2022 (12) TMI 450 - AT - Central Excise

Valuation - department took a view that the appellant was selling sponge iron, M.S. billets and silicon manganese to its related parties at prices lower than the prices at which it sold them to independent buyers - Suppression of facts or not - extended period of limitation - HELD THAT - Revenue s submission that since the appellant is working under self assessment, any deficiency in payment of duty would amount to suppression of facts and extended period of limitation can be invoked is not correct because as per Excise Rules, all assessees work under self assessment but Section 11A still provides for normal period of limitation and extended period of limitation. If the argument of the learned authorised representative is accepted, there cannot be any normal period of limitation in any case because everyone is operating under self assessment and the provision for normal period of limitation would be rendered otiose. The period of dispute in the present case is October 2010 to July 2015 (i.e., before and after 2013 amendment to the Valuation Rules) but only the pre-2013 Valuation Rules were invoked in the SCN, in the order-in-original and in the impugned order. The case of the Revenue is that the appellant sold goods partly to Vandana and Shivali and partly to other independent buyers and therefore, Valuation Rules 9 and 10 do not apply and hence the residual provision - Valuation Rule 11 applies. The Valuation Rules as applicable for the period post-2013 were neither invoked nor discussed. Valuation Rule 4 deals with cases where goods are sold but not the time of removal. Valuation Rule 7 deals with cases where the goods are sold but not at the place of removal. It is neither alleged nor established that the goods were not sold at the time of removal or at the place of removal in this case. We are at a loss to understand as to why these Rules were invoked in the SCN because there is no dispute regarding the place of removal or time of removal - the SCN has not only NOT invoked the Valuation Rules relevant to the period post 2013, but does not also explain why Valuation Rules 11 read with Rules 4 7 were invoked even for the period pre-2013. The scheme under the law is that although the duty is levied on manufacture of goods, it becomes payable only when they are removed and it must be paid based on self-assessment by the fifth or sixth of the following month. The assessee also has to file returns. Needless to say that the assessee may make mistakes in self-assessment and the check against this has been provided in the form of scrutiny of the returns by the officers and the officer scrutinising the returns can call for any documents and records from the assessee which it is bound to provide - the officer is mandated under the Rules to do what the audit has done much later. Had the officer scrutinised the returns as was mandated and called for any records, the alleged mistakes which were pointed out by the audit would have come to light and a SCN could have been issued under section 11A within the normal period of limitation. While the assessee was required to self assess duty and file ER-1 return, a check against such self-assessment was the scrutiny which the officers were mandated to do by Rules. Audit is the next level of check against the scrutiny. If the audit points out some wrong assessment which was not pointed out by the officer scrutinising the ER-1 return, the fault lies at the doorstep of the officer. It does not, by itself, establish that the assessee had suppressed any facts. The impugned order cannot be sustained - Appeal allowed.

Issues Involved:

1. Extended Period of Limitation
2. Valuation Rules Applied
3. Relationship Between Appellant and Buyers
4. Self-Assessment and Duty Payment
5. Sufficiency of Evidence

Detailed Analysis:

1. Extended Period of Limitation:

The tribunal first addressed whether the extended period of limitation under Section 11A of the Central Excise Act, 1944, was correctly invoked. The show cause notice (SCN) alleged that the appellant deliberately suppressed facts to evade duty, invoking the extended period of five years. However, the tribunal found that the original authority and the Commissioner (Appeals) did not adequately address this issue. The tribunal emphasized that working under self-assessment does not automatically imply suppression of facts. As per the Excise Rules, officers are mandated to scrutinize returns, and any failure to do so cannot justify invoking the extended period. Therefore, the demand for the period prior to September 2014 was deemed time-barred.

2. Valuation Rules Applied:

For the period October 2014 to July 2015, the tribunal examined whether the correct Valuation Rules were applied. The SCN and the orders invoked pre-2013 Valuation Rules, specifically Rule 11 read with Rules 4 and 7, even though the period of dispute extended beyond 2013. Post-2013 amendments to the Valuation Rules stipulate that if goods are sold partly to related buyers, Rules 9 and 10 apply. The tribunal found that the SCN did not invoke the relevant post-2013 Rules, rendering the demand unsustainable for the normal period of limitation.

3. Relationship Between Appellant and Buyers:

The tribunal scrutinized whether the appellant and its buyers, Vandana and Shivali, were 'related persons' under Section 4(3)(b) of the Act. The SCN alleged that key personnel of the appellant had significant influence over Vandana and Shivali, but did not provide sufficient evidence to establish this relationship. The tribunal found that the evidence was insufficient to prove that the appellant and its buyers were inter-connected undertakings or related in any other manner. Even if they were inter-connected, valuation should be done as if they are not related persons under Rule 10(b), making the demand unsustainable.

4. Self-Assessment and Duty Payment:

The tribunal highlighted the self-assessment regime under the Excise Rules, where the assessee is responsible for assessing and paying duty. However, the Rules also mandate officers to scrutinize returns and call for necessary documents. The tribunal noted that the failure of officers to scrutinize the returns properly cannot be a ground to invoke the extended period of limitation. The appellant's ER-1 returns did not require disclosure of relationships with buyers, and any discrepancies should have been identified during the mandated scrutiny by officers.

5. Sufficiency of Evidence:

The tribunal found the SCN vague regarding the invocation of Valuation Rule 11 read with Rules 4 and 7, as there was no dispute about the place or time of removal of goods. The Commissioner (Appeals) upheld the demand by invoking Valuation Rules 11 read with Rules 9 and 10, which were not invoked in the SCN. The tribunal concluded that the evidence was insufficient to establish that the appellant and its buyers were inter-connected undertakings or related in any other manner. Consequently, the demand could not be sustained on merits.

Conclusion:

The tribunal set aside the impugned order dated February 15, 2018, and allowed the appeal with consequential relief to the appellant. The demand for the period prior to September 2014 was time-barred, and for the period October 2014 to July 2015, the correct Valuation Rules were not invoked or applied, rendering the demand unsustainable. The tribunal emphasized the importance of proper scrutiny by officers and the insufficiency of evidence to establish the relationship between the appellant and its buyers.

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