J.B. Pardiwala JUDGMENT
Surya Kant, J.
1. The present Civil Appeal originates from the impugned order dated 30.11.2017 passed by the Customs, Excise and Service Tax Appellate Tribunal, Chandigarh ("CESTAT"). The CESTAT set aside the show cause notice issued by the Appellant-Revenue to the Assessee-Respondent, on the ground that it had invoked an incorrect method of valuing related party transactions.
A. FACTUAL BACKGROUND
2. The Assessee is involved in the manufacture of decorative laminates and other like materials, which fall under Chapter 48 of the Central Excise Tariff Act, 1985. As excisable goods, the value at which the Respondent was selling these goods would be the determinant for the amount of tax recoverable by the Appellant. Following an audit conducted on the Assessee's operations for FY 2009-10 and 2010-11, discrepancies were unearthed in terms of the prices at which these goods were being sold. The goods were being offered not only to independent parties unconnected with the Respondent, but also to two 'related parties' called "Merino Industries Ltd." ("MIL") and "Merino Services Ltd." ("MSL"), as defined Under Section 4(3)(b)(i) of the Central Excise Act, 19441 ("CEA") read with Section 2(g) of the Monopolies and Restrictive Trade Practices Act, 1969.2 It was ascertained that Respondent was a subsidiary of MIL with 74.65% of its shareholding vested in the latter. With regard to MSL, the Assessee was found to have significant influence over its operations and the two companies shared Directors/Key Managerial Personnel.
3. The sales to these related entities were discovered to be undervalued in comparison to those made by the Assessee to non-related independent entities. This artificial devaluation resulted in a shortfall in collection of excise duty due to the deliberate deflation of the price by the Assessee when selling goods to its related party concerns. Hence, the assessable value of the excisable materials had to be established in order to then calculate the correct amount of excise duty to be levied.
4. The assessable value of excisable goods is worked out via Section 4(1) of the CEA. As we will repeatedly be referring to this provision at a later stage, a reproduction of its relevant portion is necessary at this point:
Section 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 the goods are not related and the price is the sole consideration for the........