2018 (5) TMI 1113 - AT - Central Excise

Tribunal overturns duty demand due to profit margin inclusion in assessable value

M/s Prajapati Chemical & Allied Ltd. Versus Commissioner of Central Excise, Allahabad

The Tribunal allowed the appellant's appeal against an Order-in-Original demanding Central Excise duty and penalty, covering the period 2003-04 to ... Short payment of Central Excise duty - inclusion of margin of profit in the conversion charges/job charges - validity of SCN - Held that: - no such statement have been made to rely upon document (RUD) nor any invoice/bills raised by the appellant on Kanoria Chemicals have been made RUD in the show cause notice - Further we find from the copy of cost statement duly certified by the Chartered Accountant, have been annexed by the appellant - assessee in the appeal paper book, wherein it is demonstrated that the conversion charges received by the appellant from Kanoria Chemicals includes element of profit as their costing for each Financial Year is less per M.T. than the conversion charges received per M.T. The SCN is vague and at the same time misconceived - Appeal allowed - decided in favor of appellant. Issues:- Appeal against Order-in-Original demanding Central Excise duty and penalty- Allegation of undervaluing products and short payment of duty- Interpretation of job contract agreement- Allegation of willful misstatement to evade payment of duty- Adjudication of Show Cause Notice- Examination of cost statements and profit element- Discrepancies in the show cause notice- Decision of the Tribunal and consequential benefitsAnalysis:The appellant, an assessee, filed an appeal against an Order-in-Original demanding Central Excise duty and penalty for the period 2003-04 up to 2006-07. The case involved an agreement with another company for manufacturing 'Chlorinated Paraffin Wax' and 'Hydrochloric Acid' under a job contract agreement. The Revenue alleged that the appellant undervalued their products, leading to short payment of Central Excise duty. The dispute centered around the exclusion of profit margin from the assessable value and the appellant's contention regarding the valuation of finished products based on job charges. The Revenue claimed willful misstatement to evade duty based on the exclusion of profit margin. The Tribunal examined the show cause notice and found discrepancies, including the absence of relevant documents and reliance on incorrect information.During the adjudication of the Show Cause Notice, the Tribunal considered the rival contentions. It was noted that the appellant was charging a profit element of 15% in addition to job charges but was paying Central Excise duty only on raw material costs and conversion charges, not on the profit element. However, the Tribunal found that the show cause notice lacked clarity and was misconceived, as the appellant's cost statements demonstrated that the conversion charges already included a profit element. Consequently, the Tribunal set aside the impugned order and allowed the appeal, granting the appellant consequential benefits in accordance with the law.In conclusion, the Tribunal's decision was based on the discrepancies in the show cause notice and the appellant's demonstration that the conversion charges already included a profit element. The Tribunal found the show cause notice to be vague and misconceived, leading to the appeal being allowed in favor of the appellant.