2026 (2) TMI 330 - AT - Central Excise

MRPbased valuation and extended limitation: bona fide valuation error found not to justify extended period demand, appeal dismissed

Invocation of the extended period of limitation was contested on the ground that nonadoption of MRPbased valuation did not amount to willful suppression, ... Invocation of extended period of limitation under the proviso to Section 11A - willful suppression, fraud, collusion or wilful misstatement - MRP-based valuation u/s 4A - transaction value u/s 4 - disclosure in ER-1 returns and departmental knowledge - bona fide interpretation of law not attracting extended period - Whether non-adoption of MRP-based valuation under Section 4A by the respondent constitutes willful suppression so as to justify invocation of the extended period of limitation under Section 11A? - HELD THAT:- In Schneider Electric India Pvt. Ltd. [2024 (2) TMI 727 - CESTAT CHENNAI] and Birla Corporation Ltd. [2023 (3) TMI 1067 - CESTAT NEW DELHI] squarely apply. These decisions hold that when material particulars are disclosed in ER-1 returns and the Department does not object for a prolonged period, extended limitation cannot be invoked merely because the valuation method was later found to be incorrect during audit. It is further held that ER-1 returns do not mandate disclosure of the valuation methodology and that departmental failure of scrutiny cannot be shifted onto the assessee. In the present case, no material has been brought on record to establish deliberate concealment or mens rea on the part of the respondent. The issue came to light only during the audit, and upon being pointed out, the respondent immediately accepted the liability and paid duty with interest for the normal period. Accordingly, we hold that the non-adoption of valuation under Section 4A by the respondent does not constitute wilful suppression, and invocation of the extended period of limitation under Section 11A is not sustainable. Whether the adjudicating authority was correct in dropping the demand of ₹1,18,40,175/- pertaining to the extended period? - HELD THAT:- Having held that the extended period under Section 11A is not invocable, the natural corollary is that the demand raised beyond the normal period of limitation cannot be sustained. The adjudicating authority, after detailed examination of records, correspondence, and conduct of the respondent, came to the categorical finding that there was no suppression with an intent to evade duty, and accordingly confined the demand to the normal period from March 2014 to September 2014. We find that this conclusion is fully supported by the evidence on record and is in consonance with settled legal principles. The respondent had disclosed the classification, turnover, and nature of clearances; the returns were duly filed and scrutinised; and the Department itself had engaged with the respondent on SSI-related issues without raising any valuation objection. In such circumstances, it would be legally impermissible to sustain a demand for the extended period merely because the audit subsequently took a different view on valuation. Therefore, the dropping of the demand of ₹1,18,40,175/- relating to the extended period is legal, proper, and justified, and calls for no interference. Whether the Department’s appeal merits interference with the impugned order? - HELD THAT:- In the absence of any fresh material or compelling legal error pointed out by the Department, the appeal essentially seeks a re-appreciation of facts already examined and correctly decided. As such, we hold that the Department’s appeal does not merit any consideration, and the impugned order dropping the extended period demand and confirming duty only for the normal period deserves to be upheld. Thus, we hold that the non-adoption of MRP-based valuation under Section 4A by the respondent arose from a bona fide interpretation of law and not from any wilful suppression or intent to evade payment of duty. The Department has failed to establish the existence of fraud, collusion, wilful misstatement, or suppression of facts so as to justify invocation of the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944. We find no legal infirmity or perversity in the impugned Order-in-Original warranting interference by this Tribunal. As such, we hold that the Department’s appeal is not maintainable and is so rejected and the Order-in-Original No. 01/2016-CE dated 06.01.2016 is upheld. Issues: (i) Whether non-adoption of MRP-based valuation under Section 4A constitutes willful suppression warranting invocation of the extended period of limitation under Section 11A; (ii) Whether the adjudicating authority was correct in dropping the demand of Rs.1,18,40,175/- pertaining to the extended period; (iii) Whether the Department's appeal merits interference with the impugned order.Issue (i): Whether non-adoption of MRP-based valuation under Section 4A constitutes willful suppression warranting invocation of the extended period of limitation under Section 11A.Analysis: Invocation of the extended period under the proviso to Section 11A is permissible only where non-payment or short-payment of duty is attributable to fraud, collusion, wilful misstatement, or suppression of facts with intent to evade duty. Mere adoption of an incorrect valuation method or a bona fide misinterpretation of law, without mens rea, does not attract the extended period. The material shows consistent disclosure of classification in statutory ER-1 returns, clearances in retail packages with MRP affixed, prior departmental scrutiny and correspondence, and absence of any departmental objection for a prolonged period. No evidence of deliberate concealment or intent to evade duty has been established.Conclusion: Non-adoption of MRP-based valuation under Section 4A does not constitute willful suppression and does not justify invocation of the extended period under Section 11A; conclusion is in favour of the assessee.Issue (ii): Whether the adjudicating authority was correct in dropping the demand of Rs.1,18,40,175/- pertaining to the extended period.Analysis: Given that extended limitation is not invocable absent fraud, collusion, wilful misstatement, or suppression, a demand raised beyond the normal period cannot be sustained. The adjudicating authority examined records, correspondence, and conduct, and found disclosure of relevant particulars and prior departmental knowledge, supporting limitation to the normal period.Conclusion: The adjudicating authority was correct in dropping the demand of Rs.1,18,40,175/- relating to the extended period; conclusion is in favour of the assessee.Issue (iii): Whether the Department's appeal merits interference with the impugned order.Analysis: Interference is limited to findings that are perverse, contrary to law, or unsupported by evidence. The adjudicating authority's findings are supported by evidence and binding precedents, and no fresh material or legal error has been shown that would vitiate the conclusions. The appeal essentially seeks re-appreciation of facts correctly examined.Conclusion: The Department's appeal does not merit interference; conclusion is in favour of the assessee.Final Conclusion: The appeal is dismissed and the adjudicating order upholding demand only for the normal period is affirmed; the extended period demand is rightly dropped.Ratio Decidendi: Invocation of the extended period of limitation under the proviso to Section 11A requires positive evidence of deliberate suppression or intent to evade duty; mere incorrect valuation or bona fide misinterpretation of law, where material particulars were disclosed in statutory returns and were within departmental knowledge, does not satisfy that threshold.