2008 (8) TMI 11 - SC - Central Excise

Manufacture of railway wagons & conveyor systems supply of wagons to Railways assessee collecting inspection charges & raising bill for escalation price allegation of suppression of value of wagons & conveyor parts & hence non- payment of duty on the inspection & escalation charges held that revenue has not proved that fixation of price is influenced on the lower side by interest-free advance Assessable value cannot be enhanced mere on impugned grounds revenue appeal dismissed

Issues Involved:
1. Undervaluation of wagons and conveyor parts due to interest on advances.
2. Inclusion of inspection charges in the assessable value.
3. Non-payment of duty on escalation charges.
4. Invocation of the extended period of limitation.
5. Imposition and quantum of penalties.

Detailed Analysis:

1. Undervaluation of Wagons and Conveyor Parts Due to Interest on Advances:
The respondent company was accused of undervaluing the cost of wagons and conveyor parts by not including the interest accrued on advances received from Railways, thereby contravening Section 4 of the Central Excise Act. The Commissioner confirmed the demand of Rs.61,44,084/- towards interest on advances. However, the Tribunal, by a majority of 2:1, held that the advances received and the price were in full knowledge of the Department. The Assistant Collector had previously noted that the advances had no nexus with the contract and dropped similar proceedings. Thus, the Tribunal concluded that the demand was time-barred and there was no suppression of facts. The Supreme Court upheld this view, referencing the case of Commissioner of Central Excise, Mumbai III v. ISPL Industries Ltd., which stated that mere interest-free advances do not suffice to reload the assessable value unless it is proven that such advances influenced the lowering of the price.

2. Inclusion of Inspection Charges in the Assessable Value:
The respondent collected Rs.2,400/- per wagon as inspection charges, which were allegedly not included in the assessable value. The Commissioner confirmed the duty demand of Rs.7,560/- towards inspection charges. The Tribunal, including the third Member, unanimously held that inspection charges are includible in the assessable value, referencing the case of Hindustan Gas & Industries Ltd. v. Commissioner of Central Excise & Customs. The Supreme Court noted that the respondent did not appeal this point, thus the Tribunal's order attained finality.

3. Non-payment of Duty on Escalation Charges:
The respondent raised a bill for escalation price for 19 wagons amounting to Rs.18,81,036/-, for which the duty involved was Rs.2,82,155/-. The Commissioner confirmed this duty demand, and the Tribunal upheld this finding, noting that the duty on the escalated price was paid even before receiving the money from Railways. The Supreme Court found no dispute on this point as the respondent had admitted liability and paid the duty, which was appropriated against this liability.

4. Invocation of the Extended Period of Limitation:
The Tribunal, by a majority of 2:1, held that the extended period of limitation could not be invoked as the facts regarding advances received were already known to the Department. The Assistant Commissioner had previously dropped similar proceedings, indicating no suppression of facts. The Supreme Court agreed, confirming that the Revenue was not justified in invoking the extended period of limitation.

5. Imposition and Quantum of Penalties:
The Commissioner imposed penalties of Rs.20 Lac under Rule 173Q and Rs.34,18,250/- under Section 11AC of the Act. The Tribunal reduced these penalties to Rs.1,20,000/- and Rs.11,50,000/- respectively, considering the respondent's status as a State Government Undertaking and the buyer being Indian Railways. The Supreme Court did not specifically address the penalties, implying acceptance of the Tribunal's reduction.

Conclusion:
The Supreme Court dismissed the Department's appeal, upholding the Tribunal's majority view that the demand for interest on advances was time-barred and there was no suppression of facts. The inclusion of inspection charges in the assessable value was affirmed, and the respondent's liability for duty on escalation charges was acknowledged. The penalties were reduced by the Tribunal, considering the respondent's government-owned status.

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