2014 (11) TMI 703 - HC - Central Excise

Captive consumption - excise duty upon molasses - Suppression of value of goods - Demand of differential duty - Held that - all other show cause notices issued to the petitioner on the same ground from the year 1994 to 1997 have been withdrawn except the present show cause notice which claims payment of difference of excise duty for a period of two months i.e. January and February 1995. The only explanation coming forth is while filing reply to other show cause notices, the petitioner had raised a dispute about the gradation of the molasses and in the reply to present show cause notice no such dispute was raised. The assessee would not have the advantage of viewing the comparable goods as it would not have any domain over it, nor has opportuiiity to test it. The provisions and the proviso cast duty on the proper officer to verify the same. There are various grades of molasses. The show cause notice, nor impugned orders even remotely suggest that proper officer has considered the material characteristic of goods assessed and comparable goods. It nowhere suggest that quality of both molasses is same. The burden is upon the proper officer. If the proper officer would have considered various factors, so also material characteristics of comparable goods while valuing the goods of petitioner, then the burden would have shifted on the assessee. However, in the first instance the proper officer has not discharged the burden and the obligation cast upon him so as to shift the burden upon the petitioner. In the show cause notice only a bald averment is made that nearby sugar factory is selling molasses at the rate of ₹ 1310/- per metric tonne. Even, if, arguments of learned Assistant Solicitor General is considered referring to provisions of Sec. 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, same would be of no avail inasmuch as sub-clause (ii) comes into operation, if the value cannot be determined under sub-clause (i) on the cost of production or manufacture including profits, which the assessee would have normally earned on the sale of such goods. Perusal of show cause notice, it transpires that the sole basis for issuing show cause notice is that nearby sugar factory is selling molasses at the rate of ₹ 1310/- per metric tonne and the petitioner is claiming rate at ₹ 850/- per metric tonne without satisfying about all the other relevant factors and in particular the difference if any in the material characteristics of the goods to be assessed and the comparable goods. The show cause notice nowhere discloses that the authority satisfied itself about the material characteristics of the goods to be assessed and of the comparable goods. In absence thereof, the said show cause notice cannot be sustained. - Decided in favour of assessee.

Summary

Issues:
Challenge to order dismissing appeal and show cause notices regarding excise duty on molasses valuation.

Analysis:
The petitioner contested the show cause notice for excise duty on molasses, arguing that the notice was based solely on a nearby sugar factory's higher selling price compared to the petitioner's valuation. The petitioner cited judicial precedents emphasizing the need for uniform treatment in such cases. The petitioner also highlighted the potential difference in molasses grade between the petitioner and the nearby factory, supported by a technologist's valuation certificate. The petitioner claimed that the department failed to assess the molasses quality before issuing the notice, a crucial step as per judicial principles.

The respondent, however, justified the notice based on Rule 6(b) of the Central Excise (Valuation) Rules, stating that the petitioner did not dispute the grade difference for the specific notice in question. The respondent argued that the authority was justified in issuing the notice and that the Tribunal correctly considered the matter. The respondent pointed out the petitioner's silence on quality and product in their reply to the notice, supporting the validity of the notice.

The Court examined the facts and noted that all other similar show cause notices were withdrawn, except for the specific one concerning the two months in 1995. The Court delved into Rule 6(b)(i) of the Valuation Rules, emphasizing the need to base valuation on comparable goods and make reasonable adjustments considering material characteristics. The Court highlighted the importance of the proviso in Rule 6(b)(i) to ensure fair valuation and proper consideration of relevant factors.

The judgment emphasized that the burden of proof lies with the proper officer to assess material characteristics and ensure fairness in valuation. The Court criticized the show cause notice for lacking detailed assessment and failing to consider various factors, especially the material characteristics of the goods in question. The judgment concluded that the notice was not sustainable due to this lack of proper assessment.

Furthermore, the Court noted that all other notices based on similar facts were withdrawn, suggesting inconsistency in treatment. The Court stressed the importance of judicial discipline in maintaining consistency in decisions. Ultimately, the Court ruled in favor of the petitioner, holding the Rule absolute in the petitioner's favor.