1. Undervaluation of excisable goods to evade duty — Dispute over valuation methods under Section 4 of the Central Excise Act, 1944, across different assessment periods. (Para 1 , 3 , 5 , 23 , 31 , 41 , 51 , 59 , 69 , 77 )
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2020 Supreme(SC) 491
SUPREME COURT OF INDIA
S.A. Bobde, CJI., A.S. Bopanna, V. Ramasubramanian, JJ.
The Commissioner of Central Excise, Customs and Service Tax, Calicut – Appellant
Versus
M/S. Cera Boards and Doors, Kannur Kerala Etc. Etc. – Respondents
Civil Appeal Nos.7240-7248 of 2009, Civil Appeal Nos.8615-8620 of 2009, Civil Appeal Nos.2236-2253 of 2011, Civil Appeal Nos.3227-3230 of 2011, Civil Appeal Nos.3231-3233 of 2011, Civil Appeal Nos.6564-6567 of 2011, Civil Appeal Nos.9988-9991 of 2011
Decided On : 19-08-2020
Important Points
The Court clarified valuation under Section 4 of the Central Excise Act: pre-01.07.2000, 'normal price' or 1975 Rules apply; post-01.07.2000, 'transaction value' or 2000 Rules apply. Proven undervaluation for a specific dealer can be applied to all their transactions during the relevant period.
Subject
Tax Law - Central Excise
Act Referred
CENTRAL EXCISE ACT: S.35(l)(1)(b), S.11(a)(1)
CENTRAL EXCISE RULES: R.25, R.173(q), R.209(a), R.26
CENTRAL EXCISE VALUATION DETERMINATION OF PRICE OF EXCISABLE GOODS RULES: R.11
CENTRAL EXCISE RULES: R.25, R.173(q), R.209(a), R.26
CENTRAL EXCISE VALUATION DETERMINATION OF PRICE OF EXCISABLE GOODS RULES: R.11
Headnote
(A) Central Excise Act, 1944 - Section 35L(1)(b), Section 11A(1), Section 11AB, Section 11AC and Rule 25 of the Central Excise Rules, 2002 - Appeals by the Commissioner challenging CESTAT orders regarding undervaluation of goods by various plywood manufacturers leading to evasion of excise duty. (Paras 1-75)
(B) Determination of excise duty liability principles - The normal price or transaction value of goods must be based on actual sales and properly discernible evidence; the methodology differs before and after 01.07.2000. (Paras 79-99)
Facts of the case:
The assessee group allegedly undervalued goods, resulting in substantial evasion of excise duty across multiple cases. CESTAT ruled in favor of the assessees in prior appeals, raising concerns about proper evidence and valuations set by the Adjudicating Authority. (Paras 1-75)
Findings of Court:
The court upheld findings of undervaluation, ruled the necessity for proper re-adjudication based on legal standards for transactions prior and post amendment of the Central Excise Act, affirming that methods to determine values differ depending on the sales dates. (Paras 78-99)
Issues: The main issues involved included evidentiary weight on undervaluation by the assessees and the correct valuation method as per applicable law before and after the amendments. (Paras 76-80)
Ratio Decidendi: The court specified that regulations under the Central Excise Act must be applied meticulously, differentiating methods of valuation before and after 01.07.2000, emphasizing that additional amounts paid must also be included in determination of 'transaction value.' (Paras 84-94)
Result: Appeals disposed of with orders of re-adjudication for duty quantification.
