2020 (1) TMI 757 - AT - Central Excise

Tribunal allows appeal citing correct valuation of goods, deeming demand unsustainable & time-barred

The tribunal set aside the impugned order and allowed the appeal, concluding that the appellant had correctly valued the goods in accordance with the ... Valuation - Waste and scrap - waste and scrap used captively for Manufacture of exempted reprocessed granules - benefit of N/N. 67/95-CE dated 16.03.1995 - captive consumption - Whether the valuation should be done in terms of Rule 8 of Central Excise Valuation Rules that is on Cost Construction Method or on the comparable value of waste and scrap sold to independent customer on Principle to Principle basis? HELD THAT:- The waste and scrap consumed captively and sold to independent buyers are one and the same. There is no allegation in the Show Cause Notice that the waste and scrap cleared for captive consumption and the one sold to the independent buyers are different. No investigation was carried out to establish that the waste and scrap sold and captively consumed are different in nature. Also, the waste and scrap as generated in the course of manufacture of BOPP film. Therefore, there cannot be different category of waste in one process of Manufacture of BOPP film. The entire SCN was issued only on the basis of Rule 8 of Valuation Rules and CBEC Circular dated 30.6.2000, however this dispute has been resolved by the Larger Bench of this tribunal in the case of IISPAT INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX., RAIGAD [2007 (2) TMI 5 - CESTAT, MUMBAI] according to which even though goods were not sold and used captively, the valuation of such goods shall be on the basis of the Sale Price of such goods sold to the independent buyers. There is no specific character of the waste and scrap mentioned in the description, either in case of captive consumption or in the case of waste and scrap sold to independent customer. Therefore, merely on the description which does not give the actual character of the scrap, it cannot be said that the scrap sold to independent customer is different from waste and scrap captively consumed. Therefore, the conclusion of the Adjudicating Authority that both types of clearances are of different waste and scrap is not tenable - the appellant has correctly valued the goods in conformation to the Larger Bench judgment in the case of Ispat Industries Ltd. Time Limitation - HELD THAT:- The fact of sale of waste and scrap and captive consumption for further manufacture of reprocessed granules and use thereof in the manufacture of BOPP films was in the knowledge of the department - Subsequently, since the issue was contentious on the dispute of valuation in case of captive consumption the same was resolved by the Larger Bench of this tribunal in the case of Ispat Industries Ltd. Therefore, it cannot be said that the appellant had any intention to evade payment of Excise Duty. Accordingly, the extended period of demand was also not invocable. Appeal allowed - decided in favor of appellant. Issues Involved:1. Valuation of waste and scrap used captively for manufacture of exempted reprocessed granules.2. Applicability of Rule 8 of Central Excise Valuation Rules versus Rule 4.3. Allegation of traveling beyond the Show Cause Notice.4. Adoption of value of granules as cost of production of waste and scrap.5. Limitation period for demand of duty.Issue-wise Detailed Analysis:1. Valuation of Waste and Scrap Used Captively:The primary issue is the correct method of valuation for waste and scrap used captively in the manufacture of exempted reprocessed granules. The department argued that the valuation should be based on the Cost Construction Method as per CAS-4 Standard, while the appellant contended that the assessable value should be the same as the price charged to independent customers. The tribunal found that the waste and scrap consumed captively and sold to independent buyers are one and the same, and there was no investigation to prove otherwise. The tribunal concluded that the valuation should be based on the sale price to independent buyers, aligning with the Larger Bench judgment in Ispat Industries Ltd.2. Applicability of Rule 8 versus Rule 4:The tribunal examined whether Rule 8 of the Central Excise Valuation Rules, which mandates valuation based on 110% of the cost of production, should apply. The tribunal referred to the Larger Bench decision in Ispat Industries Ltd., which held that Rule 8 applies only when the entire production is captively consumed. Since part of the waste and scrap was sold to independent buyers, Rule 4, which allows valuation based on the comparable sale price, was deemed applicable. The tribunal emphasized that Rule 4 should be preferred over Rule 8 in cases where both rules could apply, as it leads to a value more consistent with Section 4 of the Central Excise Act.3. Allegation of Traveling Beyond the Show Cause Notice:The appellant argued that the Commissioner had traveled beyond the Show Cause Notice by asserting that the waste and scrap sold to independent buyers were not comparable to the captively consumed waste and scrap. The tribunal agreed, noting that the Show Cause Notice accepted that the captively consumed waste and scrap were the same as those sold to independent buyers. It is settled law that the Adjudicating Authority cannot make a case not contained in the Show Cause Notice.4. Adoption of Value of Granules as Cost of Production:The appellant contested the adoption of the value of granules as the cost of production of waste and scrap, arguing that CAS-4 does not provide standards for determining the cost of waste and scrap. The tribunal found that the value of granules represents the cost of producing BOPP films, not waste and scrap. Therefore, the duty demand based on the value of virgin granules was incorrect.5. Limitation Period for Demand of Duty:The appellant argued that the demand for the period July 2003 to December 2007 was barred by the normal limitation period of one year under Section 11A(1) of the Central Excise Act, 1944. The tribunal found that the appellant had been filing ER-3 returns and maintaining complete records, and the Show Cause Notice was based on audit observations, not a result of any search or seizure. Therefore, there was no willful suppression of facts, and the extended period of limitation was not applicable. The tribunal concluded that the demand for the extended period was time-barred.Conclusion:The tribunal set aside the impugned order and allowed the appeal, concluding that the appellant had correctly valued the goods in accordance with the Larger Bench judgment in Ispat Industries Ltd. The demand was not sustainable on merit, and the extended period of demand was also not maintainable due to being time-barred.