Sulekha Beevi C.S., Member (J).

Brief facts of the case are that the appellants are engaged in manufacture of plastic moulding, falling under Chapter 85 of the Central Excise Tariff Act, 1985. The appellants manufacture and clear part Nos. S.G.A. 3100026 (inter face barrier), S.G.A. 3100027 (moving arm) and SGA 31101163 (isolating contact support) to their Pallavaram Unit, Chennai. Price declarations were filed under Section 4(1)(b) of the Central Excise Act, 1944 for the said clearances, after working out the assessable value on cost construction basis as per Rule 6(b)(ii) of the Valuation Rules 1975. The entire clearance was made to Pallavaram Unit. About 98% of the goods so cleared are consumed by the Pallavaram Unit for manufacture of various final products. 2% of the same are sold by Pallavaram unit as spares at a higher rate to various customers. The issue in the instant dispute is whether the assessable value is to be calculated as done by the appellants (unit at Pondicherry) or at the higher rate cleared by the Pallavaram Unit as spares.

2. On the basis of the price declarations filed by Pallavaram unit, department was of the view that comparable prices are available for these three products and therefore such prices have to be adopted to arrive at the assessable value. Show cause notices were issued alleging the same and after due process of law, the original authority confirmed the duty demand. In appeal the Commissioner (Appeals) set aside the same. Hence this appeal.

3. The learned AR Shri S. Nagalingam reiterated the grounds of appeal. He submitted that there is huge difference between the actual selling price of 2% of these products at Pallavaram which is Rs. 74.96 and the one declared and adopted by appellant which is Rs. 28.97. That appellants had not adopted the assessable value of 2% goods cleared by Pallavaram unit for identical goods. The method of valuation based on cost construction should be resorted to only when the value of comparable/identical goods is not available. That Commissioner (Appeals) has erred in setting aside the demand by accepting the contention of the appellant that Pallavaram Unit sold only small percentage as spares and that such price cannot be adopted as comparable price. Since there is gross undervaluation which was well within the knowledge of respondent, the appeal may be allowed.

4. None appeared on behalf of respondent even though notice was issued. Being old matter of the year 2007, the appeal is taken for disposal after hearing the department and on perusal of records.

5. On facts brought out, it is seen that Pallavaram unit of the appellant sold about 2% of the products cleared from Pondicherry unit, as spares at a higher rate. It is the contention of department that the Pondicherry unit ought to adopt these prices as the assessable value. At the outset, it has to be stated that the show cause notice is issued against Pondicherry unit and not against the Pallavaram unit. Moreover, the alleged sales at Pallavaram is admittedly only 2% of the clearances made from Pondicherry unit and the balance 98% is captively consumed. The case of department is that for this balance 98% also the price of the sale of 2% should be adopted which in our opinion does not make any sense. The Commissioner (Appeals) has discussed the issue as under :-

"(a) The short question in this case is whether on the OE clearance made by the Appellant to their Pallavaram Unit when quantity of the same has been sold as replacement spares by the latter at much higher prices, the transaction value of the OE clearances is liable to be rejected and the Appellant liable to pay differential duty on the same price of the replacement spares sold by the Pallavaram Unit. It cannot be said that when the OE items were removed from the Appellants premises, to their Pallavaram unit, it was all along know, ab initio, that the said items, or rather a portion of it would be sold as replacement spares by the latter instead of being used as original equipment. In the circumstances, I find that no mens rea can be attached to the Appellants in respect of the said action by their Pallavaram Unit.

(b) In the instant case even such large scale transfers predestined for sale have not occurred. The Respondent-Department have themselves admitted that only a small quantity, viz., 2% of the OE items that had been supplied by the Appellant had been sold to the replacement market by the Pallavaram unit. In the circumstances, the submission of the Appellant that the Pallavaram Unit while captively consuming in production 98% of the pumps supplied by the Appellant had sold the impugned items as replacement spares meet certain emergency requirements and had paid duty in respect of such removals on their selling price should have been positively taken into consideration by the learned Adjudicating Authority, which has not been done."

6. We find ourselves in agreement with the above discussions made by the Commissioner (Appeals) and we do not find any ground to interfere in the impugned order. The appeal is dismissed.