2007 (8) TMI 274 - AT - Central Excise

Appellants liable for differential duty under Rule 16. Penalties set aside. Compliance difficulties recognized.

The Tribunal upheld the liability of the appellants to pay the differential duty under Rule 16 of the Central Excise Rules for goods returned to the ... Appellants clear the vehicles before launching a new model to show room on payment of duty - credit is taken as per Rule 16(1) on these vehicles returned to factory in terms of Rule 16 of CCR – appellants’ contention that when the goods are actually removed for sale, the duty is required to be paid only on T.V., is not acceptable – contention that Rule 16 cannot override Section 4, is also not acceptable - there is no manufacturing when the vehicles are returned so differential duty payable Issues involved:Interpretation of Rule 16 of the Central Excise Rules in relation to Section 4 of the Central Excise Act regarding the payment of duty on goods returned to the factory after clearance for sale based on Transaction Value.Analysis:The appeals before the Appellate Tribunal CESTAT Bangalore involved a common issue related to the interpretation of Rule 16 of the Central Excise Rules concerning the payment of duty on goods returned to the factory after being cleared for sale based on Transaction Value. The appellants, who manufacture cars, cleared vehicles before launching a new model to the showroom, paying duty based on the prevailing value at the time of removal. Upon return to the factory under Rule 16, the duty paid was taken as Cenvat credit. The department insisted on reversing the Cenvat credit at the time of second clearance, invoking Rule 16(2). The appellants argued that Rule 16 cannot override Section 4, citing relevant legal precedents.The Tribunal analyzed Rule 16 in detail, emphasizing that it applies only to goods on which duty has been paid under Section 4. The first sub-rule allows for Cenvat credit on goods brought back to the factory for various purposes, while the second sub-rule addresses situations where no manufacturing process is involved. The Tribunal clarified that Section 4 is invoked at the time of original removal, and Rule 16 complements it by regulating the treatment of goods returned to the factory. The provisions of Rule 16 were deemed not repugnant to Section 4.Regarding the appellants' argument on Transaction Value being the basis for duty payment, the Tribunal held that Rule 16's provisions do not violate Section 4. The Tribunal also noted that penalties were unjustified due to the interpretational nature of the issue. The appellants were directed to pay the differential duty along with interest, while the penalties imposed were set aside. The Tribunal emphasized the availability of provisions under Rule 16(3) for addressing difficulties in compliance.In conclusion, the Tribunal disposed of the stay application and appeals by upholding the liability of the appellants to pay the differential duty but setting aside the penalties. The judgment was pronounced on 22-8-2007 by the Tribunal members, Dr. S.L. Peeran and Shri T.K. Jayaraman.