2017 (1) TMI 459 - AT - Central Excise

Valuation - value of free supply of rails to be included in assessable value or not? - benefit of N/N. 5/2006-C.E was taken away by N/N. 12/2012-C.E., dated 17-3-2012 and again was restored by N/N. 03/2014-C.E - now the question is whether the 2012 Notification will have retrospective effect or not and the penalty to be imposed u/s 11AC(1)(b) of the Central Excise Act, 1944 on assessee or not? Held that - Section 102 of Finance Bill, 2015 read with Third Schedule provided that the 2012 Notification shall have retrospective effect inasmuch as it would apply during the intervening period, i.e., from 17-3-2012 to 2-2-2014 - decided in favor of appellant.

Issues:
1. Interpretation of Notification No. 5/2006-C.E.
2. Tax liability in case of free supply of rails by Railways.
3. Allegation of evasion of excise duty by under-valuation of goods.
4. Liability to pay penalty under Section 11AC(1)(b) of the Central Excise Act, 1944.
5. Constitutional validity of Section 35F of the Act.

Analysis:

1. The case involved the interpretation of Notification No. 5/2006-C.E. which exempted excise duty on the value of goods excluding the value of free supply of rails, provided that no Cenvat credit is availed on rails. The Ministry of Finance later consolidated several notifications into Notification No. 12/2012-C.E., omitting the exemption on the value of rails received as free, leading to confusion regarding the tax liability on the appellant.

2. The issue of tax liability arose concerning the free supply of rails by Railways for manufacturing rail switches. The Ministry of Finance clarified through Notification No. 03/2014-C.E. that the value of rails should be excluded from the assessable value of the goods, restoring the exemption granted under the 2006 Notification. However, a subsequent show cause notice alleged evasion of excise duty during a specific period, prompting further clarification from the Ministry of Railways.

3. The appellant faced allegations of evasion of excise duty by under-valuation of goods, leading to the imposition of penalties under Section 11AC(1)(b) of the Central Excise Act, 1944. The appellant challenged these penalties through legal proceedings, citing financial hardship and questioning the constitutional validity of Section 35F of the Act, which required a pre-deposit before appealing to CESTAT.

4. The liability to pay penalties under Section 11AC(1)(b) was a significant issue in the case, with the appellant contesting the penalties imposed by the Department. Legal arguments were made regarding the pre-deposit requirements and the discretion of CESTAT to waive such deposits, leading to a writ petition before the Delhi High Court challenging the penalties and the constitutional validity of relevant provisions.

5. The constitutional validity of Section 35F of the Act was raised concerning the pre-deposit requirements for appealing to CESTAT. The appellant's legal representative highlighted the financial constraints faced by the appellant due to the pre-deposit obligations, leading to a legal challenge and subsequent directions from the Delhi High Court regarding the appeal process before CESTAT.

In conclusion, the judgment resolved the issues by considering the amendments in the Finance Bill, 2015, which clarified the tax liability on the value of rails and provided retrospective effect to relevant notifications. The appeals were allowed based on the settled issue, granting consequential benefits to the appellant.

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