2004 (3) TMI 215 - AT - Central Excise

Determination of assessable value of cotton yarn - Applicability of extended period of limitation u/s 11A - suppression/misdeclaration of facts - penalties and confiscation of plant and machinery - HELD THAT - We find that the Commissioner has found suppression/misdeclaration of facts with intent to evade duty against the assessee on the basis that the appellants' cost accountant had not included certain elements in the cost of production. We are unable to accept the Commissioner's contention that the assessee can be fastened with the liability if the cost accountant had arrived at the value of the captively consumed goods according to his understanding. Any error, which might be found in such certificates, would not be a valid ground for any authority to proceed against his clients or employers. In the case before us admittedly the assessee had declared the assessable value of his goods on the basis of the cost accountant certificates. Even if we admit that the accountants' certificate are erroneous such errors will not constitute mens rea for the assessees unless it is establish that the errors were made use of by the assessee to evade payment of duty. No evidence of this sort has been brought by the department. In this case the demand for duty was raised on the basis of statutory records filed by the assessee. It has been consistently held by this Tribunal that in such situation the extended period of limitation cannot be invoked by the department vide DCM Engg. Products v. CCE 2002 (3) TMI 148 - CEGAT, COURT NO. I, NEW DELHI , Pranav Vikas (India) Ltd. v. CCE 2002 (6) TMI 99 - CEGAT, NEW DELHI . Price declarations, RT 12 returns, Accountant Certificates and allied statutory documents submitted by the assessee from time to time explicitly or implicitly disclosed the relevant facts to the department at the appropriate stages. There was no suppression of facts on the appellants part. The larger period of limitation therefore cannot be invoked. We are unable to agree with the Commissioner's observations in the para cited supra giving out reasons as to why he alleges suppression on the part of the appellant. Nothing prevented the department from making an inquiry as to what elements were specifically included in the cost of production of yarn when the appellant disclosed that administrative overheads and salaries paid to the workers were taken into consideration while computing the cost of production. It is not open to the department at a later stage to say that the assessee did not indicate whether he included bonus, gratuity, interest and profit while computing the cost. Once we observe that suppression cannot be attributed to the appellant, penalties under Rule 173Q or confiscation of plant and machinery or penalties under Rule 209A can be sustained. We are also unable to agree with the Commissioner's contention that the appellant was not engaged in job work for M/s. Arvind Mills Ltd. During the period 1-4-94 to 24-7-95. In fact he was producing yarn on job work basis, declared the assessable value in line with the Supreme Courts decision in Ujagar Prints case 1989 (1) TMI 124 - SUPREME COURT . The appellant also declared the basis of the cost of production of yarn produced and cleared for captive consumption after 24-7-95. None of the declarations filed by the appellant was questioned. Conclusion The Tribunal found the demand time-barred, set aside the order of the Commissioner, and allowed the appeals.

Issues Involved:
1. Determination of assessable value of cotton yarn.
2. Applicability of extended period of limitation u/s 11A of the Central Excise Act, 1944.
3. Allegation of suppression/misdeclaration of facts.
4. Inclusion of bonus, gratuity, administrative overheads, interest, and margin of profit in the cost of production.
5. Imposition of penalties and confiscation of plant and machinery.

Summary:

1. Determination of Assessable Value of Cotton Yarn:
The appellants, engaged in manufacturing cotton yarn, were initially known as M/s. Asoka Mills Ltd. and later as M/s. Asoka Spintex Ltd. post-amalgamation with M/s. Arvind Mills Ltd. The assessable value of cotton yarn was based on the cost of raw material and job charges for the period April 1994 to 24-7-95, in line with the Supreme Court decision in Ujagar Prints Ltd. Post-amalgamation, the assessable value was determined as per Central Excise Valuation Rule 6(b)(ii) for captive consumption.

2. Applicability of Extended Period of Limitation u/s 11A:
The Commissioner invoked the extended period of limitation, alleging suppression of facts by the appellant. However, the Tribunal found that the appellant had filed price declarations and RT 12 returns, which were approved by the Central Excise authorities. The Tribunal held that any error in the cost accountant's certificate would not constitute mens rea unless it was established that the errors were made to evade duty. No such evidence was provided by the department.

3. Allegation of Suppression/Misdeclaration of Facts:
The Commissioner argued that the appellant failed to include bonus, gratuity, administrative overheads, interest, and margin of profit in the cost of production. The Tribunal, however, found that the appellant had disclosed relevant facts through statutory documents and that the department was aware of these facts. Therefore, the extended period of limitation could not be invoked.

4. Inclusion of Bonus, Gratuity, Administrative Overheads, Interest, and Margin of Profit:
The Commissioner contended that these elements should be included in the cost of production. The appellant argued that bonus and gratuity are not part of manufacturing cost for captively consumed yarn, and interest is a financial charge not to be added under standard costing principles. The Tribunal did not find it necessary to give findings on the merits due to the time-barred nature of the demand.

5. Imposition of Penalties and Confiscation of Plant and Machinery:
The Tribunal observed that penalties under Rule 173Q or Rule 209A and confiscation of plant and machinery could not be sustained once suppression could not be attributed to the appellant. The entire exercise by the department seemed to be influenced by a CBEC Circular issued after the relevant period, which could not retroactively attribute suppression.

Conclusion:
The Tribunal found the demand time-barred, set aside the order of the Commissioner, and allowed the appeals.

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