Extended limitation for suppression upheld on undervaluation, but Cenvat credit allowed on inter-unit stock transfer under supplementary invoices.

Continued undervaluation of sandalwood oil, non-disclosure of the revised value, and the assessee officer's statement supported suppression and intention to evade duty, so the extended limitation period applied and the differential excise duty with interest was sustained. By contrast, Cenvat credit on additional duty paid through supplementary invoices was allowed for stock transfers between factories of the same manufacturer because the Rule 7(1)(b) bar was held to apply only where the supplementary invoice relates to a sale and the additional duty arises from fraud, suppression, or similar contravention. The inter-unit transfer did not create a net revenue loss, so denial of credit was unjustified.

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Issues: (i) Whether the demand of differential central excise duty on sandalwood oil, along with interest, was sustainable by invoking the extended period on the ground of suppression of facts and intention to evade duty; and (ii) whether Cenvat credit of the additional duty paid on the basis of supplementary invoices was admissible to the Bangalore unit when the goods were transferred from one factory to another of the same manufacturer and not sold.

Issue (i): Whether the demand of differential central excise duty on sandalwood oil, along with interest, was sustainable by invoking the extended period on the ground of suppression of facts and intention to evade duty.

Analysis: The assessable value of sandalwood oil had remained unchanged for several years despite escalation in raw material cost, and the omission to revise the value was held to be a serious lapse. The Court accepted the finding that the assessee, being under a self-removal regime, had a duty to pay duty on the correct value. The continued undervaluation, coupled with non-disclosure of the revised value and the statement recorded from the assessee's officer, supported the inference of suppression and intention to evade. The circumstance that the assessee was a Government undertaking did not negate the violation or the applicability of the longer limitation period.

Conclusion: The demand of differential duty and the consequential interest were upheld, and this issue was decided against the assessee.

Issue (ii): Whether Cenvat credit of the additional duty paid on the basis of supplementary invoices was admissible to the Bangalore unit when the goods were transferred from one factory to another of the same manufacturer and not sold.

Analysis: Rule 7(1)(b) of the Cenvat Credit Rules, 2002 was construed as operating against credit only where the supplementary invoice related to goods sold and the additional duty became payable on account of fraud, suppression, collusion, wilful misstatement, or similar contravention. Since the movement of sandalwood oil from Mysore to Bangalore was a stock transfer within the same manufacturer and not a sale, the bar in the rule was held inapplicable. The duty paid at Mysore was taken as credit at Bangalore, and the final product at Bangalore was assessed under Section 4A on MRP basis, so there was no net loss to the exchequer. On that footing, denial of credit was held unjustified.

Conclusion: The denial of Cenvat credit was set aside and this issue was decided in favour of the assessee.

Final Conclusion: The duty demand was sustained, but the denial of credit on supplementary invoices was rejected because the transfer was not a sale and the additional duty formed part of the tax chain within the same manufacturer's units.

Ratio Decidendi: The bar on availing credit on supplementary invoices applies only where the additional duty arises in the context of a sale and the statutory conditions of fraud or suppression are attracted; it does not prohibit credit on inter-unit stock transfers within the same manufacturer.

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