2015 (5) TMI 101 - SC - Central Excise

Extended period of limitation - Valuation of Tyre Cord Yarn (TCY) and Tyre Cord Fabric (TCB) - captive consumption - difference between the goods which were cleared at the factory gate to be sold to the third parties and removed for captive consumption by the appellant itself - held that - the two kinds of goods were not comparable with each other and therefore, the goods which were removed for captive consumption to be used by Tarapur Factory were to be valued under Rule 6(b)(ii) of the Rules and the price declaration given by the appellant applying Rule 6(b)(i) of the said rules was erroneous. We also find that the appellant had even admitted some variations in the two types of goods in its reply to the show cause notices itself. In these circumstances, insofar as the opinion of the authorities with regard to different nature of the goods is concerned, that does not call for any interference by this court. Imposition of penalty - Held that - It is stated at the cost of repetition that when the entire exercise was revenue neutral, the appellant could not have achieved any purpose to evade the duty. - Therefore, it was not permissible for the respondent to invoke the proviso to Section 11A(1) of the Act and apply the extended period of limitation. In view thereof, we confirm the demand insofar as it pertains to show cause notice dated 25.02.2000. However, as far as show cause notice dated 03.03.2001 is concerned, the demand from February, 1996 till February, 2000 would be beyond limitation and that part of the demand is hereby set aside. Once we have found that there was no mala fide intention on the part of the appellant, we set aside the penalty as well. - Decided partly in favour of assessee.

Summary

Issues: Valuation of goods for captive consumption, Application of Central Excise Valuation Rules, Limitation period for demand of duty, Intention to evade excise duty

Valuation of goods for captive consumption:
The appellant, a manufacturer of Tyre Cord Yarn (TCY) and Tyre Cord Fabric (TCB), faced a dispute regarding the valuation of TCY removed for captive consumption at its Tarapur factory. The Superintendent of Central Excise challenged the price declaration filed by the appellant, leading to the appointment of a cost accountant to assess the situation. The cost accountant opined that the goods for captive consumption were different from those sold to third parties, resulting in the issuance of show cause notices demanding differential duty. The Customs, Excise and Service Tax Appellate Tribunal upheld the demands, prompting the appellant to appeal to the Supreme Court.

Application of Central Excise Valuation Rules:
Upon review, the Supreme Court found that the goods for captive consumption were indeed distinct from those sold at the factory gate. The appellant had acknowledged variations in the goods in response to the show cause notices. The Court upheld the authorities' conclusion that the goods should be valued under Rule 6(b)(ii) of the Central Excise Valuation Rules, deeming the appellant's price declaration under Rule 6(b)(i) incorrect.

Limitation period for demand of duty:
The appellant raised the issue of limitation, arguing that the demand for duty for the period covered by the second show cause notice was time-barred unless the extended period of limitation was invoked. The appellant contended that there was no mala fide intent to evade duty, citing factors such as identical raw materials and processes for both types of goods, acceptance of price lists by the Central Excise Department, and the revenue-neutral nature of the exercise. The Court accepted the appellant's stance, setting aside the demand for the period beyond the limitation under the second show cause notice.

Intention to evade excise duty:
The Revenue contended that there was a clear intention to evade excise duty, emphasizing the technical differences between goods sold at the factory gate and those removed for captive consumption. However, the Court, after considering the circumstances presented by the appellant, agreed that there was no mala fide intent. Given that the exercise was revenue-neutral and the appellant promptly complied with duty requirements post the show cause notice, the Court concluded that there was no basis to invoke the extended period of limitation or impose penalties.

In conclusion, the Supreme Court allowed the appeal in part, confirming the demand related to the first show cause notice but setting aside the demand beyond the limitation under the second notice. The Court also revoked the penalty, emphasizing the absence of mala fide intent on the appellant's part.