2007 (4) TMI 400 - AT - Central Excise

Summary

Issues Involved:
1. Alleged evasion of Central Excise duty by undervaluing products.
2. Mutuality of interest between KKCPPL and KCP & Co.
3. Revision of assessable value based on cost of production.
4. Limitation period for raising demand.
5. Revenue neutrality of the demand.
6. Imposition of penalty on Shri V. Sudharson.

Summary:

1. Alleged Evasion of Central Excise Duty:
The Commissioner of Central Excise, Pondicherry, raised a demand of Rs. 1,15,18,485/- u/s 11A of the Central Excise Act, 1944, along with interest u/s 11AB and imposed penalties on KKCPPL and its Dy. General Manager, Shri V. Sudharson, for allegedly evading duty by undervaluing paper products sold to KCP & Co.

2. Mutuality of Interest:
The Commissioner found that KKCPPL and KCP & Co. were related entities with mutuality of interest, citing factors such as the sale of entire goods to a related unit, advancement of interest-free loans, and effective control of one unit by the other. Shri K.C. Palanisamy, proprietor of KCP & Co., held significant control over KKCPPL.

3. Revision of Assessable Value:
The assessable value of paper products was revised based on cost of production as per Valuation Rule 6(b)(ii) and Rule 8 of the Central Excise (Valuation) Rules. The appellants had declared lower values, omitting certain cost elements, leading to a differential duty demand.

4. Limitation Period for Raising Demand:
The appellants argued that the demand was time-barred as they had submitted a cost certificate on 7-4-2000, and the demand notice was issued in 2004. They cited case laws (Asoka Spintex Ltd., Ganganagar Sugar Mills, Pragathi Concrete Products Pvt. Ltd.) where similar demands were held time-barred due to delayed verification by the department.

5. Revenue Neutrality of the Demand:
The appellants claimed that the demand was revenue-neutral, as KCP & Co. had paid higher duty amounts during the material period. Even if the differential duty was absorbed through Cenvat credit, KCP & Co. would still have paid a significant amount through PLA.

6. Imposition of Penalty on Shri V. Sudharson:
The Tribunal found that Shri V. Sudharson, being an employee, did not knowingly deal with goods liable for confiscation. Therefore, the penalty imposed on him under Rule 209A of the Central Excise Rules, 1944, was not sustainable and his appeal was allowed.

Conclusion:
The Tribunal concluded that the department's delay in verifying the cost certificate and the revenue-neutral nature of the demand rendered the impugned order unsustainable. The appeals were allowed, and the demand and penalties were set aside.