2007 (3) TMI 158 - AT - Central Excise

Demand and penalty - Alleged that appellant were made undervaluation of goods manufactured by them on job work basis and accordingly demand were made along with penalty - Held that allegation was not correct and set aside demand and penalty

Issues Involved:

1. Undervaluation of goods.
2. Inclusion of the cost of materials supplied free by the principal manufacturer.
3. Inclusion of sale proceeds of scrap in the assessable value.
4. Application of Cenvat Credit Rules.
5. Liability of job worker to pay duty.
6. Penalty imposition under Section 11AC of the Central Excise Act.
7. Abetment of undervaluation by the principal manufacturer.

Issue-Wise Detailed Analysis:

1. Undervaluation of Goods:
The Commissioner of Central Excise confirmed a duty demand against the assessee for undervaluing goods (parts of Electric Motor/Special Purpose Motors) manufactured on a job work basis. The undervaluation was due to the non-inclusion of the cost of materials supplied free by the principal manufacturer and the sale proceeds of scrap generated during manufacture.

2. Inclusion of the Cost of Materials Supplied Free by the Principal Manufacturer:
The assessee received raw materials under duty-paid documents and took Cenvat credit. The Commissioner held that the cost of these materials should have been included in the assessable value of the goods cleared to the principal manufacturer. The assessee argued that they followed the principles laid down by the Apex Court in Ujagar Prints v. UOI, which includes the cost of raw materials plus job charges inclusive of profit for duty payment purposes.

3. Inclusion of Sale Proceeds of Scrap in the Assessable Value:
The sale proceeds of scrap generated and retained by the assessee were considered an additional consideration and should have been included in the assessable value. Statements from company officials confirmed that non-consideration of proper landed cost and retention of scrap sale proceeds led to undervaluation.

4. Application of Cenvat Credit Rules:
The inputs for stator laminations and stator stacks were duty-paid and supplied directly to the assessee by the principal manufacturer. The assessee took Cenvat credit on these inputs and passed the benefit to the principal manufacturer. Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rules were discussed, indicating that a job worker manufacturing intermediate products is not liable to pay duty thereon.

5. Liability of Job Worker to Pay Duty:
The Tribunal referred to the Supreme Court's decision in International Auto Ltd., which held that intermediate products manufactured by a job worker are not liable to duty if the inputs are received under Rule 57F(2)(b) (similar to Rule 4(5)(a)). The Tribunal found that the same principle applied to the present case, where the job worker (assessee) was not liable to pay duty on the intermediate products.

6. Penalty Imposition under Section 11AC of the Central Excise Act:
The Commissioner imposed a penalty equal to the duty and cess amounts under Section 11AC of the Central Excise Act and additional penalties on the manager and the principal manufacturer. The Tribunal set aside these penalties, following the Supreme Court's judgment in International Auto Ltd., which distinguished the facts from the present case.

7. Abetment of Undervaluation by the Principal Manufacturer:
The Commissioner upheld the charge of abetment of undervaluation by the principal manufacturer, Tecumseh Products India Pvt. Ltd. The Tribunal, however, found that the principles laid down in the International Auto Ltd. case applied, and the distinction made by the adjudicating authority did not hold.

Conclusion:
The Tribunal concluded that the ratio of the International Auto Ltd. judgment was applicable to the present case. It set aside the impugned order and allowed the appeals, thereby nullifying the duty demand, interest, and penalties imposed by the Commissioner of Central Excise.

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