By TIOL News Service

MUMBAI, JAN 18, 2017: THE appellant cleared motor vehicles on payment of duty to Automobile Research Association of India (ARAI), Pune for testing purpose.

After testing, while receiving back the motor vehicle, appellants have availed CENVAT credit and thereafter have carried out certain processes such as Fluid level checking, AC performance checking, Functional check of all the Electrical Systems of the vehicles etc. Later, these motor vehicles were cleared on payment of duty.

The case of the department is that pursuant to re-conditioning of the duty paid motor vehicles in the factory of the appellant, in terms of Rule 16(2) of the CER, 2002, if the process does not amount to manufacture, duty equivalent to the cenvat credit availed is required to be paid and in cases where after return, activity carried out by the appellant amounts to manufacture then duty on the transaction value is required to be paid.

Inasmuch as since in the present case the activity does not amount to manufacture, therefore, the appellant was required to pay duty equal to CENVAT credit taken whereas they paid duty on the transaction value which was lower than the CENVAT Credit availed by them.

The differential CE duty demand was issued and confirmed along with interest and equivalent penalty which order was upheld by the Commissioner(A) except for penalty which was reduced to Rs.25,000/-.

Revenue was aggrieved with the reduction in the quantum of penalty but the Tribunal by its order dated 16.03.2007 rejected the appeal.

The CESTAT observed -

"It is seen that the duty was confirmed on the basis of interpretation of the provisions of Rule 16 and it cannot be said to be a case of mala fide intention to evade payment of duty. In such a situation the appellate authority was justified in reducing the quantum of penalty. As such I do not find any merits in the above plea of the Revenue and reject the appeal on the said ground."

The assessee had also filed an appeal and which matter was heard recently.

The appellant submitted that the process carried out amounts to manufacture and, therefore, payment of duty on the transaction value is correct and no differential duty should have been demanded; that the appellant have been filing returns regularly wherein facts have been disclosed, therefore, there is no suppression on their part; that as per the Tribunal's order passed in the department's appeal it was observed that issue involved is of interpretation of Rule 16 and so it is not a case of malafide intention to evade payment of duty.

The AR supported the impugned order.

The Bench inter alia observed -

+ The process carried out by the appellant does not amount to manufacture as the motor vehicle was completely manufactured and sent for test, therefore, after return of the said motor vehicle no process which amounts to manufacture was carried out, therefore, in terms of Rule 16(2) of CER, 2002 the appellant is required to pay the duty on re-issue of the motor vehicle equivalent to cenvat credit availed at the time of re-entry of the motor vehicle in their factory. However, the duty paid by the appellant is short, accordingly the differential duty demand confirmed and upheld by the lower authority is sustainable.

+ The demand was raised for the period from 3.3.2003 to 14.10.2003 by the show cause notice dt. 27.7.2004, therefore demand from 3.3.2003 to 26.7.2003 is for extended period.

+ From the finding of the Tribunal (supra), reduced penalty was upheld on the ground that there is no mala fide intention to evade payment of duty on the part of the appellant. I also observe that the appellant have been filing the periodical returns which indicates the payment of duty, for this reason also there is no suppression of fact. In this fact the demand prior to 26.7.2003 will not sustain being time bar.

In view of the Tribunal order dated 16.3.2007, the penalty of Rs.25,000/- was maintained.

The appeal was partly allowed.

(See 2017-TIOL-154-CESTAT-MUM)