Case law

Custom, Excise & Service Tax Tribunal · 4 Dec 2023

Cadila Healthcare Ltd vs Vadodara-I

Legal principle

Where an EOU makes full and regular disclosures of its DTA clearances to the authorities, the value must be determined in accordance with Section 14 of the Customs Act and the Customs Valuation Rules, 2007 (including the Rule 4 requirement to adopt the lowest of multiple values of identical goods and Rule 8 profit margins on the same class and kind of goods), and in the absence of suppression or intent to evade — particularly where the demand is revenue neutral — the extended period of limitation cannot be invoked.

Court decision

The Tribunal allowed both appeals of Cadila Healthcare Ltd, holding the demand of excise duty unsustainable on multiple counts, set aside the impugned orders, and granted consequential relief in accordance with law; the extended-period demands and penalties fail on the reasoning of the cited precedents regarding absence of suppression and revenue neutrality.

Facts

Cadila Healthcare Ltd, a 100% Export Oriented Unit manufacturing bulk drugs under Chapters 28 and 29 of the Central Excise Tariff Act, 1985, cleared goods to its own DTA unit, its subsidiary M/s Zydus Healthcare Ltd., other DTA buyers, and under Advance Release Orders, availing Notification No. 23/2003-CE. It valued DTA clearances at 110% of cost of production under Rule 8 of the Central Excise Valuation Rules, 2000. The department rejected this, holding valuation should follow Rule 3(3)(b), 4 and 8 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 — using prices of identical goods to unrelated parties under Rule 4, or applying a 40%–80% profit margin based on Cost Audit Reports under Rule 8. Two orders, including OIO-VAD-EXCUS-001-COM-12-19-20 dated 09/12/2019 of the Commissioner, Vadodara-I, were challenged before the CESTAT West Zonal Bench, Ahmedabad.

Key provisions