CX - Element of excise duty on which CENVAT Credit was availed is not includible in AV of manufactured goods - duty demand, attributed to CVD which was not included in AV, is unsustainable: CESTAT
By TIOL News Service
MUMBAI, OCT 18, 2017: THE appellant received an order from M/s. Power Grid Corporation India Ltd. (PGCIL) for supply of transformer for the project to be undertaken by PGCIL at Hosur/Kolar.
The supply of transformer to PGCIL,a Government of India undertaking, fell under the category of deemed export under the Foreign Trade Policy at the relevant time.
PGCIL issued the project authority certificate to the appellant to enable them to apply for advance license from DGFT, Mumbai and accordingly, the Appellant applied for the same.
PGCIL applied for a World Bank loan for the project, however, as the loan did not materialize, appellant prevailed upon PGCIL to pay custom duty on the imports. The PGCIL paid import duties on behalf of the appellant.
Incidentally, initially when the goods were supplied, the value of transformer was contracted without considering customs duty. The appellant realised that since the custom duty should be part and parcel of the value of the manufactured goods, they paid differential duty. However, they did not pay the differential duty on the element of CVD for the reason that the same was available as CENVAT Credit.
The department objected; issued demand notice and confirmed the same with penalties and interest and this order was upheld by the Commissioner(A).
The appellant is before the CESTAT.
It is submitted that the appellant had suo moto paid the duty alongwith interest on the element of basic custom duty and intimated the department vide their letter dated 28-3-2003 and 22-8-2002, therefore, the same should not have been raised in the show cause notice dated 21-3-2006 in view of Section 11A(2B) of CEA, 1944; that as regards the differential duty on the element of CVD, it is emphasized that since the appellant had availed CENVAT Credit on such CVD, the same is not includible in the value of the goods as held by Supreme Court in case of Dai Ichi Karkaria Ltd. - 2002-TIOL-79-SC-CX.
The AR supported the impugned order.
The CESTAT observed -
"5. …, it is absolutely clear that appellant have not undervalued the goods, initially valuation was arrived at after considering the non-levy of the customs duty due to supply in the nature of deemed export. When the World Bank has denied the loan to the PGCIL, supply become normal and deemed export benefit was not available. The appellant admittedly on own their ascertainment, duty amount of Rs.23lacs was paid alongwith interest and intimated to the department. In such case, no show cause notice should have been issued in terms of Section 11A(2B) which reads …From plain reading of the above section, it can be seen that all ingredient of non-issuance of show cause notice such as appellant on their own ascertainment paid duty alongwith interest and intimated to the department. Therefore the appellant have made a fit case to invoke Section 11A(2B) accordingly Revenue was not suppose to issue show cause notice at least on the portion of the demand which was paid alongwith interest by the appellant. Therefore no penalty attributed to the demand was warranted. We therefore set aside the penalty corresponding to duty of Rs. 23,11,451.22.
5.1 As regard the issue whether CVD amount should be included in the cost of final product, we find that appellant have availed Cenvat Credit in respect of CVD, therefore, it cannot be said to be a cost of final product…."
Drawing support from the apex court decision in Dai Ichi Karkaria Ltd (supra) where it is held that element of excise duty on which CENVAT Credit was availed is not includible in the value of the manufactured goods, the duty demand, attributed to the CVD which was not included in the assessable value, was held unsustainable.
The appeal was partly allowed.
(See 2017-TIOL-3728-CESTAT-MUM)
