2007 (4) TMI 106 - AT - Central Excise

Valuation(Central excise) - Alleged that appellant had undervalued the goods and evading payment of duty and accordingly demand were made along with interest and penalty - Held that allegation was not correct and demand, interest and penalty not sustained

Issues Involved:
1. Valuation of intermediate products (6-APA and 7-ADCA) cleared to sister units.
2. Allegations of undervaluation and evasion of excise duty.
3. Applicability of extended period for demand under proviso to Section 11A(1).
4. Correct computation of assessable value based on CBEC guidelines.
5. Imposition of penalty and demand for interest under Sections 11AC and 11AB of the Central Excise Act, 1944.

Detailed Analysis:

1. Valuation of Intermediate Products:
The primary issue revolves around the valuation of bulk drugs (6-APA and 7-ADCA) cleared by APL to its sister units. The assessee used a cost-based valuation method including a notional profit and overheads at 10%. The Commissioner, however, found this valuation incorrect and based on ad-hoc costs, leading to the demand for differential duty.

2. Allegations of Undervaluation and Evasion of Excise Duty:
The Commissioner alleged that APL undervalued the goods to evade excise duty, particularly during the periods from 21-5-97 to 8-6-97, and from 10/97 to 3/98 for 6-APA, and on 5-9-97 for 7-ADCA. The assessee contested these allegations, arguing that the clearances were made based on proper invoices and price declarations filed under Rule 173C, and that there was no intent to evade duty.

3. Applicability of Extended Period for Demand:
The Commissioner invoked the extended period under the proviso to Section 11A(1), citing deliberate efforts to evade duty. The assessee argued that the extended period was not applicable since all price declarations and invoices were filed with the department, and there was no willful suppression or misdeclaration. The Tribunal agreed, noting that the transactions were revenue-neutral since the duty paid would be availed as Modvat credit by the sister units.

4. Correct Computation of Assessable Value:
The assessee contended that the Commissioner incorrectly computed the assessable value by adopting the profit margin of 1997-98 instead of the previous year (1996-97), contrary to CBEC Circular No. 258/92/96-CX. The Tribunal found merit in this argument, noting that the Board's Circular prescribed the use of the previous year's profit margin percentage for determining the assessable value based on the current year's cost. The Commissioner's method was therefore flawed and led to an incorrect demand.

5. Imposition of Penalty and Demand for Interest:
Given that the demand for differential duty was found unsustainable, the Tribunal also held that no penalty under Section 11AC or interest under Section 11AB was imposable. The Tribunal emphasized that in a revenue-neutral situation, there could be no intention to evade duty, and thus, the extended period for demand and associated penalties were not justified.

Conclusion:
The Tribunal set aside the impugned order, finding that the demand for differential duty was not sustainable both on merits and due to the limitation period. The assessee's appeal was allowed, and the operative portion of the judgment was pronounced in open court on 17-4-2007.

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