[Order per : Moheb Ali M., Member (T)]. - In the impugned order, the Commissioner of Central Excise, Augrangabad, confirmed a demand of Rs. 94,48,210/- against the appellant company under proviso to Section 11A(1) of the Central Excise Act, 1944, imposed an equal amount of penalty on the company under Section 11AC, demanded interest under Section 11AB and imposed a penalty of Rs. 25,000/- on the senior finance executive of the company under Rule 209A of the Central Excise Rules. The appeals are directed against this order of the Commissioner.

2. Briefly the facts are that the appellant company manufactured and cleared various types of vacuum interrupters (VI) tubes to their own unit at Nasik. They had not filed any price declaration under Rule 173C of the Central Excise Rules in respect of clearances made to their Nasik unit. They were paying Central Excise duty on the price shown in the purchase orders received from their Nasik unit. They were also clearing the same/identical VI tubes to their customers but at price higher than the price charged to their own unit at Nasik. The contention of the department is that the price charged to other customers was normal price and therefore the same price was applicable to the goods cleared to their Nasik unit as per the provision of Section 4(1)(a) of the Central Excise Act. It was also the contention of the department that in cases where there was no sale of the same or identical goods to independent buyers the price of the goods cleared to Nasik unit is determinable under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975. The period of dispute is October, 1996 to June, 2000. Annexure I to the show cause notice gives the details of the goods involved and the calculations showing the amount of differential duty. It is noted that the department adopted the value at which identical goods were cleared to the wholesale buyers for the purpose of determining the value of goods cleared to the appellant’s Nasik unit. The annexure also shows that wherever similar/identical goods were not sold to wholesale buyers the department determined the value under Rule 6(b)(ii) of the Central Excise Valuation Rules for the purpose of assessment. For such determination the department relied upon the cost statement furnished by the chartered accountant of the appellant company and added the gross profit earned by the company as reflected in their balance sheet.

3.  The appellants assailed the order of the Commissioner on the following grounds.

(a)     the price at which goods are sold to the appellant’s Nasik unit is a negotiated price. The Commissioner’s contention that there was no sale is erroneous.

(b)     After the requirement of filing a price list was done away with, the appellants did not file a price declaration out of a mistaken belief that a declaration in respect of prices at which goods are sold by them either to their Nasik unit or to other wholesale buyers need not be filed. The non-filing of the declaration under Rule 173(c) is a procedural lapse.

(c)     Shri S. N. Atkalikar, senior finance executive of the company, during the course of investigation, stated that the prices at which the goods are sold to independent buyers are not comparable with the prices at which the goods are sold to their Nasik unit because these buyers belong to a different class of buyers. Different prices can prevail for different classes of buyers.

(d)    The Commissioner erred in holding that the appellant company and their Division at Nasik are related parties. The appellant submits that the question is not whether the appellant and the Nasik unit are related persons. The question simply stated is that the Nasik unit purchased the goods from the appellant at negotiated prices. Such purchases constituted more than 99% of the appellant’s sale of the specific type of VI tubes. Therefore the Nasik unit is bound to be treated as a separate class of buyer from other buyers to whom only small volumes are sold. The appellant has relied on the case of Samtel Electron Devices Ltd. v. CCE, Meerut [ (T-LB)], in support of this contention.

(e)     The Commissioner has not adduced any evidence to justify his findings that the goods sold by the appellant to their Nasik unit are identical to the goods sold to outside units.

(f)      The Commissioner erred in holding that the Tribunal in the case of Samtel Electron Devices Ltd. did not examine the question of relationship between the buyer and seller. The decision of the Tribunal cited by them is applicable on all fours to their case.

(g)     The Department had full knowledge about the activities in the past in terms of CERA audits objection. There was no suppression on their part. Mere non-filing of a declaration under Rule 173(c) cannot be a ground to allege suppression. The show cause notice is time barred.

(h)    In the price declaration dated 27-7-1997 the appellant stated in column III(c) that the appellant has no wholesale buyer who is related to him.

(i)      The Commissioner ignored the marketing pattern, which was furnished along with the written submissions during the course of personal hearing.

(j)      The goods i.e. VI Tubes are basically inputs in the manufacture of vacuum circuit breaker. The Nasik unit is entitled to take Modvat credit on the duty paid on VI tubes. Thus the whole exercise is revenue neutral and therefore no suppression with an intent to evade duty can be alleged. The Commissioner has not taken this aspect into consideration.

