2015 (12) TMI 591 - AT - Central Excise

100% EOU - Benefit of Notification 23/2003 (condition No.3) - consumption of indigenous raw materials for manufacture of final products - DTA Clearances - Valuation - Section 11A - penalty under section 11AC - Held that - Board has categorically clarified that jurisdictional officer need to satisfy themselves that the goods in DTA have been manufactured wholly out of indigenous raw material. The said circular also empowers the adjudicating authority to engage Cost Accountant if necessary and get the input and output norms fixed for both indigenous and imported goods. - The computer audit team (CAAP) have been functioning in all the Commissionerates with specially trained officers for carrying out computer based audit. Under these circumstances, we find that the adjudicating authority has various mechanism to satisfy whether indigenous raw materials are used or not, either by appointing special auditor under Section 14A or depute his internal audit team specialised in CAPP audit or to engage cost auditor to audit the unit which is functioning under any ERP system. - Matter remanded back on this issue. Valuation of DTA clearance - majority of goods were cleared to sister unit on stock transfer basis - Held that - this issue has been settled by various Tribunal decisions wherein the Tribunal held that FOB value of export cannot be adopted for payment of duty for DTA sales. - The appellant being a EOU and by relying Tribunal s decision, we are of the considered view that when the department is not able to bring out clear cut evidence to show that computed value arrived at by the appellant is either manipulated or otherwise, merely taking FOB price for DTA sales is not justified. Therefore, the value adopted by the adjudicating authority by taking the FOB price and the consequential demand of differential duty is not sustainable. Accordingly, the demand of customs duty in respect of four appeals on account of taking FOB price is liable to be set aside. As regards the demand of educational cess and higher secondary education cess thrice while calculating excise duty, we find that appellants have already calculated educational cess twice while computing the transaction value and the same cannot be calculated again. In this regard, the Tribunal s Larger Bench in the case of Kumar Arch Tech Pvt.Ltd. Vs CCE Jaipur (2013 (4) TMI 482 - CESTAT NEW DELHI), the Larger Bench of Tribunal clearly held that levy of CESS cannot be levied third time. - As regards the demand of educational cess and higher secondary education cess thrice while calculating excise duty, we find that appellants have already calculated educational cess twice while computing the transaction value and the same cannot be calculated again. In this regard, the Tribunal s Larger Bench in the case of Kumar Arch Tech Pvt.Ltd. Vs CCE Jaipur (supra), the Larger Bench of Tribunal clearly held that levy of CESS cannot be levied third time. - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Admissibility of Notification No. 23/2003 and condition (3) regarding the use of indigenous raw materials for DTA clearances.
2. Correctness of valuation adopted by Revenue for determining the transaction value of DTA clearances.
3. Inclusion of Special Additional Duty (SAD) in calculating the rate of duty for stock transfers.
4. Calculation of education cess and higher secondary education cess.
5. Liability for penalty under section 11AC and Rule 25 of Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Admissibility of Notification No. 23/2003 and Condition (3):
The main issue in appeal E/18/2008 was whether the appellant used indigenous raw materials for manufacturing goods cleared in DTA, thereby qualifying for the benefit under Notification No. 23/2003-CE. The appellant provided ERP-generated records and batch manufacturing records (BMR) to prove the use of indigenous raw materials. The adjudicating authority rejected these records, citing the lack of hard copies as per Board's Circular No. 85/2001. The Tribunal found that the ERP system records were sufficient and that the adjudicating authority should have verified them through departmental audits or special auditors. The Tribunal remanded the issue back to the adjudicating authority for verification of the records and compliance with the Board's circular.

2. Correctness of Valuation Adopted by Revenue:
The adjudicating authority enhanced the transaction value for DTA clearances by adopting the FOB value of exports. The appellant argued that the FOB value is not comparable to the computed value for domestic sales. The Tribunal agreed with the appellant, citing previous Tribunal decisions that the FOB value of exports cannot be used to determine the value for DTA clearances unless there is evidence of manipulation. The Tribunal set aside the demand for differential duty based on the adoption of FOB value.

3. Inclusion of Special Additional Duty (SAD) in Calculating the Rate of Duty:
The issue was whether SAD should be included in the rate of duty calculation for goods cleared on a stock transfer basis to the appellant's sister units. The Tribunal, relying on previous decisions, held that since the goods were not exempt from VAT by the State Government, SAD should not be included. The Tribunal set aside the demand related to SAD.

4. Calculation of Education Cess and Higher Secondary Education Cess:
The appellant contended that education cess should not be calculated thrice. The Tribunal, referring to the Larger Bench decision in Kumar Arch Tech Pvt. Ltd. Vs CCE Jaipur, held that education cess and higher education cess should only be calculated once. The Tribunal set aside the demand for calculating cess thrice.

5. Liability for Penalty:
Given the Tribunal's findings on the main issues, it concluded that the appellants were not liable for any penalties under section 11AC for appeal E/18/2008 and under Rule 25 for the other appeals. The penalties were set aside.

Conclusion:
The Tribunal remanded the issue of the admissibility of Notification No. 23/2003 to the adjudicating authority for verification of records. It set aside the demands related to the adoption of FOB value for DTA sales, inclusion of SAD, and calculation of education cess thrice. Consequently, the penalties imposed were also set aside. The adjudicating authority was directed to complete the proceedings within three months, following the principles of natural justice.