2018 (4) TMI 469 - AT - Central Excise

Valuation - machineries and cylinder blocks - inclusion of various costs like amortisation charges, sales tax, freight charges for transportation of castings, cost of free items supplied by M M and value of supplementary invoices of raw materials - Held that - the adjudicating authority has clearly recorded that LML received some amount in cash for the value suppressed by them on CNC machines and has correctly included the value thereof for payment of the amounts on CNC machines. As regards the deductions claimed by the said LML Ltd from the demands raised in the show cause notice, the adjudicating authority has also given detailed reasonings as to why he is convinced that the demands needs to be re-determined after coming deductions claimed by LML and also ascertaining himself about the correctness of the claim. Time Limitation - Held that - it is an accepted fact that there was under valuation of CNC machines and cylinder blocks by not including various costs, which stands confirmed against LML - the extended period has been correctly invoked. Penalty u/r 25 and 26 - Held that - penalty u/r 26 cannot be imposed without bringing on record any evidence indicating that M M had any role attributable for under valuation by LML - when the penalty is not imposable under rule 26 itself, the question of imposing penalty on M M under rule 25 does not arise. Appeal dismissed - decided against Revenue.

Issues Involved:

1. Under-valuation of goods by M/s Lokesh Machines Limited (LML).
2. Imposition of penalties on M/s Mahindra & Mahindra Limited (M&M).
3. Validity of the corrigendum enhancing duty liability.
4. Invocation of extended period for demand.
5. Correctness of deductions claimed by LML.
6. Imposition of penalties under incorrect rules.

Issue-wise Detailed Analysis:

1. Under-valuation of goods by M/s Lokesh Machines Limited (LML):

The adjudicating authority confirmed that LML had under-valued their CNC machines and cylinder blocks supplied to M&M. The under-valuation was due to non-inclusion of various costs such as amortization charges, sales tax, freight charges, cost of free items supplied by M&M, and value of supplementary invoices. The authority upheld the demands raised on LML, finding the detailed reasoning provided for the demands accurate and legally sound. The authority also correctly included the value of cash received by LML for CNC machines in the duty calculation.

2. Imposition of penalties on M/s Mahindra & Mahindra Limited (M&M):

The penalty imposed on M&M under Rule 25 of the Central Excise Rules, 1944, was found unsustainable. The adjudicating authority's conclusion that M&M had knowledge of the under-valuation and chose to ignore it was not supported by evidence. M&M had issued circulars to LML regarding the correct valuation of components, demonstrating their effort to ensure compliance. The Tribunal held that M&M could not be penalized under Rule 25 as they were not the manufacturer, purchaser, warehouse, or registered dealer in this case. The penalty imposed under Rule 26 in the show cause notice was also deemed incorrect.

3. Validity of the corrigendum enhancing duty liability:

The corrigendum issued on 7.3.2008, which enhanced the duty liability on LML, was challenged. The Tribunal found that the corrigendum was issued to correct arithmetical and accounting errors in the original order and did not change the discussions, findings, or merits of the issues decided. Therefore, the corrigendum was considered valid and correct.

4. Invocation of extended period for demand:

The extended period for demand was correctly invoked as LML had under-valued the CNC machines and cylinder blocks by not including various costs. The Tribunal found that the extended period was applicable due to the accepted fact of under-valuation.

5. Correctness of deductions claimed by LML:

The adjudicating authority allowed certain deductions claimed by LML during the personal hearing. The Tribunal found the authority's detailed reasoning for allowing these deductions to be correct and legal, and did not interfere with the adjudicating authority's findings.

6. Imposition of penalties under incorrect rules:

The penalty on M&M was imposed under Rule 25 of the Central Excise Rules, 1944, while the show cause notice invoked Rule 26. The Tribunal found that the penalty under Rule 25 was not applicable to M&M as they were not the manufacturer, purchaser, warehouse, or registered dealer. The penalty under Rule 26 also could not be imposed as there was no evidence indicating M&M's involvement in the under-valuation by LML.

Conclusion:

The appeals filed by LML and Revenue were rejected, and the appeal by M&M was allowed. The Tribunal upheld the adjudicating authority's findings on the under-valuation by LML and the validity of the corrigendum. The penalty imposed on M&M was set aside due to lack of evidence and incorrect application of rules.

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