2008 (4) TMI 443 - AT - Central Excise

Valuation as to whether the additional discount offered to holders of advance license can be included in the assessable value or not - . It is not disputed that the appellant was supplying the same materials at a higher price and in respect of advance licence holders who surrendered the rights to the appellant gave the same materials at a specially discounted price. - In this case, the additional discount given to the advance licence holders are clearly an additional consideration which influence the sale price - The value enhancement for the purpose of demand of duty is legal and proper. - The claim that the appellant was having a bona fide belief that the additional discounts are permissible has to be accepted and demand of duty has to be confined to duty within the normal period of limitation. No penalty will be justified. - In the present case, admittedly, the clearances in question were not effected by following the 2001 Rules, a requirement laid down under Notification 44/2001-C.E. (N.T.) for the purpose of claiming the benefit of Rule 19(2) of the Central Excise Rules, 2002. - I need not embark on further discussion on other conditions of Notification 44/2001. Where it is found that a mandatory condition was not satisfied by the assessee, he was not entitled to claim duty-free clearance of the goods under Rule 19(2). The issue is held against the appellants. Held that benefit is not available - Rules in contradistinction from circulars, instructions etc. stand on a higher footing and hence can hardly be said to be hollow pieces of legislation. They are made to be complied with. In the present case, admittedly, the clearances in question were not effected by following the 2001 Rules, a requirement laid down under Notification 44/2001-C.E. (N.T.) for the purpose of claiming the benefit of Rule 19(2) of the Central Excise Rules, 2002. I can hardly consider that requirement to be relaxable. - Coming to revenue neutrality, I find that this issue has been debated by both sides with extensive reference to the provisions of EXIM Policy and the Handbook of Procedure. On the one hand, learned counsel has argued that, as the supply of goods in question to advance licence holders were deemed exports under para 8.2(a) of Chapter 8 of EXIM Policy, 2002-07, the assessee was entitled to refund of terminal excise duty Held that assessee as deemed exporter could not claim benefit of refund of terminal excise duty going by Handbook of Procedures plea of revenue neutrality not sustainable Appeal allowed

Issues Involved:
1. Whether the additional discount offered to holders of advance licenses should be included in the assessable value.
2. Whether the benefit of Rule 19(2) read with Notification No. 44/2001 could be claimed by the appellant.
3. Whether the entire exercise was revenue-neutral.
4. Whether the demand of duty is barred by limitation.

Issue-wise Detailed Analysis:

1. Inclusion of Additional Discount in Assessable Value:
The appellant, a manufacturer, offered various discounts to customers, including additional discounts to advance license holders. The central issue was whether these additional discounts should be included in the assessable value. The Commissioner treated these discounts as additional consideration, confirming demands of duty and imposing penalties. The Tribunal held that the additional discount given to advance license holders formed additional consideration for the sale and needed to be included in the assessable value. The Tribunal referenced the Hon'ble Supreme Court's decision in CCE, Bhubaneshwar v. IFGL Refractories Ltd., which was relevant even after the amendment of Section 4 w.e.f. 1-7-2000.

2. Benefit of Rule 19(2) and Notification No. 44/2001:
The appellant claimed the benefit of Rule 19(2) read with Notification No. 44/2001, which allows duty-free clearance for holders of advance licenses. The Tribunal remanded the matter to the Commissioner to examine this claim. The Commissioner, however, denied the benefit on the grounds that the appellant did not opt for duty-free clearance at the time of removal and did not fulfill the conditions of the notification. The Tribunal found that the conditions of Notification No. 44/2001 were substantive and mandatory, thus the benefit could not be claimed post-clearance. The Third Member (Judicial) concluded that the appellant could not claim the benefit of Rule 19(2) as the mandatory conditions were not met.

3. Revenue Neutrality:
The appellant argued that the entire exercise was revenue-neutral since the duty paid could be claimed as a refund of terminal excise duty or CENVAT credit by the buyers. The Tribunal held that the refund of terminal excise duty is administered by the Commerce Ministry and is outside the purview of the Customs & Excise Authorities. Therefore, the eligibility for such a refund could not be determined in the excise proceedings. However, the Third Member (Judicial) found that the situation was revenue-neutral concerning CENVAT credit, as any differential duty paid by the appellant would be available as credit to the buyers. This position was supported by several decisions, including CCE, Pune v. Coca-Cola India Pvt. Ltd.

4. Limitation:
The appellant contended that the demand in Appeal No. E/228/07 was barred by limitation, as the show cause notice was issued on 28-9-2005 for the period 1-9-2000 to 31-3-2004. The Tribunal accepted that the appellant had a bona fide belief that the additional discounts were permissible, thus the demand was confined to the normal period of limitation, and no penalty was justified.

Conclusion:
The Tribunal, by majority, set aside the impugned orders and allowed the appeals with consequential relief, primarily on the ground of revenue neutrality concerning CENVAT credit. The demand of duty and interest was confirmed only within the normal period of limitation, and penalties were set aside in all cases.

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