2023 (11) TMI 8 - AT - Central Excise

Penalties under Section 11AC set aside for heat exchanger valuation dispute involving extended limitation period

CESTAT Allahabad set aside penalties imposed under Section 11AC of Central Excise Act on appellant regarding heat exchanger valuation. The tribunal held ... Invocation of provisions of Section 11AC of the Central Excise Act to impose equivalent penalty on the appellant - Valuation of goods - Heat Exchangers - related parties or not - Applicability of Transaction value' under Section 4(1)(a) of CEA - HELD THAT:- HELD THAT:- In the present case the period involved is prior to 29.08.2012 the date of judgment of the Hon’ble Apex Court in COMMISSIONER OF CENTRAL EXCISE, MUMBAI VERSUS M/S FIAT INDIA PVT LTD & ANR [2012 (8) TMI 791 - SUPREME COURT] and in accordance with the Board’s circular, extended period of limitation could not have been invoked in the present case. If that is so the penalties under Section 11 AC could not have been imposed on the appellant. In view of the decision of Hon’ble Supreme Court in the case of UNION OF INDIA VERSUS M/S RAJASTHAN SPINNING & WEAVING MILLS AND COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VERSUS M/S. LANCO INDUSTRIES LTD. [2009 (5) TMI 15 - SUPREME COURT]. Accordingly, the penalty is imposed under Section 11AC are set aside. The appellant have themselves on the basis of their own assessment, paid the duty, which might have been available as credit to the OEM manufacturers. Accordingly, the merits of the duty already paid and confirmed by the impugned order, not dealt upon. In the show cause notice was not to be issued in the present case - In case of M/S. STEEL AUTHORITY OF INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIPUR [2019 (5) TMI 657 - SUPREME COURT] a three judges bench of Hon’ble Supreme Court observed The assessee volunteered and made payment in October 2006. We find merit in the finding by the authority that this is a case where therefore the payment made by the assessee is to be treated as one falling under Section 11A(2)(b). This meant also that there was no need for determination of the duty within the meaning of Section 11A(2)(a) or issuance of notice under Section 11A. Following the decision, no penalty proceedings in terms of Section 11AC could have been initiated against the appellant and the same needs to be set aside. Appeal allowed in part. Issues Involved:1. Determination of valuation of 'Heat Exchangers'.2. Allegation of related party transactions.3. Demand for differential Central Excise Duty.4. Interest on the differential duty.5. Imposition of penalty under Central Excise Rules.6. Demand for Service Tax credit.7. Interest on Service Tax credit.8. Penalty for short payment of Service Tax credit.9. Invocation of extended period of limitation.Summary:Issue 1: Determination of Valuation of 'Heat Exchangers'The appellant was engaged in manufacturing 'Heat Exchangers' sold to OEMs for use in Samsung brand Air Conditioners. The department alleged that the appellant and the OEM were related persons, thus the valuation of 'Heat Exchangers' should be determined under CAS-4 as per Section 4(1)(a) of the Central Excise Act, 1944 read with Central Excise Valuation Rules, 2000. The appellant argued that the transaction value was based on standard cost of production plus 10% profit, and differential duty was paid when actual cost became available.Issue 2: Allegation of Related Party TransactionsThe department issued a show cause notice alleging that the appellant and OEM were related persons, and the value of 'Heat Exchangers' should be determined under Rule 9 read with Rule 8. The appellant contended that OEM vendors were independent buyers and the duty was paid on transaction value more than 110% of the cost of production. The Commissioner (Appeals) upheld that the transactions were not on a 'Principle to Principle' basis, and the appellant and OEM vendors were related.Issue 3: Demand for Differential Central Excise DutyThe demand of Rs.1,21,11,757/- for short-paid duty on 'Heat Exchangers' was confirmed under Section 11A(1) of the Central Excise Act, 1944. The appellant had already deposited this amount along with interest before the issuance of the show cause notice.Issue 4: Interest on the Differential DutyInterest of Rs.9,95,669/- was confirmed under Section 11AB of the Central Excise Act, 1944, and the same was appropriated as it was already deposited by the appellant.Issue 5: Imposition of Penalty under Central Excise RulesA penalty of Rs.1,21,11,757/- was imposed under Rule 25 read with Section 11AC of the Central Excise Act, 1944. The Tribunal found that penalties under Section 11AC were not justified as the appellant had already paid the duty along with interest before the issuance of the show cause notice.Issue 6: Demand for Service Tax CreditThe demand for recovery of Service Tax credit amounting to Rs.29,53,443/- was dropped as it was not sustainable.Issue 7: Interest on Service Tax CreditSince the demand for Service Tax credit was dropped, there was no question of interest on the same.Issue 8: Penalty for Short Payment of Service Tax CreditNo penalty was imposed for the alleged short payment of Service Tax credit.Issue 9: Invocation of Extended Period of LimitationThe Tribunal held that the extended period of limitation could not be invoked as the appellant had already deposited the duty along with interest before the issuance of the show cause notice. The Tribunal referenced the CBEC Circular No.979/3/2014 and the Supreme Court's decision in the case of Steel Authority of India Limited, concluding that no penalty proceedings under Section 11AC could be initiated.Conclusion:The appeal was partially allowed by setting aside the penalties imposed under Section 11AC, while the demand for differential duty and interest was upheld as the amounts were already deposited by the appellant.