M/s. Meghalaya Cast And Alloys Private Limited vs Commissioner Of Central Excise And Service Tax, Shillong

The instant appeal filed by the assessee, M/s. Meghalaya Cast & Alloys Pvt Ltd, is being taken up for disposal pursuant to the remand directions passed by the Hon'ble Meghalaya High Court vide Order dated 26.03.2019.

Briefly stated, the facts of the case are that the appellant assessee was availing the benefit of Notification no. 32/99-CE dated 08.07.1999, as was applicable to eligible units in the north eastern region, by virtue of which the duty paid in cash would be eligible for refund. The appellant was issued a Show Cause Notice dated 08.08.2013 (SCN) alleging incorrect valuation of final products cleared to related parties during the period April 2000 to March 2012. The said SCN was adjudicated by the learned Commissioner, Central Excise, Shillong, vide Order dated 28.02.2014 whereby the duty amount alongwith interest was confirmed and penalty imposed for not valuing the final products under Rule 8 read with Rule 9 of the Central Excise Valuation Rules, i.e. cost plus 10%, as was relevant during the material period.

2.1 In the appeal filed by the assessee, the Tribunal vide final order No. 75602/2018 dated 22.03.2018 upheld the duty demand by holding that the appellant assessee did not comply with the requirement of Central Excise Valuation Rules, 2000. The Tribunal, however, held that no penalty was imposable inasmuch as the appellant would be entitled to refund of the duty discharged by them in terms of the aforesaid exemption notification.

2.2 Being aggrieved with the aforesaid order of the Tribunal, the Revenue carried the matter in appeal before the Hon'ble Meghalaya High Court. The Hon'ble High Court noted that a notification bearing No. 17/2008-CE dated 27.03.2008 was issued to amend the notification No. 32/99 (Supra) whereby the cash refund was restricted in the manner stated therein and therefore, the question of penalty could not be merely decided by assuming that the assessee would be entitled to complete refund. Allowing the appeal of the Revenue, the High Court passed the following order:-

"5. The question of total revenue neutrality in terms of the Notification No. 32/99-C.E., dated 8-7-1999 was eclipsed by the notification dated 27-3-2008 whereunder duty refund has been reduced. Though the question as to whether notification dated 27-3-2008 will survive or not but as on date, it is in force therefore, on such basis complete revenue neutrality is not available.

Complete revenue neutrality is linked with the question of imposition of penalty in the context of the intention of a party to evade duty.

Section 11AC(1)(a) of the Central Excise Act, 1944 (hereinafter referred to as the Act) envisages that intent to evade payment of duty attracts imposition of penalty. The words with intent to evade payment of duty as employed in sub-section (1)(a) of the Act assumes significance. It is clear that the duty is chargeable but it is 100% refundable, the question of intention to evade payment of duty pales into insignificance. But where the duty charged is not 100% refundable, then any act of concealment, misstatement or suppression of facts will give rise to the intention to evade payment of duty.

Learned CESTAT has not looked into the above circumstances, more particularly, notification dated 27-3-2008 and in the same context, it appears that CESTAT has opined that the respondent were entitled to get refund of the tax discharged by them, as a result whereof, imposition of penalty has been set aside.

When Learned Counsel for the respondent was confronted with the said position, he did not oppose remand of the case for fresh consideration by CESTAT rightly so because order of CESTAT for the stated reasons is not sustainable, same is set aside. The case is remanded back to CESTAT for deciding the appeal afresh.

Copy of this order be sent to CESTAT for information.

Appeal succeeds shall stand disposed of as above."

Shri D. Sahu, learned Advocate, appeared for the assessee and Shri S.S.Chattopadhyay, learned Authorized Representative appeared for Revenue.

Heard both sides through video conferencing and perused the appeal records.

We find that the limited issue to be decided at this stage in the instant appeal is whether the assessee is liable to penalty under Section 11AC of the Central Excise Act in the absence of entitlement of complete refund as has been observed by the Hon'ble High Court. The portion of the order dated 22.03.2018 passed by this Tribunal whereby duty demand has been confirmed has not been further challenged by the assessee and therefore the same has attained finality. Though assessee has made submissions in the present remand proceedings in their attempt to contest the entire portion of the adjudication order, including the duty demand, we are not inclined to entertain the challenge sought to be made on valuation aspects, for the reason that the same cannot be re-opened when no appeal was admittedly filed by the assessee. The challenge to the previous order dated 22.03.2008 of the Tribunal was limited to setting aside of penalty, which was the only grievance of the Revenue in their appeal before the Hon'ble High Court.

On perusal of the case records, we find that the assessee has not valued the goods in compliance with the Valuation Rules. The appellant has contended that they have cleared the goods on the basis of prevailing market prices. However, no evidence has been produced to substantiate their claim of having cleared the goods to the related parties on prevailing market prices. Moreover, in the adjudication proceedings, they have not disputed that manner of computation adopted by the Central Excise Department to arrive at the value as per the Rules, as appearing in page No. 26 to 40 of the appeal Paper Book which forms part of the SCN. No effort was ever made to show that the prices charged to the related party were closely approximate to the prices charged to independent parties. Further, there is a charge against the assessee that they deliberately over-valued the goods cleared to related parties in attempt to obtain higher refund which is the subject matter of recovery in the impugned demand order. At the same time, they also indulged in undervaluation as per their convenience, to short pay the duty amount which has not been rebutted by submitting the prices charged to independent parties. The assessee was conscious of the amending Notification No.17/2008-CE dated 27.3.2008 restricting the cash refund which was never brought to the knowledge of the Tribunal in the first round of appeal. All these clearly show that incorrect valuation is a deliberate attempt to defraud the revenue. The submissions made by them that there is no specified column in the excise returns to disclose the clearance of goods to related party will not absolve them from the charge of suppression when they admittedly resorted to improper valuation. Admittedly, when there is no blanket refund in view of the amending Notification dated 27.03.2008, there is no case of complete revenue neutrality and hence, does not advance the case of the appellant assessee to plead for waiver of penalty in the given factual matrix of the case. We are therefore unable to grant relief from the imposition of penalty.

Hence, the appeal is rejected.

(Order pronounced in the open court on 09 November 2021.)