2001 (4) TMI 621 - AT - Central Excise

Demand - Bulk of duty voluntarily paid during investigation - Refund - Valuation - Demand - Limitation - Penalty

Issues Involved:
1. Legality of the show cause notice.
2. Determination of the assessable value of bulk drugs.
3. Applicability of extended period for demand.
4. Imposition of penalties on the company and its officers.

Issue-wise Detailed Analysis:

1. Legality of the Show Cause Notice:
The first claim made by the appellant was that the show cause notice was invalid since it demanded the entire duty short-levied, despite acknowledging that the duty was voluntarily paid before the notice was issued. The appellant relied on the Supreme Court judgment in J.K. Cotton Spg. & Wvg. Mills Co. Ltd., but the tribunal found no supporting ratio in that judgment for the appellant's claim. The tribunal emphasized that voluntary payment of duty does not preclude the issuance of a show cause notice. The tribunal cited the Supreme Court's judgment in Dunlop India Ltd., which held that estoppel does not apply to taxation matters, and voluntary payment does not negate the need for a show cause notice. Thus, the tribunal found no legal infirmity in the notice.

2. Determination of the Assessable Value of Bulk Drugs:
The principal issue was the determination of the assessable value of bulk drugs, which should have been computed as per Rule 6 of the Valuation Rules, given that the bulk drugs were stock transferred and not sold. The tribunal examined Section 4 of the Central Excise Act, 1944, and the Central Excise (Valuation) Rules, 1975. The tribunal concluded that the value should be based on the cost of production plus profit, as the drugs were not sold in the course of wholesale trade. The tribunal dismissed the appellant's argument that the declared prices under the Drugs (Price Control) Order should be used for valuation, as the order did not fix prices for non-scheduled bulk drugs. The tribunal also noted that the bulk drugs in question, except for Etofylline, were non-scheduled, and thus their prices were not fixed under any law.

3. Applicability of Extended Period for Demand:
The tribunal addressed whether the extended period for demand could be invoked. The appellant argued that the cost construction statements were supplied to the authorities, and the department was aware of the facts, thus negating any suppression. The tribunal referred to the judgment in R.H. Indus. v. CCE, which held that in cases where duty payment results in revenue neutrality due to Modvat credit, the intent to evade duty cannot be alleged. The tribunal found that the facts in the present case were similar and held that the demand for the extended period was not sustainable.

4. Imposition of Penalties on the Company and Its Officers:
The tribunal examined the imposition of penalties under Section 11AC of the Central Excise Act, 1944, and Rule 209A of the Central Excise Rules, 1944. Since the demand for the extended period was not upheld, the tribunal held that the penalty under Section 11AC could not be sustained. The tribunal also noted that the Commissioner did not impose any penalty under Section 173Q, and followed the precedent in ITC Ltd. v. Commissioner of Central Excise, Bangalore, which refrained from imposing penalties under similar circumstances. Consequently, the tribunal set aside the penalties imposed on the company and its officers.

Summary of Orders:
(a) Orders of imposition of penalties on the company and its officers are set aside.
(b) The orders of confirmation of duty for the extended period do not survive.
(c) The demand for the normal period of six months sustains.
(d) The case is remanded back to the jurisdictional Commissioner for re-calculation of the demand within the normal period, considering the tribunal's observations.

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