2017 (3) TMI 554 - AT - Central Excise

Valuation - job-work - inclusion of various cost in the cost of raw material - job charges - transportation charges - Held that - the value of goods manufactured by GIL on job work basis will necessarily be the cost of raw materials used in the manufacture of the item (including the cost of raw materials supplied free of cost) for the job work plus the job charges (including the profit of the job worker, if not already included in the job charges) The reduction from such costing of higher burning loss to the extent of 11% and treating the same as assessable value for discharge of duty liability is then without any basis by the appellant and has resulted in short payment of duty. Cost of transporting raw materials/inputs to the premises of job work will also be added to determine the cost of raw material/input. Unaccounted clearances of CTD bars/rounds - validity of quantification - Held that - Since the discrepancy emerged, based on the declarations/information made/provided by GIL themselves to department, there is no need of further corroborating the same. In the event, here also there is no cause for interfering with the demand of differential duty of ₹ 8,35,693/-. Extended period of limitation - Held that - investigation has successfully unearthed the questionable modus operandi of the racket who has caused prejudice to Revenue with intent to evade excise duty. Investigation has proved that clandestine removal of goods by the appellant was made following a pre-meditated design. Hence invocation of extended period of limitation in the notice under proviso to Section 11A of the Central Excise Act and its affirmation in the impugned order, are very much in order and does not require interference. Appeal dismissed - decided against appellant.

Issues Involved:
1. Non-inclusion of actual cost of raw materials in the value of goods.
2. Non-inclusion of transportation cost of raw materials in the value of goods.
3. Unaccounted clearances of CTD bars/MS rounds.
4. Limitation period for issuing the show cause notice.
5. Imposition of penalties under Rule 26 of the Central Excise Rules, 2002.

Detailed Analysis:

1. Non-inclusion of actual cost of raw materials in the value of goods:
The appellants, M/s. Goyal Ispat Ltd. (GIL), were found to have not included the actual cost of raw materials received for conversion in the value of the goods. The conversion agreement between GIL and KSL allowed for a 7% conversion loss, but GIL claimed an 11% loss. This discrepancy led to a short payment of duty. The valuation of goods manufactured on a job work basis is governed by Rule 11 of the Central Excise (Valuation) Rules, 2000, read with Rule 6 of Central Excise Rules, 2002, and Section 4 (1) (b) of the Central Excise Act, 1944. The value should include the cost of raw materials used plus the job charges. GIL's failure to include the full cost of raw materials resulted in an undervaluation and short payment of duty. The demand for differential duty and interest was upheld.

2. Non-inclusion of transportation cost of raw materials in the value of goods:
The agreement between KSL and GIL stipulated that GIL would bear the transportation costs of raw materials. The cost of transporting raw materials to the job worker's premises should be included in the cost of raw materials, as clarified by CBEC Circular No. 643/34/2002-CX. GIL contended that the transportation cost was included in the conversion charges or incurred by KSL and included in the raw material cost. However, no evidence was provided to support this claim. The department's investigation revealed that transportation costs were not included in the assessable value. The demand for differential duty on this ground was also upheld.

3. Unaccounted clearances of CTD bars/MS rounds:
The investigation revealed that GIL cleared 232.835 MTs of CTD bars/MS rounds more than reported in their ER-1 returns, resulting in an undischarged duty liability of ?8,35,693/-. This discrepancy was based on GIL's own data. GIL's contention that there was no corroborating evidence was dismissed, as the discrepancy was based on their declarations. The demand for differential duty was upheld.

4. Limitation period for issuing the show cause notice:
GIL argued that the demand was barred by limitation, as the show cause notice was issued on 07-05-2007 for the period April 2002 to March 2007. They contended that they were subjected to periodic inspections and audits, and there was no requirement to furnish certain details in the E.R.1 returns. However, the Tribunal found that GIL had suppressed information, willfully misstated the value of raw materials, and engaged in clandestine removal of goods. The invocation of the extended period of limitation under the proviso to Section 11A of the Central Excise Act was upheld.

5. Imposition of penalties under Rule 26 of the Central Excise Rules, 2002:
- Penalty on Shri Ghisulal Kothari, Director of GIL:
The appellant contended that Rule 26 presupposes the existence of ingredients of confiscation, which was not alleged in the SCN. However, the Tribunal found that Rule 26 penalizes any person involved in dealing with excisable goods knowing they are liable for confiscation. Shri Kothari was found to be the mastermind behind the duty evasion, and the penalty of ?10 lakhs was upheld.

- Penalty on Shri J. Balaji, Excise Manager of GIL:
The appellant contended that he was not aware of the duty evasion. However, as the Excise Manager, he was responsible for the affairs of GIL. The penalty of ?10,000 was upheld.

Conclusion:
All three appeals were dismissed, and the demands for differential duty and penalties were upheld. The Tribunal found that GIL engaged in intentional undervaluation and clandestine removal of goods, justifying the invocation of the extended period of limitation and the imposition of penalties.

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