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CESTAT sets aside penalty where dispute pertained to Rule 8 applicable on classification of goods cleared to related party

Fact: M/s. Nova Iron and Steel Ltd. (“the Assessee”) was a manufacturer of sponge iron, who had stopped production due to financial losses, during the period from March 2010 to September 2011. After the management of the assessee was acquired by Bhushan Power & Steel Ltd., New Delhi. Consequently, the production activities recommenced but assessee failed to provide the said information to the Central Excise Department, regarding the change in management.

Applicant’s Interpretation of Law: The assessee contended that, as interconnected undertaking they have rightly valued their clearances under Rule 8 of the Valuation Rules. Further, assessee stated that there is a difference of approximately 5% only in the value of clearance to BPSL as compared to other independent buyers and quantity cleared to the other independent buyer is only miniscule, as compared to the quantity cleared to BPSL. Accordingly, assessee prayed for relief in penalty imposed having no intent to evade tax.

Held: The Hon’ble CESTAT in the case of “M/s. Nova Iron & Steel Ltd. vs. CCE & ST, Raipur” clarified that Rule 8 is applicable in the case of related party or interconnected undertakings. Further, CESTAT found that the demand of differential duty by the Revenue was by way of change of opinion that instead of Rule 8, Rule 4 is applicable therefore there was no suppression of facts and mis-conduct on the part of the assessee. Accordingly, CESTAT allowed assessee’s appeal, thereby setting aside the penalty imposed under Section 11AC of the Act.


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