Transaction value under Section 4 of the Central Excise Act cannot be rejected merely due to a relationship between parties unless it is proven that the relationship influenced the price; furthermore, valuation rules must be applied sequentially, and Rule 9 cannot be invoked without exhausting preceding rules.

Per Mr. VASA SESHAGIRI RAO

This appeal is directed against Order-in-Original No. 68/2017 (C.Ex.) (Denovo) dated 29.12.2017 passed by the Commissioner of GST & Central Excise, Puducherry, whereby the adjudicating authority has confirmed a demand of Central Excise duty amounting to Rs.30,61,199/- along with interest and equal penalty by rejecting the transaction value adopted by the appellant in respect of clearances made to certain alleged related persons and by re-determining the assessable value under Rule 9 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

1.2 The facts, briefly stated, are that M/s. Kannappan Iron & Steel Company (Pvt) Ltd., Puducherry (hereinafter referred to as “the Appellant”) is engaged in the manufacture of M.S. Ingots, CTD Bars and TMT Bars falling under Chapter 72 of the Central Excise Tariff Act, 1985 and is duly registered with the Central Excise Department. During the course of audit conducted by the Central Excise Revenue Audit (CERA), it was observed that the appellant had effected clearances not only to independent buyers but also to certain entities, namely M/s. Kannappan & Co. and M/s. Kannappan Iron Traders, who were found to be related persons within the meaning of Section 4 of the Central Excise Act, 1944. The Department formed a view that the transaction value adopted by the appellant in respect of such clearances to related persons could not be accepted under Section 4 (1)(a) of the Act and that the valuation was required to be determined in terms of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, particularly Rule 9 read with Rule 11. Consequently, a show cause notice was issued proposing demand of differential duty amounting to Rs.2,83,25,041/- for the period October 2007 to December 2010 along with interest and penalty, which came to be confirmed vide Order-in-Original No.06/2013-C.Ex dated 20.12.2013.

1.3 The matter had earlier travelled to this Tribunal, which remanded the case directing the adjudicating authority to redetermine the value in accordance with Rules 4 to 7 of the Valuation Rules after informing the methodology to the appellant. In the de novo proceedings, the adjudicating authority adopted Rule 9 and confirmed the demand to the extent of Rs.30,61,199/- along with interest and penalty.

2. Aggrieved by the Denovo order, the appellant is before this Tribunal.

3. The Ld. Advocate Shri Karthikeyan appeared on behalf of the Appellant. The Ld. Authorized Representative Shri N. Satyanarayana appeared for the Revenue.

4.1 The Ld. Counsel for the Appellant submitted that the entire demand is premised on the assumption that the transaction value between the appellant and the alleged related buyers is not acceptable. It was contended that even in the case of related party transactions, the transaction value is to be accepted unless it is demonstrated that the relationship has influenced the price.

4.2 The appellant placed strong reliance on the decision of the Tribunal in the case of ITC Ltd. , 2018 (2) TMI 478, wherein it has been held that transaction value cannot be rejected merely on the ground of relationship unless price influence is established. It is further submitted that the variation in prices between sales to related parties and independent buyers is marginal, being around 1%, and therefore cannot be considered as evidence of price manipulation.

4.3 The appellant also relied upon the judgment of the Hon’ble Supreme Court in Commissioner of Central Excise vs Bharti Telecom, wherein it has been held that even where the buyer and seller are related, the transaction value must be accepted if the relationship has not influenced the price. The appellant submits that this principle continues to hold good even under the post-2000 Valuation Rules.

4.4 It was further argued that the methodology adopted by the Department is arbitrary and not in accordance with the Valuation Rules. The