2003 (12) TMI 122 - AT - Central Excise

Summary

Issues:
- Dispute over valuation of free supply items in Exhaust System
- Allegation of short-levy, suppression of facts, interest, and penalty
- Appellant's contention on lack of intent to evade duty and timely rectification
- Appellant's argument on incorrect valuation by buyer
- Commissioner's rejection of time-bar defense
- Analysis of the mistake, intent, and applicability of penalty and interest

Analysis:
The appellant, a manufacturer of Automobile Components, faced a dispute regarding the valuation of free supply items in the Exhaust System supplied to M/s. Hyundai Motor India Ltd. The appellant voluntarily rectified the valuation error, paying around Rs. 1.28 crore towards differential duty before any proceedings were initiated. The Central Excise authority issued a show cause notice alleging short-levy due to suppression of facts, leading to the imposition of penalty and interest by the Commissioner.

The appellant contended that the initial short-payment was not intentional but a result of failure to correctly incorporate changes in the price of free supply items. They argued that the duty paid was available as credit to the buyer, negating any intent to evade duty. Citing the Supreme Court's decision in AMCO Batteries Ltd. v. C.C.E., Bangalore, the appellant emphasized the absence of wilful suppression or intent to evade duty.

On the aspect of time-bar, the appellant claimed that the error arose due to the incorrect valuation adopted by M/s. Hyundai Motor India Ltd., as 115% of the purchase price of the catalyst was erroneously considered. The Commissioner rejected the time-bar defense, attributing the rectification to the Audit Officers' visit rather than voluntary disclosure by the appellant.

Upon analysis, the Tribunal found that the error in valuation led to both higher and lower valuations, with no benefit to the appellant as the duty paid was reimbursed by the buyer. The Tribunal concluded that the penalty and interest were not sustainable as the case did not involve suppression of facts with intent to evade duty, as required by the proviso to Section 11A. Therefore, the penalty and interest were set aside, partially allowing the appeal in favor of the appellant.