2025 (4) TMI 3 - AT - Central Excise

Method of valuation - Section 4A or Section 4 of the Central Excise Act 1944? - switchgears manufactured by Appellant - invocation of extended period of limitation under proviso to Section 11A of CEA - Levy of Interest under Section 11AB and Penalty under Rule 25 read with Section 11AC. Method of valuation - HELD THAT - It was held by Hon ble Karnataka High court in the case of Ewac Alloys Ltd 2011 (9) TMI 688 - KARNATAKA HIGH COURT that even if the goods meant for industrial use are displayed at retail counters and sold they are not chargeable to duty on the Basis of MRP - Tribunal in the case of Legrand (India) Pvt Ltd 2014 (2) TMI 407 - CESTAT MUMBAI held that goods meant for industrial use though packaged for ease of transportation can not be assessed to duty under Section 4A. As far as the Appellant s goods are intended for industrial use and declaration to that effect is available on the packages a fact which is not contradicted by Revenue there is no infirmity in the Appellant s assessing the same under Section 4 of Central Excise Act 1944. Revenue has not made out any case for assessment under Section 4A despite the fact that they are sold through retail outlets/dealers/ stockists. Further it is the argument of the appellant that even in cases where MRP was not declared revenue had no mechanism to determine the same before the enactment of Central Excise valuation Rules w.e.f. 1.3.2008. Extended period of limitation - HELD THAT - There is considerable force in the submission of the appellants. The appellants are regular assesses and were filing returns regularly. Since they have declared the classification of the products under CETH 8536 department could have caused necessary verification and issue the Show Cause Notice in time. Revenue had no reason to wait for the anti-evasion team to visit the Appellant s premises and find out what they have been declaring regularly - the department cannot hide the fact of non-scrutiny of the returns in even time and take shelter under the argument that the appellants were in the regime of self-assessment and allege suppression etc with intent to evade payment of duty without adducing any evidence. The appellants were very much on the dash board of the department and audit was being conducted regularly. Failure of the jurisdictional officers and audit teams to detect anomaly if any cannot be mitigated by alleging suppression on the part of the appellant. In view of the facts and circumstances of the case the extended period cannot be invoked. Interest - penalty - HELD THAT - Since the duty is not payable the demand of interest and penalty cannot be sustained. Conclusion - i) Goods intended for industrial use bearing a declaration to that effect are not subject to MRP-based valuation under Section 4A of the Central Excise Act. ii) The extended period of limitation under Section 11A is not applicable when the appellant has disclosed all relevant information and there is no suppression of facts. iii) Penalties under Section 11AC and demands for interest are not sustainable when the primary duty demand is not upheld. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

(i) Whether the switchgears manufactured by the appellant are liable to valuation under Section 4A of the Central Excise Act, 1944, on MRP basis as held in the impugned order, or under Section 4 of the Central Excise Act, 1944, as contended by the appellants?

(ii) Whether the extended period of limitation under the proviso to Section 11A is invokable, and whether interest under Section 11AB and penalty under Rule 25 read with Section 11AC are leviable in the present facts?

ISSUE-WISE DETAILED ANALYSIS

Valuation of Switchgears under Section 4A or Section 4

The core issue revolves around whether the switchgears should be valued under Section 4A (MRP-based valuation) or under Section 4 (transaction value) of the Central Excise Act. The appellant contends that their goods, intended for industrial use and bearing a declaration to that effect, should be assessed under Section 4. They argue that the goods are not covered under the Standards of Weights and Measures Act, 1976, or the Packaged Commodities Rules, 1977, and hence not subject to MRP-based valuation.

The Revenue argues that the goods are packaged and sold through dealers, fulfilling the conditions of Rule 2(A) of the Packaged Commodities Rules. They assert that the goods are displayed at retail outlets, making them subject to MRP-based valuation under Section 4A.

The Tribunal examined the relevant legal framework, including Section 4A of the Central Excise Act, which mandates MRP-based valuation for goods specified under the Standards of Weights and Measures Act. The Tribunal also considered precedents, including the Karnataka High Court's decision in Ewac Alloys Ltd, which held that goods meant for industrial use, even if displayed at retail counters, are not chargeable on an MRP basis.

The Tribunal concluded that since the appellant's goods are intended for industrial use and bear a declaration to that effect, they are not liable for MRP-based valuation under Section 4A. The Tribunal also noted that prior to the enactment of the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008, there was no mechanism to ascertain RSP, supporting the appellant's position.

Extended Period of Limitation and Penalty

The second issue concerns whether the extended period of limitation under Section 11A of the Central Excise Act is applicable, and whether penalties under Section 11AC are justified. The appellant argues that they acted in good faith, believing their products were not covered under the PC Rules, and that they disclosed all necessary information in their returns. They contend that the extended period cannot be invoked as there was no suppression of facts.

The Revenue contends that the appellant suppressed facts by not declaring MRP, thus justifying the invocation of the extended period and penalties.

The Tribunal found merit in the appellant's argument, noting that they regularly filed returns and were subjected to audits. The Tribunal emphasized that the department's failure to scrutinize returns in a timely manner cannot be used to allege suppression. Consequently, the Tribunal held that the extended period of limitation is not invokable, and since the duty is not payable, the demand for interest and penalties cannot be sustained.

SIGNIFICANT HOLDINGS

The Tribunal's significant holdings include:

- Goods intended for industrial use, bearing a declaration to that effect, are not subject to MRP-based valuation under Section 4A of the Central Excise Act.

- The Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008, are not procedural and cannot be applied retrospectively to determine RSP for periods before their enactment.

- The extended period of limitation under Section 11A is not applicable when the appellant has disclosed all relevant information and there is no suppression of facts.

- Penalties under Section 11AC and demands for interest are not sustainable when the primary duty demand is not upheld.

The appeal was allowed, and the Tribunal set aside the impugned order, concluding that the appellant's goods are not liable for MRP-based valuation and that the extended period of limitation and penalties are not applicable.