2014 (12) TMI 317 - AT - Central Excise

Undervaluation of goods - Clearance of goods at lower price to sister concern - Bar of limitation - Held that - Appellants are clearing soap noodles to M/s. Aquagel Chemicals P. Ltd., at lower price than on which they were clearing the goods to sister unit. We also observed that M/s. Aquagel Chemicals P. Ltd., is independently purchasing these soap noodles from independent suppliers on similar price. We also find that duty is payable on finished goods on MRP basis as per Section 4A of the Central Excise Act. Therefore, even if it is presumed that the appellant had supplied the soap noodles to M/s. Aquagel Chemicals P. Ltd., at lower price but the appellant is receiving the finished goods on payment of duty under Section 4A of the Act. When duty is paid on finished goods on MRP basis, the question of under-valuation on the intermediate product supplied by the appellant does not arise. As on the finished goods duty has been paid as per Section 4A of the Central Excise Act, 1944 therefore, on merits the appellant is having a good case. We further find that the appellant has disclosed their selling pattern to the department through a letter dated 9-1-2004 and the Superintendent of the Central Excise has examined the same and thereafter he referred the matter to the Dy. Commissioner for his consideration on 30-1-2004 observing that selling price is the only consideration. The show cause notice issued by invoking extended period of limitation, is barred by limitation - Decided in favour of assessee.

Summary

Issues:
- Duty demand confirmation on account of undervaluation
- Validity of the show cause notice issued
- Pricing pattern and under-valuation allegations
- Applicability of Section 4A of the Central Excise Act
- Extended period of limitation invocation
- Comparison of pricing with independent suppliers
- Revenue neutrality argument
- Disclosure of selling pattern to the department

Analysis:
The appeal involved a duty demand confirmation of Rs. 1,70,40,080/- on the grounds of undervaluation. The appellant, a soap manufacturer, had cleared Unfinished Soap Noodles to different entities at varying prices. A query was raised in 2003 regarding under-valuation, leading to a show cause notice in 2008. The appellant argued against the notice's validity due to the extended period of limitation, asserting that the pricing pattern remained consistent and was known to the department. The appellant contended that the goods were sold to M/s. Aquagel Chemicals P. Ltd., at a price similar to other independent suppliers, and as M/s. Aquagel Chemicals P. Ltd., paid duty under Section 4A of the Central Excise Act, the question of under-valuation was baseless.

The Revenue opposed, alleging suppression of facts by the appellant and invoking the extended period of limitation. The Revenue highlighted Rule 6 of the Valuation Rules, suggesting a cash flow influence on the goods' clearance to M/s. Aquagel Chemicals P. Ltd. The Tribunal considered both arguments, noting that the appellant's selling pattern was disclosed to the department in 2004. It was observed that duty was paid on finished goods under Section 4A, making the under-valuation claim irrelevant. The Tribunal found the extended period of limitation invocation unjustified, as subsequent proceedings were not initiated against the appellant despite the consistent selling pattern. Ultimately, the impugned order was set aside, and the appeal was allowed based on the appellant's favor in the case.

In conclusion, the Tribunal's decision favored the appellant, emphasizing the consistent pricing pattern, disclosure to the department, and the application of Section 4A of the Central Excise Act in determining the duty liability, ultimately leading to the setting aside of the duty demand confirmation.