Ltd. v. CCE, Hyderabad reported in 2004 (168) E.L.T. 460 (Tri.-Bang.) and CC, Bangalore v. Wipro GE Medical Systems Pvt. Ltd.
reported in 2009 (242) E.L.T. 275 (Tri.-Bang.) and also the Boards Circular No. 268/85/CX-8, dated 29-9-1994 pleads that the value of the DTA clearances should be determined on the basis of FOB value of the goods at which the same has been exported, we find that the Tribunal in the case of Uniworth Textiles Ltd. v. CCE, Nagpur reported in 2009 (244) E.L.T. 401 (Tri.-Del.) has held when the 100% EOU is treated on par with the foreign supplier, the sales to the DTA cannot be treated as on par with export sales to other countries and that Board's Circular providing for determination of DTA sale price on the basis of export price of similar or identical goods is not in accordance with the provisions of Rule 8(2) of the Customs Valuation Rules. We find that in view of this judgment of the Tribunal and also other judgments, wherein same view had been expressed, the Board vide Circular No. 933/23/2010-CX., dated 16-8-2010, has withdrawn its earlier Circular No. 268/85-CX.8, dated 29-9-1994. It is also seen that as 15 E/10320,10329/2020-DB per the Board Circular No. 330/46/97-CX., dated 20-8-1997 in respect of DTA sale of a 100% EOU the transaction value can be accepted if it conforms to Rule 3(1) of Customs Valuation Rules, 1988. In this case, the Department has not produced any evidence to show that the transaction value at which the goods were sold by the appellant to DTA buyers is much lower than the price at which contemporaneous imports of similar goods were made into India. In view of this, we hold that the impugned order is not sustainable. The same is set aside. The appeal is allowed. The miscellaneous application for restoration of said also stands disposed of."
4.9 Similar issue has been considered by this Tribunal in the case of Autoline India Ltd. which is as under:
"6. In terms of the provisions of proviso to Section 3(1) of Central Excise Act, 1944, while the duty payable in respect of the goods cleared by a 100% EOU into DTA is the aggregate value of duties of customs on import of like goods into India, the assessable value for this purpose is to be determined under Section 14 of the Customs Act, 1962. Therefore, the assessable value of the goods cleared into DTA must be comparable with the contemporaneous import price of identical goods or similar goods into India in comparable quantity.
7. In our view, the Department was not correct in adopting the price at which the unit-I had imported 200 to 500 halogen capsules as sample as the quantum of DTA sales being made by the 100% EOU was much larger and in this regard, the import price of gold coated halogen capsules was not relevant, as the 100% EOU (Unit-I) was not manufacturing such halogen capsules. Moreover, in terms of the information furnished by the appellant, contemporaneous import of similar goods in comparable quantity had been made at the prices which were comparable with the DTA sale price adopted by the appellant unit. However, we find that the Commissioner has not given any finding on this plea. We are, therefore, of the view that the impugned order rejecting the DTA sale price of the appellant unit is not correct and the same has to be set aside and the matter has to be remanded to the Commissioner for de novo adjudication after considering the appellant's plea that during the period of dispute, other importers had imported similar goods in comparable quantities at the prices which were comparable with the DTA prices adopted by them and if this is so, there would be no justification for rejecting the DTA sale price on which the duty had been paid by the appellant."
In view of the above decisions, it is settled that even in case of clearance of identical goods by an EOU to a related party the value of imported identical 16 E/10320,10329/2020-DB 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.
4.10 In view of the above discussion supported by the above judgments, we are of the view that in cases where 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 incorrect and illegal.
4.11 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 department has valued on computed value as provided under Rule 8 of Customs Valuation Rules, 2007, the same is reproduced below:
"8. Computed value. -- Subject to the provisions of rule 3, the value of imported goods shall be based on a computed value, which shall consist of the sum of:-
(a) the cost or value of materials and fabrication or other processing employed in producing the imported goods;
(b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India :
(c) the cost or value of all other expenses under sub-rule (2) of rule 10."
4.12 In order to determine the value under the Customs Valuation Rules, 2007 the Rules should be applied in sequential manner. In the present case as per Rule 4 the transaction value of identical goods imported into India shall be taken as the value in case of goods cleared to related party. The Revenue has adopted the value under Rule 8, however, revenue has not resorted to the method of valuation in terms of Rule 4. The revenue was 17 E/10320,10329/2020-DB supposed to find out the value of identical goods imported into India and if at all it is found that the price declared by the appellant is lower than the price of imported goods than price of identical imported goods could have been applied. However, in the present case 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. As discussed above, since the department has not brought the value of identical imported goods. in the present case also the value declared by the appellant cannot be disturbed.
