2019 (1) TMI 1096 - AT - Central Excise

Valuation - Discrepancies in the figures shown in the Profit & Loss account and ERI returns - the total value of both the traded goods and the manufactured goods as shown in the worksheet was found to be less than the value as shown in the profit and loss accounts for each of the three financial years - demand of differential duty - Held that - Commissioner has said that though the proprietor of the assessee has given statement that they are doing some modification on the goods, there is nothing to show that a new product emerges from such modification. The goods received and the goods sold are one and the same and there is no change in CETH or description of the goods. The Commissioner has therefore categorically held that the activity if any of modifying the goods does not amount to manufacture. It is for the department to show as to what are the inputs used for doing such modification and what is the activity actually involved for doing the modifications. The activity cannot be held to be manufacture on a mere presumption that there is an increase in the price value. Whenever there was no increase in the price, it is taken by the department to be traded goods. Thus, the allegation of manufacture is on mere assumption of increase in the value of goods sold. There is actually nothing brought forth in the show cause notice to show that the activity undertaken by the respondent amounts to manufacture. The Commissioner has rightly dropped the demand with respect to ₹ 34,94,737/- - appeal dismissed - decided against Revenue.

Issues:
1. Appeal against the order passed by Commissioner
2. Discrepancies in figures shown in Profit & Loss account and ERI returns
3. Demand raised in show cause notice
4. Availing CENVAT credit
5. Activity of value addition and manufacture
6. Grounds of appeal stated
7. Finding for setting aside demand on the ground of limitation
8. Confirmation of interest and demand

Analysis:

1. Appeal against the order passed by Commissioner:
The department filed an appeal against the Commissioner's order which set aside a demand of ?34,94,737 raised in the show cause notice and confirmed a reduced demand of ?23,14,649 along with interest and penalty. The appellant argued that discrepancies in figures between the Profit & Loss account and ERI returns led to the issuance of the show cause notice.

2. Discrepancies in figures shown in Profit & Loss account and ERI returns:
The respondent, engaged in trading and manufacturing, produced a worksheet showing the breakdown of invoices for traded and manufactured goods for three financial years. The total value in the worksheet was less than that in the profit and loss accounts. The appellant contended that the increase in value on sales invoices indicated a manufacturing process, which the Commissioner disagreed with.

3. Demand raised in show cause notice:
The show cause notice raised a demand based on discrepancies in sales invoices where goods were sold at higher prices, leading to suspicion of value addition. The appellant argued that this value addition amounted to manufacturing, which the Commissioner did not agree with, stating that no new product emerged from the modifications.

4. Availing CENVAT credit:
The respondent availed CENVAT credit on excise duty paid for purchased goods immediately upon receipt in the factory. However, discrepancies arose when comparing sales invoices with ERI returns, indicating potential value addition on goods sold.

5. Activity of value addition and manufacture:
The appellant argued that the increase in value on sales invoices suggested a manufacturing process due to modifications made to suit client requirements. The Commissioner held that the modifications did not result in a new product and did not amount to manufacture, emphasizing the need for evidence on inputs and activities involved in the modifications.

6. Grounds of appeal stated:
The grounds of appeal mentioned by the appellant differed from the arguments presented during the hearing. The appeal memorandum focused on the lack of findings regarding limitation and the confirmation of interest and demand, rather than the manufacturing aspect.

7. Finding for setting aside demand on the ground of limitation:
The Commissioner did not drop the demand of ?34,94,737 based on limitation grounds but on the lack of evidence to support the activity amounting to manufacture. The Commissioner's decision was based on the absence of a new product emerging from the modifications made by the respondent.

8. Confirmation of interest and demand:
The appellant challenged the Commissioner's decision to drop part of the demand, arguing that the modifications done by the respondent should have led to the confirmation of the entire demand. However, the Tribunal upheld the Commissioner's decision and dismissed the appeal filed by the department.

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