2020 (1) TMI 375 - AT - Central Excise

Valuation - stock transfer or sale - applicability of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - extended period of limitation - penalty - HELD THAT - The argument of the appellant that since they were not making any profit during the relevant period and hence they were correct in paying duty on only 100% of the cost of production instead of 110% mandated by the rule has no legal basis to stand on. Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 does not depend on the extent of profit earned by the appellant. They could a running in loss or earning a 1000% profit. The valuation as per is captively consumption has to be at 110% of the cost of production. This rule was clearly openly defied by the appellant, in order to evade payment of central excise duty. The fact that their sister concern will get CENVAT Credit of duty paid has no bearing either on the excisability of the goods or on their valuation. The appellant willingly evaded payment of duty because they decided that they will pay duty only on 100% of the cost of production even though the law required them to pay on 110% of the cost of production. This is not a case where the law is ambiguous leaving it open to different interpretations but is a case of open, defiance of law. Therefore, the intention to evade payment of duty is self evident. Merely because the sister unit will get CENVAT Credit, the appellant cannot NOT PAY full duty in open defiance of the law and take shelter under Revenue Neutrality to escape liability. It would have been a different case if the Rule could be read or understood in more than one way and the appellant understood it incorrectly. In such a case, the claim of lack of intention to evade payment of duty could come to their rescue. Extended period of limitation - penalty - HELD THAT - We do not find even the remotest possibility of reading the words profit margin in Rule 8. To say that they will pay duty only on 100% of the cost of production even if the Rule unambiguously says it should be 110% is only a clear violation of the Rule with intent to evade payment of duty even if such intentional evasion may not have ultimately added to the profits of the company. We, therefore find sufficient grounds to invoke extended period of limitation - penalty also upheld. The demand invoking the extended period of limitation along with interest and imposition of penalties are correct and proper and call for no interference - Appeal dismissed - decided against appellant.

Summary

Issues:
1. Valuation of goods for central excise duty in case of stock transfer between sister units.
2. Applicability of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
3. Invocation of extended period of limitation for demand of central excise duty.
4. Imposition of penalty under Section 11AC read with Rule 25 of Central Excise Rules, 2002.

Valuation of Goods for Central Excise Duty:
The appellant, a manufacturer of spare parts for motor cycles, transferred goods to its sister unit at Faridabad. The issue was whether the transfer constituted a stock transfer or a sale, impacting the valuation for central excise duty under Section 4(1)(a). The Tribunal held that since the transfer was between sister units, it was a case of stock transfer, not a sale, leading to captively consumed goods. Rule 8 of the Central Excise Valuation Rules mandates the value of such goods to be 110% of the cost of manufacture, determined by the CAS-4 certificate.

Applicability of Rule 8 - Central Excise Valuation Rules:
The Department observed that the appellant paid service tax on only 100% of the cost of manufacture instead of 110%, leading to a show cause notice for central excise duty demand, interest, and penalty. The Tribunal emphasized that Rule 8 clearly states that goods captively consumed must be valued at 110% of the cost of production, irrespective of the appellant's profit margin. The appellant's argument of revenue neutrality due to CENVAT credit for the sister unit was dismissed as an attempt to evade duty.

Invocation of Extended Period of Limitation:
The Department invoked the extended period of limitation for demanding central excise duty, citing the appellant's deliberate non-compliance with Rule 8. The Tribunal agreed, stating that the appellant's intentional evasion of duty by paying only 100% of the cost, despite the rule mandating 110%, demonstrated clear defiance of the law. The Tribunal found the grounds sufficient to justify the extended period of limitation and upheld the penalty.

Imposition of Penalty:
The Tribunal rejected the appellant's argument that lack of profit margin justified non-compliance with Rule 8. It emphasized that the intentional evasion of duty, even if not resulting in increased profits, warranted the penalty and upheld the demand, interest, and penalties imposed by the impugned order. The Tribunal concluded that the orders were correct, proper, and required no interference, thereby rejecting the appeals.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Tribunal's reasoning leading to the decision on valuation, applicability of rules, extended limitation period, and imposition of penalties.