2018 (10) TMI 1198 - AT - Central Excise

Validity of SCN - amendment made in SCN by way of corrigendum - Time Limitation - change of opinion - Revenue neutrality. Revenue neutrality - Held that - The appellant, Muzaffarnagar unit is clearing the 95% of its production to their Faridabad unit which manufactures, further taxable goods which are cleared on the payment of appropriate duty - whatever Excise duty is paid by the Muzaffarnagar unit, the same shall be available as Cenvat Credit at the Faridabad unit. Thus, making the situation wholly revenue neutral. Time limitation of SCN - Held that - The effective Show Cause Notice will be the date of corrigendum dated 23/01/2007 as the proposed demand in SCN is increased substantially above 25% - the show cause and the corrigendum is for the sake of change of opinion only, based on the cost of production taken by Revenue - the Show Cause Notice is not sustainable for invoking the extended period of limitation, only for the sake of change of opinion and the situation being wholly revenue neutral. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Period of limitation for a Show Cause Notice modification.
2. Applicability of Rule 8 of Central Excise Valuation Rules, 2000.
3. Revenue neutrality and sustainability of Show Cause Notice.
4. Imposition of penalties on appellants.
5. Technical qualifications of departmental officers for judgment.
6. Proposal for confiscation in Show Cause Notice.
7. Imposition of penalty under Rule 26.
8. Physical handling of goods by appellants.

Analysis:
1. The primary issue in this appeal is the determination of the period of limitation for a Show Cause Notice modification. The Show Cause Notice was initially issued on 05/08/2005 and later modified by a corrigendum dated 23/01/2007, increasing the proposed demand significantly. The question arises whether the date of the corrigendum should be considered as the effective date for limitation purposes.

2. The case revolves around the applicability of Rule 8 of the Central Excise Valuation Rules, 2000. The appellant company was transferring 95% of its production to their sister unit for captive consumption and selling the remaining 5% to independent buyers. The Department alleged that the company adopted lower values for cost construction, resulting in the payment of less duty.

3. The concept of revenue neutrality plays a crucial role in determining the sustainability of the Show Cause Notice. The Tribunal found that the duty paid by the Muzaffarnagar unit would be available as Cenvat Credit at the Faridabad unit, making the situation wholly revenue neutral. The Show Cause Notice was deemed unsustainable for invoking the extended period of limitation solely for a change of opinion.

4. The issue of penalties imposed on the appellants, including the company's Works Manager and Finance Controller, was raised. The Tribunal considered various arguments, including the lack of proposal for confiscation in the Show Cause Notice and the absence of physical involvement with the goods by the appellants, leading to the conclusion that penalties could not be justified.

5. The technical qualifications of departmental officers for passing judgments on costing data were questioned. The appellant argued that the department should have sought assistance from a qualified Assistant/Deputy Director (Costs) or a Cost/Chartered Accountant for such technical matters.

6. The Tribunal analyzed the imposition of penalties under Rule 26 and concluded that in the absence of a proposal for confiscation and the appellants' non-involvement in physical handling of goods, such penalties could not be upheld.

7. Ultimately, the Tribunal allowed all appeals by setting aside the impugned order, emphasizing the revenue neutrality of the situation and the unsustainable nature of the Show Cause Notice for invoking the extended period of limitation. The appellants were granted consequential relief in accordance with the law.