2020 (1) TMI 755 - AT - Central Excise

Valuation - Nitrogen Gas manufactured and cleared to M/s. JSW - Department contends that the appellants have procured liquid Nitrogen Gas at the rate of ₹ 7 to ₹ 10 per cubic meter and sold the same to M/s. JSW at the rate of ₹ 1.90 per cubic meter and thus the appellants have under valued the nitrogen gas sold to M/s. JSW - adoption of Rule 11 of the valuation Rule 2000 or Section 41(a) of Central Excise Act 1944 - revenue neutrality - extended period of limitation. HELD THAT - With effect from 2000 the concept of value has changed in the Central Excise Parlance. The concept of transaction value has been put in place instead of the normal price existing earlier. It is not the case of the department that different transaction values do not exist for the product. It is clearly brought out by the Appellants that in terms of the agreement itself, different prices are available for the Nitrogen manufactured from different streams. We find that these two are differently identifiable transaction and as such there is no bar under Section 41(a) of Central Excise Act, 1944 for the existing of two transaction values, Although for the same product and for the same receiver. It is not the case of the department that the price paid or payable by M/s. JSW to the Appellants has been suppressed and differential amounts were being paid by M/s. JSW to the Appellants. In the absence of any such evidence the department contention that the sale value adopted by the Appellants do not represent the actual transaction value is not sustainable. The agreement between the appellant and the customer clearly brings out the difference in pricing. The higher price adopted was only in respect of the clearance of Nitrogen is made out of Liquid Nitrogen purchased by the Appellants. Just because there is a variation in one of two consignment the value cannot be adopted to the entire consignment in the particularly in the era of assessment based on transaction value. The department has not put forth any evidence to demonstrate that amounts over and above the transaction value were collected by the Appellants. On going through the SCN and the adjudication order, it is found that the same have not taken into account the fact that appellants have arrived at the value in terms of Rule 6 of Central Excise Valuation Rules 2000. It has also not been brought on record as to why the calculation arrived at by the appellants has not been discussed and disposed off before calculating in a different manner. Under the circumstances, the matter requires to travel back to the Adjudicating Authority to arrive at the correct assessable value, considering the observations of the bench as above and the submissions of the appellants. Appeal allowed by way of remand.

Issues Involved:

1. Determination of assessable value of nitrogen gas supplied by the appellants.
2. Alleged undervaluation of nitrogen gas.
3. Applicability of Rule 11 of the Valuation Rules, 2000.
4. Revenue neutrality and captively consumed goods.
5. Invocation of the extended period of limitation.
6. Imposition of interest and penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Determination of Assessable Value of Nitrogen Gas:

The appellants, M/s Inox Air Products, manufacture nitrogen gas and supply it to JSW Steel Company Limited under an agreement. The nitrogen gas is produced via two streams: separating nitrogen from atmospheric air and converting bought liquid nitrogen into gas during power failures. The agreement specifies different pricing for each stream: ?1.90 per cubic meter for nitrogen from air and ?14.19 per cubic meter for nitrogen from liquid nitrogen. The department contends that the appellants undervalued the nitrogen gas by selling it at ?1.90 per cubic meter despite procuring liquid nitrogen at ?7 to ?10 per cubic meter. The appellants argue that the assessable value should be based on the transaction value under Section 4(1)(a) of the Central Excise Act, 1944, and not under Section 4(1)(b) read with Rule 11 of the Valuation Rules.

2. Alleged Undervaluation of Nitrogen Gas:

The department's position is that the appellants undervalued the nitrogen gas sold to JSW, leading to a Show Cause Notice demanding recovery of excise duty amounting to ?1,20,22,633. The appellants counter that the department's assumption that all nitrogen gas was produced from liquid nitrogen is incorrect, as only 0.44% of the total production was from liquid nitrogen, with the remaining 99.56% produced from atmospheric air. They assert that the department did not provide evidence to support its claim of undervaluation.

3. Applicability of Rule 11 of the Valuation Rules, 2000:

The department seeks to determine the value of nitrogen gas under Rule 11 of the Valuation Rules, 2000, calculating the value at ?7.83 per cubic meter based on the purchase price of liquid nitrogen. The appellants argue that the transaction value is available and should be used for assessment. They emphasize that different prices are specified in the agreement for nitrogen produced from different streams, and each transaction should be considered independently.

4. Revenue Neutrality and Captively Consumed Goods:

The appellants argue that the entire nitrogen gas supplied to JSW is captively consumed in the manufacture of final products, making the demand for differential duty revenue neutral. They cite several Supreme Court decisions supporting the view that demands for differential duty in revenue-neutral situations are not sustainable. They also contend that they have already paid excise duty on water and electricity supplied by JSW, complying with Rule 6 of the Valuation Rules.

5. Invocation of the Extended Period of Limitation:

The appellants argue that the extended period of limitation is not maintainable as there was no suppression of facts or intent to evade duty. They maintain that all records were maintained and statutory returns filed, with no evidence of willful suppression or fraudulent intent. They cite the Supreme Court's decision in CCE Vs. Nirlon Limited, which held that the extended period of limitation cannot be invoked in revenue-neutral situations.

6. Imposition of Interest and Penalty under Section 11AC:

The department argues that the appellants suppressed material facts with intent to evade duty, justifying the invocation of the proviso to Section 11A(1) and the imposition of interest under Section 11AB and penalty under Section 11AC. The appellants refute this, stating that the issue is one of legal interpretation and that no penalty is imposable as there was no contravention of the rules or fraudulent intent.

Conclusion:

The Tribunal found that the appellants provided sufficient evidence to demonstrate that different transaction values existed for nitrogen gas based on its source. The department failed to provide evidence of suppression or additional consideration. The Tribunal directed the matter back to the Adjudicating Authority for de novo proceedings to determine the correct assessable value, considering the observations and submissions of the appellants. The appeal was allowed by way of remand, with instructions for the proceedings to be completed within four weeks.

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