2013 (7) TMI 376 - AT - Central Excise

Valuation - production of bulk lubricating oil - inclusion of royalty charges - extended period of limitation - MRP based u/s 14A - difference of opinion - Held that -no intention for evading duty on the part of the appellant - extended period cannot be invoked. Since there is no difference of opinion between the Members, that the demand which is confirmed by invoking extended period is liable to be set-aside on the Revenue neutrality, on this point itself, the view expressed by the learned Member (Judicial) needs to be concurred with. - Decided in favor of Assessee.

Summary

Issues Involved:
1. Non-inclusion of administrative expenses/overheads in the value of bulk lubricating oils.
2. Non-inclusion of royalty charges in the cost of production.
3. Invocation of the extended period of limitation for demand.
4. Revenue neutrality and its impact on duty demand.
5. Appropriation of differential duty paid by the appellants.

Issue-wise Detailed Analysis:

1. Non-inclusion of Administrative Expenses/Overheads:
The first show cause notice dated 07.10.2004 alleged that the appellants did not include certain administrative expenses/overheads in the value of bulk lubricating oils cleared to their Ballabgarh unit. The appellants argued that there was no motive to evade duty since the duty paid was available as Cenvat credit to their sister unit. They also stated that they had paid the amount with interest when pointed out by the audit in 2003, but it was noted that only a part of the amount was paid. The adjudicating authority dropped the demand for the subsequent show cause notices dated 29.05.2006 and 26.06.2006 on the grounds that suppression could not be invoked as the same issue was raised in the first show cause notice.

2. Non-inclusion of Royalty Charges:
The second and third show cause notices alleged non-inclusion of royalty charges payable to Castrol U.K. for technology transfer and technical assistance. The appellants contended that royalty was payable only on finished goods sold by their Ballabgarh and Mumbai units, not on the bulk lubricating oils cleared in tankers. They argued that the royalty was not relatable to the processed material cleared in bulk and was calculated based on profit earned on the sale of packed finished goods. The Commissioner, however, concluded that royalty charges were includible in the cost of production as per CAS-4 standards and the technical collaboration agreement, which stated that royalty was for the manufacture of finished goods.

3. Invocation of Extended Period of Limitation:
The demand in all three show cause notices was raised by invoking the extended period of limitation. The appellants argued that there was no intention to evade duty, as the duty paid was available as Cenvat credit to the recipient units. The Tribunal noted that the duty paid by the appellant was being availed as Modvat credit by their own recipient units, indicating no intention to evade duty. Consequently, the extended period could not be invoked.

4. Revenue Neutrality:
The Tribunal proposed to dispose of the appeal based on revenue neutrality. The appellants demonstrated that the duty paid by the recipient units out of the PLA was much higher than the duty confirmed against them. The Tribunal concluded that there was no intention to evade duty and set aside the impugned order on the grounds of revenue neutrality, allowing all appeals with consequential relief to the appellants.

5. Appropriation of Differential Duty Paid:
The differential duty demand on the bulk lubricating oil due to non-inclusion of royalty was confirmed by invoking the extended period of limitation. However, the Member (Technical) agreed with the Member (Judicial) that the extended period could not be invoked due to revenue neutrality. The Member (Technical) held that the demand for the normal period of limitation of one year should be confirmed and the differential duty paid by the appellants on being pointed out by the audit should be appropriated.

Separate Judgments:
- The Member (Judicial) set aside the impugned order and allowed all appeals based on revenue neutrality.
- The Member (Technical) agreed on revenue neutrality but held that the demand within the normal period of limitation should be confirmed. The matter was remanded to the Original Adjudicating Authority for recalculating the differential duty.
- The third Member concurred with the Member (Judicial), setting aside the impugned order and allowing the appeal with consequential relief.

Final Order:
In view of the majority order, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.