(B) Determination of excise duty liability principles - The normal price or transaction value of goods must be based on actual sales and properly discernible evidence; the methodology differs before and after 01.07.2000. (Paras 79-99)
Facts of the case:
The assessee group allegedly undervalued goods, resulting in substantial evasion of excise duty across multiple cases. CESTAT ruled in favor of the assessees in prior appeals, raising concerns about proper evidence and valuations set by the Adjudicating Authority. (Paras 1-75)
Findings of Court:
The court upheld findings of undervaluation, ruled the necessity for proper re-adjudication based on legal standards for transactions prior and post amendment of the Central Excise Act, affirming that methods to determine values differ depending on the sales dates. (Paras 78-99)
Issues: The main issues involved included evidentiary weight on undervaluation by the assessees and the correct valuation method as per applicable law before and after the amendments. (Paras 76-80)
Ratio Decidendi: The court specified that regulations under the Central Excise Act must be applied meticulously, differentiating methods of valuation before and after 01.07.2000, emphasizing that additional amounts paid must also be included in determination of 'transaction value.' (Paras 84-94)
Result: Appeals disposed of with orders of re-adjudication for duty quantification.
Legal Category Hierarchy
Advocates Appeared:
For the Appellant(s) :Balbir Singh, Nisha Bagchi, Abhishek Attrey, B. Krishna Prasad, Anil Katiyar, Advocates
For the Respondent(s):V.K. Monga, V. Lakshmikumaran, Charanya Lakshmikumaran, Aaditya Bhattacharya, Apeksha Mehta, Mounica Kasturi, Kunal Kapoor, M.P. Devanath, Gautam Narayan, Asmita Singh, Adithya Nair, M. P. Devanath, Advocates
For the Appellant(s) :Balbir Singh, Nisha Bagchi, Abhishek Attrey, B. Krishna Prasad, Anil Katiyar, Advocates
For the Respondent(s):V.K. Monga, V. Lakshmikumaran, Charanya Lakshmikumaran, Aaditya Bhattacharya, Apeksha Mehta, Mounica Kasturi, Kunal Kapoor, M.P. Devanath, Gautam Narayan, Asmita Singh, Adithya Nair, M. P. Devanath, Advocates
Table of Contents
2. Revenue sought uniform addition to invoice value based on sample evidence — Assessees contended valuation must be based on individual transaction evidence or normal pricing. (Para 11 , 12 , 13 , 14 , 18 , 21 , 29 , 46 , 57 , 67 , 75 )
3. The court analyzed the shift from normal price to transaction value and the necessity of determining whether a case falls under Section 4(1)(a) or 4(1)(b). (Para 78 , 79 , 80 , 81 , 82 , 83 , 84 , 85 , 86 , 87 , 88 , 89 , 90 , 91 , 92 , 93 , 94 , 97 )
4. Valuation depends on whether conditions of Section 4(1)(a) are met; otherwise, prescribed Valuation Rules apply. Proven undervaluation for one dealer applies to all their transactions. (Para 99 )
5. Appeals disposed of — CESTAT remand orders confirmed with specific legal guidelines for re-adjudication by the authorities. (Para 98 , 99 )
6. How is the value of excisable goods determined for periods prior to July 1, 2000?
Value is the normal price if sold in wholesale trade to an unrelated buyer for sole consideration under Section 4(1)(a). If normal price is not ascertainable for any reason, valuation follows the Central Excise (Valuation) Rules, 1975 under Section 4(1)(b). (Para 79 , 80 , 81 , 82 , 99 )
7. How is the value of excisable goods determined for periods after July 1, 2000?
Value is the transaction value if the goods are sold for delivery at the time and place of removal, the parties are unrelated, and price is the sole consideration. Otherwise, the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 apply. (Para 79 , 84 , 88 , 89 , 92 , 93 , 94 , 99 )
8. Can payments received in cash over the invoice value be included in the assessable value?
Yes, any amount received in cash or otherwise over the invoice value can be treated as the value of excisable goods, as transaction value includes the price actually paid or payable. (Para 99 )
9. If undervaluation is proven for some transactions with a dealer, can it be applied to all their transactions?
Yes, if a dealer paid consideration above the invoice value, that determined transaction value can be applied to all transactions that specific dealer had with the assessee for that period, though not to other dealers. (Para 99 )
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. 7240-7248 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 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. 7240-7248 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. 7240-7248 of 2009 are taken as the lead case.
Facts in Civil Appeal Nos. 7240-7248 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. 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. 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 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
