2023 (6) TMI 843 - AT - Central Excise

Tribunal overturns demand for duty, interest, and penalty, citing lack of suppression of info

M/s Kolmak Chemicals Limited Versus Commissioner of Central Excise, Kolkata-III

The Tribunal allowed the appeal filed by the Appellants, setting aside the order confirming the demand for differential duty, interest, and penalty. The ... Time Limitation - Suppression of facts or not - Method of Valuation - price variation clause - clearance of excisable goods to depot - to be valued as per Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 7 of the Valuation Rules 2000 or not - HELD THAT:- The Appellant has not suppressed any information from the department. They have filed ER-1 returns regularly intimating the duty paid by them for clearances made to their depot(s). They have also paid differential duty of Rs 2,28,137/- under price variation clause for the clearances made to the Delhi and Mumbai Depot(s). These details furnished by them in the ER-1 returns indicate that there is no suppression of fact involved in this case. The Appellant cited the receipt of a letter dated 17.09.2007 from the Range Superintendent on ‘alleged short payment of duty due to under valuation’ wherein the he had asked them to pay an amount of Rs.3,59,269/- as duty on account of short payment of duty. This indicates that the Range Officer has verified the Returns submitted by them and demanded differential duty vide letter dated 17.09.2017. Therefore, demands raised by invoking extended period is not sustainable. The Appellant have paid differential duty for the normal period from December 2006 to November 2007. Since the Appellant have already paid the differential duty for the normal period from December 2006 to November 2007, no other demand in the impugned order survives - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether clearance of excisable goods from factory to depots was correctly assessed under Section 4(1)(b) of the Central Excise Act read with Rule 7 of the Valuation Rules when duty was paid at market price prevailing at the time of initial clearance but subsequent depot disposals occurred at negotiated/varied prices. 2. Whether the Department was entitled to invoke the extended period of limitation (proviso to Section 11A(1)) for demand of differential duty where returns (ER-1) were regularly filed and departmental audit/inspection and a Range Superintendent's communication had previously raised or verified the issue. ISSUE-WISE DETAILED ANALYSIS Issue 1: Correctness of valuation for factory-to-depot clearances under Section 4(1)(b) read with Rule 7 Legal framework: Section 4(1)(b) of the Central Excise Act and Rule 7 of the Valuation Rules prescribe the method of valuation for clearance of excisable goods, including valuation when goods are cleared to depots; the statutory scheme requires adherence to prescribed valuation methodology. Precedent treatment: No judicial precedent was cited or applied by the Tribunal in the impugned order; the Tribunal's determination is based on statutory construction and factual admissions in the record. Interpretation and reasoning: The appellants admitted they did not follow the valuation method mandated by Section 4(1)(b) read with Rule 7 for factory-to-depot clearances, having paid duty at the market price prevailing at initial clearance. The Tribunal observed that more than 90% of goods were later cleared from depots at the same price on which duty was paid and only a small percentage was sold at higher prices. The factual concession that statutory valuation procedure was not followed establishes liability in principle for differential duty, but the extent of demand depends on limitation/temporal scope and amounts already paid. Ratio vs. Obiter: Ratio - non-adherence to Section 4(1)(b) and Rule 7 constitutes a defect in valuation warranting assessment of differential duty. Obiter - factual observation that most depot disposals were at the same price (affecting quantum) is case-specific and not generalized as law. Conclusion: The Tribunal accepted that the method of valuation prescribed by Section 4(1)(b) and Rule 7 was not followed, thereby validating the existence of a potential differential duty demand; however, quantification and recovery were addressed in light of limitation and amounts already paid. Issue 2: Sustainability of demand by invoking extended period of limitation (proviso to Section 11A(1)) where ER-1 returns were filed, departmental audit occurred, and a Range Superintendent's communication had earlier sought payment Legal framework: The proviso to Section 11A(1) permits invoking an extended period of limitation where there is suppression of facts or collusion; limitations on demands are otherwise governed by the normal period unless statutory exceptions apply. Precedent treatment: No precedent was relied upon or overruled; the Tribunal applied statutory limitation principles to the facts. Interpretation and reasoning: The Tribunal analyzed whether facts amounted to suppression of information that would justify extended limitation. The appellants had regularly filed ER-1 returns disclosing depot clearances and duty paid; an EA-2000 audit party had inspected the factory without recording discrepancies; and the appellants had received a letter from the Range Superintendent (dated 17.09.2007) verifying alleged short payment and directing payment of differential duty. The Tribunal inferred that these disclosures and prior departmental verification negate suppression of material facts. The receipt of the Range Superintendent's letter was treated as an indication that the Department had verification and notice of the issue prior to issuance of the show cause notice, undermining the basis for invoking extended limitation. Ratio vs. Obiter: Ratio - where the assessee has regularly disclosed relevant information in returns and departmental audit/communication has taken place indicating verification, there is no suppression of facts justifying invocation of the extended period under proviso to Section 11A(1). Obiter - reliance on the specific letter and audit facts is fact-bound and not laid down as a general rule beyond the context. Conclusion: The Tribunal held that the extended period of limitation could not be invoked because there was no suppression of facts: ER-1 returns, audit visits without adverse findings, and the Range Superintendent's communication demonstrate disclosure and departmental awareness; consequently, demands made under extended limitation were not sustainable. Cross-reference and effect on quantum Legal framework and reasoning: Although the appellants admitted non-compliance with valuation rules (Issue 1), the Tribunal considered it relevant that the appellants had paid differential duty of Rs.2,28,137 under the price variation clause for the normal assessment period (December 2006 to November 2007). Given the Tribunal's conclusion on limitation (Issue 2), only demands for periods within the normal limitation period and amounts not already paid could survive. Ratio vs. Obiter: Ratio - where differential duty for the normal assessment period has been paid, and extended-period demands are unsustainable for lack of suppression, no further demand survives. Obiter - factual allocation of percentages of depot disposals (90% at same price) informs quantum in this case but does not constitute a binding principle beyond these facts. Conclusion: The Tribunal set aside the impugned order in its entirety because extended-period demands were unsustainable and the appellants had already discharged differential duty for the normal period; accordingly, no other demand in the impugned order survived.