2011 (5) TMI 753 - AT - Central Excise

Packing charges - payment of duty without including the cost of packing in the assessable value of the goods - levy of interest on the duty under the provisions of Section 11AB and imposition of mandatory penalty under Section 11AC of the Central Excise Act, 1944 - assessees explained that as per the established procedure, the packing charges have to be agreed upon with the Vehicle Factory, based on data to be furnished, and only after such agreement, the invoice could be raised Held that - assessees do not stand to gain if duty is not paid as duty has been reimbursed by the Vehicle Factory on payment of the same by the assessees, and therefore the charge of evasion of differential duty on packing charges cannot be sustained. The assessees, therefore, cannot be held to be guilty of suppression with intention to evade payment of duty and hence the ingredients of Section 11AC which are necessarily to be established for penal action under Section 11AC of the Central Excise Act are not attracted against them, liability of the assessees to interest (which has been paid by them) upheld but penalty set aside, appeal partly allowed

Summary

Issues:
1. Levy of interest and imposition of penalty under Sections 11AB and 11AC of the Central Excise Act, 1944.
2. Interpretation of Section 11AC requirements for penalty imposition.
3. Determination of duty liability on motor vehicle parts.
4. Consideration of packing charges in assessable value.

Detailed Analysis:
1. The case involved the assessees, manufacturers of motor vehicles and parts, who cleared consignments without including packing costs in the assessable value, leading to a duty liability of Rs. 51,22,306. A show-cause notice proposed interest and penalty under Sections 11AB and 11AC. The Tribunal initially set aside interest and penalty based on prior payment of duty, following precedents. The Supreme Court remanded the case for fresh consideration in light of another decision, prompting the appeal.

2. During the hearing, the assessees contested the penalty, arguing that the conditions for penalty imposition under Section 11AC were not met. The Tribunal noted the absence of packing charges in the purchase order for 1610 vehicles supplied to the Ministry of Defence. The packing charges were to be determined later based on an established procedure with the Vehicle Factory. Once approved, supplementary invoices were issued, and duty was paid and reimbursed by the Vehicle Factory, indicating no intention to evade duty.

3. The Tribunal found that the assessees did not stand to gain from non-payment of duty as it was reimbursed by the Vehicle Factory. The absence of packing charges in the initial invoice was due to the procedure of finalizing charges post-supply. The Tribunal concluded that the assessees could not be deemed guilty of suppression with intent to evade duty, a requirement for penal action under Section 11AC. Thus, the Tribunal upheld the interest liability, which had been paid, but set aside the penalty, partially allowing the appeal.

4. The judgment highlighted the importance of considering all relevant factors in determining duty liability, including the procedure for finalizing packing charges post-supply. The case underscored that the absence of packing charges in the initial invoice did not amount to evasion, especially when the duty was reimbursed upon payment. The decision emphasized the necessity of meeting the statutory requirements for penalty imposition under Section 11AC, which were not fulfilled in this scenario.