2016 (12) TMI 324 - AT - Central Excise

Valuation - job work - duty paid material received by principal (GMI)(raw material supplier) and credit taken on same by appellant, on which GMI paid duty and use the credit for payment of duty on various goods manufactured on job work basis and cleared back to GMI - Held that - the value of FOC materials could be only determined by GMI and it is not at the hands of Avtec to ascertain the background details of how GMI arrived at such value. Avtec received the materials along with covering invoices showing value and duty payment. Having bonafidely taken into account such value and also availed the credit of such goods, the said value has been added while arriving at the final value of intermediate goods. In such situation, we find that the question of fraud, suppression etc. cannot be invoked against Avtec. GMI on realizing that certain components of value like customs duty, freight etc. were not added while arriving at the value for FOC materials have done the same on their own and paid the differential duty. Here, as rightly contended by the appellants duty paid is going to Avtec as a credit and again coming back as a credit to GMI when intermediate goods are received back. In such situation, we find the question of fraud, misrepresentation may not be sustainable. As such, we hold that that differential duty paid by GMI on FOC materials has correctly paid. However, the self adjustment of certain other excess payment against such differential duty is not permissible under the provisions of law and the same is not being contested by the appellants. We find, considering the facts and circumstances of the case, while we uphold the differential duty paid on FOC materials, imposition of penalty on this ground is not sustainable. Royalty fees - loading of 3% in the value of FOC materials on the ground of royalty fees paid by GMI to ISUZU - GMI entered into an agreement with ISUZU for drawing and specification and paid royalty charges for this - Held that - We find that the loading at 3% is arrived at on the basis of total sale price of Cars vis a vis total royalty paid to ISUZU by GMI. We find that 3% loading is without any reason or logic as could be seen from finding of the Original Authority. We find that SCN proposed 3% as a round figure and added that this will be subject to revision on production of certificate of Cost Accountant by Avtec or GMI. However, the impugned order noted that no such documents was produced and hence, 3% was loaded. We find that such summary loading in the value of excisable goods in terms of Rule 6 is not legally sustainable. Accordingly, we set aside the said finding in the impugned orders and remand the matter to the original authority to arrive at the correct quantum of loading to be made for the design and drawing supplied by GMI to Avtec who manufactured the products on job work. The main appellant (Avtec) are liable to pay differential duty due to revised valuation of FOC materials supplied by GMI. However, no adjustment of other excess paid amount on different grounds is permissible - the penalties imposed on the appellants are set aside. The original authority shall recalculate the exact quantification for loading towards drawing and design supplied by GMI to Avtec - appeal allowed by way of remand.

Summary

Issues:
Valuation of free of cost (FOC) materials for central excise duty, payment of duty on job work basis, inclusion of royalty amount in the value of FOC materials, adjustment of excess paid duty, imposition of penalties.

Valuation of FOC Materials for Central Excise Duty:
The dispute revolved around the correct valuation of FOC materials supplied by GMI to Avtec for central excise duty payment. GMI adopted a value for duty payment based on average moving price of raw materials, which was contested by the authorities. The original orders confirmed differential duties and imposed penalties on both parties. The appellants argued that GMI had recalculated the duty payable on FOC materials, acknowledging the underpayment due to non-inclusion of certain charges. The appellants contended that the flow of credit between GMI and Avtec was revenue neutral, and proper valuation was necessary for duty payment.

Inclusion of Royalty Amount in the Value of FOC Materials:
The main issue centered on the non-inclusion of royalty amount paid by GMI to an overseas company in the value of FOC materials supplied to Avtec. The original authority held that the value of FOC materials should be loaded by 3% to account for the royalty fees. However, the appellants strongly contested this, arguing that the methodology used for loading the value lacked merit. The Tribunal found the loading percentage arbitrary and remanded the matter to the original authority for a correct quantification of the loading for design and drawing supplied by GMI to Avtec.

Adjustment of Excess Paid Duty and Penalties:
Regarding the adjustment of excess paid duty towards short payment due to value variation, the appellants did not press for this point in the appeals. The Tribunal upheld the differential duty paid on FOC materials by GMI but deemed the self-adjustment of excess payment impermissible. The penalties imposed on the appellants were set aside, and the original authority was directed to recalculate the loading for design and drawing supplied by GMI to Avtec.

Conclusion:
The Tribunal held Avtec liable to pay the revised differential duty on FOC materials supplied by GMI but disallowed adjustment of other excess paid amounts. The penalties imposed were set aside, and the matter of loading for design and drawing was remanded to the original authority for correct quantification. The appeals were disposed of with these observations.