4. During the course of hearing, the learned Senior Advocate Shri J.F. Pochkhanawalla reiterated the submissions made in the appeal and argued that the commissioner erred in adopting the highest value of the goods sold to the independent buyers for the purpose of arriving at the value of the goods sold to the appellant’s Nasik factory. He also relied on the decision in the case of Kitply Industries Ltd. v. CCE, Mumbai []. The Tribunal, relying on the decision in Jay Yuhshin’s case [2000 (119) E.L.T. 728], held that suppression with an intent to evade duty cannot be alleged when a revenue neutral situation exists. The ld. Advocate also relied on the decision in the case of National Aluminium Co. Ltd. v. CCE, Bhubaneshwar [] wherein the Tribunal held that the price at which alumina was sold in bulk to Balco, a manufacturer of alumina, was acceptable as a assessable value for the goods, as Balco is a separate class of buyer different from the small buyers to whom stray sale of the same goods were sold. The Tribunal held that the price at which stray sales of smaller quantity is not a normal sale price. This decision of the Tribunal as stated in Paras 4 to 9 of their order is based on several decisions of the Tribunal on the issue of valuation. The Advocate argued that the ratio of these judgements has well applied to his case.

5. Heard both sides.

6. In response to the Advocate’s pleas, Shri S.V. Parelkar, JDR, argued that the goods sold to Nasik unit are identical to the goods sold to other wholesale buyers. The quantity sold to other buyers is not negligible as stated by the Advocate. He drew our attention to the provision of Section 4(l)(a) which provides a statutory basis for acceptance of different assessable value for different classes of buyers but always assuming that the buyer and the seller are not related to each other. The department was right in adopting the price at which the goods are sold to independent buyers particularly when the identical goods were sold to Nasik unit. On the issue of revenue neutrality he argued that this concept was not available when there was a deliberate suppression with an intent to evade duty on the part of an assessee. He further argued that the Commissioner was right in imposing a penalty under Section 11AC of the Central Excise Act on the company and imposing a penalty under Rule 209A on the senior finance executive who was aware of the suppression on the part of the company.

7. We have carefully considered the rival contentions and perused the records. Annexure I to the show cause notice gives the details as to how the differential duty was worked out. The Department adopted the value of the goods sold to other independent buyers for the purpose of arriving at the value of the goods sold to the appellant’s Nasik unit. The chart also indicates that the department adopted highest comparable price available for the purpose of determining the value. We observe from the documents enclosed to the appeal that apart from the Nasik unit of the appellant there are at least 14 other buyers to whom similar goods have been supplied by the appellants. The department enumerated instances where identical goods were sold to other buyers at prices much higher than the ones shown in invoices pertaining to Nasik units. When the goods are identical the price has to be also identical. The appellants contention that the Nasik unit is a different class of buyer and therefore the price at which the goods are sold to that unit stand on a different footing has to be straight away rejected in view of what has been provided in Section 4(1)(a) of the Central Excise Act. The Section provides for different classes of buyers and therefore different prices subject to the overall condition that such classes of buyers are not related to the assessee. There is no gain saying the fact that the appellant is related person to their Nasik unit though these two units act as different profit centres. The appellant cannot argue that the Nasik unit is a separate class of buyer and therefore that price cannot be compared with the price at which identical goods are sold to others. The case of National Aluminium Co. Ltd., cited supra and relied upon by the appellants also does not come to their rescue, because in the present case we are dealing with related party transactions. The provisions of Section 4(1)(a) clearly rule out transaction between related persons. The department was right in holding that the Nasik unit, being a related person, cannot be treated as a separate class of buyer to whom goods can be sold at a lower price.

8. Annexure I to the show cause notice mentioned elsewhere in the order also gives the details of goods which are sold only to the Nasik unit and not to any other wholesale buyers. The department, under Rule 6(b)(ii) of the Valuation Rules determined the value of these goods on the basis of the cost data provided by the chartered accountant of the appellant plus the gross profit earned by the company on this activity. That such profits can be added is now settled law as laid in the case of Raymonds Ltd. v. CCE, Aurangabad [ (T-LB)]. The Tribunal ruled that gross profit can be added to the cost of production while determining the value under Rule 6(b)(ii) of the Valuation Rules, 1975. This rule itself provides for addition of profit if any.

