By TIOL News Service

AHMEDABAD, MAY 22, 2013: THE appellants are engaged in the manufacture of lubricating oils, which were being cleared in bulk to their sister units located at Ballabgarh and Mumbai, who were packing the same in retail packs and selling on payment of duty of excise on the basis of MRP fixed on such packs.

The appellants were issued 3 SCNs alleging non inclusion of certain administrative expenses/overheads in the value of bulk lubricating oils cleared by them to their Ballabgarh unit. The other two show cause notices alleged that the appellants have not included the royalty charges required to be paid by them to M/s. Castrol U.K. for technology transfer and technical assistance. All the demand notices invoked the extended period of limitation.

Since the CCE, Vapi confirmed the allegations levelled in the three SCNs, left, right and center, the appellant is before the CESTAT.

The appellant inter alia submitted that there could be no motive or intention on their part to evade duty as their entire duty paid by them was available as CENVAT credit to their sister unit. Moreover, since the duty was being paid by that unit on the basis of MRP affixed on retail packs, all the expenses including overhead, administrative charges was part of the same.

The Member (Judicial) observed -

"4. We propose to dispose the appeal on the ground of Revenue neutrality itself. The appellants have produced on record the amounts of duty paid by the recipient unit out of CENVAT credit as also out of PLA. The amount paid out of PLA during the relevant period are much higher than the duty confirmed against the appellants vide impugned order. Admittedly, the duty paid by the appellant was being availed as MODVAT credit by their own recipient unit located at Ballabgarh and Mumbai. In these circumstances and in the light of various judgments quoted before us, it can be said that there was no intention on the part of appellants to evade duty, if at all. As such, on this short ground of Revenue neutrality, we set aside the impugned order and allow all the appeals with consequential relief to the appellants."

The Member (Technical) recorded a separate order by observing -

"9. I am in full agreement with the Learned Member (Judicial) as regards the view taken that on account of revenue neutrality and in the light of various judgments cited, it cannot be said that there was an intention on the part of appellants to evade duty. Therefore extended period cannot be invoked. However, in my view on the ground of revenue neutrality, the whole demand cannot be dropped and the demand relating to the period beyond one year which requires the department to establish suppression/fraud/collusion etc. only is required to be set aside. Needless to say once it is held that extended period is not applicable, penalty also cannot be levied. In my view the demand for the normal period of limitation of one year as applicable under Section-11A is required to be confirmed and the reasons for this conclusion are discussed below."

And, then concluded by holding thus -

"13. The above two provisions clearly show that the law recognizes the fact that there can be short levy even when there is an approval or an assessment by the Central Excise Officer and even in such cases, the Central Excise Officer is empowered to recover the amount if the notice is served within one year from the relevant date. The period of one year gets extended to five years when the short levy has arisen because of fraud, collusion or any wilful mis-statement or suppression of facts with intent to evade payment of duty. In this case there is no dispute that there was no intention to evade payment of duty on the part of the appellants. Therefore the limited question that arises is whether the demand even within the limitation period of one year can be waived or can be set aside on the ground of revenue neutrality. I am unable to find any provision in the law which empowers the Tribunal to do so. None of the decisions cited by the appellants support this view. Therefore the appellants would be liable to pay the differential duty along with interest as applicable for the differential duty which arises within the limitation period of one year from the relevant date as per the provisions of Section 11A of Central Excise Act, 1944 in respect of both administrative expenses and royalty. Action of Commissioner in appropriating amount already paid towards differential duty on account of administrative expenses is upheld as this is covered by the Provision of Section 11A(2B) of the Act. The matter is remanded to Original Adjudicating Authority to recalculate the differential duty in terms of the above order."

So, the following difference of opinion came to be referred to the President for appointing a third Member -

"Whether the impugned order is to be set aside and all the appeals allowed with consequential relief to the appellants as held by Learned Member (Judicial) or whether -

(i) it has to be held that royalty charges in appropriate proportion relatable to production of bulk oil are to be included in the cost of production of bulk lubricating oil as held by Member (Technical),

(ii) Differential duty paid by the appellants on being pointed out by the audit has to be appropriated as held by Member (Technical),

(iii) Demand for the period within one year from the relevant date has to be upheld as held by Member (Technical) and

(iv) what other matter has to be remanded to the Original Adjudicating Authority for the limited purpose of calculation of differential duty in terms of the order of Member (Technical)."

