2025 (10) TMI 1128 - AT - Central Excise

Appeal allowed; reassessment under Section 4A set aside for arbitrary action, no change, and natural justice breach

M/s. Apollo Tyres Ltd. Versus Commissioner of GST & Central Excise, Chennai And (Vice-Versa)

CESTAT allowed the appeal, setting aside the impugned order that sought reassessment under Section 4A. The Tribunal found the Commissioner's view ... Issuance of SCN - SCN proposed to reassess and demand the duty by invoking Section 4A of the Central Excise Act, 1944 - Tyre, Tube and Flap cleared by the Assessee as a set or independently, was a ‘pre-packaged commodity’ within the meaning of Legal Metrology Act, 2009 or not - non-application of mind - violation of principles of natural justice - time limitation - HELD THAT:- The Commissioner owed his responsibility to answer in the proper manner known under law as to why he is not accepting the earlier year’s order and findings therein but unfortunately, without specifically bringing on record any of the change/s in law or on factual matrices and alleging that the earlier order is ‘irrelevant, baseless and against directions of the court’ does not inspire any confidence to any court, not to speak of a honest tax payer; the same is arbitrary being inconsistent. The said view expressed in the impugned order by the Commissioner not only lacks merits but also appears to have been passed without proper application of mind. The Commissioner has spelt out that the introduction of LM Act which incorporated drastic changes when compared to the earlier SWM Act & Rules. Unfortunately, there are no ‘drastic changes’ being applied to the case on hand, nor is it discussed anywhere in the impugned order. Even on accepting the above findings on merits, but nevertheless the same in no way offer an escape route insofar as limitation coupled with suppression is concerned since it is not the case of the Revenue that the Appellant/Assessee had changed its practice of declaration in the statutory documents for the period in dispute, without disregarding the fact that there have been SCNs for various periods as well. Time limitation - HELD THAT:- Without establishing ‘suppression’, the provision cannot be invoked automatically and for that, Revenue has to necessarily ponder over the past conduct of the Appellant-Assessee first and then the treatment by the Revenue. Both the parties are very well aware of the respective positions and there are documents evidencing the same - Not addressing the pleas/defense urged by a noticee would only indicate the incompetence and that the Authority had no answer; assuming silence may amount to acceptance. But in any case, the above two crucial facts are enough to hold that there was no suppression, much less with an intent to evade duty, and hence, the duty demand by invoking the extended period of limitation is clearly an out of question. The impugned order calls for interference as the Lower Authority has given room for inconsistency for no reason, that too without bringing out on record any deviating factual matrix and hence, there are no hesitation in setting aside the impugned order - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether excisable goods (tyres, tubes and flaps cleared as sets or individually) are valuable with reference to retail sale price under Section 4A of the Central Excise Act by virtue of being 'pre-packed' within the meaning of the Legal Metrology Act (LM Act) and rules. 2. Whether the Central Excise Authority had jurisdiction to determine whether the goods are 'pre-packed' (a question falling under Legal Metrology) and whether prior administrative/ adjudicatory orders on the same issue (dropped proceedings) bind subsequent proceedings. 3. Whether the extended period of limitation under Section 11A(4) read with Section 11A(8) of the Central Excise Act could be invoked - specifically whether there was suppression, fraud, collusion or wilful mis-statement justifying invocation of extended limitation. 4. Whether exemption from Legal Metrology provisions (packages exceeding 25 kg or meant for industrial/institutional consumers) was appropriately considered and whether failure to address this plea affects the sustainment of the demand. 5. Ancillary Revenue contentions: correctness of period for differential duty recovery, and imposition of enhanced/personal penalties under Central Excise Rules. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Section 4A (valuation by MRP) because goods are 'pre-packed' under LM Act Legal framework: Section 4A empowers notification-based valuation by retail sale price where goods are required by LM Act (or rules) to declare retail sale price on the package. LM Act and Rules define 'pre-packed commodity' / 'pre-packaged commodity' as goods placed in a package without purchaser being present with predetermined quantity; SWM Act/Rules contain pari materia definitions. Precedent treatment: The Tribunal noted earlier decisions (e.g., a Delhi Bench decision in J.K. Tyres & Industries Ltd.) holding tyres/tubes/flaps are used in diverse machines and cannot automatically be treated as parts of automobiles for Section 4A purposes; prior administrative practice and notifications (Entry 108) had been relied upon by Revenue in earlier rounds. Interpretation and reasoning: The Tribunal examined factual matrix and statutory meanings. It found the recurring factual position undisputed - tubes/flaps inserted into tyres and strapped but not 'pre-packed' in the sense envisaged by LM Act; the practice was consistent for decades and was earlier litigated with SCNs issued and subsequently proceedings dropped by the Commissioner for earlier periods. The Tribunal held that mere physical insertion/strapping without packaging intended to pre-determine quantity or to place goods in a package suitable for retail sale is insufficient to convert the practice into 'pre-packing' attracting LM Rules and thereby Section 4A valuation. The Tribunal also observed that definitions under SWM and LM Act are pari materia, and absent material deviation of characteristics, denial based solely on change of Act name is not persuasive. Ratio vs. Obiter: The finding that the specific factual practice (insertion and strapping without packaging) does not constitute 'pre-packed