2025 (3) TMI 192 - AT - Central Excise

Manufacturer followed proper valuation procedures under Rule 173C(11), extended limitation period unsustainable without suppression evidence

Kerala State Electronic Development Corporation Ltd Versus Commissioner of Central Excise, Trivandrum

CESTAT Bangalore held that the appellant followed prescribed procedures under Rule 173C(11) of Central Excise Rules, 1944 for valuation during 1986-1989. ... Valuation of goods manufactured by the appellant during the period from 28.08.1986 to 31.03.1989 - HELD THAT:- It is an admitted fact that the dispute pertains to the period from 28.08.1986 to 31.03.1989 and the issue is coming up for hearing for the third time. The appellant was following the procedure laid down in Rule 173C (11) of Central Excise Rules, 1944 and duty payment was based on value shown in the SDAs. It was further sold by the sister concern of the appellant at higher rate by adding additional items as optional items, including battery etc., which are manufactured by other manufactures. Even as per the statement of the Senior Manager dated 30.10.1990, the purchase order was received from sister concern M/s. Keltron controls and transactions were regulated through Sectional Debit Advices (SDAs). He also stated that the appellant was not aware of the original orders of M/s. Keltron controls and has also not verified the invoices of M/s. Keltron controls regarding sale of UPS system including optional items and the excise duty remittance was not based on the realization of the amount by their sister concern M/s. Keltron controls. The original Adjudicating Authority, only after considering the above facts, held that since the appellant had filed SDAs along with RT-12 Returns and when it is made available to the concerned officer, there is a failure on the part of department to probe the matter further and due to that reason, the demand invoking the extended period of limitation and penalty proposed in the show cause notice were dropped. Thus, in the facts and circumstances of the case, invoking extended period of limitation is unsustainable. Considering the above, demand, if any for the normal period is confirmed in accordance with law. The demand by invoking the extended period of limitation and penalty imposed as per the impugned order on the appellant are set aside. Conclusion - The penalty imposed were not justified due to the lack of evidence of undervaluation or suppression of facts by the appellant. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether duty demand beyond the normal six-month period (invoking extended limitation) is sustainable where assessee declared prices under Rule 173C(11) and filed Sectional Debit Advises (SDAs) with RT-12 returns. 2. Whether suppression, fraud or collusion justifying invocation of extended period and penalty can be inferred where SDAs were filed/produced and department did not further probe actual sale invoices or realization by the sister concern. 3. Whether value of optional components (specifically batteries) supplied with UPS systems must be included in assessable value for excise duty. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of demand beyond normal six-month period when Rule 173C(11) procedure and SDAs were used Legal framework: Rule 173C(11) of the Central Excise Rules permits an assessee (or class) to declare the price of goods for a particular wholesale consignment on the Gate Pass/Challan/Advice Note and determine duty on that declared price; statutory limitation prescribes a normal six-month period for assessments with extended period available only on specified grounds (e.g., suppression or fraud). Precedent treatment: The Tribunal previously remanded the matter for de novo adjudication to examine whether invoices were produced along with RT-12 returns - indicating that procedural compliance under Rule 173C(11) and availability of supporting documents are material to limitation questions. The adjudicating authority initially found departmental failure to probe despite SDA filing and dropped extended-period demand. Interpretation and reasoning: The Court finds it established that SDAs were filed with RT-12 returns and that the assessee followed the Rule 173C(11) procedure. Where the assessee complied with the procedural mechanism expressly permitted by the Rules and the departmental officers had SDAs available, the insistence on invoking the extended period requires positive proof of suppression or fraud that the records do not demonstrate. The Tribunal emphasizes that the departmental obligation to probe actual sale proceeds and invoices rested equally on officers assessing RT-12s; failure to do so undermines a charge that the assessee suppressed facts warranting extended limitation. Ratio vs. Obiter: Ratio - where an assessee has followed Rule 173C(11) and filed SDAs/RT-12s, extended limitation cannot be invoked in the absence of proof of suppression or fraud and where departmental officers had access to the SDA but did not pursue further inquiries. Obiter - procedural observations on how departments should probe may be advisory. Conclusion: Invocation of extended limitation for the period in question is unsustainable; any demand must be confined to the normal six-month period and assessed in accordance with law. