2022 (4) TMI 877 - AT - Central Excise

Recovery of excess availed CENVAT Credit - higher valuation of pan masala at the end of supplier process amounting to manufacture or not - re-determination of value at ₹ 324 per kg instead of ₹ 1784 per kg as declared by them - repacking of pan masala into smaller pouches and exporting them - benefit of area based exemption - N/N. 71/2003-CE dated 09.09.2003. Whether the officers of DGCEI have the power to re-determine the assessable value? - HELD THAT - The assessment of duty which includes determining the classification of the goods, their valuation, the exemption notifications that may apply and determining the duty payable is the responsibility of the assessee itself as per Rule 3. The assessee is also required to file monthly returns with the Superintendent of the Central Excise Rule 12 (1) which can be scrutinised by the proper officer for correctness Rule 12(3) . While the proper officer is not defined in this Rule, since the return is to be filed with the Superintendent of Central Excise, such officer can only be understood to be the proper officer empowered to scrutinise the returns for correctness. Any Central Excise officer may exercise the powers and discharge the duties conferred or imposed under this Act on any other Central Excise Officer who is subordinate to him Section 12E . Evidently, the Rules have not conferred any powers on the officers of DGCEI to either assess the duty or to scrutinize the returns for their correctness. Therefore, the officers of DGCEI have no power either to assess the duty or to scrutinize the self assessment by the assessee. If on scrutiny, the assessment by the assessee is found to be incorrect and the assessee does not agree with the officer‟s assessment, there are two options. One is for the department to file an appeal with the Commissioner (Appeals). It has been held by the Constitution Bench of Supreme Court disposing of a batch of matters involving Customs, Excise and Service Tax in ITC LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA -IV 2019 (9) TMI 802 - SUPREME COURT that all assessments including self-assessments can be appealed before the Commissioner (Appeals) - the other option is by issuing a Show Cause Notice under Section 11A. This option is restricted by WHO, WHEN and WHY can an SCN be issued. As far as WHO is concerned, it has to be the Central Excise officer. As far as WHEN is concerned, it is within the normal period of limitation or extended period of limitation of five years as applicable. As far as WHY is concerned, the SCN can be issued only if there is a non-levy, short levy, non-payment or short payment or erroneous refund of the duty. Section 11A does not provide for issue of notice so as to modify the assessment in any other way. In this case, the value of the goods cleared by both Blue Whale and Unicorn was proposed to be reduced by the officers of DGCEI who do not have the power to even scrutinize the returns filed by the assessee. They propose to revise the assessable value to a lower amount which is also not provided for under Section 11A - DGCEI also proposed to revise the goods cleared by Blue Whale for export without filing any appeal against the assessment of the Shipping Bill before Commissioner (Appeals). Classification and valuation are part of the assessment of duty. Valuation of the goods cleared by the supplier cannot be modified by the officers at the end of the recipient so as to reduce the CENVAT credit. It has been held not only in a catena of judgements but it has also been clarified by the Board in Circular dated 01.02.2016 that when Central Excise Duty has been paid, CENVAT credit on the same cannot be questioned at the receiver‟s end. Learned Commissioner was, therefore, correct in rejecting the proposal to deny CENVAT credit because undisputedly the duty was paid and the goods were received and they were used in the manufacture of the final products by Blue Whale. Assessable value of the final products exported by Blue Whale - HELD THAT - While Central Excise Act and the Customs Act provide for assessment based on transaction values subject to some exceptions, the SCN has been issued by DGCEI replacing the transaction value with values which it considers fair and proper assuming not only the power of deciding what is a fair assessable value but also seeking to deny CENVAT credit available to the buyer by re-determining the value at the end of the supplier contrary to not only to the judicial precedents but also Board‟s Circular. This is beyond the powers conferred even on the Superintendent of Central Excise who has the mandate to scrutinise returns, let alone officers of DGCEI who have no jurisdiction even to scrutinise the Central Excise Returns for correctness. Appeal dismissed.

Summary

Issues Involved:
1. Admissibility of excess CENVAT credit availed by Blue Whale due to higher valuation of pan masala by Unicorn.
2. Re-determination of the value of goods exported by Blue Whale.

Issue-wise Detailed Analysis:

1. Admissibility of Excess CENVAT Credit:

The primary contention revolves around whether Blue Whale correctly availed CENVAT credit based on the valuation of pan masala by Unicorn. The show cause notice (SCN) alleged that Unicorn overvalued its products, leading to Blue Whale availing excess CENVAT credit. The Commissioner observed that the SCN did not allege non-receipt of goods, forged documents, or non-payment of excise duty by the supplier. The only allegation was overvaluation at the supplier's end. The Commissioner relied on Board Circular No. 1014/2/2016-CX and case laws such as Commissioner of Central Excise vs. MDS Switchgear Limited and M/s Ran India Steels Pvt Ltd. Unit II vs. Commissioner of Customs & Central Excise, Salem, which established that once duty is paid, CENVAT credit cannot be questioned at the receiver's end. The Commissioner concluded that Blue Whale correctly availed CENVAT credit since the duty was paid and the goods were received and used in manufacturing.

2. Re-determination of Export Value:

The SCN proposed to re-determine the value of goods exported by Blue Whale from ?1,784 per kg to ?324 per kg. The Commissioner held that statutory provisions do not allow re-determination of the value declared by the assessee for exported goods unless there's a record of overvaluation by customs authorities. The Commissioner relied on Sterlite Industries India Ltd. vs. Commissioner of Customs, which supported this view. The Revenue's appeal argued that Unicorn overvalued goods to pass excess credit to Blue Whale, but the Commissioner noted that DGCEI officers do not have the power to re-assess the value of goods at the recipient's end or scrutinize returns for correctness. The proper officer for such scrutiny is the jurisdictional Superintendent of Central Excise. Furthermore, any modification of the shipping bill's value must be appealed before the Commissioner (Appeals), as held in Jairath International vs Union of India.

Conclusion:

The Tribunal upheld the Commissioner's order, finding that DGCEI officers lacked the jurisdiction to re-assess the value of goods or deny CENVAT credit based on the supplier's valuation. The Tribunal emphasized that valuation and classification are part of duty assessment, which cannot be modified at the recipient's end to deny CENVAT credit. The SCN's proposals exceeded the powers conferred on DGCEI officers, and the proper remedy for any valuation disputes lies in appeals before the Commissioner (Appeals). Consequently, the Tribunal rejected the Revenue's appeal and upheld the Commissioner's order.

(Order pronounced on 18.04.2022)