2017 (11) TMI 7 - AT - Central Excise

Scope of SCN - SCN was issued only on the ground that the subsidy element on urea should be included while arriving at the value for proportionate reversal of cenvat credit. Whereas in the impugned order the Commissioner proceeded entirely on a fresh ground to deny a portion of the credit - Held that - it is apparent that the whole proceedings against the appellant are only with reference to the non-inclusion of subsidy element given by the Government in the assessable value of exempted urea for the purpose of reversal of credit in terms of Rule 6 of CCR. Nowhere, the proposal regarding disallowing the dealers commission while arriving at the transaction value was alleged or discussed - such proceedings without a proposal in the show cause notice on this ground is legally not sustainable - appeal allowed - decided in favor of appellant.

Issues:
1. Correct quantification of reversible amount attributable to inputs used in exempted final products.
2. Inclusion of subsidy element on exempted urea for valuation.
3. Consideration of dealer's commission in assessable value for reversal of credit.

Analysis:

Issue 1: Correct quantification of reversible amount
The appellants, engaged in fertilizer manufacturing, were availing cenvat credit for duty paid on inputs and tax paid on input services. As urea, one of their final products, was exempt from Central Excise Duty, they decided to reverse cenvat credit on a proportionate basis as per Rule 6 (3A) of Cenvat Credit Rules, 2004. The dispute arose regarding the quantification of the reversible amount attributable to inputs used in the exempted final products. The Revenue contended that the appellants did not correctly determine the value of exempted goods for the reversal of credit, especially considering the subsidy on urea. The original authority held that a certain amount had to be reversed, which included the denial of dealer's commission from the assessable value.

Issue 2: Inclusion of subsidy element for valuation
The appellant argued that the original authority exceeded the scope of the show cause notice by considering the dealer's commission as part of the assessable value for the reversal of credit, which was not initially proposed. The appellant maintained that the show cause notice focused solely on including the subsidy element on urea for valuation purposes. The Circular by the Board clarified that the valuation of urea for duty purposes should be based on the MRP fixed by the Government, excluding the subsidy element. The appellant contended that the dealer's commission, being part of the MRP, should not be included in the value for credit reversal.

Issue 3: Consideration of dealer's commission in assessable value
The Tribunal noted that the original authority introduced the issue of dealer's commission without it being part of the original show cause notice. This deviation rendered the decision legally unsustainable. The Tribunal held that the inclusion of dealer's commission in the assessable value for the reversal of credit was not justified based on the proposals in the show cause notice. Consequently, the impugned order was set aside, and the appeal was allowed due to the lack of legal basis for considering the dealer's commission in the valuation process.

In conclusion, the Tribunal emphasized the importance of adhering to the scope of show cause notices and ensuring that decisions are based on the issues raised therein. The judgment highlighted the necessity for procedural fairness and consistency in tax assessments, particularly concerning the valuation of goods for credit reversals under the Cenvat Credit Rules, 2004.

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