2004 (10) TMI 363 - AT - Central Excise

Applicability of Rule 6(b)(ii) of the Valuation Rules in respect of the goods captively consumed - Demand - Limitation - Penalty and interest - HELD THAT - We observe that the appellants themselves determined the value for the goods consumed in their Tarapur unit under Rule 6(b)(ii) w.e.f. 1-4-2000. This action on the part of the appellants suggest that they themselves agreed that the value of the goods in question cannot be determined under Rule 6(b)(i). The appellants therefore cannot find fault with the Commissioner for determining the value under Rule 6(b)(ii) for the same goods. We hold that the Commissioner was right in holding that the value of the impugned goods is determinable under Rule 6(b)(ii) of the Valuation Rules. Addition of 10% of the cost of production of the yarn captively consumed - We find that the appellant at no stage demonstrated a figure less than 10% to 13 rebut the department's contention. We therefore agree with the contention of the Commissioner the 10% profit should be added while computing the cost of production of the captively consumed yarn. In regard to addition of profit to cost of production when value is arrived at under Rule 6(b)(ii) we observe that the Hon ble Supreme Court in the case of Mallur Siddeswara Spinning Mills Ltd. v. CCE, Coimbatore 2004 (3) TMI 68 - SUPREME COURT , held that profit is addable. Invocation of larger period of limitation u/s 11A(1) proviso - The evidence collected by the Department established that the persons in charge were aware of the difference. It is not the case of the appellant that they were under a bona fide belief that what they declared to the department was the correct position in law. The two tests laid down by the Supreme Court are satisfied in this case. We may also add that a part of the period i.e. February, 2000 to June, 2000 is covered under normal period of limitation. Rule 57E of the Central Excise Rules, as then existed lays down under Sub-Rule 3 that if any additional amount of duty became recoverable from the manufacturer of inputs on account of any short-levy or non-levy by reason of suppression of facts with an intent to evade payment of duty such incremental duty paid would not be available as Modvat credit to the user of the said goods. This could be interpreted to mean that the legislature contemplates that suppression with an intent to evade duty is possible even when goods are modvatable. None of the decisions of the Tribunal or Courts suggests that suppression and consequent invocation of larger period of limitation is bad in law when modvatable goods are involved. In conclusion we observe that the appellants plea that suppression cannot be invoked in their case because of revenue neutrality is not tenable. Penalty - We have considered the pleas made before us in regard to the penalties imposed on the Executive Vice-Chairman and the Manager Marketing. The Executive Vice-Chairman cannot be held responsible for the day-to-day affairs of the company unless it has been established that he had a direct role in understating the value of the goods. No such evidence has been brought out. In regard to the penalty on the Manager Marketing we observe that penalty is sustainable as he was aware that the goods sold at the factory gate were different from the ones supplied to Tarapur unit. Thus the appeals are partly allowed and are decided on the above terms.

Issues Involved:
1. Legality of the show cause notice issued on 3-3-2001 invoking the proviso to Section 11A(1).
2. Determination of value under Rule 6(b)(ii) versus Rule 6(b)(i).
3. Inclusion of notional profit in the cost of production.
4. Imposition of penalty under Rule 209A.

Issue-wise Detailed Analysis:

1. Legality of the Show Cause Notice:
The Commissioner held that the show cause notice issued on 3-3-2001 was legally tenable. The appellant had filed price declarations in 1994, which were not updated until 1998, despite changes in assessable value. The appellant mis-declared that the goods sold at the factory gate and those cleared for captive consumption were the same, suppressing the real value of the captively consumed goods. This suppression justified invoking the proviso to Section 11A(1).

2. Determination of Value under Rule 6(b)(ii) versus Rule 6(b)(i):
The Commissioner determined that the value of the captively consumed goods should be under Rule 6(b)(ii) because the goods sold at the factory gate differed from those cleared for captive consumption. The appellant's attempt to adopt the factory gate price for captive consumption was misleading, as the goods were not comparable. The Tribunal upheld this determination, noting that the appellant themselves had switched to Rule 6(b)(ii) from April 2000, suggesting agreement with the Commissioner's approach.

3. Inclusion of Notional Profit in the Cost of Production:
The Commissioner included a 10% notional profit in the cost of production, based on the company's balance sheets, which indicated profitability in the Tyre Cord division. The Tribunal upheld this inclusion, referencing the Larger Bench decision in the case of Raymonds Ltd. and the Supreme Court's ruling in Mallur Siddeswara Spinning Mills Ltd., which supported adding profit to the cost under Rule 6(b)(ii).

4. Imposition of Penalty under Rule 209A:
The Commissioner imposed penalties under Rule 209A on the Executive Vice-Chairman and the Manager Marketing. The Tribunal set aside the penalty on the Executive Vice-Chairman, finding no evidence of his involvement in the day-to-day affairs or in understating the value of the goods. However, the penalty on the Manager Marketing was upheld, as he was aware of the differences between the goods sold at the factory gate and those supplied for captive consumption.

Additional Observations:
- The Tribunal addressed the issue of revenue neutrality, noting that suppression of facts with intent to evade duty was evident, and the plea of revenue neutrality was not tenable in this case.
- The invocation of the extended period of limitation under Section 11A(1) was upheld, as the department established suppression of facts.
- Penalties and interest under Sections 11AC and 11AB were reduced, considering the period before these sections came into force.

Final Order:
(a) The determination of value under Rule 6(b)(ii) was upheld.
(b) The addition of 10% profit to the cost of production was upheld.
(c) The invocation of the extended period of limitation was upheld.
(d) The penalty under Section 11AC was reduced to Rs. 1 crore.
(e) Interest under Section 11AB was to be calculated as per the Tribunal's observations.
(f) The penalty on the Executive Vice-Chairman was set aside.
(g) The penalty on the Manager Marketing was upheld.

The appeals were partly allowed and decided on these terms.

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