commodity' for Section 4A purposes is ratio for the appeal; general remarks about the need for clear showing of packaging characteristics to invoke Section 4A are also authoritative guidance (ratio). Observations on comparative uses of tyres in other machines echo existing precedent and reinforce ratio. Conclusion: Section 4A valuation was improperly invoked on the facts; the goods were not shown to be pre-packed as required by LM Act, so MRP-based valuation could not be mechanically applied. Issue 2 - Jurisdiction to decide 'pre-packed' question and effect of earlier dropped adjudications Legal framework: Powers of Central Excise adjudicating authorities to reopen/ initiate proceedings are circumscribed by statutory limitation and by the factual/legal issues previously adjudicated; administrative finality attaches to orders not appealed by Revenue. Precedent treatment: The Tribunal relied on the existence of earlier SCNs and the OIOs dated 28.02.2011 where proceedings were dropped after full consideration, accepted by Revenue (no appeal), rendering that OIO final for the earlier period. Interpretation and reasoning: The Tribunal held that the Central Excise Authority cannot lightly depart from an earlier final adjudication concerning the same practice absent recorded material change in law or facts or successful appellate reversal. Reliance on court directions in unrelated writ proceedings (recording submissions) does not nullify or override a prior final administrative order. The adjudicating authority had a duty to explain why the earlier final order was not followed; it failed to identify any new factual matrix or legal change that would justify reopening identical issues. Ratio vs. Obiter: The proposition that a final administrative order, accepted by Revenue, cannot be disregarded by a subsequent adjudicating officer without demonstrations of material change of law/facts is ratio and dispositive for these appeals. Conclusion: The Authority lacked grounds to treat the earlier dropped proceedings as irrelevant; the earlier acceptance by Revenue and absence of demonstrated change in facts/law undercut the impugned order's jurisdictional basis to recharacterize the clearances. Issue 3 - Invocation of extended limitation under Section 11A (suppression) and application of Section 11A(8) Legal framework: Section 11A(4) permits extended recovery where duty short-levy/non-levy is by reason of fraud, collusion, willful mis-statement or suppression of facts. Section 11A(8) contemplates exclusion of certain periods (e.g., court stay) for computation, but prerequisites for invoking extended period remain the statutory grounds of suppression/fraud etc. Precedent treatment: Authorities require positive proof of suppression or equivalent conduct; mere change in valuation view or selective assessment approach by Revenue is insufficient without demonstrable concealment or wilful mis-statement by assessee. Interpretation and reasoning: The Tribunal found no evidence of suppression: the assessee's practice and statutory declarations were consistent for decades; prior SCNs had been issued and earlier proceedings dropped; no material concealment or change in practice was shown. The Revenue's attempt to rely on Section 11A(8) by factoring in a court stay period to extend time was held misconceived because the provision authorizes extended recovery only when the primary statutory basis (suppression/fraud) exists. The adjudicating authority did not analyze past conduct or show any new suppression. Further, the Authority failed to address the assessee's specific plea of exemption under LM Act (packages >25 kg), which negates the claim of suppression with intent to evade duty. Ratio vs. Obiter: The holding that extended limitation cannot be invoked absent proof of suppression/fraud is ratio. The observation that Section 11A(8) cannot be used to extend time where the statutory predicate (suppression) is missing is ratio. Conclusion: Invocation of the extended period was unsustainable; demand based on extended limitation was set aside. Issue 4 - Failure to consider exemption under LM Act (packages >25 kg or industrial use) Legal framework: LM Act/Rules exclude application to packages exceeding specified weight/volume and packages meant for industrial/institutional consumers (Rules 3/2-A etc.). Such exemption, if established, precludes LM obligations and Section 4A consequences. Interpretation and reasoning: The Tribunal emphasized the duty of the adjudicating authority to expressly address and decide statutory pleas raised in response to SCNs. The lower authority failed to adjudicate the assessee's specific exemption plea; omission to consider a pleaded statutory exemption undermines the validity of the demand and indicates lack of proper application of mind. Ratio vs. Obiter: The requirement that an adjudicating authority must deal with material statutory pleas in the order is ratio; the consequence that omission vitiates the order in part is applied to the present facts (ratio). Conclusion: Non-consideration of the exemption plea further negates any claim of suppression and supports setting aside the impugned demand. Issue 5 - Ancillary Revenue contentions (period of differential duty recovery; enhanced and personal penalties) Legal framework: Recovery period, imposition and quantum of penalties are contingent on establishment of substantive duty liability and statutory predicates (e.g., suppression, contravention). Interpretation and reasoning: Having held the substantive demand (Section 4A invocation and extended limitation) unsustainable and the impugned order arbitrary and inconsistent with past final orders, the Tribunal concluded that consequential claims for differential period, higher penalty under Rule 25, and personal penalties under Rule 26 could not survive. The Revenue's appeals seeking those consequential enhancements were dismissed as the foundational findings did not stand. Ratio vs. Obiter: The dismissal of ancillary penalty and period claims is ratio insofar as they were dependent on substantive, vacated findings. Conclusion: Revenue's contentions on period and penalties are rejected; the impugned order is set aside, assessee's appeal allowed with consequential benefits, and Revenue's appeal dismissed.