2019 (1) TMI 615 - AT - Central Excise

Penalty under erstwhile Section 11AC(1)(b) of the Act - penalty of 50% of the demand confirmed - valuation - change of opinion - suppression o facts or not - Held that - The appellant have valued their goods as per their understanding, under Rule 8 which, is applicable in the case of related party or interconnected undertakings. Further, the demand of differential duty by the Revenue is by way of change of opinion that instead of Rule 8 Rule 4 is applicable, of the Valuation Rules. Thus, there is no suppression of facts and mis-conduct on the part of the appellant - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Penalty imposition under erstwhile Section 11AC(1)(b) of the Act.
2. Valuation of goods under Rule 8 of the Valuation Rules.
3. Alleged suppression of facts by the appellant.
4. Applicability of Valuation Rules in transactions with related parties.

Analysis:

1. The main issue in this appeal was whether the penalty of ?27,20,449 imposed on the appellant under Section 11AC(1)(b) of the Act was justified. The appellant, a manufacturer of sponge iron, had stopped production due to financial losses and later underwent a change in management. The Central Excise Department alleged that the appellant failed to inform about this change to the authorities, leading to discrepancies in the valuation of goods sold to related and unrelated parties.

2. The appellant had valued their finished products under Rule 8 of the Valuation Rules, paying duty accordingly. However, the Revenue contended that goods sold to related parties should have been valued under Rule 4 instead. The appellant, through their counsel, argued that the valuation under Rule 8 was appropriate as there was only a marginal difference in the value of goods sold to related and unrelated buyers.

3. The Revenue accused the appellant of suppressing facts by not disclosing the change in management and the pricing details of goods sold to related parties. The department initiated an investigation and issued a show cause notice proposing a recovery of differential duty, alleging that the appellant undervalued goods sold to the related party, resulting in a demand for additional duty payment.

4. The Tribunal examined the facts and held that the appellant had valued their goods correctly under Rule 8, applicable to related parties. The Tribunal found that the Revenue's demand for differential duty was based on a change of opinion regarding the applicable valuation rule, rather than any intentional misconduct by the appellant. Consequently, the penalty imposed under Section 11AC of the Act was set aside, granting relief to the appellant.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the appellant and providing consequential benefits. The judgment emphasized the importance of proper valuation under the Valuation Rules, especially in transactions involving related parties, and clarified the distinction between valuation rules applicable to related and unrelated buyers.