2018 (1) TMI 679 - AT - Central Excise

Valuation - free supplies made by the appellant-assessee along with chargeable supplies - Held that - the nature of business of the appellant is very different, inasmuch as they are manufacturing Catalysts for which there are only about five buyers available in the country. In the manufacture of the Catalysts some other Catalysts are also necessarily manufactured by way of a joint product or by product. It is also a unique situation, wherein the appellant cannot keep in store for long the Catalysts manufactured either main product and also as joint product or by product - It is also an admitted fact that the appellant have paid duty on the total transaction value which includes the free supplies during the period in question. Further, there is no evidence of any additional consideration received or any flow back in any manner by the appellant. The whole SCN is presumptive and without any substantial basis - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Valuation of free supplies along with chargeable supplies.
2. Alleged suppression of production and clandestine removal of excisable goods.
3. Non-payment of duty on waste and scrap.
4. Determination of transaction value for excisable goods cleared at Nil value.
5. Alleged evasion of Central Excise duty through undervaluation.
6. Applicability of quantity discount and its impact on excise duty.
7. Legitimacy of service charges as part of the transaction value.
8. Invocation of extended period for demand under Section 11A(1) of the Central Excise Act, 1944.

Detailed Analysis:

1. Valuation of Free Supplies Along with Chargeable Supplies:
The primary issue in the appeal concerns the valuation of free supplies made by the appellant-assessee along with chargeable supplies. The Revenue alleged that the appellant was undervaluing the excisable goods by showing certain goods as sold at Nil value while clearing others at a chargeable value. The appellant contended that these free supplies were in the nature of quantity discounts, which are a common business practice.

2. Alleged Suppression of Production and Clandestine Removal of Excisable Goods:
The Revenue issued a Show Cause Notice (SCN) dated 17/07/2006, alleging that the appellant was suppressing the production of excisable goods and removing them clandestinely without proper documentation. A search conducted on 06/01/2005 revealed that the stock of raw materials and finished goods tallied with the recorded balance. However, the appellant had cleared "Waste & Scrap Ni Slurry" without payment of duty, which was later voluntarily rectified by debiting the duty amount.

3. Non-Payment of Duty on Waste and Scrap:
The appellant admitted to clearing waste and scrap without payment of duty by mistake and voluntarily debited the duty amount along with interest. A separate SCN was issued for this matter, which was settled by the appellant.

4. Determination of Transaction Value for Excisable Goods Cleared at Nil Value:
The Revenue observed that the appellant had cleared part-finished goods at Nil value along with chargeable goods under different invoices. The Revenue argued that under Rule 4 of the Central Excise Valuation Rules, 2000, the value of such excisable goods should be based on the value of similar goods sold at any other time nearest to the time of removal. The appellant countered that the free supplies were part of the contractual terms and were essentially quantity discounts.

5. Alleged Evasion of Central Excise Duty Through Undervaluation:
The Revenue alleged that the appellant had suppressed the actual value of goods by showing them as sold at Nil value to evade payment of Central Excise duty. The duty evaded was calculated based on the assessable value of the goods cleared at Nil value, amounting to ?37,84,672/-.

6. Applicability of Quantity Discount and Its Impact on Excise Duty:
The appellant argued that the free supplies were in the nature of quantity discounts, which is a common commercial practice, especially when dealing with a limited number of buyers. The appellant contended that the entire price must be spread over the total quantity of Catalyst supplied, including the so-called free supplies, and the duty had been duly paid on the transaction value.

7. Legitimacy of Service Charges as Part of the Transaction Value:
The Revenue alleged that the appellant received part of the sale consideration in the form of service charges. The appellant explained that these service charges were for personnel deputed to the buyer's factory to monitor the performance of the Catalyst and were subject to service tax. The Tribunal found no evidence of additional consideration or flow-back and accepted the appellant's explanation.

8. Invocation of Extended Period for Demand Under Section 11A(1) of the Central Excise Act, 1944:
The Revenue invoked the extended period for demand, alleging suppression of facts. The appellant argued that the transactions were transparent, and there was no evidence of suppression, fraud, or collusion. The Tribunal found the SCN to be presumptive and without substantial basis, thus setting aside the impugned order.

Conclusion:
The Tribunal appreciated the unique nature of the appellant's business, where a limited number of buyers created a situation of negotiated terms, including quantity discounts. The Tribunal found no evidence of additional consideration or suppression of facts and held that the entire SCN was presumptive. The appeal was allowed, and the impugned order was set aside, entitling the appellant to consequential benefits in accordance with the law.