1997 (4) TMI 251 - AT - Central Excise

Summary

Issues Involved:
1. Demand of duty and penalties.
2. Applicability of the price charged to industrial consumers for assessment.
3. Classification of firms as dummy units and related persons.
4. Adoption of cost construction method for valuation.
5. Denial of principles of natural justice.
6. Applicability of judicial decisions and penalties under Section 11AC.

Issue-wise Detailed Analysis:

1. Demand of Duty and Penalties:
The application sought dispensation of Rs. 2,76,42,420/- demanded as duty from the appellant company, and penalties under Section 11AC of the Central Excise Act, 1944. Additionally, penalties of Rs. 25,00,000/- on Shri K. Paramasivan and Rs. 25,000/- each on S/Shri V.D. Subramaniam, S.A. Rangasamy, and C. Rajendran under Rule 209A of the Central Excise Rules, 1944 were also contested.

2. Applicability of the Price Charged to Industrial Consumers for Assessment:
The appellant argued that the considerations for dropping the demand for the period October 1995 to March 1996 should equally apply to the period in question. The appellants claimed that they paid duty for captively consumed goods at the highest price sold to third parties, and this should be the basis for assessment for the entire period. The Tribunal noted that the lower authority accepted the price charged to industrial consumers for part of the period and should have applied the same for the entire period.

3. Classification of Firms as Dummy Units and Related Persons:
The lower authority classified three firms (Reliance Yarn Corporation, Asian Enterprises, and Top Quality Yarn Corporation) as dummy units and related persons, which was contested by the appellant. The Tribunal observed that holding the firms as dummy units and related persons is contradictory. The lower authority's reliance on the sale price of these firms for assessment was questioned, and it was noted that proper findings based on cross-examination and records maintained by these firms were not considered.

4. Adoption of Cost Construction Method for Valuation:
The lower authority adopted the cost construction method for part of the period based on the absence of count-wise sales data. The appellant argued that private records of the three firms were available and should have been considered. The Tribunal found that the lower authority ignored the ratio of the decision in Daiichi Karkaria v. C.C.E., Pune, which held that the duty element in Modvat credit should not be included in the assessable value on a cost construction basis.

5. Denial of Principles of Natural Justice:
The appellant claimed denial of natural justice as cross-examination of certain key individuals was not allowed. The Tribunal noted that the lower authority did not address the information elicited during the cross-examination, which could impact the classification of the firms as independent entities.

6. Applicability of Judicial Decisions and Penalties under Section 11AC:
The Tribunal observed that the lower authority did not follow the decision in Daiichi Karkaria v. C.C.E., Pune, despite no stay from the Supreme Court. Additionally, penalties under Section 11AC, effective from September 1996, were incorrectly applied to the period before its enactment. The Tribunal cited Brij Mohan v. C.I.T., which held that penal provisions applicable are those in force at the time of the offense.

Conclusion:
The Tribunal directed the appellant to pre-deposit Rs. 1,15,00,000/- and remanded the matter to the original authority for de novo consideration. The lower authority was instructed to reassess the case, considering the Tribunal's observations and ensuring compliance with judicial precedents and principles of natural justice. The Tribunal did not express any opinion on the merits, leaving all issues open for reconsideration.