2002 (4) TMI 168 - AT - Central Excise

Manufacturer wins appeal on time-barred duty demand under Central Excise Act, rules in line with no intent

MOTHERSON SUMI SYSTEMS LTD. Versus COMMISSIONER OF C. EX., MEERUT

The appellant, a manufacturer of wiring harnesses, argued that the duty demand under the Central Excise Act was time-barred as the show cause notice was ... Valuation (Central Excise) - Free supplies - Demand - Limitation - Precedent Issues Involved: The judgment involves the issue of whether duty demand was time-barred u/s 11A of the Central Excise Act due to the absence of intent to evade payment of duty.Comprehensive Details:1. The appellant, a manufacturer of wiring harnesses, received free supply component parts from buyers which were incorporated into the wiring harnesses. The duty demand extended from March 1995 to January 1997, with a show cause notice issued on 13-3-2000.2. The law requires the inclusion of the price of free supply items in the assessable value of goods. The appellant argued that the duty demand was time-barred as the show cause notice was not issued within the normal six-month limit of u/s 11A. They contended that the ingredients for invoking the extended five-year period were absent.3. The appellant received free supply components under Rule 57F of the Central Excise Rules from buyers, believing the value should not be added to the assessable value of wiring harnesses. They highlighted the procedures followed, including permissions and challans, to support their contention of no intent to evade duty.4. The appellant's counsel emphasized the bona fide conduct, explaining the different scenarios of receiving components with or without Modvat credit and how the inclusion/exclusion of free supply materials depended on arrangements with buyers and Modvat rules.5. The Departmental Representative argued that the appellant's procedure was not revenue neutral and suggested an intent to evade duty due to inconsistent practices of including/excluding free supply components in assessable value.6. The issue of intent to evade payment of duty was discussed, with the adjudicating authority inferring intent based on dual practices of the appellant. The appellant maintained that their practices were consistent and followed Central Excise Rules accordingly.7. Upon review of submissions, the Tribunal found merit in the appellant's explanation, noting that the appellant's actions were in line with Central Excise procedures and did not result in any gain from non-payment of duty. The Tribunal concluded that the duty demand was not due to intent to avoid duty, thus the longer period for duty demand was not applicable.8. The appeal was allowed, and the impugned order was set aside based on the finding that the duty demand was not time-barred.