# THE COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, CALICUT v. M/S. CERA BOARDS AND DOORS, KANNUR KERALA & ORS

- **Citation:** [2020] 11 S.C.R. 471
- **Court:** Supreme Court of India
- **Decided:** 2020-08-19
- **Case number:** Civil Appeal Nos. 7240-7248 of 2009
- **Bench:** S. A. Bobde, A. S. Bopanna, V. Ramasubramanian
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-of-central-excise-customs-and-service-tax-calicut-v-m-s-cera-34511
- **Pages:** 44

## Headnote

Central Excise Act, 1944 - s.4 amended in 2000 - Charging
of excise duty - Method of valuation of excisable goods - In present
cases arising out of similar facts, assesses allegedly undervalued
the goods manufactured and cleared by them - Evaded the excise
duty actually payable - Period of assessment pre & post 2000
Amendment - Adjudicating authorities inter alia held that there was
undervaluation and evasion of excise duty - Customs, Excise and
Service Tax Appellate Tribunal (CESTAT) though upheld said finding
but remanded the matters back for re-quantification of duty - Held:
Finding w.r.t undervaluation and evasion of excise duty recorded
by CESTAT in all the cases has not been challenged by the assesses
and hence has attained finality - Further, before amendment, clause
(a) of sub-section (1) of s.4 laid emphasis on normal price for an
ordinary sale in the course of wholesale trade, after amendment it
speaks about transaction value - Thus, after amendment, if a sale
is covered by s.4(1)(a), the value of excisable goods shall be the
transaction value defined in s.4(3)(d) - Clause (b) of sub-section
(1), both before and after the amendment, leaves it to the delegated
legislation to prescribe the method of valuation, for cases not covered
by clause (a) - After the amendment, the Central Government issued
a new set of rules- 2000 Valuation Rules in supersession of 1975
Valuation Rules - Valuation as per the Rules is permissible only in
cases covered by s.4(1)(b) and not by s.4(1)(a) - Impugned orders
of CESTAT confirmed - Principles enumerated for adjudicating
authorities to keep in mind while re-adjudicating the matters -
Finance Act, 2000 - Central Excise Valuation (Determination of
Price of Excisable Goods) Rules, 2000 - Central Excise (Valuation)
[2020] 11 S.C.R. 471
471
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SUPREME COURT REPORTS
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Rules, 1975 - Central Excise Rules, 1944 - Central Excise Rules,
2002.
Disposing of the appeals, the Court
HELD: 1.1 Common Issues arising in these appeals
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
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. 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 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. The Court
is not concerned with the changes brought forth in 2012.
[Paras 77, 78][500-C-G]
1.2 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 sub-section (1) of Section
4, where the emphasis was on normal price, the
determination of which co-related to ordinary sale in
the course of wholesale trade (satisfying certain
conditions), and
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(ii) another cov