4.13 Without prejudice, we further find that even if by any stretch of imagination Rule 8 is made applicable, as per Clause (b) of Rule 8, the profit of same class or kind of goods manufactured by producers in the country of exportation for export to India has to be taken for determining of value. In the present case goods are admittedly manufactured in the country and not outside India. Therefore, 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.
18
E/10320,10329/2020-DB 4.14 We find that 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. Here we would like to make it clear that we do 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, we are of the view that 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.
4.15 Without prejudice to the above, we further find that it is an admitted fact that the Cost Auditor appointed by the department has worked out the profit ranging from the 40% to 80% on the basis of which the correct price cannot be determined. Moreover the department's own Cost Audit Officers have worked out different profit margin of goods. Therefore, due to this contradictory report the profit margin ranging from 40% to 80% taken by the department cannot be accepted. On this count also the value determined by the department, in respect of goods sold to the related parties by the appellant sale price of the same was not found, as the identical goods were not sold to unrelated party, is not correct and legal.
4.16 Without prejudice to our above discussion and findings, we further find that the appellant have vehemently argued that in case of the supplies made against Advance Release Order issued by the customer who are advance license holders, the supplies are exempted under Notification No. 23/2003- CE (Sr. No.22) and it was also submitted that even if duty is payable by the 19 E/10320,10329/2020-DB appellant, the related person is entitled for the refund of the whole of the duty payable by the appellant as a refund of terminal excise duty in terms of para 8.3 and 8.4 of Foreign Trade Policy. In this regard we refer to relevant notification and exemption entry as under:
Exemption to DTA Clearances of specified goods produced in EOU/EHTP/STP-
In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) ( hereinafter referred to as the Central Excise Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below, and falling within the Chapter, heading No. or sub-
heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, produced or manufactured in an export oriented undertaking or an Electronic Hardware Technology Park (EHTP) Unit or a Software Technology Park ( STP) Unit and brought to any other place in India in accordance with the provisions of Export and Import Policy and subject to the relevant conditions specified in the Annexure to this notification, and referred to in the corresponding entry in column (5) of the said Table, from so much of the duty of excise leviable thereon under section 3 of the Central Excise Act as specified in the corresponding entry in column (4) of the said Table.
Sr No. Chapter or Description of Amount of duty Conditions
heading Goods
No. or sub
heading
No.
22 Any All Goods In excess of "Nil" when cleared to 11
a person holding an advance
Chapter release order issued by the
licensing authority against an
Advance Licence in terms of
paragraph 4.03 of the Foreign
Trade Policy, read with relevant
provisions of the Handbook of
Procedures, Volume I.
If,-
(i) the Advance License Holder/Duty Free Import Authorisation Scheme] holder fulfills all the procedural requirements of Customs which are required to be fulfilled if the goods are imported against such Advance License or Duty Free Import Authorisation Scheme 20 E/10320,10329/2020-DB except the requirement of specific port of import; and
(ii) the quantity and the value of each of the items are debited by the Deputy Commissioner or Assistant Commissioner of Customs or Central Excise as the case may be, in the said Advance License or Duty Free Import Authorisation Scheme and legible endorsement made by the Deputy Commissioner or Assistant Commissioner of Customs or Central Excise as the case may be, on the said Advance License or Duty Free Import Authorisation Scheme to that effect.
