2005 (8) TMI 337 - AT - Central Excise

Tribunal Overturns Case Due to Calculation Errors and Limitation; Remands for Redetermination Under Valuation Rule 8.

NIRMA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, VADODARA-I

NIRMA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, VADODARA-I - 2006 (200) E.L.T. 213 (Tri. - Mumbai) Issues Involved:1. Valuation of Linear Alkyl Benzene (LAB) cleared by the Alindra factory.2. Determination of assessable value under Section 4(1)(a) and Section 4(1)(b) of the Central Excise Act, 1944.3. Application of Rule 6(b)(i) and Rule 6(b)(ii) of the Valuation Rules, 1975.4. Inclusion of catalyst cost, interest, and profit margin in the cost of production.5. Applicability of Rule 8 and Rule 9 of the Valuation Rules, 2000.6. Time-bar and applicability of proviso to Section 11A.7. Penalties on the appellant assessee and its executives.Detailed Analysis:1. Valuation of LAB Cleared by Alindra Factory:The appellants cleared LAB from the Alindra factory to other factories and independent buyers. The valuation issue arose due to differential duty demands for various periods, ranging from December 1997 to November 2001. The appellants argued that the assessable value was based on the price at which LAB was sold to Kisan Industries (KI) and others.2. Determination of Assessable Value:The first show cause notice (SCN) dated 25-2-2000 alleged that KI and other buyers were not independent, invoking Section 4(1)(b) for valuation. The Commissioner concluded that sales to KI were not to an independent buyer, treating KI as a 'Related Person' and confirming the under-valuation.3. Application of Rule 6(b)(i) and Rule 6(b)(ii):The SCN argued that Rule 6(b)(i) was not applicable due to differences in factors like plant age, raw material costs, and depreciation. Hence, Rule 6(b)(ii) was applied for valuation, which included additional costs like catalyst cost, interest, and profit margin.4. Inclusion of Catalyst Cost, Interest, and Profit Margin:The appellants contested the inclusion of catalyst cost, interest, and profit margin in the cost of production. They argued that:- Catalyst cost should be reduced by the realizable value from spent catalysts.- Interest should not be included in the cost of production as per CAS-4 and CBEC Circular dated 13-2-2003.- Profit margin should be reasonable and specific to LAB, not based on the overall company's profit margin.5. Applicability of Rule 8 and Rule 9 of the Valuation Rules, 2000:For periods post-July 2000, the appellants argued for valuation under Rule 8 (115% of the cost of production) and Rule 9 for related person transactions. The Commissioner applied Rule 4 read with Rule 11 for some periods, which was contested by the appellants.6. Time-Bar and Applicability of Proviso to Section 11A:The appellants argued that the demand was time-barred as there was no intention to evade duty, and the proviso to Section 11A was inapplicable. They highlighted that much more duty was paid through PLA by the recipient factories, and the change in the basis of assessment by the department could not invoke the proviso to Section 11A.7. Penalties on the Appellant Assessee and Its Executives:Penalties were imposed on the appellant assessee and its executives, which were contested on the grounds of incorrect valuation and lack of intention to evade duty.Conclusion:The Tribunal found merit in the appellants' arguments regarding the incorrect calculation of cost of production, inclusion of interest, and profit margin. The main SCN was found to be barred by limitation, and the proceedings initiated thereunder, along with penalties and other liabilities, were set aside. The appeals were allowed, and the case was remanded for redetermination of demands for the four SCNs dated 17-1-2001, 11-9-2001, 7-12-2001, and 3-5-2002 as per Valuation Rule 8 of the Valuation Rules, 2000.