IMPORTANT POINT
Proviso to section 11A has to be construed strictly.

JUDGMENT

H.L. Dattu, J. —

1) The appellant, being aggrieved by the order passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench at Mumbai, (for short ‘Tribunal’) in Appeal No.A/75-78/WZB/06/C-II/EB dated 13.01.2006, is before us in this appeal filed under Section 130-E of the Customs Act, 1962 (hereinafter referred to as ‘the Act’).

2) The issue in this appeal relates to the valuation of aluminum castings manufactured by M/s. Anurang Engineering Co. Ltd. (for short ‘Anurang’) which in turn is based on the purchase price of aluminum ingots supplied by M/s. Bajaj Auto Ltd., Waluk, Aurangabad (for short ‘Bajaj’). Anurang, who is Respondent no. 4 in this appeal, is engaged in the manufacture of aluminium castings, commonly known as “handle bar body”, “crank case clutch”, and castings used as motor vehicle parts, classifiable under Chapter Sub-heading 8708.00 and 8714.00 of the Central Excise Tariff Act, 1985. Bajaj, the Respondent no.1, was supplying inputs - aluminum ingots after purchasing the same from other manufacturers to Anurang for the relevant period under the cover of invoices issued under Rule 57F(2) and Rule 57(3) of the Central Excise Rules, 1994, after reversing the MODVAT credit availed on the said input.

3) A show cause notice dated 05.03.2001 was issued by the Commissioner of Customs and Central Excise, Aurangabad, in which it was alleged that Anurang was receiving inputs from Bajaj at an under-valued landed cost by not including expenses on account of sales tax, octroi, freight, insurance, loading-unloading charges and handling charges, and that Bajaj was charging only the basic price of such inputs equal to the basic price charged by the original manufacturers of the said inputs to Bajaj, and since the additional cost of loading-unloading, freight etc. was not included in the input supplied to Anurang, there was consequent reduction in the landed cost of such inputs. It was also alleged that the price charged by Bajaj was depressed price although the same was coloured as negotiated price and the price indicated in the purchase orders was influenced by the supply of inputs by Bajaj at a lower landed cost and by this business arrangement, Bajaj had compensated Anurang for depressed prices of Anurang’s finished goods supplied to Bajaj. Thus, both of them were aiding each other for mutual business interest so that the production cost of each other was kept at minimum and the Central Excise Duty was discharged at lower value. The view of the adjudicating authority was that the price charged in the Central Excise invoices by Anurang for their finished goods was not the sole consideration for sale, since the proportionate landed cost charges were not included by Bajaj which is additional consideration under Rule 5 of the Central Excise (Valuation) Rules, 1975. Hence, expenses incurred by Bajaj, in addition to the price, were required to be loaded in the assessable value for payment of Central Excise Duty. It was in these circumstances that they were asked to show cause why differential duty amounting to ‘27,71,594/- due to undervalued clearances of the finished goods effected during the period with effect from 02.06.1998 to 30.09.1999 should not be recovered under Proviso to Section 11AC(1) of the Act read with Rule 5 of the Central Excise (Valuation) Rules, 1975, why penalty under Section 11AC and interest under Section 11AB of the Act should not be levied and recovered and penalty under Rule 209A of the Central Excise Rules, 1944, should not be imposed and recovered from Respondent Nos. 1 to 3 viz. Bajaj, Sh.Ranjit Gupta, Vice President (Materials) of Bajaj and Sh. Anurag Naresh Chandra, Director of Anurang.

4) In reply to the notice, Bajaj had stated that the sale of inputs - aluminum ingots to Anurang was on the basis of fair market price mutually agreed between the parties. It also claimed that there was no provision in Central Excise Laws which imposed an obligation on a person to se