2022 (5) TMI 865 - AT - Central Excise

Valuation of goods - method of valuation - sale of goods from depot / customer care center - excisable goods cleared/stock transferred to their Unit No. 2/Customer Care Centre from where the goods are sold to unrelated buyers without carrying out any manufacturing activity - applicability of Rule 11 read with Rule 7 or Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000? - invocation of extended period of limitation - penalty - HELD THAT - Issue whether the process of packing the excisable goods manufactured by the appellant along with the other bought out items in a carton and sold as Cable Jointing Kit was considered in case of XI TELECOM LIMITED VERSUS SUPERINTENDENT OF C. EX., HYDERABAD 1998 (2) TMI 137 - HIGH COURT OF JUDICATURE FOR ANDHRA PRADESH AT HYD where it ws held that placing different articles in the kit does not amount to manufacture. If once the activity of placing the articles in the kit does not amount to manufacture, the provisions of the Act are not applicable as the levy of excise duty is on the production and manufacture of goods. In the present case the counsel for the appellant urge, that the appellant have consumed the goods cleared by them from their manufactory to their depot and from their depot they have cleared these goods cleared from the factory along with other bought out items, packed together in a carton as cable jointing kit . It is evident from the order of the Hon ble High Court of Andhra Pradesh, that the cable jointing kit is an excisable good classifiable under heading 85.47 of the First Schedule to Central Excise Tariff Act, 1985, however the same cannot be subjected to excise duty as the activities undertaken do not amount to manufacture and hence will be excluded from the purview of Section 3 of the Central Excise Act, 1944. Since, the finding of the Commissioner in the impugned order that the goods cleared from the factory of the appellant were not consumed captively in production of the finished goods, is agreed upon, Rule 8 of valuation Rules will not be applicable. Undisputedly the appellants have offered the goods for sale for the first time in normal course of trade at depot only, which are their fully owned service centers. The actual place of removal as per the definition of place of removal, as section 4, as have been interpreted by the Hon ble Apex Court umpteen number of times has to be the depot only. Even if the arguments of the appellant are accepted, then also in view of the decisions of Hon ble Apex Court specifically in case of SIDHARTHA TUBES LTD. VERSUS COLLECTOR OF CENTRAL EXCISE 1999 (11) TMI 69 - SUPREME COURT , the value will be determined only on the basis of sale price from depot. It is found that the form in which the goods have been sold at depot are in package comprising of the goods cleared from the factory of appellant and other bought items packed together in a carton. Hence the sale price of the goods comprise of the sale price of the goods manufactured by the appellant and the sale price of the goods trade by the appellant. Time Limitation - HELD THAT - Undisputedly all the facts were in the knowledge of the revenue and in fact have been corresponded between the revenue and appellant since 1993. For the clearance of the said goods either by adopting the value determined on the basis of cost construction method prior to 1994, appellants would have filed Price List as per Rule 173 C of the erstwhile Central excise Rules, 1944 and thereafter price declarations with the department. These price lists would have been considered and approved by the appropriate authorities throughout. Commissioner does not deny the correspondences between the appellant and the revenue since 1993 on the issue. When the entire issue was in knowledge of the revenue since 1993, invoking extended period of limitation in the present case is not correct. Penalties - HELD THAT - In the issues relating to interpretation of the provisions of the Central Excise Act, 1944 and the Rules made thereunder, consistently it has been held that a change of view in the interpretation of the provisions of the statue and adopting a view that is contrary to the view adopted earlier as a matter of long standing practice, the revenue the appellant cannot be faulted and penalties imposed under Rule 25 too cannot be sustained - Commissioner has imposed penalty on the appellant 2 under Rule 26, the same cannot be sustained. Appeal allowed in part to the extent of setting aside the demands beyond the normal period of limitation and setting aside the penalties imposed on the appellants.

Issues Involved:

1. Determination of the correct assessable value of excisable goods.
2. Applicability of Rule 8 versus Rule 11 read with Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
3. Invocation of the extended period of limitation for demand.
4. Imposition of penalties under Section 11AC of the Central Excise Act, 1944, Rule 25, and Rule 26 of the Central Excise Rules, 2002.

Detailed Analysis:

1. Determination of the correct assessable value of excisable goods:
The Commissioner held that the value of excisable goods cleared to their depot should be determined by applying Rule 7 of the Central Excise Valuation Rules, 2000, on a pro-rata basis of the total sale price of the kits. The goods were sold from the depot without any manufacturing activity, and the value should not be based on Rule 8 as the goods were not used in the production or manufacture of other articles.

2. Applicability of Rule 8 versus Rule 11 read with Rule 7:
The appellants argued that Rule 8 should apply as the goods were used in the production of cable jointing kits. However, the Commissioner found that the goods were sold in their original condition along with bought-out items, and no manufacturing process was carried out at the depot. The Tribunal agreed with the Commissioner that Rule 8 was not applicable as the goods were not consumed in the production of other articles. Instead, Rule 11 read with Rule 7 was applicable, and the value should be based on the sale price from the depot, excluding the cost of bought-out items.

3. Invocation of the extended period of limitation for demand:
The Commissioner invoked the extended period of limitation, stating that the appellants misdeclared the removal of goods under the guise of captive consumption. However, the Tribunal found that the facts were known to the revenue since 1993, and the appellants had corresponded with the department regarding their activities. Therefore, the invocation of the extended period of limitation was not justified, and the demand beyond the normal period was set aside.

4. Imposition of penalties under Section 11AC, Rule 25, and Rule 26:
The Commissioner imposed penalties on the appellants under Section 11AC and Rule 25 for willfully undervaluing the goods to evade duty. A penalty was also imposed on a senior manager under Rule 26. The Tribunal set aside the penalties, stating that the issue involved interpretation of provisions and the appellants' actions were based on a long-standing practice. The penalties under Section 11AC and Rule 25 were not sustained, and the penalty on the senior manager was also set aside.

Conclusion:
The Tribunal partly allowed the appeals filed by the appellants, setting aside the demand beyond the normal period of limitation and all penalties. The appeal filed by the revenue was partly allowed to the extent of sustaining the demand of duty and interest within the normal period of limitation. The confiscation of goods and imposition of fine and penalties by the adjudicating authority were not sustained.

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