2024 (7) TMI 1251 - AT - Central Excise

CESTAT Chennai sets aside excise duty demand finding revenue-neutral transaction and time-barred proceedings under Central Excise Act

CESTAT Chennai allowed appeals by two appellants in a valuation dispute under Central Excise Act, 1944. The Department demanded duty from the first ... Valuation of goods - value adopted by the 1st appellant for payment of duty on clearance of the goods to the 2nd appellant - requirement to discharge duty under Section 4 (1) (b) of Central Excise Act, 1944 read with Rule 10A (ii) of Central Excise Valuation (Determination of Retail Price of Excisable Goods) Rules, 2000 - Extended period of limitation - penalty. Valuation of goods - HELD THAT:- The Department has not done any inspection or verification at the premises of the 2nd appellant to conclude that further testing or repacking is being carried out on the products meant for exports. Without such investigation, the department cannot mechanically reject the consistent plea put forward by both appellants. In para 7 of the OIo No.12/2013 dated 26.4.2013 the statement given by the Senior manager of 2nd appellant (Sri Parthaarathy) is referred. It is deposed by him on 25.8.2009 before the Superintendent That their quality control department would carry out inspection of the products and then packing, palletization and shrink packing were done. As per section 2(f) of Central Excise Act, 1944, ‘manufacture’ includes any process, incidental or ancillary to the completion of a manufactured product”. Without quality control check, and inspection, the product cannot be said to be marketable. However, these aspects have not been considered by the original authority or the Commissioner (Appeals), Merely on the basis of difference in assessable value of the goods cleared by the 2nd appellant for export, the department has proceeded to issue SCN and confirm the demand. Extended period of limitation - revenue neutrality - HELD THAT:- The situation is entirely revenue-neutral. Even if the 1st appellant discharges duty as confirmed by the Department, the 2nd appellant would be eligible to avail credit of such duty. The SCN has been issued invoking extended period alleging suppression of facts. There is no positive act of suppression established by the Department. Further, both appellants have paid duty during the disputed period. This itself would show that the 1st appellant had no intention to evade payment of duty - The entire demand falls within the extended period. The appellants succeed on the ground of limitation. Penalty imposed under Rule 25 of Central Excise Rules, 2002 - HELD THAT:- Since it is already found that the demand of duty on 1st appellant does not sustain, the penalty imposed on the 2nd appellant is also unwarranted. The view is supported by the fact that the 2nd appellant would be eligible to avail credit of the duty paid by the 1st appellant and is a revenue neutral situation. In such circumstances, penalty imposed on the 2nd appellant is also set aside. Issues Involved:Valuation of goods for export clearance, imposition of duty, extended period invocation, eligibility for credit, penalty under Rule 25 of Central Excise Rules, 2002.Analysis:Valuation of Goods for Export Clearance:The case involved the valuation of goods cleared by the 1st appellant to the 2nd appellant for export. The 1st appellant manufactured Electric Mosquito Destroyer Machine exclusively for the 2nd appellant, who further carried out testing and repackaging. The Department argued that the duty should be paid by the 1st appellant based on the assessable value declared by the 2nd appellant for exports. The appellants contended that the goods were not exported 'as such' as further manufacturing processes were carried out by the 2nd appellant. The Tribunal found that the Department's view lacked factual basis as no evidence was presented to prove that no further manufacture occurred at the 2nd appellant's premises.Extended Period Invocation and Duty Imposition:The Department issued a show cause notice invoking the extended period, alleging that the 1st appellant should have adopted a different method for assessing duty. However, the Tribunal ruled in favor of the appellants, stating that the situation was revenue-neutral, and there was no intention to evade duty payment. The demand fell within the extended period, but the appellants succeeded on the ground of limitation.Eligibility for Credit and Penalty Imposition:The 2nd appellant was also issued a show cause notice for availing ineligible credit, which was later disposed of in their favor. The Tribunal highlighted that the penalty imposed on the 2nd appellant was unwarranted, considering the revenue-neutral scenario and the eligibility of the 2nd appellant to avail credit of duty paid by the 1st appellant.In conclusion, the impugned order was set aside, and both appeals were allowed with consequential relief, if any. The Tribunal emphasized the revenue-neutral nature of the transactions, lack of evidence supporting the Department's claims, and the absence of intention to evade duty payment by the appellants.