2017 (12) TMI 842 - AT - Central Excise

Valuation - food supplements - valued u/s 4 or u/s 4A? - Department took the view that the goods food supplements are assessable to Central Excise duty under Section 4A of the Act based on M.R.P - scope of SCN - Held that - In the instant case, there has been a change in the classification after 8-digit heading was introduced. The impugned goods therefore will fall under different entries of the M.R.P notifications for the two years concerned. It is only in this respect, that the classification has been gone into by the adjudicating authority. It is also not the case that the appellants were classifying the goods under a particular heading and that the department has changed the classification without giving notice to them - we do not find any infirmity in the conclusions of the lower appellate authority that the original authority has not travelled beyond the scope of SCN as alleged by the appellant. Penalty u/s 11AC - Held that - the entire dispute was one of interpretation. It is also to be kept in mind that assessee was a SSI unit and may not have been in the know of things. It is also not alleged that they had removed any part or whole of the goods in a clandestine manner - there is a case for setting aside penalty imposed under Section 11AC, which we hereby do. Penalty is therefore set aside. Appeal allowed in part.

Summary

Issues:
Classification of "food supplements" under Central Excise Tariff Act, 1985; Assessment under Section 4A of the Act; Imposition of penalty under Section 11AC.

Classification of "food supplements" under Central Excise Tariff Act, 1985:
The appellants were manufacturing and clearing "food supplements" under Chapter 21 of the Central Excise Tariff Act. The Department contended that these goods were assessable under Section 4A based on M.R.P., leading to a demand notice for duty payment beyond ?100 lakhs. The original authority and Commissioner (Appeals) upheld the duty demand and penalty under Section 11AC. The appellant argued that the classification was not proposed in the show cause notice (SCN), and the adjudicating authority overstepped the scope of the SCN by deciding the classification. However, the Tribunal found that the adjudicating authority needed to refer to M.R.P. notifications for duty calculation and classification, especially after a change in the tariff schedule in 2005. As the appellants did not indicate any specific classification, the Tribunal upheld the duty demand and interest liability.

Assessment under Section 4A of the Act:
The appellant contested the duty liability computation for "food supplements" for 2005-06 under Section 4A, arguing that their goods should fall under a specific classification not subject to M.R.P. valuation during that period. The Tribunal noted the importance of determining the correct classification post the 2005 tariff schedule change. As the goods fell under different entries of M.R.P. notifications for different years, the Tribunal found no fault in the lower authorities' conclusions regarding duty demand and interest liability.

Imposition of penalty under Section 11AC:
Regarding the penalty imposed under Section 11AC, the appellant claimed no suppression or clandestine removal of goods, emphasizing their status as a small scale unit unaware of the M.R.P. assessment requirement. The Tribunal acknowledged the dispute as an issue of interpretation and considered the appellant's lack of knowledge and prompt payment of the duty liability. Consequently, the Tribunal set aside the penalty under Section 11AC, contingent on the appellant paying the entire interest liability. The appeal was partly allowed with the penalty being revoked.

This judgment delves into the classification, assessment under Section 4A, and penalty imposition under Section 11AC concerning the manufacturing and clearance of "food supplements" under the Central Excise Tariff Act, 1985. The Tribunal upheld the duty demand and interest liability based on the correct classification post the 2005 tariff schedule change, while setting aside the penalty under Section 11AC due to mitigating factors such as the appellant's status as a small scale unit and lack of clandestine activities.