2023 (5) TMI 383 - AT - Central Excise

Demand of short paid duty - Levy of penalty under Rule 209 A of erstwhile Central Excise Act, 1944 - non-inclusion of cost of Royalty towards technical knowhow borne by M/s Wintac is includible in the assessable value of medicament viz. Reclavin Injection - HELD THAT - There is no dispute that the buyer of the medicament M/s Wintac has purchased technical knowhow on payment of consideration and the said technical know how was allowed to be used for manufacture of Recalvin Injection by M/s Norris. Therefore, the goods Reclavin Injection was manufactured with the technical knowhow which was provided by Wintac for which substantial cost was borne. Since the Wintac is the buyer of the goods and the goods has been manufactured by use of technical knowhow by Norris and such technical knowhow involves a cost such cost should be included in the assessable value of overall manufacturing of medicament. It is admitted fact that the value of technical knowhow was escaped while arriving at the transaction value, there is under valuation of medicament Recalvin Injection - there is short payment of duty in respect of medicament Recalvin Injection . Hence, the demand was rightly confirmed. Penalty under Rule 209 A of erstwhile Central Excise Rules, 1944 imposed on Wintac Ltd - HELD THAT - The penalty under rule 209 A can be imposed only on natural person for the reason that all the activities for which the penalty is imposable can be carried out by a natural person and not by the company - issue covered by the decision in the case of STEEL TUBES OF INDIA LTD. VERSUS COMMISSIONER OF C. EX., INDORE 2006 (10) TMI 146 - CESTAT, NEW DELHI LB where it was held that penalty can not imposed on corporates under rule 209 / Rule 26 of the Central Excise Rules, 2002. The appeal filed by M/s Norris Ltd is dismissed and appeal filed by M/s Wintac is allowed.

Summary

Issues involved:
The issues involved in the judgment are undervaluation of goods manufactured due to non-inclusion of the cost of technical knowhow, imposition of penalty under Rule 209 A of the Central Excise Act, 1944 on a company, and the inclusion of the cost of technical knowhow in the assessable value of the medicament.

Undervaluation of goods:
The appellant, engaged in the manufacture of P&P Medicines, entered into an agreement with another company for the manufacture of a specific medicament. The department alleged that the appellant undervalued the goods by not including the cost of technical knowhow provided by the other company. The Commissioner (Appeals) upheld the decision of the department, leading to the present appeals.

Imposition of penalty on a company:
The penalty under Rule 209 A of the erstwhile Central Excise Act, 1944 was imposed on the purchasing company. The representative of the company argued that this penalty could only be imposed on a natural person, not on a company, citing relevant case law. The Tribunal agreed with this argument and set aside the penalty imposed on the company.

Inclusion of technical knowhow cost in assessable value:
The Tribunal considered whether the cost of technical knowhow provided by the purchasing company should be included in the assessable value of the medicament manufactured by the appellant. It was established that the medicament was manufactured using the technical knowhow provided by the purchasing company, which involved a substantial cost. As the value of technical knowhow was not considered in the transaction value, there was an undervaluation of the medicament. Consequently, the Tribunal confirmed the demand and penalty for the appellant.

Final Decision:
The appeal filed by the manufacturing company was dismissed, while the appeal filed by the purchasing company was allowed. The penalty imposed on the purchasing company under Rule 209 A was set aside. The judgment was pronounced on 01.05.2023.