2017 (3) TMI 453 - AT - Central Excise

Valuation - cost construction method - whether the penalty u/s 11AC and interest u/s 11AB is chargeable in the fact that the differential duty was payable due to variation in the value arose because the correct cost of raw material was not available at the time of clearance of the goods to the respondent as the same was being provided by the principal of the respondent? - Held that - there is no malafide on the part of the respondent - The short payment of duty is not due to the malafide intention of the respondent but for the reason the principal manufacturer has not provided the correct cost of material timely to the respondent - penalty u/s 11AC is not imposable. Interest - Held that - interest is unavoidable as the same is in the nature of piggyback of the duty. It was admitted that duty was paid belatedly therefore for the delay the interest payment is inevitable - demand of interest upheld. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Valuation of goods based on cost construction method involving raw material, packing, and processing charges; Escalation of raw material cost leading to differential excise duty payment; Show-cause notice invoking a larger period of limitation; Appeal against dropping of interest and penalty.

Analysis:

1. Valuation of Goods:
The case involved the valuation of goods using the cost construction method, including raw material, packing, and processing charges. The respondent, a job worker for a principal manufacturer, received the cost of raw material from the principal based on costing certificates. The principal twice enhanced the landed cost of raw material, leading to the respondent paying differential excise duty. The respondent paid the duty after determining the increase in raw material cost. However, a show-cause notice was issued later, alleging suppression of facts and payment post-audit observation.

2. Escalation of Raw Material Cost:
The respondent faced an escalation in raw material cost twice, leading to differential duty payments. The central excise authorities advised the respondent to pay the duty after an audit, resulting in increased raw material prices. Despite paying the duty promptly, a show-cause notice was issued later, alleging suppression of facts and payment post-audit observation, invoking a larger period of limitation.

3. Appeal Against Dropping of Interest and Penalty:
The revenue filed an appeal against the dropping of interest and penalty by the Commissioner (Appeals). The revenue argued that penalties cannot be reduced or waived based on recent Supreme Court judgments. The respondent contended that duty on value variation was paid timely, with no intention to evade payment. The respondent attributed the delay in correct valuation to the principal manufacturer, arguing against the imposition of penalty and interest.

4. Judgment and Decision:
The Member (Judicial) considered both parties' submissions and found no malafide intent on the respondent's part. The respondent had paid the duty promptly, with the valuation issue arising due to the principal manufacturer's delay in providing accurate cost information. Consequently, the penalty under Section 11AC was deemed inapplicable. However, regarding interest, the Member upheld its imposition, stating that interest is inevitable for delayed duty payment, even without a show-cause notice. Citing legal precedents, the Member held the respondent liable to pay interest, partially allowing the appeal by upholding the penalty's setting aside and reinstating the interest payment obligation.