2007 (5) TMI 10 - AT - Central Excise

Valuation(Central Excise) Department contended that the depreciation element was required to be included in the assessable value of hot metal/Pig iron and accordingly demand for differential duty alongwith interest and penalty Commissioner rejected the department contention and set aside demand

Summary

Issues:
1. Whether the demand for payment of duty, interest, and penalty is sustainable.
2. Whether the demand is barred by limitation.
3. Whether the non-inclusion of depreciation in the cost of production was intentional to evade payment of duty.

Issue 1: Demand for Payment of Duty, Interest, and Penalty
The case involved M/s. Ispat Metallics (India) Ltd. (IMIL) engaged in manufacturing Pig Iron and M/s. Ispat Industries Ltd. (IIL) manufacturing H.R. Coils. IMIL supplied hot metal/pig iron to IIL at an assessable value calculated at 115% of the cost of production. The dispute arose when certain elements like bank charges, LC commission, exchange rate fluctuations, and depreciation were not included in the cost of production. The department issued a show cause notice for recovery of differential duty, interest, and penalty. The Commissioner confirmed the demand, leading to the appeal.

Issue 2: Limitation of the Demand
The appellants argued that the demand of Rs. 35,14,16,652/- was time-barred as there was no intent to suppress facts to evade duty payment. The Commissioner's findings highlighted instances where IMIL allegedly misled the department by misdeclaring the assessment of duty and not filing price declarations. However, the appellants contended that they had disclosed the non-inclusion of depreciation in the cost of production to the jurisdictional Range Supdt. through Chartered Accountant certificates. The Tribunal observed that the demand was barred by limitation as there was no intent to evade duty, and the appeal partially allowed setting aside the demand.

Issue 3: Non-Inclusion of Depreciation in Cost of Production
The department contended that depreciation on plant and machinery should have been included in the cost of production. The Commissioner held that the intentional exclusion of depreciation indicated an attempt to evade duty payment, invoking the extended period under Section 11A of the Central Excise Act, 1944. However, IMIL had disclosed the non-inclusion of depreciation in their submissions to the Range Supdt. through Chartered Accountant certificates. The Tribunal found that the non-inclusion of depreciation was not intentional, as evidenced by the revenue-neutral nature of the exercise and the disclosure made by IMIL, ultimately upholding the demand of Rs. 72,29,467/- while setting aside the larger demand.

In conclusion, the Tribunal ruled in favor of the appellants, setting aside the demand for duty, interest, and penalty as it was barred by limitation. The non-inclusion of depreciation in the cost of production was found to be unintentional, and the appeal was partly allowed, upholding a smaller demand amount while rejecting the larger demand.