From the above notification we observed that 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. 4.17 Without prejudice to the above, we find that the appellant have also argued that demand for the extended period is hit by limitation as there is no mala fide on the part of the appellant. In this regard we find that this is not a case of clandestine removal of the goods without the knowledge of the department. However, the appellant was under bonafide belief that since the goods are manufactured in the country, the valuation of goods cleared to their related person is required to be determined as prescribed under Rule 8 of Central Excise Valuation Rules, 2000. We find that being a 100% Export Oriented Unit, there is a regular vigil of the department on the entire activity of the appellant. The fact that the appellant are clearing their goods in the DTA and to their related parties, the department was very well aware that in such case what should be the correct value of the goods and the department could have verified the correctness of the value on that basis. The appellant has adopted CAS-4 (Cost Accounting Standard- 4) prescribed by the CBEC for determining the value for excise purpose for a captive consumption. 21
E/10320,10329/2020-DB Moreover, there are judgments particularly in the case of the Incowax which is an EOU unit reported at 2006 (205) ELT 773 of this Tribunal, wherein it was permitted that the value to be adopted on the basis of cost of production and 10% profit for clearance of goods in DTA to the assessee's other unit. The department in that case had accepted this method of valuation. With these undisputed fact it cannot be said that the appellant have suppressed any fact from the department with intent to evade payment of duty. It is further observed that since the supplies made under ARO and in other cases the Cenvat credit was available in respect of CVD/SAD portion to the recipient of goods, the entire issue was of revenue neutral. Therefore, for this reason also no mala fide intention can be attributed to the appellant for short payment of duty, if any. Therefore, we do not have any doubt in our mind that looking to the facts of this case the appellant have not suppressed from or mis-declared the information to the department with intent to evade payment of duty. Accordingly, the extended period is not available in the present case.
4.18 We find that in case of Appeal No. E/10320/2020 in respect of the demand for the period June-2012 to March-2016 the show cause notice has been issued on 06.07.2017. Therefore, demand for the extended period in this case is not sustainable on the ground of time bar. Similarly, in case of Appeal No. E/10329/2020 the show cause notice dated 07.12.2017 was issued for the period April-2012 to March-2016 the duty demand pertains to the period November-2012 to October-2015 only. Therefore, the entire demand in this case is not sustainable on the ground of time bar also. 4.19 In our above view in respect of the demand being time bar is supported by following judgments:
In the case of Reliance Industries Ltd. (Supra) the Hon'ble Supreme Court has passed the following order:22
E/10320,10329/2020-DB "20. We have seen the format of the ER-1/RT-12 return which the assessee was required to file on a monthly basis for intimating to the department the value of clearances effected and the amounts of duties paid thereon.
We do not find any separate column or requirement in these forms for declaring the value and other details of clearances effected to the deemed export buyers i.e. holders of advance licenses. Note 4 under Form ER-1 does require separate details to be mentioned for exports under bond. Indisputedly clearance made to domestic buyers even if they are considered deemed exports are not clearances for "exports under bond" for which category of clearances alone requirement existed for separate disclosure in the ER-1/RT- 12 returns. In the absence of any specific column or note similar to note 4, requiring separate disclosure of the value of deemed export clearances, we do find any merit in the findings of the adjudicating authority that there was suppression of facts as a consequence of assessee's failure to separately disclose the value of deemed export clearances. An accusation of non-disclosure can only be made if there is in the first instance a requirement to disclose.
21. We also find that Note 4 to Form ER-1 requires separate details of clearances to be mentioned for exports under Bond. There is no reference in the said notes to deemed exports or supplies made to holders of advance licenses. We therefore agree with the submissions of the counsel for the assessee that the assesse was never required to separately furnish details of clearances made to holders of advance licenses. We also find that neither the show cause notice nor the civil appeal filed by the Revenue before this Court contain any reference to the wrongful clubbing of deemed export clearances under the details meant for domestic clearances. Also the order of the Tribunal does not contain any reference to this particular aspect which was the main thrust of the oral arguments made by the Ld. Counsel for the Revenue before this Court. In our considered view, the Revenue cannot be permitted to argue its matters by going beyond the written pleadings filed by it before this Court. The mere fact that the oral arguments are supported by findings of the adjudicating authority, which is not the order impugned before this Court, does not entitle the Revenue to resurrect a point which though made at the original stage, was never pressed before the Tribunal or even incorporated in the memo of appeal filed before this Court.
