The Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a slight reduction in the value of the machine found due to replacing of an important part of the machine sold with a less advanced component not violative of Valuation Rules.
M/s. Starpac India Limited, the appellant is engaged in the manufacture of Packing Machinery and parts and is availing CENVAT Credit in terms of the CENVAT Credit Rules, 2004. It appears that there was a scrutiny of input invoices of the appellant, during which time the scrutiny team appears to have noticed that the appellant had removed its finished product namely, Packing Machinery, valued at Rs.25,67,500/- on payment of duty of Rs,3,49,450/- (BED), Education Cess, etc., for display in an exhibition.
It that the goods were received back per Invoice dated 29.11.2008 and the credit of duty paid by them at the time of clearance was taken in their CENVAT Account in terms of Rule 16(1) of the Central Excise Rules, 2002.
It appeared that later on, the goods were removed as such on payment of duty on 31.01.2009, along with the applicable cess. It appeared that since the duty paid was less than the amount of credit taken, the Revenue entertained a doubt that in terms of Rule 16 (2) ibid., the process which the goods were subjected to before being removed did not amount to manufacture and therefore the manufacturer should pay an equal amount of the CENVAT Credit taken under Rule 16(1).
that since the machinery was not subjected to any manufacturing process after being received back from the exhibition and cleared as such, the assessee was liable to pay an equal amount of duty, A Show Cause Notice dated 08.09.2010 was issued proposing to demand differential duty along with applicable interest and penalty.
Not impressed by the reply of the appellant, it appears that the adjudicating authority proceeded to vide Order-in-Original No. 13/2011 dated 25.01.2011 to demand the differential duty as proposed in the Show Cause Notice, in terms of Rule 16 (2) of the Central Excise Rules, 2002 read with proviso to Section 11A (1) of the Central Excise Act, 1944. Appropriate interest was also demanded under section 11AB, apart from penalty under section 11AC the Central Excise Rules, 2002.
Chartered Accountant would submit that there was a period of nearly two months between the two invoices, during which time there had been a change in the rate of excise duty. Further, the process undertaken by the assessee was re-making, refining, re-conditioning or for any other reason, the earlier duty payment taken as credit would be fully available to the appellant, which is by Rule 16 (1) of the Central Excise Rules.
The issue before the Tribunal was whether the appellant is liable to pay the duty equivalent to the CENVAT Credit availed when the goods were returned to the factory or to pay the applicable rate of duty for removal of any normal goods in terms of subsection (2) to Section 3 or Section 4 or Section 4A of the Central Excise Act, 1944?
The main difference between the machine when it was returned from the exhibition and that which was sold subsequently is an account of the change in the piston pump. The machine sent for the exhibition was fitted with Servo Drive but changed to a Pneumatic Drive when sold and cleared. The minor difference, as apparent, in the valuation of the invoices, as given in the table below, is on account of the replacement of the Servo Drive with a Pneumatic Drive:
It was viewed that the product was brought back into the factory only to be re-processed and this claim of the appellant was never disputed by the Revenue.
The two-member bench comprising Mr P Dinesha, Member (Judicial) and Mr Vasa Seshagiri Rao held that “the appellant carried out the required process of quality inspection and replaced the Servo Driven Filler with a Pneumatic Driven Filler. Further, the original machine that was made was sent to the exhibition, which was brought back and after elapsing for some time, the machine was sold and cleared like any other excisable goods. That being the case, we do not find any contravention of the Valuation Rules by the appellant, as an important part of the machine sold has been replaced with a less advanced component, a slight reduction in the value of the machine sold is found to be normal.”
While allowing the appeal, the CESTAT set aside the order and penalty.
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