2007 (9) TMI 108 - AT - Central Excise

Undervaluation of scrap, which are supplied to sister concern Appellant s plea that if he pays any duty on impugned scrap, the same would be available as credit to their sister concern Revenue will the neutral Comm. cannot invoke that rule, which has not been invoked in SCN Appeal allowed

Summary

Issues:
- Undervaluation of scrap cleared to sister unit
- Invocation of extended period of limitation
- Determination of assessable value
- Application of Rule 7 of Central Excise (Valuation) Rules, 1975
- Revenue-neutrality principle

Undervaluation of Scrap Cleared to Sister Unit:
The appellants, engaged in manufacturing 'pistons,' cleared aluminium waste and scrap to their sister unit and independent buyers. The department alleged undervaluation of scrap cleared to the sister unit, resulting in a demand for differential duty of Rs. 6,45,025 for the period April 1997-September 2000. The original authority confirmed the duty demand based on the value of scrap cleared to independent buyers, leading to penalties under Section 11AC of the Central Excise Rules. The Commissioner (Appeals) modified the duty and penalty to Rs. 6,32,336 each. The appeal challenged the appellate Commissioner's decision.

Invocation of Extended Period of Limitation:
The show cause notice (SCN) issued on 30-4-2001 invoked the extended period of limitation due to alleged suppression of facts by the assessee. The original authority and the Commissioner (Appeals) based their decisions on this ground, leading to the demand for differential duty and penalties.

Determination of Assessable Value:
The appeal primarily contested the lower appellate authority's deviation from the scope of the SCN in determining the assessable value of the scrap cleared to the sister unit. The appellants argued that the method adopted was not proposed in the notice. The appellate authority used the value of identical scrap cleared to independent buyers and, in the absence of such data, increased the value by 7.5% to calculate the duty demand.

Application of Rule 7 of Central Excise (Valuation) Rules, 1975:
The appellant relied on the Supreme Court's judgment in Commissioner v. Ballarpur Industries Ltd., emphasizing that Rule 7 of the Central Excise (Valuation) Rules, 1975, not invoked in the SCN, should not be applied by the adjudicating authority. The Tribunal agreed that the Commissioner (Appeals) exceeded the scope of the SCN by adopting a valuation method not proposed in the notice.

Revenue-Neutrality Principle:
The appellant argued that any duty paid would be available as MODVAT credit to their sister unit, resulting in a revenue-neutral situation. Citing the Supreme Court's decision in CCE v. Jamshedpur Beverages, the appellant contended that recovering duty would yield no gain for the Revenue. The Tribunal acknowledged the revenue-neutrality principle and allowed the appeal, setting aside the impugned order on 28-9-07.