22. We also find no merits in the other argument urged by the Ld. Counsel for the Revenue that the Tribunal's order in the case of IFGL Refractories could not have constituted a valid basis for the belief entertained by the assesse in view of the fact that the relevant valuation provisions had undergone amendments in the year 2000. The argument of the Revenue's Counsel was that in view of the amendments to Section 4 and 23 E/10320,10329/2020-DB Rule 6 of the Valuation Rules the ratio of the Tribunal's decision in IFGL's case was no longer relevant for the period under consideration in these appeals. We have no hesitation in rejecting this contention for two independent reasons. Firstly, this contention too has not been urged in the Civil Appeal filed by the Revenue and has been urged only during the course of the hearing before this Court. On this count alone the contention deserves to be ignored. Secondly, we also find this contention to be diametrically opposite to what the Revenue itself has been contending on merits right from the Show cause notice till the appeal filed before this Court. On merits, the Revenue's case throughout had been that the issue of valuation is covered against the assessee by the judgement of this Court in the case of IL Refractories. Even in the order of the CESTAT under challenge the Tribunal has proceeded on the basis that the principle of valuation laid down by this Court in the case of IFGL Refractories holds good and remains valid even under the amended valuation provisions for the period post July 2000. We therefore find it strange that for the purposes of justifying its case on limitation, the Revenue wishes to take a position exactly contrary to what it has taken in the Show Cause Notice on merits. We cannot allow the Revenue to blow hot and cold in the same breath by relying upon IL's case on merits while at the same time arguing that the same had no relevance for the purposes of examining the plea for a bonafide belief.
23. We are in full agreement with the finding of the Tribunal that during the period in dispute it was holding a bonafide belief that it was correctly discharging its duty liability. The mere fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a malafide belief particularly when such a belief was emanating from the view taken by a division bench of Tribunal. We note that the issue of valuation involved in this particular matter is indeed one were two plausible views could co-exist. In such cases of cases of disputes of interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation by considering the assessee's view to be lacking bonafides. In any scheme of self- assessment it becomes the responsibility of the assessee to determine his liability of duty correctly. This determination is required to be made on the basis of his own judgment and in a bonafide manner.
24. The extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. In the present case the assessee who was required to self-assess his liability determined the assessable value on the basis of an interpretation given by CESTAT in its order dated 28.7.2000. It could not have foreseen that the view taken by CESTAT would be upset and overturned by the Supreme Court as it happened on 9.8.2005. The assessee's conduct during the material period i.e. between 2000 to 2005 cannot be considered to be malafide when it merely followed the view taken by the 24 E/10320,10329/2020-DB Tribunal in IFGL's case. On the question of disclosure of facts, as we have already noticed above the assessee had disclosed to the department its pricing policy by giving separate letters. It is also not disputed that the returns which were required to be filed were indeed filed. In these returns, as we noticed earlier there was no separate column for disclosing details of the deemed export clearances. Separate disclosures were required to be made only for exports under bond and not for deemed exports, which are a class of domestic clearances, entitled to certain benefits available otherwise on exports. There was therefore nothing wrong with the assessee's action of including the value of deemed exports within the value of domestic clearances.
25. We also take note of the fact that in the show cause notice itself it has been accepted by the revenue that the self-assesment procedure did not require an assessee to submit copies of all contracts, agreements and invoices. This being the admitted position in the notice we do not find any basis for agreeing with the findings of the Commissioner that certain relevant documents had not been filed and thereby suppressed from the scrutiny of the revenue officers. An assessee can be accused for suppressing only such facts which it was otherwise required to be disclosed under the law. The counsel for the Revenue has, while pleading that facts was suppressed been unable to show us the provision or rule which required the assessee in this case to make additional disclosures of documents or facts. The assertion that there was suppression of facts is therefore clearly not tenable.
26. Insofar as the appeal No. 5744/2011 is concerned, we find that the same pertains to a different plant of the Assessee-Respondent where clearances were affected during the period January 2001 to November 2003. The Show Cause Notice in this case was issued on 29.12.2005 and sought to invoke the extended period of limitation by making similar allegations as in Civil Appeal No. 6033 of 2009. The order impugned in this appeal, however is an order dated 4.4.2010 of the Gujarat High Court by which the Court had dismissed an appeal filed by the revenue against an order of CESTAT, by holding that no question of law could be stated to arise from the order of CESTAT. Our conclusions with regard to Civil Appeal 6033 of 2009 apply equally to this appeal. In the result both the appeals filed by the Revenue are dismissed on the ground that the demands are time barred. We make it clear that we express no opinion on the merits of the matter including the aspects of revenue neutrality."
