2018 (2) TMI 777 - AT - Central Excise

Clandestine removal - - Held that - Indubitably, the appellants were in error in not including the money value of the free issue materials and not amortizing the money value of tools issued free of cost by M/s. FIL. Nonetheless, it clearly emerges that their gaffe was only on account of procedural misunderstanding and misinterpretation of law. There is no allegation that appellants had been indulging in clandestine removal of goods without payment of duty. Penalty - Held that - there is a case for leniency in the matter of imposition of penalties, for which reason, we set aside the imposition of penalties under section 11AC of the Central Excise Act, 1944 and under Rule 25 of Cenvat Credit Rules, 2002/Rule 15 of the CCR 2004 - interest upheld. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Failure to include the money value of tool cost and free issue materials in the assessable value of parts supplied.
2. Allegation of over-valuation of inputs leading to excess Cenvat credit.
3. Confirmation of demand for differential duty, interest, and penalties.
4. Appeal against the Commissioner (Appeals) order upholding the original authority's decision.
5. Request for setting aside penalties based on procedural misunderstanding.

Issue 1: Failure to include money value of tool cost and free issue materials:
The appellants, engaged in manufacturing motor vehicle parts, transferred plastic moulded parts to another unit for assembly. The Department alleged failure to include the value of free issue materials and tool cost in the assessable value of parts supplied. The original authority confirmed a demand for differential duty, interest, and penalties. The appellants admitted the error but claimed it was due to procedural misunderstanding and promptly rectified the duty liability upon discovery. The Tribunal acknowledged the inadvertent lapse and set aside penalties under relevant sections due to the absence of clandestine activities.

Issue 2: Allegation of over-valuation of inputs and excess Cenvat credit:
The Department also alleged that the appellants over-valued inputs supplied to avail excess Cenvat credit. The Commissioner (Appeals) upheld the original authority's decision. During the appeal hearing, the appellants acknowledged the tax liability and disputed credit amount but argued that the transactions between units were internal and revenue-neutral. The Tribunal considered the internal arrangement but emphasized the need for including the correct values in the assessable amount.

Issue 3: Confirmation of demand for differential duty, interest, and penalties:
The original authority confirmed the demand for differential duty, interest, and penalties under relevant sections. The Commissioner (Appeals) upheld this decision. The appellants appealed against this order, leading to the Tribunal's review of the case.

Issue 4: Appeal against Commissioner (Appeals) order:
The appellants challenged the Commissioner (Appeals) order that upheld the original authority's decision. The Tribunal reviewed the case, considering the arguments presented by both parties during the appeal hearing.

Issue 5: Request for setting aside penalties based on procedural misunderstanding:
The appellants requested leniency in penalties, citing procedural misunderstanding and immediate rectification of duty liabilities upon discovery. The Tribunal acknowledged the inadvertent error and set aside penalties under relevant sections, subject to confirmation of payment of interest on the confirmed duty/credit amounts.