2011 (2) TMI 643 - AT - Central Excise

Transaction value - The packaging materials and flavours are cleared for Captive consumption - while in respect of clearances duty was being paid on 115% of the cost of production - Since the assessable value determined under Central Excise Value Rules, 1975 or Central Excise Valuation Rules, 2000, has to be as close as possible to the normal price/transaction value at the time and place of removal, for determination of assessable value of the goods cleared for captive consumption, the cost of production has to be the current year s cost of production and not previous year s cost of production - Therefore, in this case, the practice adopted by the appellant for determining the assessable value of the goods cleared for captive consumption on the basis of the cost of production for the previous financial year was not correct. Related persons -  It has been pleaded by the appellant that their sales to the Holding Company, M/s. Parle Products Ltd. have to be treated as sales unrelated persons and since the same price has been adopted in respect of other clearances for captive consumption within the unit or to sister concern/contract manufacturing units, there is no short payment of duty - As in terms of provisions of Section 4(3)(b) of Central Excise Act, 1944, as it stood during the period w.e.f. 1-7-2000 read with Rule 10 and 9 of the Central Excise Valuation Rules, 2000, if the buyer is a holding company or subsidiary company of the assessee, the assessee and the buyer would be deemed to be related persons and if the related buyer uses the goods for manufacture of these articles, the assessable value would have to be determined under Rule 8 of the Valuation Rules. Demand, interest and penalty - Under section 11AC - limitation - On account of determining assessable value on the basis of preceding years, cost of production, in some cases, there have been higher duty payment, it cannot be alleged this was done with the intention to evade the duty - Moreover, in respect of clearances within the unit for captive consumption or to sister concerns, the Cenvat credit of duty was immediately available and hence, there could not be any intention to evade the duty. The Larger Bench of the Tribunal in the case of Jay Yuhshin Ltd. (2000 -TMI - 48829 - CEGAT, COURT NO. I, NEW DELHI) has held that in such a situation, the longer limitation period cannot be invoked.

Summary

Issues Involved:
1. Determination of assessable value for captive consumption.
2. Relationship between appellant and holding company.
3. Invocation of extended limitation period.
4. Imposition of penalties under Section 11AC and Rule 26.

Issue-wise Analysis:

1. Determination of Assessable Value for Captive Consumption:

The appellants manufactured biscuits and packaging materials, clearing the latter for captive use and to sister concerns on 115% of the cost of production based on the previous financial year. The Department argued that the assessable value should be based on the current financial year's cost. The Tribunal noted that the correct assessable value for captive consumption should be the current financial year's cost of production to closely approximate the normal price/transaction value at the time and place of removal. The appellant could have opted for provisional assessment and adjusted the duty upon finalizing the current year's cost.

2. Relationship Between Appellant and Holding Company:

The appellant contended that sales to the holding company, M/s. Parle Products Ltd., should be treated as sales to unrelated persons. The Tribunal disagreed, stating that under Section 4(3)(b) of the Central Excise Act, 1944, and Rules 9 and 10 of the Central Excise Valuation Rules, 2000, the holding company and the appellant are deemed related. Consequently, the assessable value should be determined under Rule 8, which was not done by the appellant.

3. Invocation of Extended Limitation Period:

The Department invoked an extended limitation period, alleging suppression of facts. The Tribunal referred to the Supreme Court's rulings in Pushpam Pharmaceuticals and Continental Foundation cases, emphasizing that "suppression of facts" requires deliberate intent to evade duty. The Tribunal found that the Department was aware of the appellant's valuation method since November 2001, and there was no deliberate intent to evade duty, as evidenced by higher duty payments in some cases. Additionally, the availability of Cenvat credit negated any intent to evade duty. Thus, the extended limitation period was deemed inapplicable.

4. Imposition of Penalties Under Section 11AC and Rule 26:

Given the Tribunal's findings on the extended limitation period, the criteria for imposing penalties under Section 11AC were not met. The Tribunal set aside the penalties imposed on the appellant company and Shri Rajender Monga, the authorized signatory, under Rule 26. The Tribunal remanded the matter to the jurisdictional Commissioner for re-quantification of the duty demand within the normal limitation period.

Conclusion:

While the duty demand was upheld on merits, the extended limitation period was not applicable, and penalties under Section 11AC and Rule 26 were set aside. The case was remanded for re-quantification of the duty demand within the normal limitation period.