## Text

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THE COMMISSIONER OF CENTRAL EXCISE,
CUSTOMS AND SERVICE TAX, CALICUT
v.
M/S. CERA BOARDS AND DOORS,
KANNUR KERALA & ORS.
(Civil Appeal Nos. 7240-7248 of 2009)
AUGUST 19, 2020
[S. A. BOBDE, CJI, A. S. BOPANNA AND
V. RAMASUBRAMANIAN, JJ.]
Central Excise Act, 1944 - s.4 amended in 2000 - Charging
of excise duty - Method of valuation of excisable goods - In present
cases arising out of similar facts, assesses allegedly undervalued
the goods manufactured and cleared by them - Evaded the excise
duty actually payable - Period of assessment pre & post 2000
Amendment - Adjudicating authorities inter alia held that there was
undervaluation and evasion of excise duty - Customs, Excise and
Service Tax Appellate Tribunal (CESTAT) though upheld said finding
but remanded the matters back for re-quantification of duty - Held:
Finding w.r.t undervaluation and evasion of excise duty recorded
by CESTAT in all the cases has not been challenged by the assesses
and hence has attained finality - Further, before amendment, clause
(a) of sub-section (1) of s.4 laid emphasis on normal price for an
ordinary sale in the course of wholesale trade, after amendment it
speaks about transaction value - Thus, after amendment, if a sale
is covered by s.4(1)(a), the value of excisable goods shall be the
transaction value defined in s.4(3)(d) - Clause (b) of sub-section
(1), both before and after the amendment, leaves it to the delegated
legislation to prescribe the method of valuation, for cases not covered
by clause (a) - After the amendment, the Central Government issued
a new set of rules- 2000 Valuation Rules in supersession of 1975
Valuation Rules - Valuation as per the Rules is permissible only in
cases covered by s.4(1)(b) and not by s.4(1)(a) - Impugned orders
of CESTAT confirmed - Principles enumerated for adjudicating
authorities to keep in mind while re-adjudicating the matters -
Finance Act, 2000 - Central Excise Valuation (Determination of
Price of Excisable Goods) Rules, 2000 - Central Excise (Valuation)
[2020] 11 S.C.R. 471
471
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SUPREME COURT REPORTS
[2020] 11 S.C.R.
Rules, 1975 - Central Excise Rules, 1944 - Central Excise Rules,
2002.
Disposing of the appeals, the Court
HELD: 1.1 Common Issues arising in these appeals
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
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. 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 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. The Court
is not concerned with the changes brought forth in 2012.
[Paras 77, 78][500-C-G]
1.2 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 sub-section (1) of Section
4, where the emphasis was on normal price, the
determination of which co-related to ordinary sale in
the course of wholesale trade (satisfying certain
conditions), and
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(ii) another covered by clause (b) of sub-section (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. [Para 80][507-C-D]
1.3 The prescriptions contained in clause (a) of sub-section
(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.
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.
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 is not ascertainable for
any other reason. These cases may perhaps include sales
otherwise than in the course of wholesale trade. [Paras 81,
82][507-E-H; 508-A-C]
COMMNR. OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX
v. M/S. CERA BOARDS AND DOORS
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1.4 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.
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).
[Paras 83, 84][508-D-E]
1.5 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, 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. [Para 86][509-B-D]
CCE v. Grasim Industries Limited (2018) 7 SCC 233 :
[2018] 6 SCR 1099 - referred to.
1.6 While clause (a) of sub-section (1) of Section 4, as it
stood before amendment, laid emphasis on normal price, clause
(a) of sub-section (1) of Section 4, as it stands after amendment,
speaks about transaction value. Clause (b) of sub-section (1),
both before and after the amendment, leaves it to the delegated
legislation to prescribe the method of valuation, for cases not
covered by clause (a). For the valuation under Section 4(1) to
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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. If the three
conditions, enumerated in clause (a) are not satisfied, then the
case would fall under clause (b) of sub-section (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. [Paras 87-89][509-E-H]
1.7 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,
2000. These rules were issued in exercise of the power conferred
by Section 37, in supersession of the 1975 Valuation Rules.
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 to dwell deep into the aforesaid rules.
[Paras 90, 91][510-A-C]
1.8 Suffice it to say, that if a sale is covered by clause (a) of
sub-section (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 sub-section (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. 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 sub-section (1) of
Section 4.
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In cases where there is a sale and the three conditions stipulated
in clause (a) of sub-section (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.
[Paras 92-94][510-D-G]
1.9 What the Adjudicating Authority and the Tribunal had
and had not done in these cases
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.
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
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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.
[Paras 95, 96][511-A-F]
1.10 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 prescribed therein, falling under clause
(a) of sub-section (1) or whether the sales in question
fell under clause (b) of sub-section (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 sub-section (1) of
Section 4;
(iii)
Failure to find out, in the event of the sales in question
falling under clause (b) of sub-section (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.
Since the Adjudicating Authorities as well as the CESTAT
failed to make a determination as indicated above, the orders of
remand passed by the Tribunal, though for completely different
