Assessable value of goods cleared to sister concern.

Case:-SWEET INDUSTRIES INDIA PVT. LTD. VERSUS COMMR. OF C. EX., AURANGABAD

Citation:-2016 (334) E.L.T. 164 (Tri. - Mumbai)

Brief Facts:-The appellant has manufacturing printed polyester film, laminated polyester film, laminated wrapper and hot melted wrapper. They have another unit in Daman (union Territory). This appeal pertains to the first unit. The products of that unit are inputs for the Daman unit. During the period of dispute (April to December, 2004), the appellant-unit had stock-transferred some of their products to their sister unit on payment of duty as assessed without following CAS-4 formula of valuation of captively consumed goods. An audit party from the department, in December, 2004, found out that the appellant had short-paid duty of excise on the goods transferred to the sister unit, on account of not having followed CAS-4 formula. They pointed this out to the appellant, but the latter did not take any corrective steps. Later on, in January, 2006, they produced certain documents before the range officer in response to a summons issued by the latter. Thereafter, investigations were made into the case and show cause notice dated 3-7-2007 was issued by the department, wherein an amount of Rs. 3,69,507/- towards Central Excise duty and education cess was demanded from the appellant under the proviso to Section 11A(1) of the Central Excise Act and interest thereon was demanded under Section 11AB of the Act. The show cause notice also proposed a penalty on the party under Section 11AC of the Act and Rule 26 of the Central Excise Rules, 2002. In the meanwhile, the appellant had obtained a CAS-4 certificate from their cost accountant, worked out an amount of differential duty in their own way and paid the same up. This happened on 11-5-2005 i.e. before the issue of the show cause notice. A work-sheet, on the basis of which this payment was made, is available on record and the same indicates that the differential amount of duty was not worked out on the premise that duty was liable to be paid on the stock-transferred goods in accordance with the CAS-4 certificate of the cost accountant. On the other hand, the assessee chose to determine a differential unit price (per kg) from the unit price given in the CAS-4 certificate and the unit price as determined by the assessee by a method of averaging. For instance, in respect of laminated wrapper transferred by the assessee to the sister unit, the unit price given in the cost accountant’s certificate was 123.62, while the ‘average unit price’ was Rs. 100.29. The differential unit price, in this particular case was Rs. 23.33, on the basis of which the differential assessable value was determined and accordingly differential duty was paid by the assessee.

In the show cause notice, it was alleged, inter alia, that the correct facts were suppressed/willfully mis-stated by the assessee with intent to evade payment of duty. On this basis, the extended period of limitation was invoked for demanding the differential amount of duty based on the cost accountant’s certificate, and the provisions of Section 11AB and Section 11AC were also invoked against the assessee. In their reply to this notice, the assessee denied the above allegations and submitted that the entire demand of differential duty was time-barred. They submitted that, as Cenvat credit of whatever duty paid by them was available to their sister unit, the entire transaction was revenue-neutral and, therefore, the extended period of limitation was not available to the department. They also relied on case law. In adjudication of the dispute, the original authority rejected the above plea and confirmed the demand of duty against the assessee and also imposed on them equal amount of penalty under Section 11AC. An appeal filed by the assessee against the order of adjudication did not succeed. Hence the present appeal of the assessee.
Appellant Contentions:- The learned Counsel for the appellant submits that the challenge against the demand of duty is only on the ground of limitation. He reiterates the stand taken by the assessee in reply to the show-cause notice. He has also relied on certain decisions on revenue-neutrality. The common thread appears to be that, where Modvat/Cenvat Credit of duty paid by the assessee is available to their sister unit, there is a revenue-neutral situation in which the extended period of limitation cannot be invoked against the assessee for recovery of duty for any period beyond the normal period of limitation in respect of excisable goods supplied to the sister unit.
In his rejoinder, the learned Counsel for the appellant, has argued that the case of Mahindra & Mahindra Ltd. is distinguishable. It is submitted that, in that case, inter-unit transfer of goods was not the subject matter unlike in the present case.

Respondent Contentions:-The learned JDR submits that no assessee can successfully resist invocation of the extended period of limitation on the sole ground of revenue-neutrality. In this connection, reliance is placed on the Hon’ble Supreme Court’s judgment in Commissioner v. Mahindra & Mahindra Ltd. 2005 (179) E.L.T. 21 (S.C.) and this Tribunal’s decision in IFB Industries v. Commissioner 2005 (179) E.L.T. 487 (Tri.-Mum.).

