Wilful undervaluation and CENVAT credit on supplementary invoices: penalty sustained, but credit denial overturned.

Wilful understatement of assessable value and consequent short payment of excise duty attracted penalty under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002 because the reduced declared values were not shown to be provisional, the correct costing emerged only after departmental verification, and suppression with intent to evade duty was established. Revenue neutrality and later payment did not negate the penalty. On CENVAT credit, duty paid through supplementary invoices remained admissible to the receiving unit under the credit scheme, as the substantive entitlement under the CENVAT Credit Rules could not be denied merely because the duty was paid after departmental detection; the denial under Rule 9(1)(b) was set aside.

---

---

Issues: (i) whether penalty under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002 was leviable for the understatement of assessable value and consequent short payment of duty; (ii) whether credit of duty paid through supplementary invoices was admissible to the receiving unit under Rule 9(1)(b) of the CENVAT Credit Rules, 2004.

Issue (i): whether penalty under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002 was leviable for the understatement of assessable value and consequent short payment of duty.

Analysis: The declared values were reduced sharply from January 2004 and the revised cost figures were not shown to be provisional. When the revenue queried the fall in duty realization, the response remained general and the correct costing emerged only after departmental verification by the cost officer. On these facts, the ingredients of wilful misstatement and suppression of facts with intent to evade duty were held to be made out. The plea of revenue neutrality and voluntary payment after detection did not alter the finding, and removal of goods without correct valuation justified confiscatory penalty as well.

Conclusion: Penalty under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002 was upheld against the assessee.

Issue (ii): whether credit of duty paid through supplementary invoices was admissible to the receiving unit under Rule 9(1)(b) of the CENVAT Credit Rules, 2004.

Analysis: The additional duty arose on reassessment of valuation, but the credit scheme under Rule 3 of the CENVAT Credit Rules, 2004 conferred entitlement to credit of duty paid on inputs, and the restriction in Rule 9(1)(b) could not override that substantive entitlement on the facts found. The Tribunal followed the Karnataka High Court view that the credit could not be denied merely because the duty was paid after departmental detection, and distinguished the contrary line of authority relied on by the Revenue.

Conclusion: Denial of CENVAT credit under Rule 9(1)(b) of the CENVAT Credit Rules, 2004 was set aside and the credit was held admissible to the assessee.

Final Conclusion: The dispute was resolved partly in favour of the assessee, with the penalty sustained on the valuation issue but the denial of credit on supplementary invoices overturned.

Ratio Decidendi: Where reduced assessable value is accepted without proper verification and the facts disclose wilful misstatement or suppression, penalty under Section 11AC and allied confiscatory penalty provisions follows; but admissible CENVAT credit cannot be denied merely because the duty reflected in supplementary invoices was paid after departmental scrutiny when the credit entitlement under the rules otherwise subsists.

---