ORDER
S.L. Peeran, Member (J)
1. This appeal arises from OIO No. 10/2002, dated 31-7-2002 confirming demand for larger period. The show cause notice has been issued dated 12-5-2000 and corrigendum dated 26-5-2000 for period 31-3-97. The appellants are not challenging the case on merits as they have already deposited the duty before the issue of show cause notice and the same has been adjusted in the impugned order. They are challenging the confirmation of demands on time-bar. It is their contention that the officers had visited the factory of the appellants on 19 & 21 of March, 97 and carried out the investigation. They collected all the details and no show cause notice was issued for more than three years. There was no fraud or collusion or misstatement. The allegation was that they have received charges for development of castings done by them and had not included the said cost in the assessable value. It is stated that they had suppressed this fact and only investigation revealed the same. However these amounts were paid on being pointed out even before the issue of show cause notice. The contention of the appellant is that the show cause notice does not disclose as to how the value of castings developed could affect the price of unmachined casting. They contend that there is no additional consideration involved in the transaction of sale of finished castings to their customers. They contend that all sales made by them were based on normal price which is indicated in the invoice, which is at arm’s length. They contend that the property in the development of particular casting matter HA 3, HA 4, HA & and RV 3 vests with their customer M/s. Kirloskar Oil Engines Ltd. (KOEL). As and when the orders are placed by M/s. Kirloskar, they supplied specified castings. The appellants manufacture casting and supplied to the customers. Each clearance of castings are as per the terms of the purchase orders and this has to be assessed separately as per the agreed price. They contend that even if the amounts have been collected by them towards development of a particular type of casting and has a nexus with manufacture and supply of castings, it is to be in relation to the amortized money value of such considerations that has to be added on clearance of castings based on the Board Circular 170/4/96-C.E., dated 23-1-96. Therefore, they contend that an amount of Rs. 3 crores received/receivable has to be apportioned per unit of casting based on the expected life of casting (one lakh pieces per specified casting) which works out to Rs. 75,60,75 and 90 per piece for HA 4, HA 3, HA 6 and RV 3). Therefore, they contend that the demand of duty of Rs. 3 crores without establishing that the amortized money value for each casting as per subsequent orders cleared without a specific finding that such prices in these individual clearances depressed because of supply of design and developed casting. Hence the impugned Order is not proper in law. It is stated that the Commissioner has not applied his mind to understand the nature of article and failed to note the weight and price of castings. In invoice No. 9720404, dated 18-10-96, the RV-3 crank case were supplied to M/s. KOEL at the rate of Rs. 39.12 per kg whereas under invoice No. 9720138, dated 16-10-96, M&M transmission case was supplied at Rs. 32.18 per kg. Therefore, it is contended that the Commissioner has to compare the unit price per kg of casting and not unit price of castings. It is stated that in case unit price of casting is compared without considering the weight of casting it would give a distorted picture. They have even challenged the order of recovery of Modvat credit of Rs. 1,96,083/-. They contend that they had removed the capital goods after duly availing the Modvat credit and therefore it was not a case for reversal of Modvat credit. They contend that the provision of Section 11 AC was not applicable during the period when they had charged the development charges vide JV No. 9600975, dated 31-3-96 and hence the interest and penalty Under Sections 11AB and 11 AC is not applicable. In this regard, they rely on the following judgments –
(1) CE v. Machino Montell (I) Ltd.
(2) Jindal Steel and Alloys Ltd. v. CCE (2004 TIOL 628-CESTAT)
(3) CC, Mangalore v. Shree Krishna Pipe Industries
(4) Paradise Plastic Enterprises Ltd. v. CCE .
2. Learned Counsel submitted that they were contra judgments of the Tribunal with regard to the includibility of cost of moulds in the assessable value of finished goods in the manufacture of castings. Hence there was a bona fide belief held by them and on that count, the demands have to be set aside on timebar. He relied on several judgments in this context of both Tribunal and Larger Bench. He contended that the Development charges has not gone into the cost of patterns and the duty could have been demanded on the excisable goods which were manufactured from these patterns developed by the appellant for manufacture of castings. It is contended that the department had neither ascertained the number of castings which could have been manufactured from the patterns for which development charges were recovered nor the excisable goods which could be manufactured from such patterns was worked out or called for from the appellants. Therefore the duty cannot be directly demanded on the development charges as these are not excisable goods. He placed reliance on the Tribunal ruling rendered in the case of Ashok Iron Works Ltd. v. CCE . He also contended that department has not established that consideration received for developmental charges had a nexus with the negotiated price of the castings and that the Department had to ascertain whether the price is influenced by these charges. He also contended that the order for reversal of Modvat credit is not correct in the light of the Tribunal ruling rendered in the case of Eicon Clipsal India Ltd. v. CCE .
3. Learned SDR contended that design and development charges are required to be included in the assessable value. However prayer for amortization is justified in the light of the Tribunal ruling rendered in the case of Ashok Iron Works Ltd. v CCE (supra). Learned Counsel pointed out that the Tribunal in the case of Ashok Iron Works has clearly held that duty cannot be directly demanded on development charges and as the duty has not been worked out or called from the appellants, the Tribunal had allowed the appeal. Learned SDR pointed out to the Circular 170/04/96-C.E., dated 23-1-96 wherein the Board has laid down a procedure for amortizing and the determination of value of patterns used in the Industry to be added in the case of castings for arriving at the assessable value of the castings as the quantity of casting to be made out by a pattern cannot be. Therefore, the Board has held that the certificate from the cost accountant may be accepted in the matter.
4. On a careful consideration, we notice that the grounds taken by the assessee has force. 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, 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 reexamined 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. In so far as the confirmation of 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.
(Pronounced in open Court on 20-7-2005)