Reasoning of Judgment:. Tribunal has given careful consideration to the submissions. As already noted, there is no challenge to the demand of duty on merits. In other words, the liability of the assessee to pay duty on the subject goods on the basis of CAS-4 formula stands acknowledged. The contest to the demand of duty is on the ground of limitation. The demand of duty is for the period from April to December, 2004. The show cause notice was issued on 3-7-2007 beyond the normal period of limitation. The notice alleged that the party undervalued the goods by suppressing the correct facts with intent to evade payment of duty. In their reply to this notice, the assessee did not deny the allegation of suppression of facts. They only said that, as the Cenvat credit of any duty paid by them would be available to their sister unit, which was a revenue neutral situation, wherein the extended period of limitation was not available to the department. In support of this contention, they also relied on case law. In support of the same contention, the learned Counsel has also cited certain decisions before Tribunal, one of which is Mafatlal Industries Ltd.v. Commissioner [2009 (90) RLT 238 (CESTAT-Ahd) = 2009 (241) E.L.T. 153 (Tribunal). There are other citations also to the same effect. The point is that, where excisable goods are stock-transferred to a sister unit, the assessee cannot be asked to pay duty thereon for the extended period of limitation inasmuch as Cenvat credit of any such duty paid by them would be available to the sister unit. The learned JDR has contested this view on the strength of the Hon’ble Supreme Court’s case in Mahindra & Mahindra’scase {supra), wherein it was held to the effect that the department could invoke the extended period of limitation under the proviso to Section 11A(1) of the Act against an assessee on numerous grounds despite availability of Modvat credit to the assessee. The Apex Court held that the availability of Modvat credit to an assessee by itself was not conclusive or decisive. It might be one of the considerations. How much weight is to be attached to it would depend upon the facts of each case. According to the learned JDR, in the present case, the facts and circumstances, apart from availability of Cenvat credit to their sister unit, are enough to support the demand of differential duty for the extended period of limitation. These circumstances have been narrated by the learned JDR and Tribunal has considered the same. It is not in dispute that the appellant did not determine the assessable value of the subject goods on the basis of the CAS-4 certificate of the cost accountant even after the auditors of the department pointed out to them that the assessable value required to be determined in that manner. Pursuant to the audit objections, they obtained CAS-4 certificate wherein the unit price of each item of goods for the relevant period was worked out in the cost construction method. Instead of adopting such unit price for determining the correct assessable value of the goods transferred to the sister unit, the appellant chose to make their own ‘average unit price’ one of the criteria for determining the differential amount of duty to be paid. In other words, in this case, the appellant deliberately refused to follow the instructions given by the department through their auditors. The learned Counsel claims that the appellant was not aware of the CAS-4 formula as if they would have followed it had they known it. The auditors made them aware of the CAS-4 formula but still they refused to follow it. This is deliberate and willful. As Tribunal has already observed, the allegation of suppression of correct fact with intent to evade payment of duty was not categorically denied by the assessee in their reply to the show cause notice. A query was put to the Counsel as to whether CAS-4 formula was being followed by the assessee prior to April 2004 in respect of the goods stock- transferred to their sister unit, but he has not been able to answer this query for want of instructions.
In the aforesaid circumstances, in my considered view, there can be no valid resistance to the invocation of the extended period of limitation. The learned Counsel argued that the Apex Court’s decision in Mahindra & Mahindra’s case is not applicable to the facts of the present case. It appears from the judgment of the Apex Court that the Court had in its mind a case in which an assessee might claim the benefit of Modvat credit and raise the plea of revenue-neutrality against a demand of duty for the extended period of limitation. This fact is abundantly clear from Para 4 of the judgment of the Apex Court which reads as follows :
“There can be number of eventualities where extended period of limitation in terms of proviso to section 11A may be available to the Department despite availability of Modvat credit to an assessee. The availability of Modvat credit to an assessee by itself is not conclusive or decisive consideration. It may be one of the relevant consideration. How much weight is to be attached thereto would depend upon the facts of each case.”
The above reasoning is, therefore, squarely applicable to the present case, where the appellant has raised the plea of revenue-neutrality against the impugned demand of duty inasmuch as Cenvat credit of such duty paid by one of their sister units would be available to another unit. The learned Counsel has relied on Sterlite Industries (India) Ltd.v. Commissioner - 2005 (192) E.L.T. 852 (Tri.-Mum.), wherein the ratio of the Apex Court’s decision in Mahindra & Mahindra’s case was not applied to inter-unit clearances of the same assessee. The pertinent point to be considered in the context is the fact that revenue-neutrality is only one of the considerations against invocation of the extended period of limitation. The ruling of the Apex Court is that the extended period of limitation under the proviso to Section 11A(1) of the Act can be invoked on other grounds even in revenue-neutral situation. In the present case, such grounds did exist, as Tribunal have already found and therefore the case law cited by the learned Counsel on the point is of no avail.
In the result, the challenge against invocation of the extended period on limitation fails. Now that the appellant is found to have suppressed the correct facts before the department with intent to evade payment of duty, it would follow that Section 11AB and Section 11AC of the Act would also get attracted. In other words, the orders of the lower authorities cannot be interfered with.
The appeal is dismissed.
Decision: Appeal dismissed.

Comment:The substance of this case is that in a case where the excisable goods are cleared to related person and the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value thereof shall be determined in the manner specified in Rule 8 i.e. CAS-4 formula of valuation of captively consumed goods. Since the appellant had not followed the prescribed provisions and had computed an altogether different value on ‘average price method’, the valuation of revenue department was upheld. Moreover, the extended period of limitation was also held to be correctly invoked in the present case as the assessee deliberately chose not to follow the prescribed statutory provisions.

Prepared by: Mahesh Parmar

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PJ/CASE LAW/2016-17/3158

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