Higher Sale Value of ‘Inputs Cleared as Such’ Attracts Liability u/s 11D: CESTAT upholds Excise Duty Demand [Read Order]

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that the collection of any amount from a buyer as representing excise duty, which was in excess of the duty actually paid or credit reversed, must be deposited with the government under Section 11D of the Central Excise Act, 1944.

Satyendra Packaging Pvt Ltd (appellant) is a manufacturer that also cleared certain inputs "as such" without undergoing any manufacturing activity. During an audit, officers discovered that the appellant was selling these inputs at a significantly higher value than their original purchase price.

While the appellant reversed the CENVAT credit initially taken at the time of purchase, the department alleged short payment of duty because the duty was paid on the purchase price rather than the actual higher selling price.

The total purchase value was worked out to be approximately ₹6.46 crores, while the sales value was ₹6.70 crores, resulting in a differential value of ₹23.78 lakhs. The Adjudicating Authority confirmed a demand of ₹2,97,277 along with interest and penalties.

The Single Bench comprising Dr. Ajaya Krishna Vishvesha (Judicial Member), examined the obligations of a manufacturer under Rule 3(5) of the Cenvat Credit Rules (CCR), 2004, and Section 11D of the Central Excise Act.

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The tribunal observed that under Rule 3(5), when inputs were removed "as such," the manufacturer must pay an amount equal to the credit availed. It highlighted that Section 11D required that any person who has collected an amount from a buyer "in any manner as representing duty of excise" in excess of the duty assessed or determined must forthwith pay that amount to the credit of the Central Government.

The tribunal observed that adding freight costs and profit margins to the purchase price for "as such" removals implies the appellant was undertaking trading activities under the guise of a manufacturing registration.

The bench relied on the Gujarat High Court decision in CCE Ahmedabad-II vs. Inducto Therm (I) Pvt Ltd, which held that any amount collected beyond the exact CENVAT credit taken on raw materials must be paid through the Personal Ledger Account (PLA) in cash.

It concluded that the differential amount collected by the appellant as representing duty was legally required to be paid to the government. Finding no defect in the lower authority's order, the tribunal upheld the demand and the penalties. The appeal of the appellant was rejected.

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