2019 (5) TMI 1343 - AT - Central Excise

Valuation - undervaluation - cost of the grey fabric supplied by M/s KHDCL for which a lower price is given in their price declarations sent to M/s Sanghi and a higher price is indicated in the delivery challans - HELD THAT - The price declaration may not be the actual rate of the fabric and if the actual rate of fabric is different excise duty on the same is agreed to be reimbursed to M/s Sanghi by M/s KHDCL in full on a demand being raised by the excise authorities M/s KHDCL was not in dispute. This price declaration further gives M/s Sanghi a right of lien on stocks lying with them until such reimbursement is made in full. The price declaration indicates only a tentative price and not actual price of the goods. The actual price of goods may differ. Since there is no sale/purchase between M/s Sanghi and M/s KHDCL there is no actual sales value. A second price is indicated in the delivery challans. Since there is no sale of grey fabric at all, either by M/s KHDCL or by respondent assessee, the value of the raw material becomes relevant only in case the material is damaged by M/s Sanghi and they have to reimburse the cost of the material to M/s KHDCL. This should reflect the true value of the goods because M/s Sanghi will be making up for any loss on their account at this price - the price in the delivery challan should, therefore, be considered as correct price of the raw material. The demand of Central Excise duty on the differential value is liable to be recovered under Section 11A(1) of Central Excise Act 1944 read with Rule 4,5,6 8 of the Central Excise Rules 2001-2002. Consequently, the deemed CENVAT credit, if any, also needs to be disallowed - the interest under Section 11AB also needs to be recovered from the respondent herein. Extended period of limitation - penalty - HELD THAT - It is not in dispute that the appellant has declared the value which is lower than the value in the price declaration and therefore has clearly mis-declared the value and the same is liable to be recovered - Penalties also set aside. Appeal disposed off.

Summary

Issues Involved:
1. Determination of the correct assessable value of raw materials for excise duty calculation.
2. Entitlement to deemed credit under CENVAT Credit Rules.
3. Imposition of interest and penalties under Central Excise Act and Rules.

Issue-wise Detailed Analysis:

1. Determination of the Correct Assessable Value of Raw Materials for Excise Duty Calculation:
The primary issue revolves around whether the assessable value for excise duty should be based on the price declared by M/s Karnataka Handloom Development Corporation Ltd (KHDCL) or the higher price shown in the delivery challans. The department alleged that the respondent suppressed the cost of raw materials by using the lower price declared by KHDCL, leading to underpayment of excise duty. The adjudicating authority initially dropped the proceedings, accepting the argument that the difference in prices was due to a 15% transit risk. However, upon appeal, it was found that there was no substantive evidence to support the claim of a 15% transit risk. The Tribunal concluded that the price indicated in the delivery challans should be considered the correct price of the raw materials, as it reflects the true value in case of loss or damage.

2. Entitlement to Deemed Credit under CENVAT Credit Rules:
The show-cause notice also proposed to disallow deemed credit under Rule 14 of CENVAT Credit Rules 2002/2004, citing the suppression of the value of goods. The Tribunal, agreeing with the Revenue's argument, held that since the respondent mis-declared the value of the raw materials, any deemed CENVAT credit availed should be disallowed.

3. Imposition of Interest and Penalties under Central Excise Act and Rules:
The Tribunal upheld the demand for recovery of differential excise duty under Section 11A(1) of the Central Excise Act 1944, along with interest under Section 11AB. However, it took a lenient view regarding penalties. The Tribunal noted that while there was a clear mis-declaration of value, there might have been a misunderstanding regarding duty liability. Consequently, it set aside the penalties under Section 11AC read with Rule 25 of Central Excise Rules 2001-02, and also the penalty on M/s KHDCL under Rule 26 of Central Excise Rules 2001-02.

Conclusion:
The Tribunal's judgment emphasized that the correct assessable value for excise duty should be based on the price in the delivery challans, not the lower price declared by KHDCL. It upheld the recovery of differential duty and interest but set aside the penalties, considering the possibility of a genuine misunderstanding of duty liability. The appeals were disposed of accordingly.