2000 (5) TMI 76 - AT - Central Excise

Summary

Issues Involved:
1. Undervaluation of Valves.
2. Inclusion of cost of Butyl Rubber supplied by customers in the cost of production.
3. Suppression of facts with intent to evade duty.
4. Applicability of extended period for demand.
5. Classification of different classes of buyers.

Detailed Analysis:

1. Undervaluation of Valves:
The appellants were accused of undervaluing valves where customers supplied Butyl Rubber. The duty confirmed was Rs. 60,76,226.14 with a mandatory penalty of Rs. 52,30,834.14 under Section 11AC. The period of dispute was from 1-3-1993 to 31-3-1998.

2. Inclusion of Cost of Butyl Rubber Supplied by Customers in the Cost of Production:
The appellants argued that the cost of Butyl Rubber supplied by customers was accounted for under "Discounts & Commissions" in the Profit and Loss Account and absorbed in the cost of production. This was supported by the Cost Audit Report under Section 14A, which confirmed that the cost of Butyl Rubber supplied by customers was included in the cost of production. The tribunal found that the Cost Accountant's report was direct evidence that outweighed the circumstantial evidence and mathematical models presented by the Commissioner.

3. Suppression of Facts with Intent to Evade Duty:
The department alleged that the appellants suppressed facts with an intent to evade duty, thus invoking the extended period. However, the tribunal found that the appellants had disclosed all primary and inferential facts to the department. The department was aware of the two classes of buyers and the different prices charged, as reflected in the price lists filed by the appellants. Therefore, the tribunal concluded there was no suppression of facts.

4. Applicability of Extended Period for Demand:
The tribunal held that the extended period was not applicable because the department was aware of the appellants' pricing and marketing patterns. The appellants had filed price lists declaring different prices for customers who supplied Butyl Rubber and those who did not, which were approved by the department. Hence, the demand was hit by time bar.

5. Classification of Different Classes of Buyers:
The tribunal recognized that customers who supplied Butyl Rubber formed a separate class of buyers compared to those who purchased the product off the shelf. The former were industrial buyers, and the latter were regular buyers. The tribunal accepted that different assessable values for different classes of buyers are permissible if the transactions are at arm's length. The tribunal found that the assessable value declared by the appellants was at arm's length, as the cost of Butyl Rubber was included in the cost of production and passed on to the customers through credit notes.

Conclusion:
The tribunal allowed the appeal, setting aside the impugned order. It concluded that the appellants had included the cost of Butyl Rubber in the cost of production, disclosed all relevant facts to the department, and thus, there was no suppression with an intent to evade duty. The demand was also hit by limitation, and the classification of different classes of buyers was justified. Consequently, the appeal was allowed with consequential relief as per law.