2015 (12) TMI 658 - AT - Central Excise

Valuation - Clearances of yarn for captive consumption within the factory - Bar of limitation - Penalty u/s 11AC - Held that - Even if it is held that the yarn sold to independent buyers was that which had been manufactured by the appellant in their factory and accordingly in terms of the Larger Bench judgment of the Tribunal in the case of Ispat Industries Limited Vs. CCE (2007 (2) TMI 5 - CESTAT, MUMBAI), it is held that the yarn cleared for captive use must be valued at the price at which the same was being sold to independent buyers, the duty demand would not survive as in the circumstances of the case, the longer limitation period of 5 years under proviso to section 11A(1) is not invokable, as during the period of dispute not only there was conflicting judgments of the Tribunal on the issues, till this issue was resolved by the Larger Bench of the Tribunal in the case of Ispat Industries Limited (supra), even the Board s Circular dated 30/06/2000 clarified that in the cases where the goods manufactured by an assessee are cleared for captive use as well as are sold to independent buyers, in respect of the goods cleared for the captive use, the value would be determined under Rule 8 of the Central Excise Valuation Rules, 2000 Extended period of limitation - entire duty demand for the period from September, 2000 to March, 2003 raised vide show cause notice dated 4/10/2005 is time barred. The impugned order confirming the duty demand of ₹ 47,61,675/- along with interest and imposed equivalent penalty under section 11AC is therefore, not sustainable and is set aside and to this extent the appeal is allowed. - Decided in favour of assessee.

Summary

Issues:
1. Valuation of yarn cleared for captive consumption within the factory.
2. Correctness of duty demand and penalty imposition.
3. Interest on wrongly taken CENVAT Credit.

Analysis:

1. Valuation of yarn for captive consumption:
The appellant had two sections in their factory, one for manufacturing spun yarn and the other for hosiery products. The dispute arose regarding the valuation of yarn cleared for captive consumption within the factory. The department contended that since the appellant also sold yarn to independent buyers from the hosiery section, the valuation for captive consumption should be based on the sale price to independent buyers. The appellant argued that there was common storage of yarn within the factory and from outside sources, making it unclear whether the sold yarn was manufactured within the factory. The Tribunal held that conflicting judgments and a Board's Circular created doubt on the valuation method. Referring to the case law and Circular, the Tribunal concluded that the duty demand was time-barred due to the uncertainty in valuation rules, setting aside the duty demand and penalty.

2. Correctness of duty demand and penalty imposition:
The show cause notice demanded a duty of Rs. 47,61,675 for the period from September 2000 to March 2003, along with interest and penalty. The Commissioner confirmed the duty demand, interest, and penalty. The appellant contested the duty demand, arguing that they followed the valuation rules in good faith based on the Board's Circular and conflicting Tribunal judgments. The Tribunal found that the longer limitation period for duty demand was not applicable due to the uncertainty caused by conflicting judgments and circulars. Consequently, the duty demand, interest, and penalty were set aside as time-barred.

3. Interest on wrongly taken CENVAT Credit:
The appellant conceded to the interest demand on wrongly availed CENVAT Credit of Rs. 2,89,788. The Tribunal upheld the Commissioner's order on this point, acknowledging the appellant's acceptance of the interest demand related to the capital goods CENVAT Credit.

In conclusion, the Tribunal upheld the interest demand on wrongly availed CENVAT Credit but set aside the duty demand, interest, and penalty related to the valuation of yarn for captive consumption within the factory. The appeal was allowed based on the uncertainty in valuation rules and conflicting judgments, leading to the duty demand being deemed time-barred.