an adjudicating authority is obligedto do the following, in respect of transactions that took placeafter 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 conditionsstipulated in clause (a) of sub­section (1) of Section 4.

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 ETC. ETC. …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
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 partywise 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.
  17. Aggrieved by the Order­in­Original 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
    1 (1983) 13 ELT 1546 (SC)
    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 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;
    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 Order­inOriginal 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 Order­inOriginal 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 underinvoicing;
    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.
  40. Aggrieved by the said order, the Revenue has come up with
    this batch of appeals, Civil Appeal Nos. 2236­2253 of 2011.
    Facts in Civil Appeal Nos. 3227­3230 of 2011
  41. Similar to the preceding cases, M/s. Mysore Chipboards
    Ltd., which is the assessee concerned in this batch of cases, also
    manufactures plywood/block boards/particle boards. Searches
    conducted by the DGCEI at their premises 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. 7,51,53,570 during the
    period from 01.07.2000 to 28.08.2003.
    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 Order­inOriginal No. 20/2007 dated 29.06.2007. By this Order­inOriginal, 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
  80. 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
  81. 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 of 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 subsection (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 is 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 subclause (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.
  82. 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.
  83. 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.
  84. 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.
  85. 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.
  86. 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).
  87. 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
  88. 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”.”
  89. 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.
  90. 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).
  91. 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.
  92. 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.
  93. 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
  94. These rules were issued in exercise of the power conferred
    by Section 37, in supersession of the 1975 Valuation Rules.
  95. Rule 3 of the aforesaid 2000 Rules makes it clear that the
    value of excisable goods, for the purposes of clause (b) of subsection (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.
  96. 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 subsection (1) of Section 4, then the value of the excisable goods
    should be determined in accordance with the 2000 Rules.
    61
  97. 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.
  98. 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,

  99. What the Adjudicating Authority and the Tribunal had and had
    not done in these cases
    62
  100. 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
  101. 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.
  102. 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
  103. 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
  104. 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