reasons, were justified. [Paras 97, 98][511-G; 512-A-D]
COMMNR. OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX
v. M/S. CERA BOARDS AND DOORS
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1.11 Conclusion
These appeals are disposed of, confirming the impugned
orders of CESTAT setting aside the Orders-in-Original passed
by the Adjudicating Authorities and remanding the matters back
for re-adjudication. However, while carrying out the exercise of
re-adjudication, the Adjudicating Authorities should keep in mind
the principles enumerated hereunder:
A. Cases where the period of assessment is prior to
01.07.2000
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 sub-section (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 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
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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 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
"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
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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 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. [Para 99][512-E-H; 513-A-H; 514-A-G]
Collector of Customs, Madras v. D. Bhoormall (1983)
13 ELT 1546 (SC) - referred to.
Case Law Reference
[2018] 6 SCR 1099
referred to
Para 85
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
7240-7248 of 2009.
From the Judgment and Order dated 24.03.2009 of the Customs
Excise & Service Tax Appellate Tribunal, South Zonal Bench at
Bangalore, in Appeal No. E/947-954/2006 and E/339/07.
With
C.A. Nos. 8615-8620 Of 2009, 2236-2253, 3231-3233, 3227-3230,
6564-6567, 9988-9991 of 2011.
Balbir Singh, ASG, Ms. Nisha Bagchi, Abhishek Attrey, B. Krishna
Prasad, Mrs. Anil Katiyar, V. K. Monga, V. Lakshmikumaran,
Ms. Charanya Lakshmikumaran, Aaditya Bhattacharya, Ms. Apeksha
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Mehta, Kunal Kapoor, Ms. Mounica Kasturi, Gautam Narayan,
Ms. Asmita Singh, Adithya Nair, M. P. Devanath, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
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.
COMMNR. OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX
v. M/S. CERA BOARDS AND DOORS
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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 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.
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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 (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
cross-examine 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.
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 2001-2002 and 3 dealers during the
period 2002-2003, 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.
COMMNR. OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX
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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 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 cross-examination of witnesses, perused the case
law relied upon by the assessee and then passed an Order-in-Original
No. 14/2006 dated 09.05.2006. By this Order-in-Original, 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 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 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.
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seized by the DGCEI together with the statements recorded
from the depot Manager and Sales Executives clearly
showed under-invoicing;
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;
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 co-relatable to the sales
turnover in respect of those 14 dealers could be demanded.
17. Aggrieved by the Order-in-Original No. 14/2006 dated
09.05.2006, one appeal was filed by the assessee, one appeal was filed
by its Managing Partner, one appeal was filed by the Manager of the
Bangalore depot of the assessee, one appeal each was filed by five
dealers from whom seizure of material was effected and one appeal
was filed by the Commissioner himself. Thus, there were 9 appeals, 8 of
which were at the instance of assessee, its Managing Partner, its Manager,
and the five 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
1 (1983) 13 ELT 1546 (SC)
COMMNR. OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX
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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. 245-253/2009 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 re-quantification of duty in light of the findings given. The
appeal filed by the 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 underinvoicing;
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;
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;
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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 re-adjudication.
22. Therefore, the Revenue has come up with this batch of nine
appeals, Civil Appeal Nos. 7240-7248 of 2009.
Facts in Civil Appeal Nos. 8615-8620 of 2009
23. The facts of this batch of appeals are similar to those in Civil
Appeal Nos. 7240-7248 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.
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 Order-in-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
COMMNR. OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX
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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 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 Order-in-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) 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 Order-in-Original 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. 414-419/2009 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 re-quantification 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.
29. The findings recorded and the reasons therefor, as given by
CESTAT, are as follows:-
I.
That there was overwhelming evidence to show underinvoicing;
II.
That in respect of the sales made prior to 01.07.2000, the
Adjudicating Authority should have adopted the normal
pricing method;
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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. 8615-8620 of 2009.
Facts in Civil Appeal Nos. 2236-2253 of 2011
31. Searches were conducted by the officers of the Directorate
General of Anti-Evasion (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.