ORDER
C.N.B. Nair, Member (T)
1. The appellant is a manufacturer of various Automobiles Components. The dispute in the present case is about Exhaust System manufactured by the appellant and supplied to M/s. Hyundai Motor India Ltd. For the assembly of the Exhaust System, the buyer, M/s. Hyundai Motor India Ltd. supplied the appellant certain parts. The value of these free supply items was also required to be added in the cost of other materials and cost of production to arrive at the full price of the Exhaust System. Appellant was making the said addition also. It is submitted that in January, 2002 appellant felt that the value taken by them for the free supply items was erroneous. Accordingly, they wrote to the Superintendent, Central Excise, Chennai on 2nd January, 2002 intimating that they had adopted a “Standard Price initially” and by oversight, the variation of cost was overlooked. This letter also pointed out that “variation is on both sides namely resulting in a higher value and in some cases a decrease in value. The appellant also explained the reason as under :
“The variation in the cost of the free issue items arose mainly calculating due to the fact that our buyer supplied us the free issue items by 115% of the value as per Rule 8 of the Central Excise Valuation (Documentation of Price of Excisable Goods) Rules, 2000.”
The letter further intimated that they were remitting the amount of about Rs. 80 lakhs towards differential duty for the period January, 2000 to December, 2001. Some more amounts were paid subsequently leading to a total payment of about Rs. 1.28 crore.
2. Central Excise authority issued a show cause notice dated 30-12-2002 alleging that the short-levy was the result of suppression of facts by the appellant and in addition to payment of duty, the appellants were also liable to payment of interest and penalty. The proceedings so initiated led the passing of the order impugned, whereunder the Commissioner, in addition to appropriating the duty already paid, also imposed an amount equal to the duty amount as penalty and also demanded interest.
3. The contention of the appellant is that the facts of the case did not attract any penalty inasmuch as the initial short payment was not the result of any contumacious conduct on the part of the appellant with intent to evade payment of duty. Appellants have also submitted that the initial short-payment was the result of failure to correlate changes in price of free supply item and incorporate them correctly in the value of Exhaust System. It is also pointed out that this had been found out by the appellants themselves and they had made payment before any proceedings were initiated by the Excise authorities. It is also being pointed put that a charge of intent to evade duty cannot arise in the present case at all inasmuch as whatever duty was paid by the appellant was available as credit in the, hands of M/s. Hyundai Motors India Ltd. who used the item as original equipment in the manufacture of cars. Appellants have also submitted that their case is covered by the decision of the Supreme Court in the case of AMCO Batteries Ltd. v. C.C.E., Bangalore – 2003 (153) E.L.T. 7 (S.C.). Specific reliance has been made on the observations of the Apex Court in Paras 10 and 11 of the judgment which are reproduced below :
“10. From the facts stated above, particularly the fact that entire movement of waste and scrap to the job workers and receipt of ingots manufactured by the job workers is recorded in regular books of accounts and proper documentation is maintained in form of delivers challan and that there was no reason for the appellant to suppress as it was entitled to have facility of Modvat scheme, it would be difficult to hold that there was any wilful suppression on the part of the appellant which would empower the authorities to invoke extended period of limitation under proviso to Section 11A(1) of the Act. This has been made clear repeatedly by this Court. In Padmini Products v. Collector of Central Excise, Bangalore [(1989) 4 SCC 275] this Court has held that something positive other than mere inaction or failure on the part of the manufacturer or producer of conscious or deliberate withholding of information when the manufacturer knew otherwise, is required to be established before it is saddled with any liability beyond the period of six months. The Court pertinently observed that mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not would not attract Section 11A of the Act.
11. In the present case also, there is no material on record from which it could be inferred or established that duty of excise was not levied or paid by reason of any fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty. It was a bona fide belief on the part of the appellant scrap and waste, which was recovered while manufacturing batteries, was exempt from levy of excise duty. Further, appellant was entitled to get benefit of Modvat scheme, therefore, there was no justifiable reason for the appellant to suppress any fact.”
4. Apart from the above the submissions on the aspect of time-bar, the contention of the appellant is that, as a matter of fact, there would have been no short-levy inasmuch as the value adopted by M/s. Hyundai Motor India Ltd. was incorrect. It is being pointed out that M/s. Hyundai Motors India Ltd. had taken 115% of purchase price of the catalyst as its value. It is the contention of the learned Counsel for the appellant that since the catalyst in question was an imported item, there was no requirement to make an addition of 15% to its towards its actual purchase price for the purpose of arriving at its value. Learned Counsel has submitted that adopting 115% of the cost of production, is applicable only to captive consumption of goods manufactured by an assessee and not to goods which are purchased and used in production.
5. Commissioner has rejected the appellant’s submission on time-bar holding inter alia that the payment of differential duty by the appellant is pursuant to visit of Audit Officers to the appellant’s factory and detection of the error and not voluntary as contended by the appellant.
6. We have perused the records and considered the submissions made by the learned SDR also. Learned SDR has submitted that since the mistake was pointed out by the Audit group and the payment of differential duty was pursuant to that, the appellant’s claim that there was no intention to evade duty, cannot be accepted. Though the order impugned mentions that the Audit party had visited the appellant’s unit and detected short-levy, no particulars about the visit or detection of the short-levy are available from the record of the case. Neither the show cause notice nor he adjudication order mentions the date of visit of the Audit party. Nor is any reference made to audit objection raised. Thus, this finding is not supported by any material on record.
7. That apart, the fact remains that the error made by the appellant was both ways, resulting in higher valuation in some cases and lower valuation in some other cases. The appellant had no gain in the matter also inasmuch as whatever duty was paid by them was being reimbursed to them by M/s. Hyundai Motors India Ltd. and duty paid by the appellant was available as credit to the appellant’s buyer. Therefore, appellant’s submission that short-levy took place on account of oversight (to take note of variation in prices) appears to represent the correct factual position. There is also merit in the appellant’s submission that this was not a case where 115% of the cost was required to be adopted for valuation, inasmuch as that Rule (Rule 8) relates to valuation of manufactured goods being captively consumed and not of goods which are purchased and supplied to job workers. Revenue authorities, M/s. Hyundai Motors India Ltd. and the appellant would appear to be proceeding under a wrong impression about what constituted the value of free supply catalyst. Proviso to Section 11A of the Central Excise Act cannot be attracted to such a case. That proviso covers cases involving suppression/misstatement of facts with intent to evade duty.
8. In view of what is stated above, we are of the opinion that imposition of penalty and demand for interest are not sustainable, as these provisions are attracted only to cases involving proviso to Section 11A. Accordingly, the appeal is partially allowed by setting aside the penalty imposed and claim for interest made.