2023 (9) TMI 717 - AT - Central Excise

Invocation of extended period of limitation - Valuation of manufactured goods - Waste Rubber Granules (Patta) and Waste Rubber Granule (RD) - rejection of declared value - Rule 8 of Customs Valuation Rules, 2000 - demand of interest and penalty - revenue neutrality - HELD THAT - It is not in dispute that Section 11A provides for a limitation of one year for issuing the SCN. This period can be extended to five years in case the duty is not paid, short paid, not levied, short levied or erroneously refunded on account of fraud or collusion or willful statement or suppression of facts or violation of the provisions of Act or Rules with an intent to evade the payment of duty - 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 by the officers. 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. Revenue Neutrality - HELD THAT - Revenue neutrality is a concept which has evolved through a series of decisions only for the limited purpose of determining if the assessee could have had an intention to evade payment of duty. This intention is an essential ingredient to invoke extended period of limitation. If it is Revenue neutral situation where, the excess duty, if paid, would have been available to the appellant itself or its another unit or a related unit as CENVAT credit, there cannot be an intention to evade because the assessee would gain nothing by evading - Beyond the limitation, Revenue has no remedy although the charge remains. It is like a time-barred debt which, though owed, cannot be recovered by the creditor. If differential duty was chargeable but was not paid and it is later discovered by audit and it gets time barred under Section 11A, the responsibility for it rests squarely on the officers mandated to scrutinize the returns in time and raise a demand in time. Since the entire demand is beyond the normal period of limitation, the demand in the impugned order or the consequential interest and penalties cannot be sustained. The impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Extended period of limitation under section 11A.
2. Principle of revenue neutrality.
3. Demand of interest.
4. Imposition of penalty under section 11AC.

Summary:

Extended Period of Limitation:
The appellant contested the demand on the grounds of limitation, arguing that they had filed the ER-1 returns and had not suppressed any information. The Commissioner (Appeals) upheld the extended period of limitation, asserting that the appellant had not accepted their relationship with GRP and failed to correctly determine the duty liability, amounting to wilful suppression of facts. The Tribunal, however, found that the appellant's contestation of audit observations cannot be a ground to presume wilful suppression. The Tribunal emphasized that the responsibility for scrutiny of returns lies with the officers, and any failure to detect undervaluation within the normal period of limitation is a fault of the officers, not the appellant.

Principle of Revenue Neutrality:
The appellant argued that the entire exercise was revenue neutral since the duty paid was available as CENVAT credit to its parent company. The Commissioner (Appeals) held that the assessee must pay duty as required under law, irrespective of the buyer's eligibility for CENVAT credit. The Tribunal agreed with this principle but highlighted that revenue neutrality is relevant for determining the intention to evade payment of duty, which is crucial for invoking the extended period of limitation.

Demand of Interest:
The appellant contested the demand of interest on the grounds that the demand itself was not sustainable. The Tribunal set aside the demand for interest, aligning with its decision on the limitation issue.

Imposition of Penalty:
The appellant also contested the imposition of penalty under section 11AC. The Tribunal, finding no evidence of wilful suppression or intent to evade duty, set aside the penalties imposed.

Conclusion:
The Tribunal concluded that the entire demand was beyond the normal period of limitation and thus unsustainable. The impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.