The Delhi bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the demand for excise duty on Waste rubber granules beyond the period of normal limitation is not valid.
M/s. Gripsurya Recycling LLP, the appellant challenged the Order-in-Appeal dated 16th December 2021 passed by the Commissioner of Central Excise & GST (Appeals), Indore whereby he dismissed the appeal of the appellant and upheld Order-in-Original dated February 19, 2021, passed by the Assistant Commissioner.
The appellant manufactures waste rubber granules falling under Central Excise Tariff heading 40040000 and clears them after paying excise duty. It has also been filing excise returns as required in ER-1. Its records for the period 2015-16 to 2017-18 (up to June 2017) were scrutinized by the audit team which found that the appellant had sold goods to M/s. GRP Ltd which was its parent company and hence a related party and paid duty on the invoice values. GRP, in turn, used the waste rubber granules to manufacture its final products.
Since it was a case of sale of goods to a related party who, in turn, consumed the goods captively, duty should have been paid under Rule 8 of Customs Valuation Rules, 2000 at the rate of 110% of the cost of production as certified in the CAS 4 certificates and not on the invoice values. Accordingly, it was felt that differential duty needs to be paid by the appellant.
A memorandum was issued to the appellant asking it to pay the differential duty and the appellant by a letter dated 25.05.2020 declined to pay it on the ground of revenue neutrality. A Show Cause Notice was issued to the appellant proposing recovery of the differential excise duty invoking an extended period of limitation under Section 11A along with interest under Section 11AA. It was also proposed to impose a penalty under section 11AC. The proposals in the SCN were confirmed by the order-in-original. On appeal, the Commissioner (Appeals) upheld the order-in-original by the impugned order.
The reasons mentioned in the SCN for invoking an extended period of limitation are: (i) undervaluation of manufactured goods by the appellant resulted in short payment of duty; (ii) Even after the audit pointed out, the appellant resisted the proposition by the audit and justified its method of valuation which shows its intention; and (iii) Had the audit not scrutinized the returns, the undervaluation would not have come to light.
Thus, the scheme under the law is that although the duty is levied on the manufacture of goods, it becomes payable only when they are removed and it must be paid as per self-assessment by the fifth or sixth of the following month. The assessee also has to file returns.
If the assessee may make mistakes in self-assessment and the check against such mistakes has been provided in the form of scrutiny of the returns by the officers the officer scrutinising the returns can call for any documents and records from the assessee which it is bound to provide.
It was pointed out that the relevant date to calculate the limitation is the date on which the Return is filed by the assessee or if it is not filed, the last date by which it was required to be filed because only when the return is filed, the officer can scrutinise it and raise demands for any short paid duty and if no return is filed by due date, the officer is expected to initiate steps to call for records and determine if the duty has been paid.
A two-member Mr. Justice Dilip Gupta, President and Mr. P V Subba Rao, Member (Technical) observed that “If differential duty was chargeable but was not paid and it is later discovered by audit and it gets time-barred under Section 11A, the responsibility for it rests squarely on the officers mandated to scrutinize the returns in time and raise a demand in time.”
Since the entire demand is beyond the normal period of limitation, the CESTAT set aside the demand in the impugned order and allowed the appeal.
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