9. Thus in the case of identical goods the department arrived at the value on the basis of the comparable prices and in the case of goods which are exclusively sold to their Nasik unit by cost construction method. Insofar as the argument as to why the highest price at which comparable goods are sold to other wholesale buyers was adopted for the purpose of assessment of goods sold to the Nasik unit, we hold that the same question can be asked if the lowest price at which the goods are sold to other independent buyer is adopted for determining the price of goods sold to Nasik unit. In the absence of any explanation as to why the goods in question are sold at a lower price to Nasik unit compared to others, the department is right in adopting the maximum price at which the goods are sold during the relevant period. In respect of goods which are exclusively sold to Nasik unit, the department determined the price under Rule 6(b)(ii) of Valuation Rules. We see no reason to find fault with this. We do not find any reason as to why that the maximum price should not be adopted when once it is known that the goods involved therein are identical to the goods sold to the Nasik unit.

10. We now address ourselves to the issue of time bar raised by the appellant. It is an admitted fact that the appellants did not file any price declaration under Rule 173C. Even in the declaration filed in 1997, the appellant did not furnish correct information in regard to their relationship with the Nasik unit. Without filing the price declaration under the Rule 173C if an assessee chooses to adopt different prices for identical goods when such goods are sold to a related person, it has to be construed that there is a misdeclaration and suppression on the part of the appellant. The appellants refer to CERA objection in the appeal memorandum. It is not clear as to what the appellants want to put forward by this plea. We are required to decide whether there is a suppression allowing the department to invoke larger period of limitation in this case. We find that the records do indicate that the appellant failed to inform the department that he was selling identical goods to their related party at lower price compared to the price at which the goods are sold to other buyers. The department was right in holding that there was suppression on the part of the appellant with an intent to evade duty during the relevant period.

11. The appellants also relied on the decision of the Tribunal in the case of Kitply Industries Ltd. in regard to revenue neutrality. This decision relies upon the decision in the case of Jay Yuhshin Ltd. which is of a larger Bench. The larger Bench clearly ruled that the issue of revenue neutrality does not arise when the inputs are cleared to another assessee. In the present case there are two assessees albeit belonging to the same company. The fact remains that for the purposes of the Excise law the two units involved in this case are separately registered and are separate entities. The appellant himself argued that there was a sale of goods from one to another. The larger Bench’s decision applies to this case. Further, Rule 57(3) provides that when suppression with an intent to evade duty is alleged and additional duty recovered, the other unit using the inputs cannot avail of Modvat credit of additional duty paid by the manufacturer of such inputs. Therefore revenue neutrality does not exist in such cases. The law envisages a situation when suppression with an intent to evade duty can occur even in cases where modvatable goods are involved. The Hon’ble Supreme Court in the case of Amco Battery Ltd. [ (S.C.)] clearly ruled that when an assessee acts on the bona fide belief that certain goods are not excisable particularly when such goods are modvatable, suppression cannot be alleged. Amco Battery deals with a case where the inputs and the final products are manufactured in the same factory. Further Amco Battery’s decision does not lay down the law that in cases where the assessee is entitled to get the benefit of the Modvat scheme there can be no question of suppression of fact. Once the issue of suppression is separately dealt with in the facts and circumstances of a case and a decision arrived at, availability of Modvat credit does not come to the rescue of an assessee. It is clear that when prima facie suppression on the part of an assessee is established the plea of revenue neutrality would not come to his rescue to wipe out the charge of suppression. We therefore reject the plea of the appellant that suppression cannot be alleged in a case where modvatable goods are involved and are consumed by a sister unit in the manufacture of final product.

12. Insofar as the penalty on senior finance executive is concerned, the Commissioner dealt with this issue in Para 13 of the order. The commissioner seems to have imposed a penalty on him on the ground that he has admitted in his statement that he was a responsible person for the entire excise activity. The Commissioner brushed aside the defence of the appellant stating that it was an afterthought. No evidence has been brought out against him leading to the charge levelled against him. We therefore see no reason for imposing any penalty on him under Rule 209A of the Central Excise Rules.

13. In regard to penalty imposed on the company under Section 11AC, we observe that the Commissioner imposed Rs. 94,48,210/- being the maximum penalty under Section 11AC of the Central Excise Act. In the matter of valuation, unlike in the case of clandestine removal, maximum penalty is not called for. We find that the ends of justice are met if a nominal penalty is imposed on the company in this case.

14. In view of what has been discussed above, we pass the following order :

(a)     The demand of duty of Rs. 94,48,210/- under proviso to Section 11A(1) of the Central Excise Act, 1944 is confirmed.

(b)     Penalty under Section 11AC is reduced to Rs. 10/- lakhs.

(c)     Penalty on Shri S.M. Atkalikar, senior finance executive, is set aside.

15. Appeal No. E/844/2002 is partly allowed. Appeal No. E/845/2002 is allowed.