2021 (11) TMI 337 - AT - Central Excise

Levy of penalty - Area based exemption - allegation of incorrect valuation of final products cleared to related parties - duty amount alongwith interest was confirmed and penalty imposed for not valuing the final products under Rule 8 read with Rule 9 of the Central Excise Valuation Rules, i.e. cost plus 10%, as was relevant during the material period. - HELD THAT - the assessee has not valued the goods in compliance with the Valuation Rules. The appellant has contended that they have cleared the goods on the basis of prevailing market prices. However, no evidence has been produced to substantiate their claim of having cleared the goods to the related parties on prevailing market prices. Moreover, in the adjudication proceedings, they have not disputed that manner of computation adopted by the Central Excise Department to arrive at the value as per the Rules, as appearing in page No. 26 to 40 of the appeal Paper Book which forms part of the SCN. No effort was ever made to show that the prices charged to the related party were closely approximate to the prices charged to independent parties. Further, there is a charge against the assessee that they deliberately over-valued the goods cleared to related parties in attempt to obtain higher refund which is the subject matter of recovery in the impugned demand order. At the same time, they also indulged in undervaluation as per their convenience, to short pay the duty amount which has not been rebutted by submitting the prices charged to independent parties. Admittedly, when there is no blanket refund in view of the amending Notification dated 27.03.2008, there is no case of complete revenue neutrality and hence, does not advance the case of the appellant assessee to plead for waiver of penalty in the given factual matrix of the case. Levy of penalty confirmed.

Summary

Issues:
- Entitlement to penalty under Section 11AC of the Central Excise Act in the absence of complete refund eligibility.
- Valuation compliance with Central Excise Valuation Rules.
- Challenge to previous Tribunal order limited to penalty setting aside.

Entitlement to Penalty under Section 11AC:
The judgment addresses the issue of whether the assessee is liable to penalty under Section 11AC of the Central Excise Act in the absence of complete refund eligibility. The High Court noted that the notification dated 27-3-2008 amended the cash refund under Notification No. 32/99-CE, impacting the question of penalty imposition. The Court emphasized that complete revenue neutrality is linked to the intention to evade duty, especially when duty charged is not 100% refundable. The Court highlighted that any act of concealment or misstatement in such cases indicates an intention to evade duty, justifying penalty imposition. The Court remanded the case back to CESTAT for fresh consideration, emphasizing the significance of the notification dated 27-3-2008 and the intention to evade duty.

Valuation Compliance with Central Excise Valuation Rules:
The judgment discusses the issue of valuation compliance with Central Excise Valuation Rules by the assessee. It was noted that the assessee did not value the goods in accordance with the rules and failed to provide evidence supporting their claim of clearing goods at prevailing market prices. The Tribunal found that the assessee deliberately over-valued goods cleared to related parties to obtain higher refunds and engaged in undervaluation to pay less duty. The Tribunal highlighted that incorrect valuation was a deliberate attempt to defraud revenue, as evidenced by the failure to disclose relevant information and the conscious disregard of the amending Notification No. 17/2008-CE. The Tribunal concluded that the lack of complete revenue neutrality due to the amendment did not warrant relief from penalty imposition, ultimately rejecting the appeal.

Challenge to Previous Tribunal Order Limited to Penalty Setting Aside:
The judgment also addresses the challenge to the previous Tribunal order, which was limited to setting aside the penalty. The Tribunal emphasized that the assessee did not challenge the duty demand confirmed in the previous order, which had attained finality. The challenge in the remand proceedings was limited to contesting the penalty aspect, as the Tribunal declined to entertain challenges on valuation aspects not previously appealed. The Tribunal upheld the duty demand confirmation and rejected the appeal based on the lack of entitlement to penalty relief under Section 11AC of the Central Excise Act.

In conclusion, the judgment comprehensively analyzes the issues of penalty entitlement under Section 11AC, valuation compliance with Central Excise Valuation Rules, and the limited challenge to the previous Tribunal order. It emphasizes the significance of complete refund eligibility, intention to evade duty, and proper valuation practices in determining penalty imposition in excise matters.