2026 (3) TMI 1146 - AT - Central Excise

Extended limitation cannot be invoked without evidence of suppression, so confirmed demand set aside and deductions allowed.

Invocation of the extended period of limitation requires evidence of suppression or misstatement; absent proof and where sales were under proper invoices ... Extended period of limitation - clandestine removal - short payment of excise duty - freight exclusion in transaction value - entitlement to deductions from assessable value for prompt payment discount, pro-rata recovery, trading activity, freight and sales tax/VAT. Validity of invoking the extended period of limitation by alleging clandestine removal or suppression - HELD THAT:- The Tribunal found that all sales were effected under proper invoices and payments were made by account payee cheque to a government undertaking (KSRTC); there was no allegation or evidence of clearance without invoices or of suppression or mis statement to evade duty. Consequently the invocation of the extended period of limitation and the allegation of clandestine removal were unsustainable and could not support confirmation of demand. [Paras 15, 19] Invocation of the extended period of limitation and allegation of clandestine removal are unsustainable; demand confirmed on that basis set aside. Admissibility of pro rata recovery deductions claimed against assessable value - HELD THAT: - Although the pro rata recoveries were made on a lump sum basis in bills rather than invoice wise, the purchase orders provided for such deductions and there was no dispute about failures of performance. The Adjudicating Authority erred in rejecting the claim solely because invoice wise particulars were not produced; the claim for pro rata recovery could not be denied on that ground. [Paras 16, 19] Pro rata recovery deductions are allowable; denial on invoice wise detail ground was erroneous. Admissibility of prompt payment discounts (PPD) as deduction from assessable value - HELD THAT:- The appellant produced purchase orders/letters of intent setting out PPD terms and detailed records showing invoices, dates of payment and cheque particulars establishing that discounts were actually passed to KSRTC. The Adjudicating Authority failed to appreciate this evidence even after remand; therefore denial of PPD was unsustainable. [Paras 17, 19] Prompt payment discounts correctly claimed and supported by evidence are allowable; demand confirmed on account of disallowance of PPD set aside. Admissibility of deductions for trading activity, freight and VAT - HELD THAT: - The Tribunal found that the appellant furnished sufficient evidence before the Adjudicating Authority and the Tribunal to substantiate claims for trading turnover, equalized freight (under valuation principles) and VAT paid/payable; the Adjudicating Authority's rejection of these deductions was not justified on the record examined. [Paras 18, 19] Deductions for trading activity, freight and VAT claimed by the appellant are allowable on the evidence produced. Final Conclusion: The impugned order confirming demand, interest and penalty was set aside; the appeal is allowed and the appellant is entitled to consequential relief as per law, after giving effect to the allowable deductions and the finding on limitation. Issues: (i) Whether the demand was validly confirmed by invoking the extended period of limitation and alleging clandestine removal; (ii) Whether the appellant was entitled to deductions from assessable value for prompt payment discount, pro-rata recovery, trading activity, freight and sales tax/VAT.Issue (i): Whether the extended period of limitation and allegation of clandestine removal for confirming demand is sustainable.Analysis: The proceedings show that sales were effected under proper invoices and payments were received through account payee cheques from a government undertaking (KSRTC). There is no allegation or evidence of clearance without invoice or suppression of transactions; documents obtained from KSRTC and tender/LOI terms were available on record and were considered by this Tribunal in earlier proceedings and on remand. The adjudication invoked the extended period without proof of suppression or mis-statement of facts essential to attract extended limitation.Conclusion: The extended period of limitation was invocably applied unsustainably and the allegation of clandestine removal is not established; conclusion is in favour of the assessee.Issue (ii): Whether deductions claimed from assessable value for prompt payment discount (PPD), pro-rata recovery, trading activity, freight and sales tax/VAT are allowable.Analysis: The record contains purchase orders and letters of intent specifying prompt payment discount terms, invoice-wise details of sales and payments, cheque references, and evidence of deductions made by KSRTC. The purchase orders also provided for pro-rata recoveries for performance failures. The appellant produced evidence to substantiate trading transactions and freight treatment; Rule 5 of the valuation rules and generally accepted costing principles address exclusion of transportation where sale is for delivery elsewhere. The adjudication authority rejected these deductions despite the documentary terms and remand; some reliance on an outdated circular and refusal to appreciate available evidence was noted.Conclusion: The deductions for prompt payment discount, pro-rata recovery, trading activity, freight and sales tax/VAT are allowable; conclusion is in favour of the assessee.Final Conclusion: The impugned order confirming demand, interest and penalty by invoking extended limitation and disallowing the specified deductions is set aside and the appeal is allowed with consequential relief as per law.Ratio Decidendi: Where sales are effected under proper invoices and accounted with payments through account payee cheques, invocation of the extended period of limitation and allegation of clandestine removal requires evidence of suppression or mis-statement; contractual terms and invoice/payment records establishing permissible deductions (prompt payment discount, pro-rata recovery, trading value, freight, and sales tax) must be given effect in determining assessable value.