2021 (11) TMI 462 - AT - Central Excise

Valuation - Job-worked goods - governed by Rule 8 of Central Excise (Valuation) Rules, 2000 or on cost construction method i.e. cost of raw material plus job charges? - suppression of fact or malafide intention in non-payment/short-payment of duty on the job work goods on the part of the appellant, or not - HELD THAT - The value of the goods shall be done under Rule 8 only in case if the said goods is either used by the assessee himself or on his behalf in the manufacture of other articles. In the present case, job-worked goods manufactured by M/s. Turbhe Chemical Pvt. Ltd. was neither used by themselves nor on their behalf in the manufacture of any other articles. Admittedly, the job-worked goods after manufacture was returned back to principal manufacturer M/s. Total Oil India Pvt. Ltd. and it is M/s. Total Oil India Pvt. Ltd., who have used the job-worked goods in the manufacture of their final products and such manufactured goods cleared on payment of duty. Therefore, the ingredients of Rule 8 are not satisfied on the part of the appellant, therefore, valuation of job work goods cannot be done under Rule 8. Whether there is suppression of fact with malafide intention for non-payment/short-payment of duty? - revenue neutrality - HELD THAT - The appellant have been paying the excise duty. The only lapse is that the appellant have not revised the price after 2006, however on pointing out by the audit they have paid the duty along with interest. It was also found that the duty so paid/payable by the appellant is undisputedly available as Cenvat Credit to the principal manufacturer M/s. Total Oil India Pvt. Ltd. Therefore, it is a clear case of revenue neutral. In catena of case law including the case laws cited by the learned Counsel, it was held that where there is situation of revenue neutrality the malafide intention cannot be attributed to the assessee. For this reason also, we find that there is no suppression of fact or malafide intention on the part of the appellant. However, the appellant have admittedly paid the duty however the duty paid is not disputed by the appellant. The excise duty payable on the value i.e. cost of manufacture plus job-work charges is correctly payable by the appellant. The adjudicating authority should re-determine the value accordingly. Consequently, the correct excise duty payable and interest thereon should be recomputed - there is no malafide intention on the part of the appellant, hence the penalty is set aside. Both the matters are disposed of by way of remand to the adjudicating authority for passing a fresh order.

Summary

Issues Involved:
1. Valuation of job work goods under Rule 8 of Central Excise (Valuation) Rules, 2000 or cost construction method.
2. Suppression of facts or malafide intention in non-payment/short-payment of duty.
3. Entitlement of Cenvat Credit by the principal manufacturer.
4. Applicability of penalties and interest.

Detailed Analysis:

1. Valuation of Job Work Goods:
The primary issue was whether the job work goods' valuation should be governed by Rule 8 of the Central Excise (Valuation) Rules, 2000 or on a cost construction method (cost of raw material plus job charges). The adjudicating authority invoked Rule 8, which states that if excisable goods are used by the assessee or on their behalf in the production of other articles, the value shall be 110% of the cost of production or manufacture of such goods. However, the Tribunal found that the job-worked goods were returned to the principal manufacturer (M/s. Total Oil India Pvt. Ltd.) and not used by the appellant themselves or on their behalf. Thus, Rule 8 was deemed inapplicable. The Tribunal upheld the valuation method adopted by the appellant (cost of raw material plus job charges) as correct and legal, citing precedents such as Ujagar Prints Vs. Union of India and Pawan Biscuits Co. Ltd. Vs. Collector.

2. Suppression of Facts or Malafide Intention:
The Tribunal examined whether there was suppression of facts or malafide intention in the non-payment/short-payment of duty. It was noted that the appellant had been paying excise duty but had not revised the price since 2006. Upon audit, the appellant paid the differential duty along with interest. The Tribunal highlighted that the duty paid was available as Cenvat Credit to the principal manufacturer, making it a revenue-neutral situation. Citing various case laws, the Tribunal concluded that malafide intention could not be attributed in revenue-neutral situations. Therefore, the Tribunal found no suppression of facts or malafide intention on the appellant's part and set aside the penalty.

3. Entitlement of Cenvat Credit:
In the appeal by M/s. Total Oil India Pvt. Ltd., the issue was the disallowance of Cenvat Credit on the duty paid by M/s. Turbhe Chemical Pvt. Ltd. The Tribunal held that since there was no suppression of facts by M/s. Turbhe Chemical Pvt. Ltd., M/s. Total Oil India Pvt. Ltd. was entitled to the Cenvat Credit. The Tribunal noted that the excise duty payable needed to be recomputed, and consequently, the entitlement of Cenvat Credit might vary. However, the demand for Cenvat Credit was deemed unsustainable, and the corresponding penalty and interest were set aside.

4. Applicability of Penalties and Interest:
The Tribunal addressed the issue of penalties and interest. Given the absence of malafide intention and the revenue-neutral nature of the situation, the Tribunal set aside the penalty imposed on M/s. Turbhe Chemical Pvt. Ltd. Similarly, for M/s. Total Oil India Pvt. Ltd., the penalty and interest corresponding to the Cenvat Credit demand were also set aside.

Conclusion:
The Tribunal remanded both matters to the adjudicating authority for passing a fresh order, directing the re-determination of the value and recomputation of excise duty and interest accordingly. The Tribunal emphasized that the valuation method adopted by the appellant was correct and legal, and there was no suppression of facts or malafide intention. The entitlement of Cenvat Credit to the principal manufacturer was upheld, and the penalties and interest were set aside.