2017 (9) TMI 20 - AT - Central Excise

Validity of SCN - differential duty with interest paid on being pointed out - penalty - job-work - Held that - after being pointed out by the audit, the appellants have paid the duty along with interest. In such a case, the show cause notice ought not to have issued - So also the intention to evade payment of duty cannot be alleged when the job worker / vendors/ HLL is eligible to take CENVAT credit on the duty paid. Thus, the situation would give rise to revenue neutral - penalty set aside - duty with interest paid is upheld - appeal allowed - decided partly in favor of appellant.

Summary

Issues: Alleged undervaluation of goods, imposition of penalties, admissibility of duty credit, sustainability of demand, limitation for imposing penalty.

Alleged Undervaluation of Goods:
The case involved the appellant, a manufacturer of Mixed Odoriferous Substances, who undertook job work for a company. It was alleged that the appellant undervalued goods after a surprise visit revealed discrepancies in valuation methods. The appellant received raw materials and formulations from the company for manufacturing, and it was found that the assessable value adopted for clearances did not comply with Central Excise Valuation Rules. The authorities issued a show cause notice alleging contravention of Central Excise Rules, demanding differential duty and penalties. The adjudicating Commissioner confirmed the demand and imposed penalties, leading the appellant to challenge the penalties before the Tribunal.

Imposition of Penalties:
The appellant, through their counsel, did not contest the duty demand but challenged the penalties imposed. The counsel argued that there was no intention to evade duty payment, as the appellant cleared goods based on costs provided by the company. The entire duty along with interest was paid after discrepancies were pointed out by Central Excise officers. The counsel contended that the demand was not sustainable under section 11A(2B) of the Central Excise Act, 1944, as the duty was paid upon identification of errors. The Tribunal considered the arguments and set aside the penalties imposed on the appellants while upholding the differential demand and interest.

Admissibility of Duty Credit and Sustainability of Demand:
The counsel further argued that the job worker, vendors, and the company were eligible to take CENVAT credit on duty paid, leading to a revenue-neutral situation. The Tribunal agreed with the appellant's submission that the situation did not indicate an intention to evade duty payment, especially when duty and interest were promptly paid upon notification of errors. Citing the case of Prakash Industries Ltd., the Tribunal held that the demand was unsustainable in such circumstances. Consequently, the penalties were set aside, and the differential demand along with interest was deemed sustainable.

Limitation for Imposing Penalty:
The appellant's counsel also raised the issue of limitation for imposing penalties, emphasizing that the credit was admissible to related units and job workers who paid duty based on the company's MRP. The counsel referred to a previous Tribunal decision to support the argument against the imposition of penalties. However, the Assistant Commissioner reiterated the findings in the impugned order, asserting that the undervaluation of goods by the appellant justified the demand raised.

In conclusion, the Tribunal partially allowed the appeal, setting aside the penalties imposed on the appellants while upholding the differential demand and interest. The decision was based on the appellant's prompt payment of duty and interest upon identification of errors, leading to a revenue-neutral situation and rendering the demand unsustainable in the absence of intent to evade duty payment.