2022 (9) TMI 1459 - AT - Central Excise

Recovery of the differential duty - clearance of intermediate goods to their own units under the provisions of proviso to Section 11A(1) of the Central Excise, Act, 1944 - demand of interest and penalty - extended period of limitation - HELD THAT - The Appellants have appropriately taken cost figures of the previous month's CAS-4 certificates as a basis to arrive at the cost of production of each month. There was no objection whatsoever by the department at any point of time. For the first time in February 2008, during the course of audit for the period April 2006 to March 2007, this practice was objected and the Appellants were asked to redetermine cost of production on the basis of final annual CAS-4 of April 2006 to March 2007. If the Appellants are to value their clearance on the basis of annual CAS-4 figures, they have paid excess duty in some instances as is admitted in the show cause notice, order in original and the impugned order. Further the both the authorities have concluded in the order against adjustment of the excess payment of duty against short payment on the ground of unjust enrichment. Both authorities also hold that the assessments were provisional. Appellants have while filing the ER-1 return disclosed all the facts and have also submitted the CAS-4 certificate also. The department was aware of the valuation practices adopted by the Appellants. All the material facts relating to the manufacture, clearance and valuation of the cables used in the captive consumption were always within the knowledge of the department. The ER-1 returns also show that there was interplant transfer - appellants have not violated any provisions of the Central Excise Act or the rules made thereunder. Thus even if there was any short payment of duty the same was on the basis of the CAS-4 certificate issue by the independent Cost Accountant, was due to bonafide belief of the Appellants regarding determination of assessable value, cannot be on account of suppression, fraud misstatement or contravention of the rule with the intention to evade payment of duty leading to invocation of extended period of limitation as per the proviso to Section 11A (1) of the Central Excise Act,1944. Demand do not sustain - demand for interest and penalties imposed cannot be upheld - appeal allowed.

Issues Involved:
1. Valuation of goods cleared to own units based on CAS-4 certificates.
2. Adjustment of excess duty paid against short payment.
3. Invocation of extended period of limitation.
4. Imposition of penalty.
5. Recovery of interest.

Issue-wise Detailed Analysis:

1. Valuation of Goods Cleared to Own Units Based on CAS-4 Certificates:
The appellants, engaged in manufacturing excisable goods, were clearing intermediate products to their own units and paying duty based on CAS-4 value plus 10% of the cost of production. The department observed that the CAS-4 certificates for 2006-07 were based on audited cost records for 2004-05, leading to undervaluation and a shortfall in duty payment amounting to Rs. 23,31,533/-. The appellants argued that monthly CAS-4 certificates reflected more accurate production costs due to fluctuating raw material prices, and there was no legal provision mandating the use of annual CAS-4 values. The Tribunal found that the appellants had deviated from the CAS-4 standards by adding 10-15% for inflation, which was not provided for in the standards set by ICWAI. The correct assessable value could only be determined after finalizing the accounts, and the appellants should have opted for provisional assessment under Rule 7 of the Central Excise Rules, 2002.

2. Adjustment of Excess Duty Paid Against Short Payment:
The appellants had paid excess duty in some instances and sought to adjust this against the shortfall. The department rejected this adjustment, citing unjust enrichment. The Tribunal noted that the lower authorities' stance was self-contradictory, as they treated the assessments as provisional but did not allow adjustments. The Tribunal referred to the Supreme Court's decision in Mafatlal Industries, which allows for adjustments of provisional assessments. The Tribunal concluded that the assessments made on the basis of CAS-4 certificates should be treated as final, and adjustments should be allowed.

3. Invocation of Extended Period of Limitation:
The appellants argued that the demand for the period April 2005 to March 2007 was beyond the limitation period and that the entire exercise was revenue-neutral as their sister units could take credit for any differential duty paid. The Tribunal found that the appellants had disclosed all relevant facts and submitted CAS-4 certificates with their ER-1 returns. The department was aware of the valuation practices, and the alleged short payment was not accompanied by an intention to evade duty. Therefore, the invocation of the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944, was not justified.

4. Imposition of Penalty:
The appellants contended that they had not contravened any provisions of the Act or Rules and had paid duty based on monthly CAS-4 certificates. The Tribunal agreed, noting that the short payment was due to a bona fide belief regarding the assessable value and was not due to suppression, fraud, or misstatement. As such, the imposition of penalties under Section 11AC of the Central Excise Act, 1944, was not warranted.

5. Recovery of Interest:
The department sought to recover interest on the differential duty. The Tribunal held that since the demand for differential duty was not sustainable, the question of recovering interest did not arise. The Tribunal cited case laws supporting the view that interest is not recoverable when the original demand is not maintainable.

Conclusion:
The Tribunal allowed the appeal, setting aside the demand for differential duty, interest, and penalties. The Tribunal emphasized that the appellants had acted in good faith, disclosed all necessary details, and the entire exercise was revenue-neutral. The assessments based on CAS-4 certificates were to be treated as final, and adjustments for excess duty paid were permissible. The invocation of the extended period of limitation and the imposition of penalties were not justified.

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