MRP-Based Valuation Invalid for BCD on EOU DTA Sales: CESTAT Directs Re-Determination Under Customs Valuation Rules

The Bengaluru Bench Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside multiple orders confirming differential duty demands against a 100% Export Oriented Unit (EOU) engaged in the manufacture of pharmaceutical products, holding that Basic Customs Duty (BCD) on Domestic Tariff Area (DTA) clearances cannot be computed on the basis of Maximum Retail Price (MRP) minus abatement. The bench of Dr. D.M. Misra (Judicial Member) and Pullela Nageswara Rao (Technical Member) remanded the matter for de novo adjudication, directing the authorities to determine valuation strictly in accordance with the Customs Valuation Rules, 2007. The case arose from audit objections covering the period 2010–11 and 2011–12, during which the EOU cleared about 20% of its production into the DTA, primarily to its holding company. Initially, the EOU discharged both BCD and Countervailing Duty (CVD) on the basis of MRP less admissible abatement. From February 2012, the assessee revised its valuation methodology BCD was paid on the transaction value (invoice price charged to the holding company), and CVD continued to be paid on MRP minus abatement. The Department objected to this change, alleging that the buyer being a related party, the transaction value could not be accepted without supporting evidence. It was further alleged that the switch in valuation resulted in a drastic reduction in duty liability, prompting issuance of show cause notices demanding differential duty, interest, and penalties. These demands were confirmed by the adjudicating authorities and upheld by the Commissioner (Appeals), leading to the present batch of appeals before the Tribunal. The central question before the Tribunal was whether BCD on DTA clearances by a 100% EOU should be determined on the basis of MRP less abatement, or on transaction value subject to the Customs Valuation Rules, 2007, especially when 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 an EOU are to be treated as deemed imports, and valuation must follow Section 14 of the Customs Act, 1962 and the Customs Valuation Rules, 2007. There is no legal basis for applying Section 4A (MRP-based valuation) of the Central Excise Act for computing BCD. Reliance on MRP minus abatement for BCD was legally incorrect, and the shift to transaction value merely aligned the practice with settled law, including Supreme Court rulings. Since the earlier method itself was contrary to law, it could not be used as a benchmark to allege suppression or invoke extended limitationOnco Therapies Pvt. Ltd.. The department 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 show that the price was uninfluenced by the relationship, valuation should 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 used for CVD. The change in valuation practice was portrayed as an attempt to evade duty, relying on judicial precedents cautioning against arbitrary valuation changes. CESTAT categorically held that BCD cannot be determined on the basis of MRP less abatement, reiterating that Section 4A of the Central Excise Act has no application for computing customs duties on deemed imports by EOUs. While rejecting the Department’s insistence on MRP-based valuation, the Tribunal also declined to outrightly accept the transaction value declared by the assessee, noting that the transactions were between related parties, and the assessee failed to produce sufficient documentary evidence to demonstrate that the price was uninfluenced by such relationship. Relying on the Supreme Court’s ruling in CCE v. Morarjee Brembana Ltd., the Tribunal held that valuation must be determined by sequential application of Rules 4 to 8 of the Customs Valuation Rules, 2007, based on facts and evidence, rather than by importing MRP concepts indirectly. The Tribunal set aside all 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 giving the assessee an opportunity to produce supporting evidence. The appeals were thus allowed by way of remand, without expressing any final view on the correctness of the transaction value declared by the assessee. Case Details Case Title: M/s. Onco Therapies Pvt. Ltd. Versus Commissioner of Central Excise, Bangalore-I Case No.: Central Excise Appeal No. 22542 of 2014 Date: 20/01/2026 Counsel For Appellant: Ravikumar Yanamandra Counsel For Respondent: M. Sreekanth, Assistant Commissioner (AR) Click Here To Read Order Read More: Understanding Rule 86A Of CGST Rules : In-built Safeguards

MRP-Based Valuation Invalid for BCD on EOU DTA Sales: CESTAT Directs Re-Determination Under Customs Valuation Rules

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