Judgment:
1. This appeal arises out of and is directed against the Order-in-Original dtd. 27-9-2000 passed by the Commissioner of Central Excise, Bangalore. The issue relates to determination of the value of the goods, which were captively consumed.
2. Shri Rajesh Chander Kumar appearing for the appellants submitted that the appellants have been manufacturing certain items for their captive use in their factory besides manufacturing and clearing semi-finished piston rings to their sister concern at Patiala for captive use by the said sister unit. During 1996-97, the appellants manufactured one hydropneumatic machine and two auto shakeout systems for captive use and paid excise duty thereof on the basis of respective declarations filed by them. In the declaration, the assessable value was arrived based upon the cost of the raw material cost plus machine and labour cost plus cost of packing, besides profit margin thereof at 10%. He submitted that the adjudicating authority grossly erred in confirming the valuation of captively consumed goods by adopting the percentage of profit as an expression of profit on the cost of goods sold on the basis of Circular bearing No. 258/92/96-Cx. dtd. 30-10-96.
He said that neither that Circular was binding nor correct in law. The provisions of 6b(ii) of the Central Excise Rules categorically provide that the percentage of profit which would have been normally earned had the goods captively consumed been sold, is to be adopted. He contended that the Commissioner erred in having adopted the percentage of profit of the appellants final/end product in, the captive used items and the semi finished piston rings cleared to the sister unit based on the previous year's balance sheet thereby literally shifting the whole process to Rule 6(b)(i) of the Valuation Rules, incorrectly treating the final product in effect as comparable goods, thereby, in substance, completely putting aside Rule 6(b)(ii) of the Valuation Rules, which is the relevant provision applicable to the goods in question. He argued that profits, if any, which the assessee would have normally earned on the sale of such goods envisaged in Rule 6(b)(ii) of the Valuation Rules, with reference to the captive use items and the semi-finished piston rings in the present case, cannot on any account be construed as meaning the profit percentage of the final product of the appellant taken as such from the balance sheet. He submitted that neither the impugned goods was sold nor any evidence was brought on record to substantiate that the very goods were sold in market and accordingly, there was no justification in determining the profit based upon the balance sheet. Apart from the merits of the case, he contended that demand of duty in the instant case is clearly barred by time. Show Cause Notice dtd. 11-2-2000 has been issued for the period 1-5-93 - 31-3-97. He contended that neither any information was suppressed nor there was any mis-declaration on their part. With reference to the goods which were captively consumed, the assessee has shown notional profit at the rate of 10% and in the declaration it would have been clearly mentioned that 10% of profit normally earned on sale of such goods. He said that the specific plea has been taken by the party with reference to the time bar issue but same has not been properly considered by the adjudicating authority as can be seen from Para 9 of the impugned order. Para 9 is as follows: - "9. The assessee has also contested the demand of duty made by the department by invoking the extended period of limitation. It is their contention that no information was suppressed from the department nor was there any mis-declaration on their part. However, the fact remains that they have not disclosed to the department that the profit margin adopted by them was not their actual gross profit of the previous year. They have also not filed their balance sheet with the department. It is only the department, which found on verification of the assessee's records that the percentage of profit adopted by the assessee was not their actual gross profit of the previous year. Thus, there is suppression of facts on the part of the assessee and therefore the differential duty is demandable by invoking the extended period of limitation. Further, the case laws cited by the assessee are not applicable to the facts of this case." 3. In support of his contention on time bar issue, he also referred to the decision of the Tribunal in the case of Bajaj Tempo Ltd. v. CCE, Pune reported in 2001 (135) E.L.T. 272 wherein it was held that extended period not invocable in the absence of finding relating to intention to defraud especially where the transactions involved were a case of revenue neutrality.
4. Shri Narasimha Murthy, ld. JDR appearing for the Revenue justified the action of the Department in determining the assessable value of the goods, which were captively consumed based upon the profit shown in the balance sheet. He submitted that since the impugned goods were neither sold nor marketed, there was no alternative but to adopt the gross profit as shown in the balance sheet, as it was held by the Larger Bench in the case of Raymonds Ltd. v. CCE, Aurangabad reported in 2001 (129) E.L.T. 327.
5. In this context, Shri Rajesh Chander Kumar submitted that what the appellant had manufactured in this case were mainly of capital goods and for captive consumption the profit of the finished product cannot be the basis in determining the assessable value of the goods which were captively consumed in terms of Rule 6(b)(ii) of the Valuation Rules.
6. We have carefully considered the matter. Without going into the merits and demerits in adding the profit while determining assessable value of the goods, which were captively consumed with reference to profit of finished goods, as per balance sheet, we find that there is force in the arguments advanced on behalf of the assessee on time bar issue. In the instant case, the declarations alongwith certificate issued by the Chartered Accountant were duly filed showing that 10% profit normally earned on sale of such goods. The declaration as such cannot be considered to be a mis-declaration since the appellant had no knowledge what profit they would have earned on such products since they were not sold but were utilized. If the department was not satisfied with the declaration filed by the party, the best course open to the Department was to ask the party to produce the relevant data and balance sheet, if any, in respect of their declaration and since this has not been done, we do not find any justification in invoking larger period to raise the demand on the ground that they have not disclosed to the Department that the profit margin adopted was not their actual profit for the previous year. Various cases cited by the ld. Counsel go to indicate that the extended period can be invoked only when there is contumacious conduct of the assessee is present which is delineated in the proviso to Section 11A of the Act. In the facts and circumstances, following the ratio of the decision cited by the Counsel, we are of the view that in the instant case, larger period of limitation cannot be invoked especially in the absence of findings relating to intention to defraud and particularly, declarations were duly filed by the assessee.
Accordingly, appeal is allowed on time bar issue.