2005 (7) TMI 169 - AT - Central Excise

Modvat credit - Valuation (Central Excise) - Demand - Limitation - Penalty and interest - HELD THAT - The duty cannot be directly charged on the development charges. In terms of the Board Circular, the amount is required to be amortized and duty worked out. After procuring a certificate from the cost accountant. Although in the case of Ashok Iron Works 2004 (2) TMI 482 - CESTAT, BANGALORE , the Bench had allowed the appeal solely on the basis that duty cannot be demanded directly on development charges but the Board Circular had not been examined. In view of the Board Circular the matter has to go back to the Original authority for amortizing the cost in terms of the certificate to be produced from the cost accountant. We are of the considered opinion that the aspect pertaining to time limit and time-bar is required to be re-examined in the light of the submissions made by the appellants and recorded in this order. The appellants had immediately paid the amount before the issue of show cause notice but that by itself will not justify confirmation of demand without examining all the pleas raised by the assessee. The appellant have cited several judgments to show that there was no suppression of facts and the show cause notice issued after three years. After collecting all the details by the Board in this regard. Several judgments have been cited as the duty has not been properly quantified. In terms of the Board Circular, the matter has to go back to the Original authority. The demands could be re-worked out after reconsidering the prayer of time-bar. The aspect pertaining to availment of Modvat credit is also to be resolved in the light of submissions made by the party. Penalty and interest is concerned under Sections 11AB and 11AC of the Act, the contention of appellants that the demand is prior to the introduction of the section and that penalty and interest is not leviable is justified, as the amounts have been paid even before the issue of show cause notice in terms of the cited judgment. The penalty and interest is set aside. The appeal is allowed by remand for re-working out the duty in terms of the direction given in this order for re-examining the aspect pertaining to availment of Modvat credit.

Summary

Issues:
1. Confirmation of demands on time-bar
2. Inclusion of design and development charges in assessable value
3. Reversal of Modvat credit
4. Applicability of Sections 11AB and 11AC for penalty and interest

Confirmation of demands on time-bar:
The appeal challenged the confirmation of demands on time-bar, arguing that no show cause notice was issued for over three years after an investigation. The appellant contended that the show cause notice did not sufficiently establish how the value of developed castings affected the price of unmachined casting. They emphasized that all sales were made at arm's length prices and that the development charges were paid before the notice. The Tribunal noted that duty cannot be directly charged on development charges and ordered a re-examination by the Original authority to amortize the cost based on a certificate from a cost accountant. The matter was remanded for reworking the demands considering the time-bar issue.

Inclusion of design and development charges in assessable value:
The appellant argued against including design and development charges in the assessable value of castings, citing a bona fide belief and contrary Tribunal judgments. The Tribunal acknowledged the need to include such charges but agreed that duty cannot be directly demanded on them. Reference was made to a Board Circular on amortization, requiring a certificate from a cost accountant. The Tribunal directed a re-examination of the time limit and the inclusion of these charges in the assessable value.

Reversal of Modvat credit:
The appellant contested the reversal of Modvat credit, claiming it was not applicable as they had duly availed the credit. They argued against the applicability of Sections 11AB and 11AC for penalty and interest. The Tribunal found merit in these arguments, setting aside the penalty and interest under these sections. The matter was to be resolved based on the submissions made by the party.

Applicability of Sections 11AB and 11AC for penalty and interest:
Regarding penalty and interest under Sections 11AB and 11AC, the Tribunal sided with the appellants, noting that the demand predated the introduction of these sections. As the amounts were paid before the show cause notice, the penalty and interest were deemed not leviable. The Tribunal allowed the appeal, remanding for a reworking of the duty and a reconsideration of the Modvat credit issue based on the directions provided.