2005 (10) TMI 129 - AT - Central Excise

Tribunal Overturns Duty Demands: No Sale Found, Costs Excluded, Reassessment of Input Values Not Allowed, Demand Barred by Limitation.

The Tribunal set aside the orders confirming duty demands, penalties, and interest, allowing all appeals. It determined no sale occurred between IIL and ... Demand duty - Cenvat/Modvat credit - Inputs cleared from the factory, if such inputs have been manufactured in the factory - Valuation (Central Excise) - HELD THAT:- In our view, since IIL was only acting as agent for and on behalf of the IMIL, the transaction between the two was not that of a 'sale' and the principle of transfer by an agent to the principle of material procured on the principal's behalf would apply. Transaction between IIL & IMIL is that of transfer, the finding of the respondent that the same involves sale is not maintainable. We also find that the appellants have a good case on limitation to set aside the demands as there could not be an intention to avail payment of duty as both units were paying duty through PLA & were under Modvat chain. The question as to whether reversal of credit at the time of clearance on inputs as such, is sufficient compliance with the legal provisions, has been settled by two decisions of the Larger Bench of the Hon'ble Tribunal in the case of American Auto Ltd. v. CCE [1995 (6) TMI 33 - CEGAT, MADRAS-LB] and subsequently in the case of ABB v. CCE. The said decisions of the Larger Bench has in fact been followed for the period in dispute in the case of Eicher Tractors Ltd. v. CCE [2004 (5) TMI 442 - CESTAT, NEW DELHI]. Appellant thus submits that the view adopted by them is the same as that of the Larger Bench of the Hon'ble Tribunal. Assuming for the sake of argument, even if a contrary view is taken today, in such a circumstances, the larger period of limitation cannot be sustained as has been held by the Hon'ble Supreme Court in the case of Mentha and Allied Products Ltd. v. CCE [2004 (5) TMI 74 - SUPREME COURT] and in the case of Jay Prakash Industries v. CCE [2002 (11) TMI 92 - SUPREME COURT]. We find no reason to disagree with this submission & hold the bar of limitation in favour of the appellants. When duty demands cannot be confirmed, based on findings on merits of no sale taking place and on applications of the Board instruction on Valuation, when no sales on taking place, in law as also the amounts cannot be recovered due to lack of machinery provision and the same are barred by limitation, we do not find any reason to confirm liabilities of interest and penalty. We cannot upheld the duty demands and the penalties along with interest arrived at in the impugned orders. In view of our findings, orders are set aside and all appeals allowed. Issues Involved:1. Determination of the nature of the transaction between IIL and IMIL.2. Inclusion of additional costs in the assessable value.3. Applicability of Rule 57AB of the Central Excise Rules, 1944 and Rule 3(4) of Cenvat Credit Rules, 2001-2002.4. Validity of demand under Section 11A(1) of the Central Excise Act, 1944.5. Applicability of limitation period for the demand.Issue-Wise Detailed Analysis:1. Determination of the Nature of the Transaction between IIL and IMIL:The Tribunal found that the transfer of iron ore pellets from IIL to IMIL was not a sale but a transfer of raw materials under a joint procurement policy. This conclusion was supported by a tripartite agreement between Mandovi Pellets Limited, IIL, and IMIL, indicating that IIL acted as an agent for IMIL. Therefore, the transaction was not a sale but a transfer, and the principle of transfer by an agent to a principal applied.2. Inclusion of Additional Costs in the Assessable Value:The Tribunal held that additional costs incurred after the clearance of iron ore pellets, such as bank charges, interest, and carriage inward, could not be included in the assessable value. These costs were post-removal expenses and could not be added to determine the excise duty. The Tribunal emphasized that excise duty is levied on the manufacture, and only costs up to the time and place of manufacture should be considered.3. Applicability of Rule 57AB of the Central Excise Rules, 1944 and Rule 3(4) of Cenvat Credit Rules, 2001-2002:The Tribunal noted that Rule 57AB and Rule 3(4) did not provide for reassessment of the value of inputs cleared as such. The rules only required the reversal of an amount equal to the duty of excise leviable on such goods at the rate applicable on the date of removal. The Tribunal found that the amount paid by IIL at the time of clearance, equal to the cenvat credit availed, was the correct amount to be reversed.4. Validity of Demand under Section 11A(1) of the Central Excise Act, 1944:The Tribunal concluded that the demand under Section 11A(1) was not sustainable. The rules required only an amount equivalent to the duty of excise, not a levy under Section 3 of the Central Excise Act, 1944. Therefore, the provisions of Section 11A(1) could not be invoked to recover the said amount. The Tribunal cited the decisions of the Hon'ble Madras High Court and the Tribunal in similar cases to support this conclusion.5. Applicability of Limitation Period for the Demand:The Tribunal found that the demand was barred by limitation. The appellants had acted under a bona fide belief, supported by decisions of the Larger Bench of the Tribunal. The Tribunal held that the larger period of limitation could not be sustained, as there was no intention to evade payment of duty. The Tribunal cited decisions of the Hon'ble Supreme Court to support this finding.Conclusion:The Tribunal set aside the orders confirming the duty demands, penalties, and interest. The Tribunal found that no sale had taken place, the additional costs could not be included in the assessable value, the rules did not provide for reassessment of value, the demand under Section 11A(1) was not sustainable, and the demand was barred by limitation. All appeals were allowed.