2003 (6) TMI 367 - AT - Central Excise

Summary

Issues Involved:
1. Demand of Central Excise duty on price variation/escalation claims.
2. Demand of duty on excisable goods cleared as inter-unit transfers.
3. Duty on Modvat inputs cleared without payment of duty.
4. Exemption claim under Notification No. 184/86-C.E. for supplies made to M/s HAL.
5. Imposition of penalty under Rule 173Q of Central Excise Rules.
6. Invocation of extended period of limitation under Section 11A(1) of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Demand of Central Excise duty on price variation/escalation claims:
The Commissioner confirmed a duty demand of Rs. 12,77,934/- on price variation/escalation claims made and realized under Section 11A(2) read with proviso to Section 11A(1) of the Central Excise Act. The appellant argued that the escalation included bought-out items, which were supplied directly from suppliers to the customer and should not be subject to excise duty. The Commissioner found that the appellant failed to produce evidence to apportion the escalation cost between bought-out items and manufactured goods. However, the majority opinion held that the demand was unsustainable both on merits and limitation, as the appellant had produced invoices and offered them for inspection, which the department did not fully utilize.

2. Demand of duty on excisable goods cleared as inter-unit transfers:
The Commissioner confirmed a duty demand of Rs. 5,28,467.74 for goods cleared under inter-unit transfer invoices without payment of duty under Rule 9(2) read with proviso to Section 11A(1) of the Central Excise Act. The appellant accepted the demand and had already paid the duty, which was adjusted by the Commissioner.

3. Duty on Modvat inputs cleared without payment of duty:
The Commissioner confirmed a duty demand of Rs. 1,62,056.96 for Modvat inputs cleared without payment of duty under Rule 57-I(2) read with proviso to Section 11A(1) of the Central Excise Act. The appellant accepted the demand and had already paid the duty, which was adjusted by the Commissioner.

4. Exemption claim under Notification No. 184/86-C.E. for supplies made to M/s HAL:
The Commissioner dropped the proceedings regarding the demand of duty of Rs. 54,285.05 by extending the benefit of Notification No. 184/86-C.E. dated 1-3-86 for rear flanges cleared to M/s HAL. This decision was not contested further.

5. Imposition of penalty under Rule 173Q of Central Excise Rules:
The Commissioner imposed a penalty of Rs. 1,00,000/- on the appellant under Rule 173Q of the Central Excise Rules. The appellant argued that there was no intention to evade duty and that the penalty was not justified. The majority opinion found that the penalties were not sustainable due to the absence of suppression of facts and the bona fide belief of the appellant regarding the escalation claims.

6. Invocation of extended period of limitation under Section 11A(1) of the Central Excise Act:
The Commissioner invoked the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, citing suppression of facts. The appellant contended that they had been complying with the Central Excise Rules and there was no suppression of facts. The majority opinion held that the extended period was not invocable as the appellant had been filing price lists and there was no intention to evade duty.

Majority Decision:
The appeal was allowed, and the impugned order was set aside. The majority found that the demand for duty on the escalated price was unsustainable both on merits and limitation. The penalty imposed was also set aside due to the absence of suppression of facts and the bona fide belief of the appellant.