2004 (7) TMI 170 - AT - Central Excise

Tribunal confirms duty demand & penalty for assessable value inclusion but sets aside Rule 173Q penalty.

PHARMASIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, HYDERABAD

The Tribunal upheld the inclusion of 'other works overhead' in the assessable value, confirmed the demand for the payment of the differential duty, and ... Valuation (Central Excise) - Demand - Limitation - Extended period - Suppression Issues Involved:1. Inclusion of 'other works overhead' in the assessable value.2. Applicability of differential duty.3. Validity of penalties imposed under Section 11AC and Rule 173Q.4. Applicability of extended period for recovery under Section 11A.Issue-wise Detailed Analysis:1. Inclusion of 'Other Works Overhead' in the Assessable Value:The appellants, manufacturers of specific products for P&G on a job work basis, did not include 'other works overhead' in their assessable value, although it was part of the costing element in the cost audit report. The 'other works overhead' includes indirect costs incurred from procurement of raw materials to the completion of finished products. The Commissioner concluded that these costs, such as insurance premiums, handling charges, and telephone charges, form part of the manufacturing cost and should be included in the assessable value. This decision was based on the Supreme Court judgment in Ujagar Prints v. UOI, which mandates that all expenses incurred towards manufacturing should be included in the cost of production.2. Applicability of Differential Duty:The appellants argued that they were paying differential duty based on the cost audit reports received annually from P&G. However, the department contended that the appellants did not include the 'other works overhead' in their calculations, resulting in short payment of duty amounting to Rs. 45,50,625.56. The Commissioner confirmed a differential duty of Rs. 28,15,489/- and noted that the appellants had already paid certain amounts towards this differential duty. The appellants' reliance on CA certificates was deemed insufficient as these certificates did not account for the total manufacturing overheads.3. Validity of Penalties Imposed Under Section 11AC and Rule 173Q:The Commissioner imposed a penalty of Rs. 27,45,561/- under Section 11AC and an additional penalty of Rs. 2,00,000/- under Rule 173Q. The appellants argued against the imposition of these penalties, claiming no suppression of facts or mala fide intention. However, the Commissioner found that the appellants had not disclosed the 'other works overhead' to the department, which constituted suppression of facts with the intent to evade duty. The penalty under Section 11AC was upheld, but the penalty under Rule 173Q was set aside as it was deemed unnecessary given the penalty already imposed under Section 11AC.4. Applicability of Extended Period for Recovery Under Section 11A:The Commissioner applied the extended period for recovery of duty under Section 11A, citing suppression of facts by the appellants. The appellants had not included the 'other works overhead' in their declarations or differential duty payments from 1995-96 onwards. The Commissioner concluded that this non-disclosure amounted to suppression with the intent to evade duty, justifying the extended period for recovery. The Tribunal upheld this finding, agreeing that the extended period was applicable due to the appellants' failure to disclose all relevant cost elements.Conclusion:The Tribunal upheld the inclusion of 'other works overhead' in the assessable value, confirmed the differential duty demand, and maintained the penalty under Section 11AC while setting aside the penalty under Rule 173Q. The extended period for recovery under Section 11A was deemed applicable due to the appellants' suppression of facts.