2006 (2) TMI 361 - AT - Central Excise

Summary

Issues: Valuation of goods under Central Excise Act, Extended period of limitation for duty recovery, Suppression of facts with intent to evade payment of duty, Applicability of Modvat credit, Imposition of penalty under Section 11AC and Rule 173Q.

Valuation of Goods under Central Excise Act:
The case involved M/s. U.T. Ltd., with manufacturing units in Hosur and Calcutta. The Hosur unit transferred Rotary Control Valves to the Calcutta unit using the cost construction method for valuation due to the absence of a wholesale price. However, investigations revealed that the Calcutta unit sold the valves at higher prices, indicating undervaluation by the Hosur unit. The Commissioner demanded Central Excise duty from the assessee, leading to the appeal.

Extended Period of Limitation for Duty Recovery:
The appellant argued that the extended period of limitation was not applicable as they were unaware of the sales by the Calcutta unit and duty paid was available as Modvat credit. However, the Tribunal upheld the Commissioner's finding of suppression of facts with intent to evade duty, citing the appellant's declarations and sales details submitted. The plea of limitation based on revenue neutrality and Modvat credit availability was rejected.

Suppression of Facts with Intent to Evade Payment of Duty:
The Tribunal confirmed the suppression of facts by the appellant, leading to the invocation of Section 11AC against them. The availability of Modvat credit to the Calcutta unit was not considered conclusive for the proviso to Section 11A(1) applicability, as per the Supreme Court's ruling in Mahindra & Mahindra. The plea of limitation based on revenue neutrality was dismissed.

Applicability of Modvat Credit:
The availability of Modvat credit to the Calcutta unit for duty paid by the appellant was a key argument. However, the Tribunal held that this alone did not absolve the appellant of the intent to evade duty. The Modvat credit availability was not sufficient to prove the absence of intent to evade payment of duty.

Imposition of Penalty under Section 11AC and Rule 173Q:
The Tribunal confirmed the demand of duty against the appellant and upheld the invocation of Section 11AC due to the suppression of facts with intent to evade payment of duty. The penalty imposed under Section 11AC was reduced from Rs. 4,97,078 to Rs. 1,00,000 considering the circumstances. Additionally, the penalty under Rule 173Q was vacated, ensuring that no additional penalty was imposed on the appellant.

In conclusion, the appeal was disposed of with the confirmation of duty demand, reduced penalty under Section 11AC, and the vacating of the penalty under Rule 173Q. The judgment highlighted the importance of accurate valuation, disclosure of facts, and intent in determining duty liability and penalties under the Central Excise Act.