By TIOL News Service

MUMBAI, MAY 11, 2015: THE appellant is having units at Chakan and Bhosari-Pune and are engaged in the manufacture of Sheet Metal Parts and Welded Assemblies for Automotive Sector [CSH 8708]. The officers of DGCEI found that the appellants had undervalued their final products on a couple of counts.

ASCN came to be issued on 06.05.2011 to the appellants' Chakan and Bhosari Units, wherein it was proposed to demand Central Excise duty amounting to Rs.49,61,809/-, Rs.2,02,99,124/-, Rs.37,79,725/- and Rs. 3,890/- from both the units. Penalties and interest were also proposed in the show cause notice. In the SCN,following allegations were made -

(a) Non inclusion of cost of amortization of tools, dies, welding guns, pallets etc. in the value of goods manufactured and cleared by the manufacturing units of appellant as required under Rule 6 of CEVR, 2000.

(b) Non inclusion of cost of drawing, blueprints, technical maps and charges and similar items in the value of goods manufactured and cleared by the manufacturing units of appellant as per the Rule, 6 of CEVR, 2000.

(c) Non addition of 10% to the cost of production while clearing the goods to sister units as required to be included under Rule 8 of CEVR, 2000.

The CCE, Pune-I confirmed the demands and approriated the amounts paid during investigation.

Before the CESTAT the appellant submitted that although theyhad filed appeal challenging entire order, however, they are not contesting duty but only the imposition of penalties and interest.

Inasmuch as for non-imposition of penalties and interest they pleaded that -

+ This is not the case of clandestine removal of the goods but a case where interpretation of valuation provisions are involved.

+ Short payment of duty is not an account of any malafide intention to evade excise duty. It is only due to the interpretation as to what value should be adopted for discharging excise duty in respect of clearances made to their sister concern as well as to other concern.

+ In respect of all clearances proper duty paying invoices were issued and excise duty was discharged.

+ Since the goods involved automobile components and part which is used by the automobile industry and in the case of supply made to the sister concern, it is used as input for manufacture of other final product and, therefore, in all the cases consignees are taking Cenvat Credit.

+ Even if duty demanded in the impugned order would have been paid at the time of clearances the same would have been availed as Cenvat Credit by the respective consignees and as a result payment of duty made by the consignee on their final product from PLA would have stood reduced to the extent of quantum of the present demand. Therefore there is no loss to the Revenue and in this case there is neutrality of Revenue; malafide intention cannot be attributed and accordingly no penalty and interest is imposable.

The AR while reiterating the order of the original authority submitted that inclusion of value consideration towards amortization of free supply goods i.e. tools, dies, welding guns, pallets etc. is explicitly provided under Rule 6 of CEVR, 2000; that valuation method for clearance to another unit of the appellant is provided under Rule 8, CEVR, 2000 and, therefore, in view of this unambiguous legal position of the valuation it can not be said that issue involved is of interpretation of law. Moreover, since the appellant has not contested the duty demand it clearly establishes malafide intention of the appellant. That since proviso to s. 11A was invoked and duty was confirmed for the extended period also the ingredients such as suppression of facts, misdeclaration of value etc. very much exist and, therefore, there is no question of waiver of penalty and interest on the confirmed demand. That plea of revenue neutrality cannot be accepted because then each and every case where the goods in respect of which any short payment or non payment is involved the duty will not be demanded for the reason that the buyer of the goods in any case entitled for the Cenvat Credit for such duty.

The Bench adverted to rule 6 & rule 8 of the Valuation Rules, 2000 and observed that differential duty demand on both the counts are correct and legal and the same did not require any interference.

On the question of imposition of interest and penalty, the Bench held -

+ It is admitted that appellant have not added amortization cost in respect of goods supplied to other than related person and also not correctly valued in respect of goods supplied to their sister concern.

+ The fact of incorrect valuation and consequent short payment of duty was clearly suppressed by the appellant from the department therefore proviso to Section 11A in demanding differential duty was correctly invoked.

+ We do not agree with this submission (of Revenue neutrality) for the reason that in each and every case the buyer is entitled for the Cenvat Credit and if this is so then every manufacturer/supplier will be free to either pay or not to pay excise duty.

+ No statute permits that if the buyer is entitled for Cenvat Credit then the supplier can avoid to pay excise duty. It is straight law, irrespective of any other factors as and when a manufactured goods is cleared from the factory of the manufacturer he is bound to pay the correct duty leviable thereon, there is no explanation provided in the excise law that if buyer is entitled for the Cenvat Credit therefore no duty is required to be paid.

+ The availment of Cenvat Credit is subsequent act and that cannot be basis for payment of duty on the clearance of the goods from the manufacturer factory. We are in the agreement with the Commissioner in giving the finding on issue of revenue neutrality.

+ Since in the present case, the invocation of proviso to Section 11A is not under dispute, the imposition of penalty under Section 11AC is inevitable as held by the Hon'ble Supreme Court in the case of Union of India vs. Dharamendra Textile Processors - 2008-TIOL-192-SC-CX-LB.

Holding that the Commissioner had correctly imposed penalty u/s 11AC and interest u/s 11AB, the order was upheld and the appeals were dismissed.

(See 2015-TIOL-836-CESTAT-MUM)