2023 (6) TMI 59 - AT - Central Excise

Court Upholds Central Excise Duty, Drops Part of Demand

The court confirmed a Central Excise duty demand of Rs.71,87,040 due to undervaluation of goods, while dropping a demand of Rs.6,03,986. The remaining ... Extended period of limitation - Excisability - manufacture of Cable Jointing Kits which comprises of various components - suppression of facts - extended period of limitation - HELD THAT:- By remanding the matter Tribunal has vide order no A/1008-1010/12/EB/C-II has held that The present demands are made by issuing different show-cause notices on the ground that the appellants were clearing the compounds to independent buyers and also captively consuming the same and therefore the appellants were wrongly paying duty under Rule 8 of the Central Excise Valuation Rules. The provisions of Rule 8 of Central Excise Valuation Rules are applicable when the goods manufactured are captively consumed only. In the order of Commissioner (Appeals) that earlier show-cause notices were issued on the issue of valuation also which have been adjudged by the Commissioner (Appeals) in favour of the Appellant. Revenue has not filed any appeal against this order. Hence assessment proceedings are finalized by the set order - Issuance of another show-cause notice in 2012 invoking extended period of limitation sustained for the reason that entire facts were in the knowledge of department and charge of suppression etc., required for invoking extended period cannot be sustained. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the extended period for issuance of a show-cause notice can be invoked where the Department had knowledge of relevant facts and there is no material to establish suppression or fraud required to invoke extended limitation. 2. Whether captively consumed components are to be valued under Rule 8 of the Central Excise (Valuation) Rules, 2000 when some production may be cleared to independent buyers and whether Rule 8 applies where entire production is not exclusively captively consumed. 3. Whether unconditional exemption under a notification (Notification No.3/2006-CE dated 01-03-2006 covering Chapter 1518) can be denied solely on the ground that the assessee did not claim the benefit at the time of clearance (procedural lapse/non-claim at initial stage). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Extended period / limitation for issuance of show-cause notice Legal framework: Extended limitation for adjudication requires satisfaction of statutory conditions (such as suppression or fraud) enabling invocation of an extended period beyond the normal limitation prescribed under the statute. Precedent Treatment: The Tribunal considered prior proceedings in which the same facts were before the Department and earlier adjudications/remand orders had been made; no new precedent was overruled. Interpretation and reasoning: The Tribunal examined whether the extended period could be sustained when the Department had knowledge of the facts in earlier proceedings and when the show-cause related to the same period already subject to prior notices and adjudications. The Court held that invoking extended limitation cannot be sustained merely because a later show-cause is issued for the same period where the revenue had knowledge of facts; material establishing suppression or concealment necessary to invoke extended limitation was absent. Ratio vs. Obiter: Ratio - where the revenue possessed the material/facts in earlier proceedings and did not point to fresh suppression or concealment, an extended period for issuing a show-cause notice is not maintainable. Obiter - observations on procedural history reinforcing that subsequent notices on same facts are barred by limitation absent fresh material. Conclusion: The issuance of the subsequent show-cause notice in 2012 invoking extended period was unsustainable and the show-cause was time-barred on merits for lack of material showing suppression or fraud. Issue 2 - Applicability of Rule 8 (Central Excise Valuation Rules) to captively consumed components Legal framework: Rule 8 of the Central Excise (Valuation) Rules, 2000 applies to goods where the goods manufactured are captively consumed; valuation under Rule 8 is applicable when the entire production of a particular commodity is captively consumed. Precedent Treatment: The Tribunal relied on the Larger Bench decision (ISPAT Industries Ltd. v. CCE) that Rule 8 applies only where entire production of a particular commodity is captively consumed; the Tribunal followed that precedent rather than distinguishing or overruling it. Interpretation and reasoning: The Tribunal observed that the present demands alleged that components were both cleared to independent buyers and captively consumed, which (under the Larger Bench authority) negates the strict applicability of Rule 8. In light of that settled position, the revenue's contention that Rule 8 should not apply was considered but required factual determination as to extent of captive consumption versus market clearance. Ratio vs. Obiter: Ratio - Rule 8 is applicable only where the entire production is captively consumed; partial clearance to independent buyers precludes automatic application of Rule 8. Obiter - discussion on the revenue's reliance on Rule 8 when facts show mixed clearance. Conclusion: The question of valuation under Rule 8 must be determined in accordance with the Larger Bench precedent; in the present context earlier adjudications had favored the assessee and revenue did not challenge those orders, effectively finalizing assessment on valuation grounds. Issue 3 - Denial of benefit of unconditional exemption notification for procedural non-claim at time of clearance Legal framework: An exemption notification that unconditionally exempts goods (here, goods falling under Chapter 1518 except specified items) confers substantive benefit; procedural lapses (non-claim at time of clearance) do not ordinarily defeat substantive statutory entitlements unless statute or notification conditions explicitly require prior claim or impose time-bound procedural bars. Precedent Treatment: The Tribunal relied on a line of authorities including decisions of appellate and settlement forums and the Supreme Court authority (Share Medical Care v. Union of India) holding that substantive benefits under exemption notifications are not to be denied merely for procedural lapses or because the benefit was claimed at a later stage. These precedents were followed to hold that non-claim at clearance is not a ground to deny the exemption. Interpretation and reasoning: The adjudicating authority originally denied the benefit solely on the ground that the exemption was not claimed at the time of clearance. The Tribunal scrutinized the classification (not disputed) and the nature of the notification (unconditional exemption for goods under Chapter 1518) and concluded that denial based solely on afterthought/non-claim was impermissible. The Court emphasized that absence of a claim at the time of clearance is a procedural lapse which cannot be elevated to deprive substantive exemption rights; reliance was placed on established judicial and administrative precedent that substantial benefits should not be denied for technical or procedural defaults. Ratio vs. Obiter: Ratio - an assessee entitled to an unconditional exemption under a notification cannot be deprived of that benefit solely because the benefit was not claimed at the time of clearance; procedural non-claim is condonable where merits otherwise establish entitlement. Obiter - citation of multiple decisions and administrative observations reinforcing the principle that substantive benefits prevail over procedural lapses. Conclusion: The benefit of the Notification No.3/2006-CE (covering Chapter 1518) could not be denied on the ground that it was claimed belatedly; the demand based on denial of notification had to be set aside and consequently interest and penalty arising solely from that denial could not be sustained. Cross-reference and combined outcome Where prior adjudications in favour of the assessee on valuation issues remained unchallenged and where the notification entitlement on classification was not disputed on merits, a later show-cause invoking extended limitation could not be sustained in absence of material of suppression; the Tribunal therefore allowed the appeal and set aside the impugned demands insofar as they relied on these infirmities.