2011 (3) TMI 1086 - AT - Central Excise

Penalty - Valuation - Captive consumption - the appellant was arriving at the assessable value of Polyethylene film based upon the cost of production margin of profit - However, w.e.f. July 2000, the said goods were required to be assessed at a value @ 115% of the cost in terms of the provisions of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Held that - The appellants is not disputing the legal proposition that duty in respect of goods cleared to their sister unit was required to be paid at the assessable value arrived at @ 115% of the cost - He submits that, in fact, 92% clearances were effected by adopting the above value and it was only balance 8% clearances, the above rule was not followed inadvertently - The Tribunal s decision in the case of M/s Mafatlal Industries Vs. CCE Daman 2008 (10) TMI 517 - CESTAT, AHMEDABAD wherein it was held that when the duty is paid by one unit of the same manufacturer and it is available as credit to other unit of the same manufacturer, the entire situation is revenue neutral and penalty should not be imposed - Decided in favour of assessee.

Summary

Issues:
- Assessment of duty on Polyethylene Film
- Valuation under Central Excise rules
- Imposition of penalty under Central Excise Act

Assessment of duty on Polyethylene Film:
The case involved M/s The Paper Products Ltd. engaged in manufacturing Polyethylene Film. The appellant had been valuing the goods based on cost of production + margin of profit, but a change in valuation rules required assessment at 115% of the cost. An audit objection revealed that 8% of clearances were undervalued. The appellant promptly paid the differential duty, which was taken as credit by their sister units. A show cause notice was issued after two years, leading to confirmation of duty and penalties by the Original Adjudicating Authority. The Commissioner (Appeals) upheld penalties but reduced the amounts. The appellant contested the penalties, citing inadvertent mistakes and no revenue loss due to the duty being available as credit to their sister units.

Valuation under Central Excise rules:
The appellant argued that the duty paid was available as MODVAT Credit to their sister units, ensuring revenue neutrality. They relied on legal precedents, including a Tribunal decision and a Supreme Court confirmation, emphasizing that penalties should not be imposed in revenue-neutral situations. The appellant's position was supported by a High Court decision considering revenue neutrality. The Tribunal accepted the appellant's argument, noting that the duty was not contested, and the penalties were set aside due to the absence of malafide intent and inadvertent errors in valuation.

Imposition of penalty under Central Excise Act:
The Tribunal acknowledged that the duty paid by the appellant was credited to their sister units, indicating no malafide intent. As the duty was deposited and utilized as credit, the Tribunal concluded that the appellant's inadvertent valuation errors in 8% of clearances did not involve any revenue loss. Therefore, the penalties imposed on all appellants were set aside, confirming the demand but rejecting the penalties. The appeals were disposed of accordingly.