2008 (2) TMI 247 - AT - Central Excise

Tribunal allows appeals, modifies orders on duty, penalty, and Cenvat credit

The Tribunal allowed the appeals filed by Unit No. I and Unit No. II, modifying the orders passed by the Commissioner. Unit No. I was not required to pay ... Demand – transfer of inputs as such to sister unit - bonafide doubt as to whether the transaction value should be adopted for the payment of duty on the inputs cleared as such or the reversal of the credit taken on the inputs will suffice - confusion both in the Trade and the Department regarding the correct legal position - held that the charge of suppression of facts is not sustainable – held that reversal of credit is sufficient - larger period not invocable – demand is time barred Issues Involved:1. Confirmation of duty on goods found short.2. Confirmation of duty on under-valuation of goods.3. Confirmation of duty on goods cleared after slitting.4. Disallowance of Cenvat credit taken on supplementary invoices.5. Imposition of mandatory penalty.6. Demand for interest on confirmed duty amounts.Detailed Analysis:1. Confirmation of Duty on Goods Found Short:The Commissioner confirmed a duty of Rs. 13,75,331/- on goods found short and appropriated this amount against debits made by the appellants in RG-23A Part II. The Unit No. I did not appeal on this count, and the Commissioner did not impose any penalty as the duty was paid before the issuance of the show cause notice.2. Confirmation of Duty on Under-Valuation of Goods:The Commissioner confirmed a duty of Rs. 59,35,797/- under the proviso to Section 11A(1) of the Central Excise Act, 1944, appropriating Rs. 51,65,671/- already paid by the appellants and ordering the payment of the balance amount of Rs. 7,70,126/-. The duty was related to the differential duty on goods cleared to Unit No. II, which was calculated based on new valuation rules requiring the assessable value to be 115% of the landed cost, including freight. The Tribunal found no evidence that Unit No. I sold inputs at a higher price to independent buyers and held that reversing the credit taken on inputs cleared as such was compliant with the CBEC Circular dated 1.7.2002.3. Confirmation of Duty on Goods Cleared After Slitting:The Commissioner confirmed a duty of Rs. 5,16,548/- on goods cleared after slitting, which was calculated based on the cost of slitting. The Tribunal held that trimming charges are not includible in the transaction value as trimming does not involve any manufacturing activity. Therefore, the duty of Rs. 5,16,548/- was set aside.4. Disallowance of Cenvat Credit Taken on Supplementary Invoices:The Commissioner disallowed Cenvat credit amounting to Rs. 71,09,312/- taken by Unit No. II on supplementary invoices issued by Unit No. I for differential duty paid due to under-valuation. The Tribunal held that the prohibition to take credit on supplementary invoices applies only in the case of sales and not stock transfers. The Tribunal also referred to the CBEC Circulars and the Larger Bench decision in Eicher Tractors, concluding that the credit was legitimately available to Unit No. II.5. Imposition of Mandatory Penalty:The Commissioner imposed a mandatory penalty of Rs. 12,86,674/- under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002. The Tribunal set aside the penalty, stating that there was no wilful misstatement or suppression of facts with intent to evade duty, as the situation involved bona fide doubt and revenue neutrality.6. Demand for Interest on Confirmed Duty Amounts:The Commissioner ordered the appellants to pay interest at the appropriate rate on the confirmed duty amounts in terms of Section 11AB of the Central Excise Act, 1944. The Tribunal set aside the demand for interest, as the duty demands were also set aside.Order:1. For Excise Appeal No. 686 of 2006 (Unit No. I):- Duty of Rs. 51,65,671/- is not payable but is available as Cenvat credit to Unit No. II.- Duty demands of Rs. 7,70,126/- and Rs. 5,16,548/- are set aside.- Mandatory penalty of Rs. 12,86,674/- is set aside.- Interest is not payable as the duty demands have been set aside.2. For Excise Appeal No. 687 of 2006 (Unit No. II):- The order disallowing the Cenvat credit of Rs. 71,09,312/- is set aside.- Demand of interest is set aside.The appeals filed by Unit No. I and Unit No. II are allowed, and the impugned orders passed by the Commissioner are modified accordingly.