2009 (2) TMI 623 - Commissioner - Central Excise

Summary

Issues Involved:
1. Alleged undervaluation of brass scrap.
2. Principles of natural justice and denial of cross-examination.
3. Revenue neutrality.
4. Time-barred demand.

Issue-wise Detailed Analysis:

1. Alleged Undervaluation of Brass Scrap:
The primary issue in the appeal concerns the alleged undervaluation of brass scrap generated during the manufacture of valves and adaptors. The appellant cleared this scrap to a job worker at Rs. 62/- per kg, a price that remained unchanged from February 2002 to June 2006. The department argued that this price was below market rates, resulting in a short payment of central excise duty amounting to Rs. 25,24,046/-. The department's basis for this conclusion included statements from the appellant's representatives and letters from MMR Weekly, which indicated that the market price for such scrap was higher. The department invoked Rule 11 of the Valuation Rules read with Section 4(1)(b) of the Central Excise Act, 1944, to determine the correct value.

2. Principles of Natural Justice and Denial of Cross-examination:
The appellant contended that the Additional Commissioner violated the principles of natural justice by not allowing the cross-examination of key witnesses, specifically Shri V.V. Deshpande, Factory Manager of the job worker, and Shri S.A. Govekar of MMR. The appellant argued that these witnesses' testimonies were crucial to the department's case and that denying cross-examination prevented a fair defense. The judgment acknowledged this violation, emphasizing that cross-examination is vital for upholding natural justice, especially when the evidence from these witnesses forms the basis of the undervaluation allegations.

3. Revenue Neutrality:
The appellant argued that the issue was revenue-neutral, meaning any additional duty paid on the clearance of scrap would be available as Cenvat credit to the job worker, and vice versa. The judgment agreed with this contention, citing several precedents that support the principle that when an issue is revenue-neutral, allegations of suppression or undervaluation cannot be sustained. This aspect further weakened the department's case against the appellant.

4. Time-barred Demand:
The appellant also claimed that the demand was time-barred. The departmental auditors had scrutinized the appellant's records in 2005, and the discrepancies were communicated in February 2006. However, the Show Cause Notice (SCN) was issued in July 2007, more than a year after the audit. The judgment found this claim valid, noting that the demand should have been raised within one year from the date of the audit. The delay rendered the demand unsustainable under the law, as supported by several judicial precedents.

Conclusion:
The judgment concluded that the impugned order was not sustainable due to the violation of principles of natural justice, the revenue-neutral nature of the issue, and the time-barred aspect of the demand. Consequently, the appeal was allowed, and the impugned order was set aside.