2008 (12) TMI 457 - AT - Central Excise

Summary

Issues:
1. Undervaluation of goods for captive consumption.
2. Confirmation of demand by the revenue authority.
3. Applicability of penalty under Section 11AC of the Central Excise Act, 1944.
4. Interpretation of CBEC Circular regarding valuation of goods.
5. Imposition of penalty under Rule 173Q(1) of the Central Excise Rules, 1994.
6. Consideration of mala fide intent to evade duty.
7. Applicability of longer period for invoking penalty.

The judgment pertains to a case where a demand of Rs. 7,25,299/- was confirmed against the appellant for undervaluation of goods manufactured and cleared to their sister unit for captive consumption. The demand was raised through a show cause notice dated 3-8-2005 for the periods 2001-02 to 2002-03. However, it was noted that the entire demand was time-barred. The appellants argued that since the goods were transferred to their sister unit benefiting from Modvat credit, the revenue impact was neutral. The Commissioner (Appeals) acknowledged that there was no mala fide intent to evade duty due to the availability of Cenvat Credit to the sister unit, leading to the setting aside of the penalty under Section 11AC of the Central Excise Act, 1944. The Commissioner also highlighted the scope for different interpretations in the CBEC Circular applicable at the time for valuing goods meant for captive consumption, indicating that any lapses were not intentional. Consequently, the penalty under Rule 173Q(1) of the Central Excise Rules, 1994, was upheld. The appellate authority concurred with the finding of no mala fide intent and set aside the penalty under Section 11AC, emphasizing that the same criteria for imposing penalties should apply to the invocation of a longer period. Therefore, the proviso to Section 11A could not be invoked, leading to the appeal being allowed in favor of the appellants with consequential relief.

In summary, the judgment primarily addresses the issues of undervaluation of goods for captive consumption, the time-barred nature of the demand raised by the revenue authority, the applicability of penalties under Section 11AC and Rule 173Q(1) of the Central Excise Act, 1944, the interpretation of the CBEC Circular regarding valuation of goods, consideration of mala fide intent to evade duty, and the relevance of a longer period for invoking penalties. The decision underscores the importance of assessing the intent behind undervaluation and the availability of credits to sister units in determining the imposition of penalties and the applicability of the longer period for invoking penalties.