The Supreme Court of India last Friday set aside an order passed by the tax tribunal CESTAT, which had given a favourable order to Bajaj Auto (BSE:532977) in a case of dispute over the under-payment of excise duty to the government.

The court set aside the order passed by CESTAT, which had supported a duty demand from Bajaj Auto for alleged under payments of excise duty.

The apex court also directed the Customs Excise Service Tax Appellate Tribunal (CESTAT) to decide afresh as it had ignored some submissions made by the excise department.

"We allow this appeal and set aside the impugned order passed by the tribunal and remand the matter for fresh consideration of all the issues raised by both the parties," the court said.

Bajaj Auto was buying handle bar body, crank case clutch, and castings used as motor vehicle parts from one Anurag Engineering Co for manufacturing two wheelers.

Anurag was supplying the parts to Bajaj Auto made of aluminium ignots which in turn were supplied by Bajaj Auto.

Thus, they were aiding each other for mutual business interest and trying to keep the production cost at minimum and in that process, the central excise duty was discharged at lower value.

This was objected by the excise department and it issued notice to Bajaj Auto in March 2001 asking it to pay Rs 2.7 million for payment of undervalued excise for the period between June 1998 and September, 1999.

The excise department said that Anurang was receiving Aluminum ignots from Bajaj at an under-valued landed cost by not including expenses on account of sales tax, octroi, freight, insurance, loading and unloading charges and handling charges, and that Bajaj was charging only the basic price of such inputs equal to the basic price.

The official also said that the price charged by Bajaj from Anurag was "depressed price", which ultimately saved the price of their finished procuts.

This was challenged by Bajaj Scooters before CESTAT, which set aside the duty demand after observing that the excise department finding was not based on correct facts.