2017 (8) TMI 1093 - AT - Central Excise

Valuation - consumption of gas required for production of steel - it appeared to Revenue that M/s. Rathi Udyog Limited received the balance consideration that is Actual Value Received - Actual Value Declared from the customers in cash without reflecting it in the Books of Accounts - Jurisdiction - Held that - During the relevant period the provisions of assessment were that the assessee was required to file classification list under Rule 173B of Central Excise Rules, 1944, pricelist under Rule 173C of Central Excise Rules, 1944 before the Jurisdictional Assistant Commissioner. It was the duty of the Assistant Commissioner to decide classification of goods on the basis of classification list and assessable value on the basis of pricelist. Decision on pricelist was for arriving at assessable value by the Assistant Commissioner and such decision was treated as adjudication and on such finalization of value, if the Jurisdictional Commissioner disagreed then he was required to review such approved pricelist and give direction to the Divisional Assistant Commissioner to file appeal against such finalization of pricelist before the Jurisdictional Commissioner (Appeals). In the present case the pricelist were admittedly filed by the appellant. The Divisional Assistant Commissioner did not finalize them. Therefore, the Commissioner had no jurisdiction to call upon the assessee for adoption of any other prices, till such time, assessable value through said pricelist was finalized by the Divisional Assistant Commissioner. So far as undervaluation charges are concerned, the Jurisdictional Commissioner did not have jurisdiction to demand duty till such time the pricelists were finalized and if aggrieved appeal was not filed before Commissioner (Appeals) and such appeal was not decided by Commissioner (Appeals). The ruling by Hon ble Supreme Court in the case of Commissioner of Central Excise, Meerut-I v. R.A. Castings Pvt. Ltd. 2010 (9) TMI 669 - ALLAHABAD HIGH COURT , is squarely applicable in the present case wherein it was ruled that on the basis of consumption of energy required for manufacture of unit quantity of goods quantum of manufacture of goods cannot be arrived at and such conclusion of manufacture shall be treated as presumptive. Demand set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Undervaluation of assessable value for various goods.
2. Demand based on gas consumption for manufacturing.
3. Misclassification of goods.
4. Invocation of extended period for demand.
5. Imposition of penalties on individuals.

Detailed Analysis:

1. Undervaluation of Assessable Value:
The appellants were issued a show cause notice alleging undervaluation of various goods, including S.S. Flats, S.S. Waste & Scrap, and S.S. Rounds. The basis for this allegation was that M/s. Rathi Ispat Limited (RIL) undervalued their final products, which were then used by M/s. Rathi Udyog Limited (RUL) to manufacture their final products. The investigation suggested that RUL also undervalued their products since their inputs were undervalued. However, RUL contended that the pricelists were filed with the Assistant Commissioner but were neither approved nor rejected, and there was no provisional assessment order under Rule 9B of the Central Excise Rules, 1944. The Tribunal found that since the pricelists were not finalized by the Divisional Assistant Commissioner, the Commissioner had no jurisdiction to demand duty based on any other prices.

2. Demand Based on Gas Consumption:
The demand of ?15,99,61,757/- was based on the consumption of natural gas required for manufacturing steel. The Revenue calculated the quantity of goods manufactured based on the gas consumption and raised the demand accordingly. The appellants argued that this calculation was presumptive and lacked evidence of raw material procurement, sales, and transportation of the alleged manufactured goods. The Tribunal referred to the case of R.A. Castings Pvt. Ltd., where it was held that demand based on electricity consumption was arbitrary and unsustainable. Similarly, the Tribunal ruled that demand based on gas consumption was also presumptive and unsustainable.

3. Misclassification of Goods:
The Department alleged that RIL misclassified Stainless Steel Billets as Other Alloy Steel (OAS), based on test reports indicating chromium content. However, the appellants contended that there was no mention of carbon content in the test reports, which was also a criterion for classification. The Tribunal noted that the Department did not establish that the misclassification by RIL was with the connivance or knowledge of RUL. Additionally, since RUL received excisable goods on payment of duty and returned the goods to RIL after conversion, the entire exercise was revenue neutral.

4. Invocation of Extended Period for Demand:
The show cause notice was issued on 31-12-1996, demanding duty for the period from April 1994. The appellants argued that since the pricelists were pending finalization, the extended period for demand was not sustainable. The Tribunal agreed, noting that the charges in the show cause notice did not indicate the invocation of the proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944. Furthermore, the investigation started on 19-9-1995, and the demand period extended up to 30-9-1996, which was beyond the permissible period for invoking the extended period.

5. Imposition of Penalties on Individuals:
Penalties were imposed on key individuals, including the Directors and Vice-President of RUL, under Rule 209A of the Central Excise Rules, 1944. The appellants contended that the individual roles were not discussed in the order, and merely holding key posts was insufficient to prove the ingredients of Rule 26 of the Central Excise Rules, 2002. The Tribunal found that since the demands were not sustainable, the penalties imposed on individuals also did not survive.

Conclusion:
The Tribunal set aside the impugned Order-in-Original, holding that the demands based on undervaluation and gas consumption were unsustainable. Consequently, the penalties imposed on the appellants were also set aside, and all the appeals were allowed.

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