2008 (1) TMI 773 - AT - Central Excise

Demand - Limitation - processing of fabrics - job-works - short payment of duty - Held that - there is no evidence available on record showing involvement or knowledge on the part of the present processors as regards lower value adopted by the merchant-manufacturers - There is nothing on record to show that they were aware of the undervaluation of the goods by the merchant manufacturers - demand barred by limitation.

Summary

Issues:
1. Assessment of Central Excise duty on processed fabrics.
2. Alleged undervaluation of grey fabrics leading to short payment of duty.
3. Imposition of penalty on processors for failure to ascertain correct value.
4. Applicability of limitation period for raising demand and penalty.

Analysis:

1. Assessment of Central Excise Duty:
The appeals before the Appellate Tribunal involved M/s. Shreeji Prints Pvt. Ltd. and M/s. Rachna Art Prints Pvt. Ltd., who processed grey fabrics on a job work basis. They paid Central Excise duty based on the value of the processed fabrics as per the invoices received from M/s. RSM, the merchant-manufacturers.

2. Undervaluation of Grey Fabrics:
An investigation revealed that the value of grey fabrics in the invoices from M/s. RSM was lower, resulting in a shortfall in duty payment by the processors. Proceedings were initiated to confirm the differential duty amount and impose penalties on the processors for the alleged undervaluation.

3. Imposition of Penalty:
The original adjudicating authority held the processors responsible for failing to ascertain the correct value of the grey fabrics, even though they relied on the values provided in the invoices. The processors argued that they had no means to verify the values independently and contended that the demand raised in 2001 for the period 1996-99 was time-barred due to lack of suppression or misstatement on their part.

4. Applicability of Limitation Period:
The Tribunal considered precedents, including the case of Vishnu Dyeing & Printing Works v. CCE, Mumbai, and the decision of Bhilwara Processors. It was noted that for the period in question (April '97 to March '98), the Tribunal had consistently ruled that job workers could not be held liable for duty based on incorrect valuation by merchant-manufacturers. As the processors had declared prices and paid duty based on merchant-manufacturer invoices without knowledge of undervaluation, the demand was held to be time-barred.

In conclusion, the Appellate Tribunal set aside the impugned order confirming duty and imposing penalties, allowing all appeals with consequential relief, emphasizing the importance of correct valuation and the limitation period for raising demands and penalties in Central Excise matters.