2016 (7) TMI 800 - AT - Central Excise

Valuation - bifurcation between the value of the goods into (i) CPU and (ii) HDD and there by discharging payment of central excise duty only on the former without taking into account value of the latter. - The main defence raised by assessee against the allegations is that separate invoices were issued for the bought out items which were not manufactured by them, but were only supplied by them to customers. They did not avail Modvat credit on bought out items. Held that - Most of the judgments placed before us by the appellant are regarding the issue whether the software is includable in the assessable value. The issue in the case being entirely different we do not consider it necessary to discuss them. At the cost of repetition, it has to be stated that the appellant was clearing computer system/a whole unit as is seen from the illustration in the show cause notice. Though appellants contend that peripherals were bought out items assembled in the factory, and then cleared as a computer unit, there is no iota of evidence to establish how the items from their trading premises was transferred to manufacturing premises. So also, there is no satisfactory explanation for insisting upon the customers to place split orders on two premises. Demand of duty confirmed - however penalty reduced. - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Alleged bifurcation of computer value into CPU and HDD to evade central excise duty.
2. Suppression of facts with intent to evade payment of duty.
3. Eligibility for Cenvat Credit and cum-duty benefit.
4. Interpretation of valuation provisions for computer peripherals.
5. Time bar concerning the issuance of the show cause notice.
6. Imposition of penalty on the Managing Director under Rule 209A of Central Excise Rules, 1994.
7. Confiscation of plant and machinery.

Issue-wise Detailed Analysis:

1. Alleged Bifurcation of Computer Value:
The case against the assessee involved the bifurcation of computer values into CPU and HDD, resulting in the payment of central excise duty only on the CPU. The department argued that this practice was intended to evade duty on peripherals by clearing them on trading invoices instead of central excise invoices.

2. Suppression of Facts:
The department alleged that the assessee intentionally suppressed facts to evade duty by creating a service center as a subterfuge near the registered manufacturing premises. The modus operandi involved splitting purchase orders and clearing parts of the computer system without including their value in the assessable value, thus evading central excise duty.

3. Eligibility for Cenvat Credit and Cum-Duty Benefit:
The assessee contended that the Commissioner did not provide documents or computation statements confirming the demand of ?21.67 lakhs, violating principles of natural justice. They argued that the benefit of Cenvat Credit and cum-duty benefit, as previously allowed, was not considered.

4. Interpretation of Valuation Provisions:
The dispute centered on whether the value of computer peripherals fitted with the main system should be included in the assessable value. The adjudicating authority detailed the inclusion and exclusion of various components (e.g., HDD, floppy disk drive, controller cards) in the assessable value, concluding that essential components should be included while optional peripherals should not.

5. Time Bar:
The assessee argued that the show cause notice was time-barred as it was issued beyond the stipulated period under Section 11A. The adjudicating authority, however, concluded that the acquisition of knowledge by the department occurred when the investigations concluded, thus justifying the issuance of the notice within the permissible period.

6. Imposition of Penalty:
The adjudicating authority imposed a penalty on the Managing Director under Rule 209A of Central Excise Rules, 1994, holding him liable for being in charge of day-to-day affairs. The Tribunal, while agreeing with the rationale for imposing penalties, reduced the quantum of penalty on the Managing Director to ?10,000 and on the assessee to ?50,000.

7. Confiscation of Plant and Machinery:
The Revenue's appeal included a grievance regarding the omission of confiscation of plant and machinery in the denovo order. The Tribunal noted that the factory had been taken over and sold by APIDCL, rendering the issue of confiscation moot.

Conclusion:
The Tribunal upheld the duty demand of ?21.67 lakhs as computed in the denovo adjudication order. The appeal filed by the assessee was partly allowed by reducing the penalties, while the appeal filed by the Revenue was dismissed. The Tribunal emphasized the need for cooperation from the assessee in completing the adjudication process and found no merit in the contention that the assessee was not provided with the basis for the computation of duty demand. The judgment was pronounced on 21/06/2016 in open court.