2019 (3) TMI 516 - AT - Central Excise

Valuation - mis-declaration of value - job-work - inclusion of amount paid by appellant no.2 as royalty to their parent concern in the value for discharging the central excise duty - period 2004-05 to 2007-08 - time limitation - Held that - Undisputedly appellant is a job worker for appellant no. 2; manufactures Vicks Action 500 and Vicks Inhalers; discharges the duty liability on the said products based upon the formula of valuation as settled by the Apex Court in the case of Ujagar Prints 1989 (1) TMI 124 - SUPREME COURT OF INDIA i.e. cost of materials plus job work charges (which includes job workers profit); filed regularly the cost sheets, declarations etc., with the authorities as being job worker of the appellant no.2. In the absence of any knowledge of any payment made by appellant no. 2 to Procter Gamble, USA, it cannot be held that appellant had misdeclared the value of the goods manufactured on job work basis. Further, in the entire proceedings, the Revenue has not disputed that appellant had been filing cost sheets along with the declaration made by appellant no.2 when they manufactured and cleared Vicks Action 500 and Vicks Inhalers from their factory premises. If that be so, alleging that there was a misdeclaration of the value in the case in hand seems to be unfounded and incorrect - also reading the Apex Court Judgment in the case of Ujagar Prints the discharge of the duty liability by the appellant based upon the cost of material plus job works charges during the period in question is the correct law followed and was followed. Time limitation - Held that - Undisputedly, the declaration of the price which has been made by appellant is based upon the cost sheets given by appellant no. 2 to him and discharged the duty liability accordingly. It is also undisputed that the appellant has been filing the monthly returns with the authorities. If that be so a show cause notice dated 03-08-2009 invoking the extended period for demanding the duty for the period 2004- 05 to 2007-08 is blatantly hit by limitation. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Misdeclaration of value by the appellant.
2. Inclusion of royalty and technical fees in the assessable value.
3. Applicability of Rule 6 of Central Excise Valuation Rules.
4. Limitation period for issuing the show cause notice.
5. Imposition of penalties on the appellants.

Issue-wise Detailed Analysis:

1. Misdeclaration of Value by the Appellant:
The primary allegation against the appellant was the misdeclaration of the value of goods cleared. The appellant, a job worker for appellant no.2, manufactured Vicks Action 500 and Vicks Inhalers and discharged duty based on the valuation formula established by the Supreme Court in Ujagar Prints, which includes the cost of materials plus job work charges. The Tribunal found that the appellant regularly filed cost sheets and declarations with the authorities. Therefore, the Tribunal concluded that there was no misdeclaration of value by the appellant, as they were unaware of the royalty payments made by appellant no.2 to Procter & Gamble, USA.

2. Inclusion of Royalty and Technical Fees in the Assessable Value:
The respondent argued that the royalty and technical fees paid by appellant no.2 to Procter & Gamble, USA should be included in the assessable value. The Tribunal noted that there was no evidence to suggest that the appellant was aware of these payments. Moreover, the appellant followed the valuation method prescribed in Ujagar Prints, which does not necessitate the inclusion of such fees. Therefore, the Tribunal held that the inclusion of royalty and technical fees in the assessable value was not required.

3. Applicability of Rule 6 of Central Excise Valuation Rules:
The respondent contended that Rule 6 of the Central Excise Valuation Rules should apply, as there was additional consideration in the form of royalty and technical fees. However, the Tribunal found that the appellant was a job worker and was not aware of any such payments. The valuation was done based on the documents provided by appellant no.2, and there was no free supply of materials. Thus, Rule 6 was deemed inapplicable.

4. Limitation Period for Issuing the Show Cause Notice:
The appellant argued that the demand was barred by limitation since the job work arrangement and valuation method were known to the department since 1999. The Tribunal observed that regular audits were conducted, and no demands were raised earlier. The show cause notice dated 03-08-2009, demanding duty for the period 2004-05 to 2007-08, was found to be time-barred. Therefore, the demand could not be sustained due to the limitation period.

5. Imposition of Penalties on the Appellants:
Given that the demands were set aside on both merits and limitation, the Tribunal held that the imposition of penalties on the appellants was unwarranted. Consequently, the penalties imposed on both the appellant and appellant no.2 were set aside.

Conclusion:
The Tribunal allowed the appeals, setting aside the demands and penalties imposed on the appellants. The judgment emphasized that the appellant followed the valuation method prescribed by the Supreme Court in Ujagar Prints and that the demands were barred by limitation. The Tribunal found no misdeclaration of value and ruled that the inclusion of royalty and technical fees in the assessable value was not required.

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