2016 (7) TMI 350 - AT - Central Excise

Recovery of erroneous refund - period of limitation for levy of penalty - proceedings were initiated for recovery/appropriation of the said amount and for imposing penalty under Section 11AC - during the transitory period of 2006-2007 when the tyres were brought under MRP based assessment they have cleared tyres on payment of duty under Section 4. The refund relatable to discounts were also claimed which was sanctioned by the Department. - Held that - However, adopting Section 4 Valuation earlier resulted in certain refund which was paid back by the appellants with interest in April 2009. There is no allegation that the refund claim was filed and obtained fraudulently by mis-representation of facts. Apparently, the refund claim sanctioned during the material period by the Department was under the belief that transaction value under Section 4 was applicable to the appellants. Considering the above factual details and payment of the full amount with interest by the appellants, the show cause notice issued more than two years after such payment is without merit. The notice itself is very cryptic without any details of basis for issuing demand for already paid amount and for proposing equal penalty under Section 11AC. Levy of penalty set aside. - Decided in favor of assessee.

Summary

Issues:
- Correct assessment procedure under Section 4A
- Refund claimed under Section 4 valuation
- Imposition of penalty under Section 11AC

Correct assessment procedure under Section 4A:
The case involved the appellants, engaged in manufacturing tyres liable to Central Excise duty, who were found to not properly follow the MRP-based assessment for certain wrapped tyres cleared during 2006-2007. The officers of DGCEI conducted inquiries, revealing the need for assessment under Section 4A instead of Section 4. The appellants accepted this and reversed an amount obtained as refund along with interest. The Jurisdictional Assistant Commissioner initiated proceedings for recovery and penalty under Section 11AC. The Original Authority and Commissioner (Appeals) confirmed the demand and penalty. The appellant argued that no duty difference arose due to the change in assessment provisions, and the refund under Section 4 valuation was not sustainable under Section 4A. The Tribunal noted that the correct assessment under Section 4A made the earlier refund erroneous, but since the refund was repaid with interest and no fraudulent intent was found, the penalty was unjustified.

Refund claimed under Section 4 valuation:
During the transitory period of 2006-2007, the appellants cleared tyres under Section 4 and claimed refunds related to discounts, which were sanctioned. Subsequently, it was acknowledged that some tyres should have been assessed under Section 4A. The refund claimed under Section 4 valuation was repaid with interest after the correct assessment procedure was recognized. The appellant contended that the penalty imposition was unwarranted as the refund was voluntarily repaid, and no fraudulent intent was established in obtaining the refund.

Imposition of penalty under Section 11AC:
The Department argued that the appellants rectified their assessment procedure only after the intervention of DGCEI, making the earlier refund erroneous. The Department claimed that since the correct assessment under Section 4A was applied after DGCEI's intervention, the refund claimed earlier was incorrect. The Department asserted that the penalty was justified due to the appellant's failure to follow the correct assessment procedure initially. However, the Tribunal found that as the refund was repaid voluntarily with interest, and there was no fraudulent intent in the original refund claim, the penalty under Section 11AC was unwarranted. The Tribunal set aside the penalty imposed under Section 11AC in the absence of merit for such penalty.