2017 (3) TMI 1001 - AT - Central Excise

Valuation - IC Engines and parts thereof - goods cleared to sister units - whether the commissioner was justified in issuing SCN without resorting to review of final assessment order - Held that - the said final assessment orders were not subjected to review and further appeal, in terms of Section 35E - the Commissioner justified the issue of SCN without resorting to review of the final assessment order. His reliance on the sub-Section (5) of Section 35E is found to be misplaced. The said sub-section, though was introduced in 1988 was never notified for implementation. The said sub-section was repealed in 2004 without actually brought into force. It is clear that the learned Commissioner relied on a non-existing legal provision to justify the proceedings against the appellant, in the absence of a review of the assessment order in terms of Section 35E. The learned Commissioner justified the demand on the ground, that the suppression of fact/mis-declaration on the part of the appellant was detected by the Department resulting in the fresh demand proceedings. The impugned order relied on para 5.9 of CAS-4 to hold that the cost of goods should be determined on actual capacity basis. In this connection, we note the CBEC vide Circular dated 13/02/2003 advised that the cost of production of goods cleared for captive consumption has been determined in accordance with CAS-4. Para 5.9 of CAS-4 details with absorption of overheads. It stipulates that the basis should be normal capacity or actual capacity utilization of the plant, whichever is higher - the appellants had furnished complete details required for determining normal capacity in terms of the applicable cost accounting standards. We find that the details submitted by the appellants have not been examined and commented upon by the lower authorities - matter remanded for re-examination. Appeal allowed by way of remand.

Summary

Issues:
Correct valuation of excisable goods under Rule 8 of Central Excise Valuation Rules, 2000.

Analysis:
1. The appeals revolve around the correct valuation of excisable goods under Rule 8 of Central Excise Valuation Rules, 2000. The appellants, engaged in manufacturing IC Engines and parts for tractors, cleared goods to sister units based on the cost of manufacture. The dispute spans from April 2002 to March 2005, involving final assessment orders, show cause notices, and imposition of penalties under Section 11AC of the Central Excise Act, 1944.

2. The appellant's counsel argued against the Commissioner's actions, emphasizing that the final assessment order was not reviewed before issuing show cause notices. They contended that the valuation was based on legitimate cost certificates and compliance with CAS-4 standards. The appellant's motive was questioned, given that duty paid on IC engines was creditable to sister units manufacturing tractors.

3. The counsel further argued the proper adherence to CAS-4 standards for calculating overheads and production costs. They highlighted discrepancies in the department's calculations and contested the imposition of penalties under Section 11AC, stating the issue was a matter of interpretation of valuation rules and CAS-4 criteria.

4. The Revenue defended its actions, stating that discrepancies in overhead calculations justified the demand for differential amounts. They cited the Hon'ble Supreme Court's decision in Star Industries vs. CC, Imports, Raigarh to support their stance.

5. The Department maintained that CAS-4 provisions were followed, and detailed reasons were provided before finalizing the assessment orders. The appellant's defense was considered before passing the final orders.

6. The Tribunal analyzed the legality of the show cause notices issued without reviewing the final assessment orders under Section 35E. It noted discrepancies in the Commissioner's justification and found the proceedings unsustainable without proper review procedures. Legal precedents were examined to support the decision to set aside the impugned orders.

7. The Tribunal found that the alleged suppression by the appellant did not warrant invoking Section 11A without a review under Section 35E. The Revenue's interpretation of records did not indicate manipulation or intentional misrepresentation by the appellant. The decisions cited by the Revenue did not align with the specific issue of non-compliance with Section 35E.

8. Regarding the third appeal, the Tribunal found the impugned order lacking detailed analysis of the appellant's submissions. It remanded the matter to the Original Authority for a fresh examination based on CAS-4 standards and normal capacity determinations.

9. Consequently, the Tribunal set aside the impugned orders in two appeals and allowed the third appeal by way of remand, emphasizing the need for a thorough examination based on applicable standards.

(Order pronounced in open court on 06/03/2017)