2023 (4) TMI 970 - AT - Central Excise

Recovery of Central Excise Duty alongwith interest and penalty - under-valuation - footwear components for use within the factory and in their own factories at other places as well as for use by their job workers for manufacture of complete footwear - determination of assessable value of the said goods in terms of Section 4 of the Central Excise Act, 1944 read with Central Excise (Valuation) Rules, 1975 for the period of April 1996 to August 1998 - extended period of limitation - HELD THAT - The cost of raw material vary depending upon the raw material used and hence a variable item like raw material cannot be the basis for working out the overhead charges . The Appellant arrived at the overhead charges as a percentage of wages which appears to be more appropriate than adopting raw material cost, to arrive at the overhead charges . The Appellant has already paid duty on the basis of the cost arrived at based on the method cited above. Thus, there is no under-valuation in the costing of the product adopted by the Appellant. Accordingly, the demand does not survive. As the demand is not sustainable, the demand of interest and penalty also not sustainable. Extended period of limitation - HELD THAT - Since the issue is already held that on merit itself the demand is not sustainable, issue of Limitation is not examined further. Appeal of Revenue dismissed.

Summary

Issues involved:
The issues involved in the legal judgment are undervaluation of footwear components for Central Excise Duty, determination of assessable value, invocation of extended period of limitation, costing principles, inclusion of overheads in valuation, remand order by Commissioner (Appeals), dropping of demand on merit and limitation, appeal by both the Appellant and the Revenue, and decision based on remand order.

Undervaluation of footwear components:
The appellant undervalued footwear components cleared for consumption in other units and job workers' factories by not properly determining the assessable value as per Central Excise Act and Valuation Rules. The assessable value was based on a lower percentage of prime cost, neglecting profit margin, administrative overhead, advertising expenses, and interest, resulting in undervaluation.

Invocation of extended period of limitation:
The appellant argued against the invocation of the extended period of limitation, stating regular filing of Central Excise returns and audits conducted by the department. The Adjudicating Authority initially dropped the demand on the ground of limitation, which was not challenged by the Department, leading to the dropping of the demand on this ground.

Costing principles and inclusion of overheads in valuation:
The Commissioner (Appeals) emphasized the correct determination of cost of production, including factory overheads, for captive consumption as per Central Excise Law. The appellant's method of calculating overhead charges based on wages was deemed more appropriate than using raw material cost, leading to a conclusion of no under-valuation and hence no demand.

Remand order by Commissioner (Appeals) and appeal by both parties:
The Commissioner (Appeals) remanded the matter back to the Adjudicating Authority for re-adjudication based on observations regarding the inclusion of overheads in costing. Both the Appellant and the Revenue appealed against the Order-in-Appeal, with the Revenue challenging the remand to the Adjudicating Authority.

Decision based on remand order:
The Appellate Tribunal considered the arguments presented, finding merit in the Appellant's method of calculating overhead charges and concluding that the demand was not sustainable. The Tribunal set aside the Order-in-Appeal and allowed the Appellant's appeal, rejecting the Department's appeal.