2002 (7) TMI 147 - AT - Central Excise

Summary

Issues Involved:
1. Inclusion of interest on advances in the assessable value.
2. Inclusion of inspection charges in the assessable value.
3. Fraudulent intention in non-payment of differential duty on escalated price.
4. Imposition of penalties under Rule 173Q and Section 11AC.

Summary:

1. Inclusion of Interest on Advances in the Assessable Value:
The appellants received advances from the Railways and utilized them for official expenditure and repayment of loans. The department argued that the interest saved on these advances should be included in the assessable value. The Tribunal referenced the Supreme Court's decision in Metal Box India v. CCE, Madras, which held that interest on advances is includible in the assessable value if it saves the manufacturer from borrowing costs. The Tribunal concluded that the interest on advances was includible in the assessable value and upheld the invocation of the longer period of limitation u/s 11A(1) due to the appellants' failure to disclose the contract details.

2. Inclusion of Inspection Charges in the Assessable Value:
The appellants collected inspection charges from the Railways but did not include them in the assessable value. The Tribunal cited the case of Hindustan Gas & Industries Ltd., which held that inspection charges form part of the value. The Tribunal confirmed that the inspection charges were includible in the assessable value and upheld the invocation of the longer period of limitation.

3. Fraudulent Intention in Non-Payment of Differential Duty on Escalated Price:
The appellants raised a pre-audit commercial invoice for the escalated price, followed by a Rule 52A invoice when excise duty was paid. The Commissioner found no fraudulent intent as the duty on the escalated price was paid before receiving the payment from the Railways. The Tribunal upheld the Commissioner's finding and appropriated the amount paid by the appellants towards this liability.

4. Imposition of Penalties under Rule 173Q and Section 11AC:
The Tribunal found the penalty of Rs. 20,00,000/- under Rule 173Q to be harsh and reduced it to Rs. 1,20,000/-. For the penalty u/s 11AC, considering the appellants were a State Government Undertaking and the buyer was Indian Railways, the Tribunal reduced the penalty from Rs. 34,18,250/- to Rs. 11,50,000/-.

Separate Judgment by Member (J):
Member (J) disagreed with the majority, holding that the department failed to prove a nexus between the advances and the price, and that the inspection charges were not includible in the assessable value. He also found the demand time-barred due to prior knowledge by the department. The matter was referred to a Third Member, who agreed with Member (J) on the time bar issue and allowed the appeal.

Majority Order:
The impugned order was set aside, and the appeal was allowed both on merits and on time bar.