Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru has held that Basic Customs Duty (BCD) on Domestic Tariff Area (DTA) clearances made by a 100% Export Oriented Unit (EOU) cannot be determined on the basis of Maximum Retail Price (MRP) minus abatement, and must instead be valued strictly in accordance with the Customs Valuation Rules, 2007. Setting aside multiple orders confirming differential duty demands, the Tribunal remanded the matter for de novo adjudication.

Also Read: Maternity Leave Benefit Extends To Government Servants For Third Pregnancy: Madras High Court Grants One-Year Leave, Orders Statewide Circulation For Compliance

The Bench comprising Dr. D.M. Misra (Judicial Member) and Pullela Nageswara Rao (Technical Member) ruled that Section 4A of the Central Excise Act, 1944 has no application for computing customs duties on deemed imports by EOUs, and that MRP-based valuation cannot be indirectly applied for determining BCD.

The dispute arose from audit objections relating to the period 2010–11 and 2011–12, during which the assessee, a 100% EOU engaged in the manufacture of pharmaceutical products, cleared around 20% of its production into the DTA, primarily to its holding company. Initially, the assessee discharged both BCD and Countervailing Duty (CVD) on the basis of MRP less admissible abatement.

From February 2012, the assessee revised its valuation methodology. While BCD was paid on the transaction value, i.e., the invoice price charged to its holding company, CVD continued to be paid on MRP minus abatement. The Department objected to this change, alleging that since the buyer was a related party, the transaction value could not be accepted without supporting documentary evidence. It was further alleged that the shift in valuation resulted in a substantial reduction in duty liability, leading to issuance of show cause notices demanding differential duty along with interest and penalties. These demands were confirmed by the adjudicating authorities and subsequently upheld by the Commissioner (Appeals), prompting the batch of appeals before the Tribunal.

The core issue before the Tribunal was whether BCD on DTA clearances by a 100% EOU should be computed on the basis of MRP less abatement, or on transaction value determined under the Customs Valuation Rules, 2007, particularly where sales are made to a related party.

The assessee contended that under the proviso to Section 3(1) of the Central Excise Act, 1944, DTA clearances by EOUs are to be treated as deemed imports, and valuation must follow Section 14 of the Customs Act, 1962 read with the Customs Valuation Rules, 2007. It was argued that there is no legal basis for applying MRP-based valuation under Section 4A of the Central Excise Act for computing BCD. The assessee submitted that the earlier method of paying BCD on MRP minus abatement was itself contrary to law, and the subsequent shift to transaction value merely aligned the valuation practice with settled legal principles, including decisions of the Supreme Court.

The Department, on the other hand, argued that the buyer being a related person under Rule 2(2) of the Customs Valuation Rules, the declared transaction value could not be accepted at face value. In the absence of evidence to establish that the price was uninfluenced by the relationship, valuation was required to proceed sequentially under the Customs Valuation Rules. Given the lack of comparable import data, the Department justified resorting to a derived valuation, effectively aligning BCD valuation with the MRP-based value adopted for CVD.

After examining the statutory framework and precedents, the Tribunal categorically held that BCD cannot be determined on the basis of MRP less abatement, reiterating that Section 4A has no role in the valuation of customs duties on deemed imports. At the same time, the Tribunal declined to outrightly accept the transaction value declared by the assessee, noting that the transactions were between related parties and that sufficient documentary evidence had not been produced to demonstrate that the price was uninfluenced by the relationship.

Also Read: Sessions Courts Lack Power To Impose Life Imprisonment Without Remission: Karnataka High Court Modifies “Natural Death” Sentence In Child Murder Case

Relying on the Supreme Court’s ruling in CCE v. Morarjee Brembana Ltd., the Tribunal held that valuation must be carried out by sequential application of Rules 4 to 8 of the Customs Valuation Rules, 2007, based on facts and evidence, rather than by indirectly importing MRP-based concepts. Accordingly, the Tribunal set aside all the impugned orders confirming demands, interest and penalties, and remanded the matter to the adjudicating authority for fresh determination of assessable value strictly in accordance with the Customs Valuation Rules, after granting the assessee an opportunity to produce supporting evidence. The appeals were allowed by way of remand, without expressing any final view on the correctness of the transaction value declared by the assessee.

Cause Title: M/s. Onco Therapies Pvt. Ltd. Versus Commissioner of Central Excise, Bangalore-I

Case No: Central Excise Appeal No. 22542 of 2014

Coram: Dr. D.M. Misra (Judicial Member) and Pullela Nageswara Rao (Technical Member)