Excise Duty on Royalty Confirmed Only For Normal Period: CESTAT sets aside Extended Limitation, Penalty and Interest Demand [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that the amount received on account of royalty is to be included in the transaction value for the purpose of central excise duty payment only within the normal period of limitation while setting aside the demand made for the extended period of limitation along with penalty and interest.

The assessee South Eastern Coalfields Ltd.,was involved in the manufacture and export of excisable goods and had paid royalty to statutory authorities.

The Department had issued a show cause notice to include the royalty amount in the assessable value of goods under Section 4 of the Central Excise Act, 1944, on the grounds of suppression and wilful misrepresentation to invoke the extended period of limitation.

Consequently excise duty was demanded for both the normal and extended periods, along with interest and penalties.

The assessee relied on the fact that the royalty payments were made in an open and transparent manner and were reflected in the statutory accounts, leaving no room for any suggestion of underreporting or evasion of duty.

It was also submitted that even if the royalty was held to be liable to be included in the transaction value the extended period could not be applied since all the facts were known to the Department.

The assessee also submitted that in the absence of any fraud or deliberate misrepresentation of facts the penalty and interest could not be sustained particularly in a situation where the issue involved the interpretation of the valuation provisions.

The Department on the other hand relied on the fact that the royalty was part of the consideration for sale and was therefore liable to be included in the assessable value,thus justifying the demand for the entire period.

The Tribunal held that royalty is a part of the transaction value and sustained the excise duty demand limited to the normal period of limitation. However, it held that the extended period was not properly applied as there was no evidence of suppression, fraud, or intention to evade duty.

The Bench comprising Justice Dilip Gupta and P.V. Subba Rao [Technical Member], held that the mere non-payment of duty on a disputed valuation component does not per se justify extended limitation or penalty treatment.

As the issue was one of interpretation and the facts were disclosed the demand for penalty and interest was held to be unsustainable even for the normal period.

Partially allowing the appeal, the tribunal limited the excise duty liability on royalty to the normal period alone and set aside the extended demand, penalty, and interest reiterating that penal provisions and extended limitation should be applied only on strict proof of Intent.

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