1998 (1) TMI 239 - AT - Central Excise

Tribunal upholds duty demand, remands for cost recalculation, and directs penalty based on redetermined duty

The Tribunal dismissed the department's appeal, upheld the lower duty demand confirmed by the Collector, and allowed the respondent's cross-objection ... Valuation - Modvat credit Issues Involved:1. Correctness of the duty demand.2. Inclusion of Modvat credit in the assessable value.3. Inclusion of transport cost in the assessable value.4. Inclusion of cost of raw material wasted during manufacturing.5. Calculation of assessable value versus cum-duty price.6. Quantum of penalty.Detailed Analysis:1. Correctness of the Duty Demand:The department appealed against the Order-in-Original No. 108/94, dated 14-12-1994, which demanded Rs. 5,35,237.00 in Central Excise duty from the respondent, while the show cause notice proposed Rs. 15,82,986.43. The department sought confirmation of the higher duty demand. The Tribunal found that the department did not provide necessary enclosures to substantiate the higher duty demand. The respondent's submission, accepted by the Collector, showed a duty amount of Rs. 5,35,237.06. The Tribunal noted discrepancies in the department's calculations and upheld the lower duty demand confirmed by the Collector.2. Inclusion of Modvat Credit in the Assessable Value:The respondent argued that the Modvat credit availed on inputs should be excluded from the assessable value of the final product. The Tribunal referred to the Larger Bench decision in Dai Ichi Karkaria Ltd. v. CCE, Pune, which held that duty paid on inputs availed as Modvat credit is not includible in the assessable value. The Tribunal distinguished this case from the Supreme Court decision in Kirloskar Brothers Ltd. v. Union of India, noting that the respondent was not selling the goods but performing job work, and the duty was paid using Modvat credit without passing it on to the customer. The Tribunal held that the duty paid on inputs availed as Modvat credit should be excluded in arriving at the cost of inputs for computing the assessable value.3. Inclusion of Transport Cost in the Assessable Value:The department argued for the inclusion of transport cost of raw materials in the assessable value. The respondent countered that the transport cost was already included in their job charges. The Tribunal accepted the respondent's plea, noting that the contract specified the respondent bore the transport cost, which was a small part of the job charges.4. Inclusion of Cost of Raw Material Wasted During Manufacturing:The department contended that the cost of raw material wasted during manufacturing should be included in the assessable value. The respondent calculated wastage based on the quantity of the final product, not the raw material issued. The Tribunal found this incorrect and stated that the cost of raw material should be based on the quantity issued for manufacture. The Tribunal directed recalculating the cost of wastage based on the correct percentage.5. Calculation of Assessable Value versus Cum-duty Price:The Tribunal addressed whether additions should be to the assessable value or cum-duty price. It cited several decisions, including Indian Oxygen Ltd. v. CCE, Bhubaneswar, and Collector of Central Excise v. VST Industries, supporting the view that additions should be to the price, not the assessable value. The Tribunal held that additions should enhance the price, not the assessable value, and the duty should be calculated from the cum-duty price.6. Quantum of Penalty:The Tribunal remanded the matter to the adjudicating authority for recalculating the duty and determining the penalty commensurate with the redetermined duty. The Tribunal set aside the Collector's order and directed a fresh decision on the limited question of recalculating the cost of wastage and determining the duty from the cum-duty price.Conclusion:The Tribunal dismissed the department's appeal and allowed the respondent's cross-objection regarding the non-inclusion of Modvat credit and transport cost in the assessable value. The Tribunal remanded the matter for recalculating the cost of wastage and determining the duty from the cum-duty price, directing the adjudicating authority to decide the penalty based on the redetermined duty.