1998 (8) TMI 303 - AT - Central Excise

Summary

Issues involved:
1. Confirmation of demand of duty under the proviso to Section 11A(1) of the Central Excises & Salt Act, 1944.
2. Imposition of penalty under Rule 173Q of the Central Excise Rules, 1944.
3. Dispute regarding the collection of "service charges" separately from buyers of packaging materials.
4. Allegations of intent to evade payment of duty.
5. Change in factual stand by the appellant.
6. Assessment of assessable value inclusive of service charges.
7. Interpretation of charges collected for maintenance, preservation, and development of design and art work.
8. Application of the decision in Flex Industries Ltd. v. Commissioner of Central Excise, Meerut.
9. Defect in the show cause notice.
10. Duty chargeable on the finished product during the disputed period.
11. Quantification of penalty.

Detailed Analysis:
1. The appeal challenged the Order-in-Original confirming the demand of duty and imposing a penalty under relevant provisions of the Central Excises & Salt Act, 1944. The appellant, a printing press owner, printed flexible laminates for packaging materials using printing cylinders manufactured by a related division. The dispute arose from the collection of undisclosed "service charges" from buyers, leading to a show cause notice proposing differential duty and penalty for evasion.

2. The appellant's initial stand was that the printing cylinders were captively consumed and exempt from duty. However, subsequent revelations of separate service charges collected without declaration in price lists raised concerns of duty evasion. The appellant's resistance to the notice was overruled by the Collector, prompting a change in factual stand by the appellant in line with a previous Tribunal decision.

3. The crux of the dispute centered around the nature of the service charges collected and their inclusion in the assessable value of the packaging materials. Statements from company officers indicated differing views on the purpose of the charges, with contentions revolving around the ownership of cylinders, intellectual property rights, and the essential role of printing cylinders in the manufacturing process.

4. The Tribunal emphasized the need to reflect the cost of printing cylinders in the assessable value of the final product, citing the precedent set in Flex Industries Ltd. case. The appellant's failure to demonstrate the amortization of cylinder costs and the essentiality of service charges in the printing process led to the conclusion that such charges should be part of the assessable value.

5. The Tribunal rejected claims of defects in the show cause notice and permitted the appellant to raise contentions regarding the duty rate applicable during the disputed period, directing a reassessment by the Adjudicating Authority. The quantification of penalty was also remanded for a fresh determination based on the clarified issues.

6. In conclusion, the Tribunal set aside the impugned order, remanding the case for a comprehensive reassessment to determine the correct duty rate, differential duty payable, and penalty amount, thereby allowing the appeal in part.