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Allegation of suppression, fraud or collusion and imposition of penalty Legal framework: Extended limitation and penal consequences under Rule 173Q (and related provisions) require clear evidence of suppression, willful misstatement, collusion or fraud. Mere understatement of value, absent proof of intentional concealment or misrepresentation, does not automatically justify extended limitation or penalty. Precedent treatment: Adjudicating authorities across successive proceedings reached differing conclusions; initial authority accepted SDA filing as mitigating against suppression, later adjudication asserted fraud and imposed penalty. The Tribunal scrutinized prior findings and evidentiary record (including statements admitting receipt of purchase orders from sister concern and non-verification of their invoices). Interpretation and reasoning: The Court recognizes that the Senior Manager admitted SDAs were used and that the assessee did not verify sister concern invoices or base duty on actual realization. However, the decisive factor is whether there was an active concealment of facts from the department. Since SDAs were produced/available and the department failed to probe actual sale invoices or realizations, the record does not establish the necessary culpability for extended period or penalty. The presence of internal documents (SDAs) that were not invoices does not, by itself, demonstrate suppression if disclosed to authorities. Ratio vs. Obiter: Ratio - penalty and extended limitation cannot be sustained absent evidence that the assessee deliberately concealed material facts from revenue authorities when the relevant internal documents (SDAs) were filed and accessible to officers; such procedural disclosure negates the basis for invoking penal provisions. Obiter - comments on assessee's failure to verify sister concern invoices are observational and do not amount to a basis for penal consequences without proof of deliberate evasion. Conclusion: Penalty imposed under Rule 173Q and demand by invoking extended limitation are set aside for lack of proof of suppression/fraud; normal period demand only may be confirmed if otherwise sustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Inclusion of optional components (batteries) in assessable value of UPS systems Legal framework: Assessable value for excise must reflect the value of goods as manufactured and removed; where components are part of the commercial transaction and affect the price at which the product is transacted, they may need inclusion pursuant to valuation provisions (e.g., Section 4 equivalents referenced in Rule 173C(11)). Precedent treatment: The original adjudicating authority observed batteries were supplied as part of the contract and that valuation must take into account the batteries; subsequent proceedings reiterated that cost of batteries should be considered in assessment. Interpretation and reasoning: The Court notes factual findings that sister concern sold UPS at higher rates by adding optional items, including batteries, which were sometimes manufactured by others; factual testimony indicated batteries were optional standby equipment and UPS could function without them. The Tribunal's approach requires valuation to be determined in accordance with law for the normal period; the question of includability depends on whether the batteries formed part of the taxable transaction as priced and transacted by the seller (i.e., whether sale of UPS inclusive of batteries was the true transaction price under Section 4 principles referenced in Rule 173C(11)). The record supports that batteries were supplied as part of certain contracts; accordingly, their value may be relevant for correct assessment for the normal period. Ratio vs. Obiter: Ratio - where optional components are actually supplied as part of the contract price and affect consideration, their value should be taken into account in assessing excise duty for the normal assessment period. Obiter - factual nuances about whether batteries are indispensable or optional for particular transactions are case-specific and left for adjudication on merits. Conclusion: Assessable value for the normal limitation period should be determined in accordance with law taking into account, as applicable, the value of batteries and other optional components actually forming part of the sale/contract price; assessment beyond the normal period for these items is not warranted absent proof permitting extended limitation. OVERALL CONCLUSION The Tribunal allows the appeal in part: demands and penalties predicated on the extended period of limitation or on alleged suppression/fraud are set aside; any duty demand is limited to the normal six-month assessment period and valuation for that period must take into account, where appropriate under valuation law, the value of batteries and other optional components actually forming part of the transaction.