2013 (11) TMI 694 - AT - Central Excise

Appeal outcomes: Black Stone Polymers rejected, Basant Dhoot allowed. Penalties upheld, compensation included in assessable value.

The appeal by M/s. Black Stone Polymers was rejected, and the appeal by Shri Basant Dhoot was allowed. The penalties imposed on the main appellant were ... Valuation of re-treading materials – transaction value - Price paid over and above - whether the compensation given by the buyers of the tread rubber to the appellants which is basically a non-interest free loan to the appellant, is required to be added in the assessable value of the tread rubber supplied by the appellant to their buyers. - Whether the price paid over and above has to be kept out of the assessable value of the goods – Held that:- the amount of compensation was not linked with quantity of tread rubber to be supplied and price of tread rubber fixed in the agreement was not depressed on account of compensation. - For example, if no tread rubber was supplied in 1996-97, even then compensation was to be received and in the absence of assessable value, the same would not have been includable. For this reasons, it was held by the Hon’ble Tribunal in the case of Mysore Kirloskar Ltd. [2002 (1) TMI 117 - CEGAT, BANGALORE] that addition of developing/designing charges of machines paid separately by customers should have been done after establishing their nexus with negotiated price of machine. - Decided in favor of assessee. Issues Involved:1. Valuation of re-treading materials for heavy earth moving machines.2. Inclusion of compensation amounts in the assessable value of goods.3. Legality of penalties imposed under Section 11AC and Rule 173Q of Central Excise Rules, 1944.4. Invocation of the extended period of limitation under Section 11A of the Central Excise Act.5. Separate penalties on the firm and its partner.Issue-wise Detailed Analysis:1. Valuation of Re-treading Materials:The main appellant, M/s. Black Stone Polymers, was manufacturing re-treading materials and supplying 97%-98% of their production to a specific buyer. The Revenue contended that additional amounts paid by the buyer as 'compensation' during 1996-97 and 1997-98 should be included in the assessable value of the goods. The appellants argued that these payments were interest subsidies to ensure regular supply and did not affect the price of the goods sold.2. Inclusion of Compensation Amounts:The Revenue's case was that the compensation payments should be part of the assessable value. The appellants contended that the compensation was for setting up the factory and ensuring supply, not affecting the price. The Tribunal noted that the compensation was not interest-free advances but actual payments. The Tribunal scrutinized various decisions but found none directly applicable to the facts of this case. The Tribunal concluded that the compensation received was indeed part of the assessable value since the price declared was not the sole consideration.3. Legality of Penalties:The original order had imposed penalties under Section 11AC and Rule 173Q of the Central Excise Rules, 1944. The Commissioner (Appeal) had reduced the penalties. The Tribunal upheld the imposition of penalties on the main appellant but set aside the penalty on the partner, citing the Supreme Court's ruling in Prakash Metal Works, which allowed separate penalties on the firm and the partner only if the partner played a specific role in the violation.4. Invocation of Extended Period of Limitation:The appellants argued that the extended period could not be invoked as the compensation was declared in their balance sheets. The Tribunal referred to the Supreme Court's decision in Usha Rectifier Corpn. (I) Ltd., which held that suppression pertains to information withheld from the Central Excise department, not from shareholders or other entities. The Tribunal found no merit in the appellants' argument and upheld the invocation of the extended period.5. Separate Penalties on the Firm and Partner:The Tribunal noted that the partner's actions were not distinct from the firm's actions and thus found it unnecessary to impose a separate penalty on the partner. Consequently, the appeal filed by the partner was allowed, and the penalty on him was set aside.Majority and Separate Judgments:- The majority order rejected the appeal by M/s. Black Stone Polymers and allowed the appeal by the partner, Shri Basant Dhoot.- The dissenting opinion by Ms. Archana Wadhwa held that the compensation should not be included in the assessable value and that the demand was time-barred. She argued that the compensation was for ensuring supply and not for depressing the value of the final product. She also noted that the appellants had disclosed the compensation in their balance sheets, negating any intent to evade duty.Final Order:In view of the majority order, the appeal by M/s. Black Stone Polymers was rejected, and the appeal by Shri Basant Dhoot was allowed.