2008 (2) TMI 112 - AT - Central Excise

HDPE pipes sprinkler irrigation & fittings - shortage of stock - RG1 register shows clearly that finished goods were manufactured & since they were not physically found in stock, demand is justified on merits & limitation - date of manufacture of finished goods found short is not relevant to establish shortage since bought out items i.e. saddle & PCN are integral parts of sprinkler irrigation system their value should be added penalty is justified u/s 11AC but not u/r 173Q, 210 & 226

Summary

Issues:
1. Shortage of finished goods in the factory.
2. Charging higher prices for certain items.
3. Duty payment on specific items not cleared from the factory.
4. Inclusion of bought-out items in the assessable value of goods.
5. Penalty imposition and confiscation of assets.

Analysis:

1. Shortage of finished goods:
The central excise officers detected a shortage of HDPE pipes in the factory compared to the recorded balance in the RG1 register. The assessee paid duty on the shortage, and the Additional Commissioner confirmed the duty on the shortage of finished goods. The Commissioner (Appeals) later set aside the demand, citing clerical errors in the register. However, the Tribunal upheld the duty confirmation, emphasizing that the date of manufacture is not relevant, and the entry in the register indicates manufacturing, necessitating duty payment.

2. Charging higher prices:
The assessees were found to charge higher prices for certain items than declared. The Tribunal noted discrepancies in price declaration and customer charges for items like sprinkler coupler and pump connecting nipple (PCN). The deputy manager and a job worker manager confirmed the inclusion of essential items like saddle and PCN in the sprinkler coupler, indicating an integral connection. Consequently, the Tribunal upheld duty demands on these items.

3. Duty payment on uncleared items:
The assessees had not paid duty on PCN items cleared from the factory to depots, despite including them in consignments. The Tribunal found that PCN and saddle were integral to the sprinkler coupler's function, warranting their inclusion in assessable value. Therefore, duty demands on these items were sustained.

4. Inclusion of bought-out items:
The Tribunal clarified that the assessable value of goods must consider whether bought-out items are integral to the final product. As saddle and PCN were deemed essential for the sprinkler coupler's function, their value was required to be included. The Tribunal upheld duty demands on these bought-out items.

5. Penalty and confiscation:
Penalties were imposed on the assessees for duty non-compliance, with a reduction in the penalty amount by the Tribunal. The Tribunal justified penal action due to the confirmed demand under an extended limitation period. However, penalties under specific rules were set aside, and the duty demand and penalty under Section 11AC of the Central Excise Act, 1944, were upheld.

In conclusion, the Tribunal partly allowed the appeal by upholding duty demands and penalties under Section 11AC while setting aside penalties under specific rules.