2016 (2) TMI 642 - AT - Central Excise

Valuation of goods manufactured by the appellant and transferred to their sister unit - Penalty imposed - captive consumption - whether further manufacture of finished goods has not been properly done in terms of Rule 8 of the Central Excise Valuation Determination of Price of Excisable Goods Rules, 2000? - Held that - Commissioner examined the report submitted by the Assistant Director (Cost) and the CAS-4 details submitted by the appellants. He found that when total is calculated the difference works out to negligible amount. There was some difference of opinion regarding allocation of overhead expenses. Thereafter, the Ld. Commissioner gave his finding in respect of each SCN. He applied the particulars available in the CAS-4 Certificates submitted by the appellant and after analyzing the various details came to the conclusion as found in the impugned order. In such a situation we find there is no ground for imposing penalty under Rule 25 of the Central Excise Rules. In Saurashtra Cement Ltd. 2010 (9) TMI 422 - GUJARAT HIGH COURT held that the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules. We find that the Original authority did not substantiate the reason for imposing penalty under Rule 25 specially when he has found that there is no ground to allege any malafide on the part of the assessee for, payment of duty at the time of clearance. The issue involved is the application of correct accounting principles based on records maintained by the appellant. There is no scope for penalty in such circumstances. In fact the duty discharged is, overall on the higher side than finally determined and confirmed in the impugned order. Penalty deleted.

Summary

Issues: Valuation of goods for Central Excise duty, imposition of penalty under Rule 25 of Central Excise Rules

Valuation of goods for Central Excise duty:
The case involved the valuation of goods manufactured by the appellant and transferred to their sister unit for captive consumption. The appellant was accused of not properly adopting 110% of the cost of production in accordance with CAS-4. Three show-cause notices (SCNs) were issued demanding differential duty for the period March 2004 to January 2005. The Commissioner confirmed reduced differential duties for all three demands and imposed a penalty of &8377; 5 lakhs on the appellants under Rule 25 of Central Excise Rules, 2002. The appeal primarily focused on challenging the valuation methodology and the imposition of the penalty.

The Ld. Counsel argued that the appellant had already paid a higher amount of Central Excise duty than what was confirmed by the Commissioner. He contended that the correct standards of accounting were applied to determine the cost of production, leaving no basis for imposing a penalty. It was highlighted that in one SCN, the penalty provision of Rule 25 was not invoked, and in another, the appellant had already paid more than the demanded amount. The Ld. Counsel emphasized the excessive payment made overall and deemed the penalty imposition legally unsustainable.

Imposition of penalty under Rule 25 of Central Excise Rules:
The Tribunal analyzed the appeal records and noted that the primary issue for consideration was the imposition of the penalty by the Original Authority. The Ld. Commissioner had examined the reports and details submitted by the appellant, finding negligible differences in the total calculations. While there were discrepancies in the allocation of overhead expenses, the Commissioner based his conclusions on the CAS-4 Certificates provided by the appellant. The Tribunal referred to a previous judgment by the Hon-ble Gujarat High Court, emphasizing the need to consider the ingredients of Section 11AC when deciding on penalties under Rule 25. It was observed that there was no substantiated reason for imposing a penalty when there was no evidence of malafide intent in duty payment. The Tribunal concluded that the application of correct accounting principles based on maintained records left no grounds for penalty imposition, especially considering the overall higher duty payment made by the appellant. Consequently, the Tribunal found the penalty imposition unsustainable and set it aside, allowing the appeal.