2025 (1) TMI 420 - AT - Central Excise

Valuation for stock transfers to sister units - Short payment of duty due to under valuation - Excess payment of duty due to over valuation of finished goods - Excess duty payment resulted in 'excess' refund not falling under impugned notification - reversal of refund being excess - area- based exemption under N/N. 56/2002-CE dated 14.11.2002 availed - Levy of penalty - HELD THAT - During the period of dispute from 27.08.2004 to 07.06.2005, the appellant had cleared goods on stock transfer to their sister units at Dadra and Silvasaa but while clearing the goods, it was not possible to determine the cost of production for each removal and therefore, the appellant transfer the stock at pre-determined value based on previous year CAS-4 data and after the cost audit which resulted in over or under valuation when each invoice was taken separately and the same resulted in excess payment or short-payment. It is noted that wherever there was a short payment of duty, the appellant paid it immediately along with interest and in the case of excess payment of duty, the Department has demanded the same as to the extent of excess duty paid where the appellant has availed the excess refund - sub-section (2B) of Section 11A specifically provides that the assessee in default may, before the notice issued under sub-section (1) is served on him, make payment of the unpaid duty on the basis of his own ascertainment or as ascertained by a Central Excise Officer and inform the Central Excise Officer in writing about the payment made by him and in that event he would not be given the demand notice under sub-section (1). Levy of penalty - HELD THAT - The short/ excess payment of duty was being made due to provision of Valuation Rules in case of supply to the related party, hence, there is no intention to evade payment of duty because whatever duty paid was available as refund to the appellant and hence there is no intention to evade payment of duty and therefore, no penalty is liable to be imposed. Conclusion - The short/ excess payment of duty was being made due to provision of Valuation Rules in case of supply to the related party, hence, there is no intention to evade payment of duty. The impugned order is not sustainable in law and is therefore set aside - appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the appellant's method of valuation for stock transfers to sister units, based on pre-determined values from previous year CAS-4 data, was in compliance with the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
Whether the appellant was liable for penalties under Section 11AC of the Central Excise Act, 1944, given that they paid the differential duty along with interest before the issuance of the Show Cause Notice.
Whether the issuance of the Show Cause Notice was justified under Section 11A(2B) of the Central Excise Act, 1944, considering the appellant's prior payment of duty and interest.
Whether there was any suppression of facts by the appellant that warranted the imposition of penalties.
Whether the entire exercise was revenue neutral, thereby negating any mala fide intention on the part of the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Valuation Methodology and Compliance:

Relevant Legal Framework and Precedents: The valuation was conducted under Section 4(1)(b) of the Central Excise Act and Rules 8 and 9 of the Central Excise (Determination of Price of Excisable Goods) Rules, 2000. The appellant used pre-determined values based on CAS-4 data from the previous year.
Court's Interpretation and Reasoning: The court noted that the valuation issues arose due to the difficulty in determining the cost of production for each removal, which led to over or under valuation.
Key Evidence and Findings: The court found that the appellant had paid the differential duty and interest before the issuance of the Show Cause Notice, indicating compliance with the valuation rules.
Application of Law to Facts: The court applied Rule 8 of the Valuation Rules and noted that the appellant's approach was consistent with the rules given the practical difficulties in valuation.
Treatment of Competing Arguments: The appellant argued that the valuation was revenue neutral, while the Department alleged suppression of facts. The court sided with the appellant, noting the absence of revenue loss.
Conclusions: The court concluded that the valuation method used by the appellant was justified under the circumstances and did not warrant penalties.

Penalty and Suppression of Facts:

Relevant Legal Framework and Precedents: Section 11AC of the Central Excise Act, 1944, deals with penalties for non-compliance. Section 11A(2B) allows for non-issuance of Show Cause Notices if duty and interest are paid before notice issuance.
Court's Interpretation and Reasoning: The court noted that the appellant had paid the duty and interest before the Show Cause Notice, which should have precluded its issuance.
Key Evidence and Findings: The court found no evidence of suppression of facts, as the appellant had regularly filed returns and disclosed material facts.
Application of Law to Facts: The court applied Section 11A(2B) and found that the Show Cause Notice should not have been issued, rendering the penalty unjustified.
Treatment of Competing Arguments: The Department argued for penalties due to alleged suppression, but the court found no intent to evade duty, supporting the appellant's position.
Conclusions: The court concluded that there was no suppression of facts or intent to evade duty, thus penalties were not warranted.

Revenue Neutrality and Intention:

Relevant Legal Framework and Precedents: The concept of revenue neutrality implies that any duty paid is offset by refunds, negating financial impact.
Court's Interpretation and Reasoning: The court recognized the revenue-neutral nature of the transactions, as any duty paid was refunded to the appellant.
Key Evidence and Findings: The court noted that the government did not incur any loss, reinforcing the absence of mala fide intention.
Application of Law to Facts: The court applied the principle of revenue neutrality to determine the absence of financial gain or loss.
Treatment of Competing Arguments: The appellant argued revenue neutrality, which the court accepted, countering the Department's claims of suppression.
Conclusions: The court concluded that the transactions were revenue neutral, negating any alleged intent to evade duty.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "We find that the short/ excess payment of duty was being made due to provision of Valuation Rules in case of supply to the related party, hence, there is no intention to evade payment of duty."
Core Principles Established: The principle of revenue neutrality and the importance of prior duty payment under Section 11A(2B) were reinforced.
Final Determinations on Each Issue: The court set aside the impugned order, concluding that the valuation method was justified, no penalties were warranted, and the transactions were revenue neutral.

The judgment underscores the significance of procedural compliance and the protective scope of Section 11A(2B) in precluding unnecessary penalty impositions when duty and interest are paid timely. The emphasis on revenue neutrality as a defense against allegations of duty evasion is also a key takeaway.

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