2000 (7) TMI 105 - AT - Central Excise

Appellants held liable for short-paid duty and penalty; s.11A(1) limitation and s.11AC penalty upheld for evasion

CEGAT upheld the demand and penalty, finding appellants had short-paid duty while availing MODVAT credit and failed to substantiate a duty-free clearance ... Modvat credit - evade payment of duty - Duty demand - beyond six months - Imposition of penalty - alleged short levy/non-levy of duty - HELD THAT:- In the present case, the claim of the appellants that duty free clearance under Notfn. No. 214/86 was concurrently available to them and therefore no intention to evade duty payment can be inferred does not appear to merit acceptance since it is not in dispute that the appellants were admittedly availing of modvat credit under Rule 57A and Rule 57Q. There is also no evidence on record to show that MUL had given any undertaking under Para 2 of Notfn. No. 214/86 in relation to the manufactured items sold by the appellants to MUL. The said defence cannot therefore be accepted for want of factual substantiation. As regards the contention of the appellants that the SCN issued under Section 11A(1) would apply only to a situation where a duty payment is subsisting at the time of issue of notice and where no such outstanding duty liability exists at the time of issuing the SCN, we are of the view that a careful reading of Section 11A(1) does not allow such a construction to be put on the said provision. Inasmuch as Section 11A(1) gives power to the Central Excise Officer to serve a notice within a period of six months from the 'relevant date' from the date when non-levy/non-payment or short levy/short payment has occurred, we are of the view that so long as it is not in doubt that there has been an occurrance of non-levy/short levy/ or non-payment/short payment on the relevant date the pre-conditions for issuance of SCN under Section 11A(1) are fully met and notice validly issued. In the instant case there is no dispute that clearance of excisable goods on short payment of duty had taken place. The fact that the differential duty was subsequently debited (albeit voluntarily) by the assessee before the issue of SCN will not debar the issuance of SCN in relation to the short payment occurring on the relevant date. Further, to the extent the appellants had stated in their price list declaration that no extra consideration had been received from the suppliers of the components despite the known fact that the said components were received free of cost, the allegation of suppression of facts in terms of the proviso to Section 11A(1) has to be held to have been established. The fact that there was a huge duty differential of an amount of over Rs. 55 lakhs between the duty paid by the appellants and debited by them later, is a strong circumstance which supports the inference of their intention to evade duty as the said amount has undeniably resulted in a financial gain for the appellants during the period and this financial gain flowed directly from the non-inclusion of the cost of the components in the assessable value. We are therefore satisfied that there will be no illegality in invoking the extended period of limitation under Section 11A(1) in a case like this. As regards the demand of penalty under Section 11AC, as has been stated above the ingredients for invoking the said provision are in par materia with the ingredients to proviso to Section 11A(1). Having regard to the view we have taken above, where no legal infirmity in invoking the proviso to Section 11A(1) is shown to exist, there will also be no infirmity in invoking of penal provision under Section 11AC. Issues Involved:1. Revenue-neutrality and intention to evade duty.2. Demand of duty beyond six months.3. Issuance of Show Cause Notice (SCN) and imposition of penalty u/s 11AC.4. Applicability of Exemption Notification No. 214/86.5. Inclusion of cost of free components in assessable value.Summary:1. Revenue-neutrality and intention to evade duty:The Tribunal examined whether the existence of an alternative procedure that could have resulted in Revenue-neutrality negates the intention to evade duty. The assessee argued that since the duty paid would be available as Modvat credit to the buyer, there was no intention to evade duty. However, the Tribunal endorsed the view in the case of M/s. International Auto Products (P) Ltd., holding that Revenue-neutrality must be established in the facts of each case and not merely by showing the availability of an alternate scheme.2. Demand of duty beyond six months:The appellants contended that the demand for duty beyond six months was unsustainable due to the absence of intention to evade payment. They claimed a bona fide belief that the cost of free components supplied by MUL need not be included in the assessable value. The Tribunal, however, found that the substantial duty differential indicated an intention to evade duty, justifying the invocation of the extended period of limitation u/s 11A(1).3. Issuance of SCN and imposition of penalty u/s 11AC:The appellants argued that since they had debited the differential duty before the issuance of the SCN, there was no non-levy/short levy at the time of the SCN. The Tribunal rejected this argument, stating that the occurrence of non-levy/short levy on the relevant date justifies the issuance of the SCN. The Tribunal also upheld the imposition of penalty u/s 11AC, as the ingredients for invoking this provision were identical to those for the proviso to Section 11A(1).4. Applicability of Exemption Notification No. 214/86:The appellants claimed they could have availed of Exemption Notification No. 214/86, which would have allowed duty-free clearance. The Tribunal dismissed this claim due to the lack of evidence showing that MUL had given the required undertaking under the notification. The Tribunal held that the mere availability of an alternate scheme does not negate the intention to evade duty if the scheme opted for was misused.5. Inclusion of cost of free components in assessable value:The Tribunal held that the cost of components received free of cost from MUL should be included in the assessable value of the final products. The appellants' failure to do so and the subsequent substantial duty differential indicated an intention to evade duty. The Tribunal emphasized that the assessable value must include all costs, including those of free components, as per the settled legal position.Conclusion:The Tribunal concluded that:(a) Revenue-neutrality must be established based on the facts of each case.(b) Misuse of the opted scheme negates the defense of an alternate scheme.(c) Revenue-neutrality must relate to the credit available to the assessee, not the buyer.(d) The view in M/s. International Auto Products (P) Ltd. was endorsed, holding that once duty is paid, all consequences must be accepted.The reference application was answered accordingly.