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CBEC Circular related to valuation of goods sold to independent and related parties is not violative of central excise laws


The Merino Panel Ltd (respondent) is a manufacturer of decorative laminates and other like materials (the goods) which falls under chapter 48 of the Central Excise Tariff Act, 1985 (CETA). Since the goods were excisable, the respondent’s selling price would determine the amount of tax that the Revenue department (Appellant) would collect.

The goods were sold to both independent parties and to related parties. Some discrepancies were found in the prices at which they were sold to independent parties and related parties as defined under section 4 (3)(b)(i) of the CEA read with section 2(g) of Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). In comparison to the goods sold to independent parties, the goods sold to related parties were undervalued. Because of the lower valuation of the goods, less excise duty was collected.

The appellant issued the Show Clause Notice (SCN) invoking Rule 11 of CEVR stating that the valuation shall be determined using reasonable means consistent with the principles and general provisions under section 4(1) of CEA. This was done because there was no provision establishing any methodology to determine the assessable value of goods sold at different prices. According to the appellant, under SCN Rule 11 of CEVR, the value of goods sold to unrelated parties would be the same as the value of goods sold to related parties.

The respondent argued against the SCN on the grounds that the appellant had erroneously invoked Rule 11 of the CEVR and that the method of valuation used was incorrect because the appellant had issued a circular on July 1, 2022, which clarified how valuations were to be done when sales were made to both independent and related parties.

Since there is no contradiction between the circular and Rule 1 of CEVR, the commissioner rejected the respondent’s argument and sustained the demand.

The CESTAT (the tribunal) set aside the order passed by the adjudicating authority and allowed the respondent appeal on the ground circular clarified the methodology to be adopted for determining the value and section 4 (1)(a) of CEA is not applicable as it referred to sales made exclusively to independent buyers.


  1. Whether the circular dated July 1, 2002, is binding on the revenue department?
  2. Whether circular dated just 1, 2002 is in conflict with provisions of CEVR?


The supreme court ruled as follows:

  • Courts and tribunals are not bound by a department’s circulars, however, a department is.
  • The July 1, 2002 circular and the CEVR’s provisions don’t conflict.
  • If the price is the only factor used to calculate the transaction value, the price can also be applied to purchases made by related parties to determine the assessable value.

As a result, the appellant’s civil appeal was allowed.


Link to the  Original Judgment –

Written by- Amruthavarshini, Student at Jindal Global Law School

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