The President vide his order dated 10.08.10 observed that the two Members cannot refer the entire appeal because of difference of opinion instead of making a statement referring the point or points of difference between them. Reliance was placed on the decision in CCE & Cus. Vs. Jagat Texturising (2010-TIOL-549-HC-AHM -CX) in this regard.

So, the difference of opinion was revised to read -

(i) Whether it has to be held that royalty charges in appropriate proportion relatable to production of bulk oil are to be included in the cost of production of bulk lubricating oil as held by Member (Technical),

(ii) Whether differential duty paid by the appellants on being pointed out by the audit has to be appropriated as held by Member (Technical),

(iii) Whether on the basis of the fact that the duty paid by the appellant was available as CENVAT credit to the recipient and recipient had paid duty out of PLA after utilizing CENVAT credit the situation is revenue-neutral and therefore the demand for duty cannot be sustained as held by learned Member (Judicial) or duty demand within the normal period of limitation has to be sustained even when the situation is revenue-neutral as held by Member (Technical).

(iv) Whether the acceptance of CAS-4 and his conclusion that royalty charges are includable in the cost of production have to be upheld as held by Member (Technical) or not.

Before the Third Member on Reference, the appellant submitted -

+ that both the Members, in fact have agreed with that there cannot be any demand of duty when there is no intention on the part of the appellant and hence, extended period cannot be invoked. …It is his submission that the entire difference of opinion can be answered only on the question of limitation and draws my attention to the show cause notices dated 07.10.2004, 29.5.2006 and 26.6.2006 and submits that the demands which have been raised for the period is beyond limitation. He would submit that since all the three show cause notices are beyond the period of limitation, the question of Revenue neutrality as address by both the Members will come into play and there cannot be any difference of opinion.

The Revenue representative submitted that the third member can only hear the points of difference stated by the original Bench and they cannot derive the unintended question and has no power to decide the appeal in its entirety.

The Third Member took a closer look at the Annexures to the demand notices indicating the period for which the duty has been demanded and noticed that -

+ SCN dated 07/10/2004 demanded duty for the period November, 2001 to January, 2003;

+ SCN dated 29.05.2006 demanded duty for the period 2001 to December 2004;  and

+ SCN dated 26/06/2006 demanded duty for the period 8/06/2001 to 20/01/2006.

The referring Member, thereafter, observed -

"9. It can be seen from the above reproduced three annexures to the show cause notice dated 07.10.2004 and 29.5.2006, clearly indicate that the demand is raised for the period beyond the period of normal limitation i.e. one year.

10. As regards the show cause notice dated 26.6.2006, it can be seen from the annexure 'A' to the show cause notice that only one entry i.e. dated 20.01.2006 can be considered as within limitation and all the other entries on which demand has been raised is for the period 08.6.2001 to 11.11.2004. The said entry on which the demands have been raised is for the month of January 2006 and is also indicating that there is no differential duty recoverable from the appellant herein. It can be seen from the above, that all the three show cause notices which raise the demand on the appellant are for the period beyond one year. Since there is no difference of opinion between the Members, that the demand which is confirmed by invoking extended period is liable to be set-aside on the Revenue neutrality, I find that on this point itself, the view expressed by the learned Member (Judicial) needs to be concurred with.

11. In view of the foregoing, instead of answering the difference of opinion raised as indicated in paragraph-1, I am of the view that single observation made by me, will be enough to concur with the views of the learned Member (Judicial) and I need not answer all the points of difference of opinion, referred to me.

12 Accordingly, in view of the above, I concur with the views expressed by the learned Member (Judicial) and hold that the impugned needs to be set-aside."

In fine, by a Majority the order was set aside and the appeal was allowed with consequential relief.

In passing : Thankfully or otherwise, s ister units located at Ballabgarh and Mumbai were packing lubricating oils received in bulk in retail packs and selling the same on payment of duty of excise on the basis of MRP fixed on such packs. The Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 came into force on 01 st March, 2008. The key to all ails lies in the Annexure!

(See 2013-TIOL-765-CESTAT-AHM)