2017 (6) TMI 715 - AT - Central Excise

Clandestine manufacture and removal - Ceramic Sanitaryware - case of the Revenue is based on the difference between RG-I Register and quality inspection records maintained by the Appellants - Held that - It has been categorically stated that after firing of the products these are inspected and given grades; grade (a) which are saleable, good quality products are entered in the RG-I Register; grade (b) is further taken up for repair and re-firing; and whereas grade (c) is a waste and not saleable - the impugned order did not give a categorical finding as to how the Revenue still sustains the allegation of unaccounted production and clearance of excisable goods - the Department did not have any evidence regarding unaccounted manufacture and clearance, and shifted the burden on the Appellants to prove the absence of such unaccounted clearance. Such course of action is against the basic principle applicable to establish a case of unaccounted clearance resulting in short payment of duty - demand set aside. Short payment of tax - non-inclusion of value of seat covers while discharging duty on Water Closets cleared by the Appellants - extended period of limitation - penalty - Held that - the item under consideration in the present appeal is seat cover for Water Closets. Admittedly, Water Closets are put to use with seat covers. These are not generic items and are actually made to the particular specification without which the Water Closets cannot be put to effective operational use. The Appellants are not clearing the seat covers along with Water Closets in all cases, does not take away the basic fact that these seat covers are essential parts of Water Closets - the value of seat covers supplied along with the Water Closets should form part of the assessable value of Water Closets. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Confirmation of Central Excise Duty on unaccounted production and clearance of sanitaryware.
2. Short payment of Central Excise Duty on Water Closets due to non-inclusion of seat cover value.
3. Invocation of extended period and imposition of penalty.

Analysis:

Issue 1: Confirmation of Central Excise Duty on unaccounted production and clearance of sanitaryware:
- The Appellants contested the allegation of unaccounted manufacture, presenting their process of grading products into saleable, repairable, and waste categories.
- The Tribunal noted discrepancies in the Revenue's case, emphasizing the lack of evidence supporting unaccounted clearance.
- The impugned order failed to establish unaccounted production despite the Appellants' detailed explanation, leading to a dismissal of this charge.

Issue 2: Short payment of Central Excise Duty on Water Closets due to non-inclusion of seat cover value:
- Appellants argued that seat covers were separate, bought-out items not integral to Water Closets' manufacturing process.
- The Revenue contended that seat covers were essential parts of Water Closets, citing a Supreme Court decision supporting their stance.
- The Tribunal upheld the lower authorities' findings, emphasizing the functional necessity of seat covers for Water Closets' effective use.

Issue 3: Invocation of extended period and imposition of penalty:
- Appellants maintained proper records and reversed input credit on seat covers before the Show Cause Notice issuance.
- The Tribunal deemed the demand for an extended period and related penalty unsustainable due to differing interpretations of the legal provision on bought-out items' valuation.

Conclusion:
- The Tribunal partially allowed the appeal, dismissing the unaccounted production charge and upholding the inclusion of seat cover value in Water Closets' assessable value.
- The decision highlighted the interpretation of legal provisions regarding bought-out items and the absence of deliberate misinterpretation or fact suppression, leading to the rejection of the extended period demand and penalty.

This comprehensive analysis of the judgment addresses the key issues raised in the case, providing a detailed breakdown of the arguments presented by both parties and the Tribunal's reasoning behind its decision.