Non Adoption Of MRP Based Valuation Not Form any Wilful Suppression: CESTAT Sets Aside ₹1.18 Cr Excise Demand On Universal Colours India [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal(CESTAT) held that non adoption of MRP valuation under Section 4A of the Central Excise Act, 1944 does not constitute wilful suppression and therefore cannot be a reason for applying the extended period of limitation. The Tribunal therefore, set aside an excise duty demand of ₹1.18 crores against Universal Colours India Pvt. Ltd.

The assessee Universal Colours India Pvt. Ltd., involved in the production of excisable goods, was clearing its goods by opting for valuation under Section 4 (transaction value) in preference to Section 4A (valuation based on MRP). The Department held that the goods were liable to be valued under Section 4A and issued a show cause notice under the extended period of Section 11A of the Act claiming a demand for differential duty of ₹1.18 crores.

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The adjudicating authority reduced the demand for the extended period on the ground that there was no suppression but confirmed the duty for the normal period. The Department contested this decision before the Tribunal.

The Revenue claimed that the failure to adopt the MRP-based valuation system resulted in underpayment of duty and was a case of wilful suppression. The Revenue also claimed that the assessee was well aware of the valuation rules and had deliberately followed an incorrect valuation system.

Further,the assessee argued that all clearance information, classification information and the valuation system were disclosed in the ER-1 returns which were examined by the Department without any objections. The assessee also argued that a difference of opinion on the valuation system cannot be said to amount to an intention to evade duty and therefore the extended limitation period cannot be invoked.

The bench of two members, consisting of P.Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), agreed with the assessee and stated that "wilful suppression necessarily involves a positive act of intention to evade payment of duty, which is not made out in the present case."

It further stated that "it cannot be said that the incorrect method of valuation adopted by the assessee, where the facts were fully disclosed in the statutory returns, can justify the extended period of limitation." Hence,the Tribunal allowed the assessee’s appeal.

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