2017 (11) TMI 1514 - AT - Central Excise

Valuation - section 4A of Central Excise Act - fixation of MRP - process of packing/repacking - deemed manufacture - Original Equipment (OE) items like dash board, front module, rear module etc. of motor vehicle - Held that - Undoubtedly, the appellant undertakes repacking and relabeling processes on the parts procured by them by way of import. It is also not disputed that these parts in such repacked or relabelled condition are cleared to their depots at Gurgaon, Taloja and Kolkata, which have been registered as manufacturers with the Central Excise Department. In the normal course, the impugned goods, by virtue of the provisions of Standards of Weights and Measures Act/ Rules (now presently Legal Metrology Act / Rules) are required to affix maximum Retail Sale Price (RSP) on each package and in consequence such packages will attract valuation and assessment for purposes of discharge of central excise duty liability as per provisions of Section 4A of Central Excise Act, 1944. In fact, the clearances of such goods, made directly to the dealers of HMIL are assessed only under section 4A ibid. The appellant has referred to Rule 2A of Standards of Weights and Measures Rules (presently Legal Metrology Rules) to contend that their depots where the goods are being transferred are industrial consumers for the purposes of Rule 2A, hence they will be excluded from the provisions of declaring RSP - We do not agree with those propositions of the appellant. Rule 2A of Standards of Weights and Measures Rules define industrial consumer as those consumers who buy packaged commodities directly from the manufacturers / packers for using the product in their industry for production etc. No doubt, the packages which are cleared by the appellant to their depots registered as manufacturing premises, undergo processing of repacking / relabeling which are deemed manufacture for the purposes of Central Excise levy. Whether deemed manufacture can be equated with actual production? - Held that - as per Oxford Dictionary, the activity of manufacture is very often synonymously used for production. However, an activity involving repacking and relabelling really does not create a new product, name or character or use but is however deemed to be manufacture. Such manufacture by legal fiction, cannot be by any stretch of imagination be equated with actual production of goods. The impugned clearances made by the appellant from their Irungattukottai manufacturing unit to their depots/ manufacturing premises at Gurgaon, Taloja and Kolkata will surely attract section 4A valuation. Extended period of limitation - Held that - the department was very much aware of the assessment procedure followed by the appellant for the disputed period. In fact, the department themselves have advised the appellant vide their letter dated 12.6.2009 to adopt the value using CAS- 4 costing method which is exactly what the appellant did. Having given such directions to the appellant, the department cannot then make allegations of suppression or mis-statement etc. and invoke extended period provided under section 11A(1) of the Central Excise Act, 1944 to justify issue of the show cause notice on 29.8.2013 that is almost more than four years after the aforementioned letter of the department - part of the demand which relates to the normal period of limitation alone will sustain is upheld along with interest thereon. Penalty - Held that - none of the ingredients justifying the invocation of extended period under proviso to section 11A(1) are present in this case. Hence there is no justification for imposition of penalty under section 11AC of the Act - penalty set aside. For the limited purpose of ascertaining the quantum of such reduced duty liability, for the normal period of limitation, the matter is being remanded to the adjudicating Commissioner - Appeal partly allowed by way of remand.

Issues Involved:
1. Applicability of Section 4A of the Central Excise Act, 1944.
2. Interpretation of the term "industrial consumer" under Rule 2A of the Standards of Weights and Measures Rules.
3. Alleged suppression of facts and invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944.
4. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Applicability of Section 4A of the Central Excise Act, 1944:
The appellants argued that their transactions were stock transfers and not sales, thus Section 4A of the Central Excise Act, 1944, which pertains to valuation based on Retail Sale Price (RSP), was not applicable. They contended that the Standard of Weights and Measures Act was not applicable to their transactions as there was no element of sale involved. However, the Tribunal found that the appellants were required to affix the RSP on packages as per the Legal Metrology Act, 2009, and the goods cleared to their depots should be valued under Section 4A. The Tribunal did not agree with the appellants' interpretation and upheld the adjudicating Commissioner's finding that the clearances from the Irungattukottai unit to the depots attracted Section 4A valuation.

2. Interpretation of the term "industrial consumer" under Rule 2A of the Standards of Weights and Measures Rules:
The appellants claimed that their depots were "industrial consumers" under Rule 2A of the Standards of Weights and Measures Rules, and thus exempt from declaring RSP. The Tribunal disagreed, stating that the activities at the depots, which involved repacking and relabeling, did not constitute "production" as understood in the ordinary sense. The Tribunal referred to the definition of "production" and concluded that repacking and relabeling did not amount to actual production. Hence, the depots could not be considered industrial consumers, and the goods were not exempt from RSP declaration.

3. Alleged suppression of facts and invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944:
The appellants argued that the demand was hit by limitation as all relevant details were provided to the department, and there was no suppression of facts. The Tribunal found merit in this argument, noting that the department was aware of the assessment procedure followed by the appellants and had advised them to use the CAS-4 costing method. The Tribunal held that the department could not allege suppression or misstatement to invoke the extended period of limitation. Consequently, the demand beyond the normal period of limitation was set aside.

4. Imposition of penalty under Section 11AC of the Central Excise Act, 1944:
The appellants contended that there was no mens rea involved, and the issue of assessment under Section 4 or 4A was a matter of dispute. The Tribunal agreed, finding no justification for imposing a penalty under Section 11AC as the ingredients for invoking the extended period were not present. Therefore, the penalty under Section 11AC was not imposed.

Conclusion:
The Tribunal upheld the demand for the normal period of limitation along with interest but set aside the demand for the extended period. The matter was remanded to the adjudicating Commissioner for recalculating the duty liability for the normal period. The imposition of penalty under Section 11AC was also set aside. The appeal was partly allowed in these terms.

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