2014 (12) TMI 993 - AT - Central Excise

Valuation of goods - Addition of 4% notional profit to the processing charges - Addition on whether the fabrics cleared by the appellant vide 22 invoices mentioned in the show cause notice are Velvet fabrics or not - Commissioner has dropped the demand of excise duty on the 4% notional profit on the ground that the processing charges collected includes the profit elements and therefore, there is no need to make further addition towards profit - Held that - The claim of the appellant is that they are man-made fabrics. The basis of the Revenue s claim is that samples drawn from Lot No. 12831 and 14954 were opined to be velvet fabrics by SASMIRA. Samples drawn from the same lot No. by the appellant and subjected to test by SASMIRA vide test report dated 10-8-1998 show them to be other than velvet fabrics. These two lot nos. pertained to invoice No. 5854, dated 16-2-1998 whereas in the show cause notice, the invoices referred to thereunder pertains to the period August, 1997 to January, 1998 and the said invoice does not figure in the show cause notice. In these circumstances, the Revenue has not established its case that the fabrics processed and cleared during August, 1997 to January, 1998 were Velvet fabrics falling under Chapter 58. As regards Revenue s appeal, since the job-charges already includes profit of the job-worker, the question of adding notional profit of 4% does not arise. Impugned demand is not sustainable in law and consequently the demand for interest under Section 11AB and equivalent amount of penalty imposed under Section 11AC and penalties of ₹ 25,000/- and ₹ 10,000/- imposed respectively on Shri D.G. Agarwal and Shri S.B. Yadav, Excise official of the appellant firm do not survive - Decided in favour of assessee.

Summary

Issues:
- Duty demand on "Velvet Fabrics"
- Dropping of duty demand on 4% notional profit
- Appeal against penalties imposed

Duty demand on "Velvet Fabrics":
The judgment involves three appeals challenging the duty demand confirmed by the adjudicating authority on alleged "Velvet Fabrics" manufactured by the appellant. The Commissioner had imposed penalties on the appellant and its partners while dropping the demand of excise duty on the 4% notional profit. The appellant argued that the fabrics cleared did not match the description of velvet fabrics and that the differential duty demand was not sustainable in law. The Revenue contended that the appellants were required to add 4% notional profit to the processing charges. The Tribunal analyzed the samples and invoices provided, concluding that the Revenue failed to establish that the fabrics processed and cleared were indeed Velvet fabrics. The demand was deemed unsustainable, leading to the dismissal of penalties and interest, and allowing the appeals of the appellants.

Dropping of duty demand on 4% notional profit:
The appellant contended that they did not have facilities for processing velvet fabrics and that the samples sent for testing did not match the description of velvet fabrics. The Revenue argued that the appellants were obligated to add 4% notional profit to the processing charges based on a trade notice. The Tribunal found that since the job-charges already included the profit of the job-worker, adding notional profit did not apply. Consequently, the dropping of the demand for 4% notional profit was upheld, as it was not provided for in the law.

Appeal against penalties imposed:
The penalties imposed on the appellant and its partners were challenged in the appeals. The Tribunal, after considering the submissions from both sides, found that the duty demand on the alleged "Velvet Fabrics" was unsustainable in law. As a result, the penalties and interest imposed were deemed not valid. The appeals of the appellants were allowed, providing them with consequential relief in accordance with the law. On the other hand, the appeal filed by the Revenue was dismissed for lacking merit.

This detailed analysis of the judgment highlights the issues of duty demand on "Velvet Fabrics," dropping of duty demand on 4% notional profit, and the appeal against penalties imposed, providing a comprehensive overview of the legal reasoning and conclusions reached by the Tribunal.