2019 (8) TMI 1684 - AT - Central Excise

Levy of Excise Duty - duty on damaged finished goods at the normal sale price/transaction value or not - extended period of limitation - penalty - HELD THAT - Leviability of excise duty under Section 3 of the Central Excise Act arises at the event of manufacture of finished goods. Admittedly the goods destroyed in fire in the present case were finished goods duly entered in the RG-I Register maintained by the appellant - In the facts of the present case definitely the liability to excise duty has arisen when the goods had reached the stage of the finished goods and entered in the RG-I Register. The subsequent event of damage in fire does not ipso facto extinguish the tax liability. Moreover Rule 21 of Central Excise Rules provides the assessee to seek remission from the payment of duty so as to reduce the tax burden wherever the goods have been destroyed and rendered unfit and unmarketable. Accordingly the appellant is liable to pay duty on the finished goods. Valuation of goods - HELD THAT - The amount of insurance claim received plus the transaction value of the damaged finished goods will form the gross amount dutiable on cum duty basis. Also the liability of the appellant does not extinguish on the fact that they have not claimed or received amount of the excise duty on the damaged goods from the insurance company. Accordingly the appeal is allowed in part and remitted to the Adjudicating Authority for re-calculation of the duty payable on cum duty basis on the value indicated. Extended period of limitation - HELD THAT - As the case of short payment of duty has arisen on the appellant mis-interpreting the provisions of Act and Rules the extended period is rightly invoked by the Revenue. Penalty - HELD THAT - The issue being interpretational in nature and the transactions are duly recorded in the books of accounts thus the penalty is not exigible. Accordingly the penalty imposed under Rule 25 of the Central Excise Rules read with Section 11 AC is set aside. Appeal allowed in part - part matter on remand.

Summary

Issues:
1. Liability to pay duty on damaged finished goods at normal sale price.
2. Invocation of extended period of limitation.
3. Imposition of penalty under Section 11 AC read with Rule 25.

Analysis:
1. The case involved the liability of the appellant to pay duty on damaged finished goods at the normal sale price. The appellant's goods were destroyed in a fire, and they cleared the partly burnt finished goods at a lower transaction value. The Department demanded Cenvat Credit availed and utilized on the inputs used in the burnt finished goods. The appellant argued that Rule 3(5B) did not apply as no inputs were written off without use, and they had not claimed remission under Rule 21. The Commissioner (Appeals) held that duty was payable on the transaction value based on the sale price of similar goods before the fire, allowing the appeal partially.

2. The invocation of the extended period of limitation was also a key issue. The appellant contended that the show cause notice was time-barred as they had disclosed the sales in their returns and informed the Department about the fire promptly. The Tribunal found that the extended period was rightly invoked due to the misinterpretation of the Act and Rules by the appellant, partially allowing the appeal.

3. Regarding the penalty under Section 11 AC read with Rule 25, the Tribunal set it aside. The penalty was considered not exigible as the issue was interpretational, and the transactions were duly recorded. The Tribunal held that the penalty was not warranted in this case, providing relief to the appellant.

In conclusion, the Tribunal partially allowed the appeal, directing a re-calculation of duty payable on the damaged finished goods based on the gross amount including the insurance claim and transaction value. The penalty imposed was set aside, and the invocation of the extended period of limitation was upheld due to misinterpretation by the appellant.