Page 47 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes On this being pointed out (January 2007), the department accepted the audit observation and
reported (August 2008) that a show cause cum demand notice for 1.43 crore for the period 2003-
04 to 2006-07 had been issued out of which 1.17 crore had also been recovered. The recovery
particulars of balance amount of 0.26 crore were awaited (October 2009).
The reply of the Ministry has not been received (December 2009).

M/s IFB Industries Ltd., in Kolkata VI Commissionerate, engaged in the manufacture of auto
parts, cleared goods to related company paying duty on assessable value arrived at on ‘cost
basis’. Audit noticed that the assessee had failed to consider a few cost elements while determining
the assessable value of the goods which resulted in short levy of duty of 34.79 lakh during the
period from April 2005 to June 2006.
On this being pointed out (July 2006), the department accepted the audit observation and intimated
(January 2009) that a show cause notice for 1.04 crore covering the period April 2005 to December
2007 had been issued.
The reply of the Ministry has not been received (December 2009).
M/s Pearl Industries Barotiwala, in Chandigarh I Commissionerate, engaged in the manufacture
of additive mixture flavored ‘kiwam’, cleared the goods to its sister concern on invoice value
(transaction value) instead of assessable value arrived at on cost basis. The value was redetermined
by the department under the Valuation Rules and the differential duty was recovered in August
2001. Audit observed that the assessable value adopted by the department was undervalued
approximately by ten per cent. Moreover, value determined at one hundred and fifteen per cent
of the cost of production was incorrectly adopted as cum-duty-price. This resulted in short levy
of duty of 87.82 lakh during the period between January 2001 and September 2001 which was
recoverable with interest.

On this being pointed out (May 2003), the department stated (December 2003 and November
2008) that the question of valuation under rule 8 did not arise as the case was covered under
section 4(3)(b)(i) of the Central Excise Act, 1944 and not under section 4(3)(b)(ii).
The reply is not tenable as valuation was to be done by invoking provisions of rule 8 of the
Valuation Rules in view of rule 10(a) read with the proviso to rule 9 of the Valuation Rules, as
the firm was owned by the husband and wife as partners and the husband was the Managing
Director in the buyer unit. Thus, by virtue of Explanation (ii) below section 4(3)(b) of the Central
Excise Act, 1944, both the seller and buyer were related. Besides, even after redetermination of
the transaction value by the department under Valuation Rules, the goods still remained
undervalued by approximately 10 per cent because one hundred and fifteen per cent of the cost
of production was adopted as cum duty price.

The reply of the Ministry has not been received (December 2009).
M/s Paharpur Cooling Towers Ltd., in Kolkata VI Commissionerate, engaged in manufacture
of fabricated steel components, PVC fill sheet etc., cleared goods during the period from April
2005 to January 2007 to its sister units. The duty was paid on assessable value arrived at on
comparable price of similar goods for the year 2002 which was lower than the value as determined
on the cost of production basis. As a result, there was short levy of duty of 70.40 lakh for the
period from April 2005 to January 2007.

On this being pointed out (February 2007), the Ministry while admitting the audit observation
intimated (November 2009) confirmation of demand of 68.83 lakh, levy of penalty of equal
amount and appropriation of duty of 46.44 lakh paid by the assessee. It was further stated that
the assessee has obtained a stay from CESTAT in June 2009.

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