In the case of B. R. Steel Products Ltd. (Supra) Mumbai Tribunal has passed the following decision:
25
E/10320,10329/2020-DB "11. Coming to the issue of limitation, the appellant have submitted that they have obtained necessary permission from the Development Commissioner and have been clearing the goods for export as well as DTA and have been submitting ER-2 returns regularly to the Jurisdictional Central Excise authorities; under the circumstances, the extended period cannot be invoked. We find that the department alleges that though the appellant have submitted ER-2 returns regularly but have never disclosed the correct name, grade, quality and composition of the said goods cleared in DTA. We find that this argument is not tenable. The permission given by the Development Commissioner would certainly indicate the products which are to be exported and cleared in DTA. When the description is ceramic colours, in both export as well as DTA clearance documents, the department was within their rights to call for clarification from the Development Commissioner or the appellants so as to satisfy themselves. This having not been done, it is not open for the department to invoke extended period, alleging that the appellants have suppressed some information, after considerable lapse of time. No suppression, leave alone intent evade duty has been established. Going by the ratio of the cases cited by the appellants and the facts of the case, we hold that extended period cannot be invoked in this case. However, as we held the goods cleared in DTA by the appellants in DTA are similar to those exported and that there are no violations provisions of either paragraph 6.8 of FTP or Central Excise Notification No. 23/2003, the appeal survives on merits. Therefore, the issue of limitation will be inconsequential."
In the case of Wipro Ge Medical Systems Pvt Ltd (Supra) The Bangalore Tribunal has passed the following order:
"7.3 Revenue is aggrieved over the impugned order. According to the revenue, only in the year 2005 the party made certain data regarding the domestic selling price available to the department. We do not accept this contention of the department. The correspondence reveals that the appellants disclosed all the facts to the department. They had obtained permission from the Development Commissioner for clearance of the goods to the Domestic Tariff Area. They had addressed the Deputy Commissioner every time that they had to clear the goods to the domestic area. They had also indicated the method of adopting the price. All the information had been supplied to the department. This is outlined by the Commissioner (A) also in the impugned order. Therefore, the department cannot say that the party suppressed the facts. Moreover, they are not required in law to declare the selling price of their service centre to the domestic units because that is not at all relevant in determining the correct assessable value. Therefore, the Commissioner (A)'s finding that there is no suppression of facts and revenue appeal has no merit."26
E/10320,10329/2020-DB In the case of STI Industries (Supra) this Tribunal has passed the following order:
"11. As regard CVD we find from the annexure to the show cause notice that in show cause notice and the impugned order no allegation or reasoning of any nature in raising such a demand was indicated and the demand was confirmed merely by relying upon demand chart which is an annexure to the SCN. As we find no allegations for demand has been stated either in the show cause notice nor there are any reasoning in the impugned orders for confirmation of such demand, we are of the considered view that such demand cannot be confirmed as it is not in accordance with law. As regard plea of revenue neutrality raised by the ld. Counsel, we find strong force in the contentions as there is no dispute that clearances were made by M/s. STI to their own DTA unit and the credit of SAD and CVD was available to the DTA Unit, hence the entire issue is revenue neutral. In such case it cannot be said that there has been intentional evasion of payment of duty by the appellant-assessee. We find that the goods were cleared on invoices indicating all the particulars and we do not find any deliberate act on the part of the assessee to evade payment of duty. We are of the view that the demands raised by invoking extended period of limitation on this count are not invokable. For the foregoing reasons also we hold that the demand of SAD and CVD is unsustainable. However in respect of demand of CVD, based upon our above findings we hold that only the demand falling under normal period of limitation is sustainable, we hold it so. Since the most of the demand is set aside, having held that there was no intention to evade duty, we find that penalties imposed are unwarranted and they are set aside.
In view of our above observation and findings we dismiss the appeal filed by the revenue and allow the appeal filed by M/s. STI to the extent that the demands of CVD raised by invoking extended period of limitation are not sustainable and only the demand of CVD under normal period would survive. We also set aside the penalty imposed under Section 11AC."
4.20 As regard the judgments relied upon by the Learned Authorized Representative on behalf of the Revenue, on going through carefully the said judgments, we find that the fact of those cases are entirely different form the facts of the present case. Therefore, the ratio of those judgments are not applicable in the present case.
27
E/10320,10329/2020-DB
5. As per our above discussion and finding, the demand of excise duty in the present case is not sustainable on multiple counts as discussed above. Therefore, the impugned orders are liable to be set aside. Accordingly, we set aside the impugned orders. Appeals are allowed with consequential relief, if any, in accordance with law.
(Pronounced in the open court on 04.12.2023) (RAMESH NAIR) MEMBER (JUDICIAL) (C L MAHAR) MEMBER (TECHNICAL) Raksha