2000 (10) TMI 778 - AT - Central Excise

Issues Involved:
1. Duty liability on Fenner India Limited (FIL) and BMF Belting (BMFB).
2. Valuation of V belts for industrial applications.
3. Determination of factory gate sales and depot sales.
4. Allegations of misdeclaration and suppression of facts.
5. Invocation of the extended period for demand under Section 11A(1) of the Central Excise Act, 1944.
6. Quantification of duty demand and determination of assessable value.
7. Imposition of penalties on FIL and its executives.

Issue-wise Detailed Analysis:

1. Duty Liability on FIL and BMFB:
The appeals were taken up to determine whether the duty liability on FIL and BMFB, as proposed in the show cause notice and confirmed by the Commissioner of Central Excise, Madurai, could be upheld. The valuation in the case of FIL directly impacted the duty liability of BMFB, as BMFB is a wholly-owned subsidiary of FIL and considered a related person under Section 4(1) of the Central Excise Act, 1944.

2. Valuation of V Belts for Industrial Applications:
The dispute centered around the valuation of V belts sold by FIL through factory gate sales and various depots. The valuation was contested based on whether the factory gate sales prices were genuine or artificially created. The Tribunal's earlier decision in 1991 (52) E.L.T. 460 had set aside the Collector's order, which had disregarded the factory gate sales prices.

3. Determination of Factory Gate Sales and Depot Sales:
The Commissioner found that:
- Only three dealers were supplied directly from the factory in negligible quantities.
- Sales to these dealers were sporadic and not regular.
- Factory gate sales were non-existent for three years (9/92 to 27-3-1995).

Based on these findings, the Commissioner concluded that the factory gate sales were not genuine and determined the assessable value based on depot sales prices, offering varying discounts.

4. Allegations of Misdeclaration and Suppression of Facts:
The show cause notice alleged that FIL:
- Wilfully misdeclared factory gate sales.
- Created artificial factory gate sales to evade duty.
- Collected differential amounts through adjustments in credit notes.
- Misstated invoices to make depot sales appear as retail sales.
- Extended higher discounts to selected dealers, creating a conduit for flow back of money.

5. Invocation of the Extended Period for Demand under Section 11A(1):
The Tribunal found that the demands for the extended period under Section 11A(1) could not be sustained because:
- There was an existing inter-party order on the pattern of sale and valuation.
- The pattern adopted by FIL for selling goods remained unchanged and was within the Department's knowledge.
- The Department was aware of the factory gate prices being non-genuine since 1978, and the so-called investigation revealed nothing new.

6. Quantification of Duty Demand and Determination of Assessable Value:
The Commissioner disallowed discounts in excess of 20% plus 3% cash discount, citing evidence of flow back of money from seven dealers. The Tribunal directed that the material evidence indicating flow back should be reconsidered. The Commissioner was instructed to re-determine the duty amount for a period of six months prior to the show cause notice as per law.

7. Imposition of Penalties on FIL and Its Executives:
The Commissioner had imposed penalties on FIL and its executives under Rule 209A of the Central Excise Rules, 1944. The Tribunal set aside the order of penalty and directed that the question of imposition of penalty and its quantum should be re-determined in light of the findings.

Conclusion:
The Tribunal remanded the case back to the Commissioner to re-adjudicate the matter, offering a personal hearing to the appellants and re-determining the quantum of duty and penalty. The order on BMFB was also set aside and remanded to be decided afresh after the issue in the case of FIL is determined. The appeals were disposed of accordingly.

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