THE COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, CALICUT vs. M/S. CERA BOARD AND DOORS, KANNUR, KERALA

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 & ORS. …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 Digitally signed by Sanjay Kumar Date: 2020.09.09 15:25:32 IST Reason: Signature Not Verified

2 J U D G M E N T 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.

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 Crafts Co. Rs. 26,73,758/­ Rs. 26,73,758/­ M/s.   Mailatty   Wood Industries Rs. 23,24,056/­ Rs. 23,24,056/­ M/s.   National   Wood Products Rs. 61,14,236/­ Rs. 61,14,236/­ M/s.

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

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 01.07.2000 Section   4   as   it   stands   after 01.07.2000,

including

the amendment   in   2003   but   not including   the   amendment   in 2012 4. Valuation   of   excisable   goods for purposes of charging of duty of excise.— (1)  Where   under   this   Act,   the duty  of  excise  is  chargeable  on any   excisable   goods   with reference   to   value,   such   value, shall,   subject   to   the   other provisions   of   this   section   be deemed to be— (a)  the   normal   price   thereof, that   is   to   say,   the   price   at which   such   goods   are ordinarily sold by the assessee to   a   buyer   in   the   course   of wholesale trade for delivery at 4. Valuation of excisable goods for purposes   of   charging   of   duty   of excise. — (1) Where under this Act, the duty of   excise   is   chargeable   on   any excisable goods with reference to their value, then, on each removal of the goods, such value shall— (a)  in a case where the goods are   sold   by   the   assessee,   for delivery at the time and place of   the   removal,   the   assessee and the buyer of goods are not related and the price is the sole consideration   for   the   sale,   be

48 the time and place of removal, where   the   buyer   is   not   a related person and the price is the sole consideration for the sale: Provided that— (i)   where   in   accordance   with the   normal   practice   of   the wholesale   trade   in   such goods, such goods are sold by the assessee at different prices to different classes of buyers   (not   being   related persons)   each   such   price shall,   subject   to   the existence   of   the   other circumstances   specified   in clause (a), be deemed to be the   normal   price   of   such goods   in   relation   to   each such class of buyers; (ia) where the price at which such   goods   are   ordinarily sold   by   the   assessee   is different for different places of removal, each such price shall,   subject   to   the existence

other circumstances   specified   in clause (a), be deemed to be the   normal   price   of   such the transaction value; (b) in any other case, including the  case  where the goods are not   sold,   be   the   value determined in such manner as may be prescribed. Explanation.— For the removal of doubts, it is hereby declared that the   price­cum­duty   of   the excisable   goods   sold   by   the assessee   shall   be   the   price actually paid to him for the goods sold and the money value of the additional   consideration,   if   any, flowing directly or indirectly from the   buyer   to   the   assessee   in connection with the sale of such goods, and such price­cum­duty, excluding   sales   tax   and   other taxes, if any, actually paid, shall be   deemed   to   include   the   duty payable on such goods. (2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub­ section (2) of Section 3. (3) For the purpose of this section —

49 goods   in   relation   to   each such place of removal; (ii)  where such goods are sold by   the   assessee   in   the course   of   wholesale   trade for delivery at the time and place of removal at a price fixed under any law for the time being in force, or at a price, being the maximum, fixed   under   any   such   law, then,

notwithstanding anything

contained

in clause   (iii)   of   this   proviso, the  price   or   the  maximum price, as the case may be, so fixed, shall, in relation to the   goods   so   sold,   be deemed   to   be   the   normal price thereof; (iii)   where   the   assessee   so arranges that the goods are generally not sold by him in the   course   of   wholesale trade except to or through a related   person,   the   normal price   of   the   goods   sold   by the assessee to or through such related person shall be deemed   to   be   the   price   at which   they   are   ordinarily sold   by   the   related   person in   the   course   of   wholesale (a) “assessee” means [...]; (b) persons shall be deemed to be “related” if— [...] (c) “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   where   the   excisable goods   are   to  be   sold   after their   clearance   from   the factory; from where such goods are removed;

50 trade at the time of removal, to dealers (not being related persons)   or   where   such goods are not sold to such dealers,   to   dealers   (being related   persons)   who   sell such goods in retail; (b)  where the normal price of such

goods

not ascertainable   for   the   reason that such goods are not sold or   for   any   other   reason,   the nearest

ascertainable equivalent thereof determined in   such   manner   as   may   be prescribed. (2)  Where,   in   relation   to   any excisable goods the price thereof for   delivery   at   the   place   of removal   is   not   known   and   the value thereof is determined with reference to the price for delivery at a place other than the place of removal,

the

cost

of transportation from the place of removal to the place of delivery shall   be   excluded   from   such price. (3) [...] (cc) “time   of   removal”,   in respect of the excisable goods removed   from   the   place   of removal   referred   to   in   sub­ clause (iii) of clause (c), shall be deemed to be the time at which such   goods   are   cleared   from the factory; (d)   “transaction   value”   means the   price   actually   paid   or payable   for   the   goods,   when sold, and includes in addition to the   amount   charged   as   price, any   amount   that   the   buyer   is liable to pay to, or on behalf of, the assessee, by reason of, or in connection   with   the   sale, whether payable at the time of the   sale   or   at   any   other   time, including, but not limited to, any amount charged for, or to make provision   for,   advertising   or publicity, marketing and selling organisation   expenses,   storage, outward   handling,   servicing, warranty,  commission   or   any other   matter;   but   does   not include   the   amount   of   duty   of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.

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