2011 (5) TMI 725 - AT - Central Excise

Demand of duty under Section 4 of the Central Excise Act - Since the base paints manufactured and cleared in the packaged form was opened at the dealers end for addition and mixing of the desired colourants prior to the delivery to the ultimate customer it was alleged that the provisions of the SWM (PC) Rules 1977 would not apply as the base pains underwent perceptible modification. For the same reason it was observed that Section 4A of the CEA, 1944 would also consequently not apply for determination of such manufactured base paints. Held that - demands as per show-cause notice are not sustainable as the appellants have rightly valued their base paints as per the provisions of Section 4A of the CEA 1944

Issues Involved:

1. Whether the valuation of base paints should be determined under Section 4 or Section 4A of the Central Excise Act, 1944.
2. Applicability of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 (SWM (PC) Rules, 1977).
3. Validity of the demand for differential duty, interest, and penalty.
4. Comparison of facts with a similar case decided by the Chennai Bench of the Tribunal.

Issue-Wise Detailed Analysis:

1. Valuation of Base Paints:

The primary issue in this case is whether the valuation of base paints manufactured and cleared by the appellant should be determined under Section 4 or Section 4A of the Central Excise Act, 1944. The appellant contended that they had correctly valued the base paints under Section 4A, which pertains to goods subject to assessment based on the Retail Sale Price (RSP). The department, however, argued that since the base paints underwent perceptible modification at the dealers' premises before being sold to the ultimate consumer, the valuation should be under Section 4, which is based on the transaction value.

2. Applicability of SWM (PC) Rules, 1977:

The department argued that the provisions of the SWM (PC) Rules, 1977 do not apply to the base paints because they are opened and modified at the dealers' premises before sale to the ultimate consumer. Rule 2(1) defines a pre-packed commodity as one whose quantity cannot be altered without the package being opened or undergoing perceptible modification. Since the base paints were modified by adding colorants at the dealers' premises, they did not qualify as pre-packed commodities under these rules.

3. Demand for Differential Duty, Interest, and Penalty:

The department issued a show-cause notice demanding differential duty along with interest and an equivalent amount of penalty, alleging that the appellant had incorrectly assessed the base paints under Section 4A instead of Section 4. The appellant argued that they had correctly self-assessed the duty under Section 4A and that the adjudication order confirming the demand was incorrect.

4. Comparison with Chennai Bench Decision:

The appellant referred to a similar case decided by the Chennai Bench of the Tribunal, where the valuation of base paints under Section 4A was upheld. The Chennai Bench had set aside the adjudication order confirming the demand for differential duty, and the decision was affirmed by the Hon'ble Apex Court. The appellant argued that the facts of the present case were identical to those in the Chennai Bench decision and that the adjudication order should be set aside on the same grounds.

Tribunal's Findings:

Upon careful examination, the Tribunal found that the facts of the present case were identical to those in the case decided by the Chennai Bench. Both show-cause notices were similar, with the only difference being the issuing Commissionerate. The Tribunal held that the appellant had correctly valued the base paints under Section 4A of the Central Excise Act, 1944, as per the decision of the Chennai Bench and the Hon'ble Apex Court.

The Tribunal disagreed with the department's contention that the facts were distinguishable and that the base paints were not pre-packed commodities under the SWM (PC) Rules, 1977. The Tribunal noted that the adjudicating authority's observations were beyond the purview of the show-cause notice and that the show-cause notice itself would be defective if those observations were considered.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal filed by the appellant with consequential relief. The Tribunal followed the decision of the Chennai Bench in the appellant's own case, holding that the appellant had correctly valued their base paints under Section 4A of the Central Excise Act, 1944. The demand for differential duty, interest, and penalty was found to be unsustainable.

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