2003 (1) TMI 332 - AT - Central Excise

Tribunal overturns Commissioner's order, deems appellant's valuation method valid, and rejects differential duty demand.

The Tribunal allowed the appeal, setting aside the Commissioner's order. It held that the appellant's method of calculating the assessable value of Iron ... Accountal of goods - Demand - Limitation Issues Involved:1. Determination of the assessable value of Iron Ore Pellets considering moisture content.2. Legality of the demand for differential duty based on moisture content.3. Applicability of the extended period of limitation under Section 11A(1).4. Imposition of mandatory penalty under Section 11AC and interest under Section 11AB.5. Allegations of contravention of various Central Excise Rules.Issue-wise Detailed Analysis:1. Determination of the assessable value of Iron Ore Pellets considering moisture content:The appellant has been clearing Iron Ore Pellets on a dry weight basis, adhering to international practices where the moisture content is excluded for payment purposes. The Commissioner of Central Excise, however, issued a Show Cause Notice alleging that the appellant cleared excess quantities of Iron Ore Pellets in the guise of moisture without payment of duty. The Commissioner argued that the appellant's practice of deducting moisture content was not in accordance with Central Excise Law, as 'moisture' is an integral part of the product and not separable. The Commissioner also noted that Chapter 26 of the Central Excise Tariff Act, 1985, does not mention dry weight calculations for Iron-Ore pellets, unlike for manganese ores under Heading 26.02.2. Legality of the demand for differential duty based on moisture content:The Tribunal found that the appellant's practice of accounting for the dry weight of Iron Ore Pellets in the RG-1 account was legitimate. The Tribunal noted that the RG-1 account, which records the dry weight of pellets, was not disputed by the Revenue. The Tribunal emphasized that the moistening of pellets was a requirement for transportation and compliance with Pollution Control Board regulations, not a part of the manufacturing process. Consequently, the Tribunal concluded that duty should be paid on the dry weight of the pellets, as recorded in the RG-1 account.3. Applicability of the extended period of limitation under Section 11A(1):The Tribunal found that the Show Cause Notice dated 13-12-1999 was barred by limitation. The appellant had disclosed the practice of dispatching moist pellets and had paid duty on the dry weight basis as per the amounts received from buyers. The Tribunal noted that there was no evidence of suppression of facts by the appellant, and the plea of Revenue neutrality was strongly urged, as the goods sent to Hazira would obtain Modvat credit. Therefore, the Tribunal held that the extended period of limitation under Section 11A(1) was not applicable.4. Imposition of mandatory penalty under Section 11AC and interest under Section 11AB:Given the Tribunal's findings that the demand for differential duty on moisture content was not sustainable and that the Show Cause Notice was barred by limitation, the Tribunal concluded that there was no cause for imposing penalties under Section 11AC or interest under Section 11AB. The Tribunal set aside the penalties and interest imposed by the Commissioner.5. Allegations of contravention of various Central Excise Rules:The Tribunal addressed the allegations of contravention of Rules 9(1), 52A, 53, 173G, 173F, and 226. The Tribunal found that the appellant's practice of recording the dry weight of pellets in the RG-1 account was in compliance with the rules. The Tribunal also noted that the Commissioner had not questioned the RG-1 account, which recorded the dry weight of pellets. Therefore, the Tribunal concluded that there was no contravention of the Central Excise Rules as alleged by the Revenue.Conclusion:The Tribunal set aside the order of the Commissioner, allowing the appeal. The Tribunal held that the appellant's practice of accounting for the dry weight of Iron Ore Pellets was legitimate, the demand for differential duty based on moisture content was not sustainable, the Show Cause Notice was barred by limitation, and there was no cause for imposing penalties or interest.