2019 (8) TMI 382 - AT - Central Excise

Product classification impacts tax liability. Exclusions granted, penalties set aside. Appeals partly allowed for duty recalculations.

The Tribunal held that the product 'Cadbury Perk with Glucose Energy' does not qualify for exemption under Notification No. 03/2006 as it was classified ... Job-work - manufacture of “Cadbury Perk with Glucose Energy” on behalf of M/s Mondelez - benefit of N/N. 03/2006 (Sl. No. 19) - Inclusion of dealer’s margin, RD markup and post manufacturing expenses claimed by the appellant in assessable value - extended period of limitation - demand of differential duty alongwith interest - imposition of penalties. Whether the assessees are eligible for exemption notification No. 3/2006 (S.No. 19) issued under Section 5A claimed by them which is sought to be denied by the Revenue? - HELD THAT:- A plain reading of the exemption notification does not show that it is intended to cover all products covered by the tariff heading 1905 3290 or wafers (coated or uncoated) falling under tariff heading. It specifically includes only wafer biscuits falling under tariff heading. If the intention of the notification was to exempt ‘wafers’ also, it would have said so. The assessees’ products are not described as ‘wafer biscuits’ by the assessee themselves either to the department or in any of the documents or to the ultimate consumers on their wrappers. Thus, we find nobody in the chain of trade from the manufacturer to the ultimate consumer know the products as ‘wafer biscuits’ but know them only called as coated wafers - It is not for this Tribunal to enlarge the scope of an exemption notification meant for ‘wafer biscuits’ to cover ‘coated wafers’ as well - Even if it is held that ‘wafers’ could possibly be broadly considered as wafer biscuits, the matter is definitely not free from doubt/ambiguity - the assessee is not entitled to the benefit of exemption notification No. 03/2006. What value should be adopted for reckoning the Central Excise duty? - inclusion of Dealer’s margin, RD Markup and Post Manufacturing expenses in assessable value - HELD THAT:- It is not in dispute that the assessee is manufacturing the goods on job work basis and are therefore covered by Rule 10A of Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000 - As far as the dealer’s margin is concerned, in a commodity which costs ₹ 2/- per piece, it is inconceivable that M/s Mondelez was selling these goods directly to individual retailers across the country. Therefore, there is no room for disallowing dealer’s margin as a deduction - As far as the RD Mark up is concerned, the Ld. Commissioner considered this to be an R&D cost and Ld. Counsel for the appellant clarifies that this is a margin given to the re-distributors. There is no evidence on record to show that this actually pertains to R&D expenses. Therefore, inclusion of R&D mark up in the assessable value is not sustainable and it deserves to be set aside - As far as the PME (post manufacturing expenses) is concerned, inclusion of these expenses depends upon the nature of the post manufacturing expenses. In case where these are expenses incurred upto the place of removal, the same have to be included in the assessable value. However, if these represent other expenses such as cheque discounting charges as has been asserted by the Ld. Counsel before us, they cannot be included in the assessable value. Whether extended period of limitation under Section 11A can be invoked for raising the demand? - HELD THAT:- Once all facts were noted in the department and the department has come to some tentative conclusion regarding the classification and valuation under section 4A of the Central Excise Act and thereafter after a period of one year based on the same facts issued a different show cause notice, coming to a different set of conclusion, all that can be said, it was a question of interpretation which the department itself was not sure about it. Therefore, the demand of extended period of limitation cannot be sustained. Whether penalties are imposable upon the appellants? - HELD THAT:- Penalties under section 11AC can be imposed where there is fraud, collusion, wilful misstatement, suppression of facts or contravention of any provisions of the Act or the rules made there under with an intent to evade payment of duty - In the present case, we have already held with respect to the invocation of the extended period on limitation that these factors have not been established. Clearly, this is only a question of interpretation regarding the exemption notification and value - the penalties imposed under Section 11AC need to be set aside. Penalty under Rule 26 upon Mondelez - HELD THAT:- The elements of fraud, collusion, wilful misstatement, suppression of facts or violation of act of Rules with an intent to evade payment of duty, have not been established - penalty do not sustain. Appeal filed by Little Star are partly allowed as above by way of remand for the limited purpose of verification of nature of post manufacturing expenses and re-determining the duty and interest excluding any demand for extended period of limitation. Issues Involved:1. Entitlement to exemption Notification No. 03/2006 for 'Cadbury Perk with Glucose Energy'.2. Inclusion of dealer’s margin, RD markup, and post-manufacturing expenses in the assessable value.3. Invocation of the extended period of limitation under Section 11A.4. Recoverability of differential duty along with interest.5. Correctness of penalties imposed on Little Star.6. Correctness of penalties imposed on Mondelez.Detailed Analysis:1. Entitlement to Exemption Notification No. 03/2006:The core issue is whether 'Cadbury Perk with Glucose Energy' qualifies for exemption under Notification No. 03/2006 (Sl. No. 19). The appellants claimed their product as 'coated wafers' and argued it should be considered as 'wafer biscuits'. The Tribunal noted that the product was consistently described as 'coated wafers' and not as 'wafer biscuits' in all official documents and consumer-facing materials. The Tribunal emphasized that exemption notifications must be interpreted strictly, as per the Constitutional Bench decision in Commissioner of Customs (Import) Mumbai vs. Dilip Kumar & Company. Consequently, the Tribunal held that the exemption meant for 'wafer biscuits' does not extend to 'coated wafers'.2. Inclusion of Dealer’s Margin, RD Markup, and Post-Manufacturing Expenses:The Tribunal examined the price list and the components included in the assessable value. It was determined that:- Dealer’s Margin: The Tribunal found evidence of actual dealers and concluded that the dealer’s margin should not be included in the assessable value.- RD Markup: It was clarified that RD Markup stands for 're-distributor markup' and not 'R&D expenses'. Thus, it should not be included in the assessable value.- Post-Manufacturing Expenses: The Tribunal remanded this issue to the original authority to verify if these expenses pertain to cheque discount charges or other non-includable expenses.3. Invocation of Extended Period of Limitation:The Tribunal found that all necessary information was already available to the department, and the initial show cause notice did not invoke the extended period. The subsequent notice, invoking the extended period, was based on the same facts. Therefore, the Tribunal held that the extended period of limitation could not be invoked, as there was no suppression of facts or intent to evade duty.4. Recoverability of Differential Duty Along with Interest:The Tribunal directed the original authority to recompute the demand and interest, excluding the amounts attributable to the extended period and the disallowed inclusions (dealer’s margin and RD markup).5. Correctness of Penalties Imposed on Little Star:Penalties under Section 11AC require proof of fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade duty. The Tribunal found no such elements and set aside the penalties imposed on Little Star.6. Correctness of Penalties Imposed on Mondelez:The Tribunal reviewed Rule 26 of the Central Excise Rules, 2002, and found that the necessary conditions for imposing penalties were not met. Consequently, the penalties on Mondelez were also set aside.Conclusion:- Exemption Notification: Not available for 'coated wafers'.- Assessable Value: Excludes dealer’s margin and RD markup. Post-manufacturing expenses to be verified.- Extended Period: Not sustainable.- Penalties: Set aside for both Little Star and Mondelez.Order:- Appeals by Mondelez are allowed.- Appeals by Little Star are partly allowed and remanded for verification of post-manufacturing expenses and recomputation of duty and interest, excluding the extended period demands.(Pronounced in open court on 06.08.2019)