PHAARMASIA LTD. Vs. COMMISSIONER OF C. EX.

JUDGEMENT

(1.) The Appellant herein is aggrieved by the orders dated 16-7-2004 [: 2004 (173) E.L.T. 481 (Tribunal)] passed by Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as 'CESTAT') whereby the appeal of the Appellant against the order of the Commissioner of Central Excise has been dismissed. The Appellant had been doing the job work for M/s. Procter & Gamble Hygiene & Healthcare Limited (hereinafter referred to as P & G). The agreement in this behalf was signed between P & G and the Appellant in December, 1994, for the manufacture of various goods such as Vicks Action 500, Vicks Vaporub Super Balm, Ultra Clearasil and Mediker on job work basis. Raw material for this purpose was to be supplied by the P & G. The Appellant had been filing price declarations Under Rule 173C of the Central Excise Rules for the said goods declaring the assessable value based on cost of raw materials supplied by P & G along with processing/conversion charges received from P & G. At the end of each accounting year on finalisation of cost sheet for each of the products by P & G, the Appellant was adopting the revised prices as calculated from cost sheet and discharging its duty liability accordingly. The Department undertook the scrutiny of cost sheet and noticed that the Appellant was not taking into consideration the "other works overhead" element in arriving at the assessable value though according to the Department, it formed part of the costing element of 'conversion cost' shown in the costing report. This resulted in issuance of show cause notice dated 30-7-2001 demanding an amount of Rs. 45,50,625/- as differential duty for period July, 1996 to September, 2000. Penalty of equivalent amount was also proposed therein. The Appellant filed detailed reply to the same. The Commissioner adjudicated the said show cause notice and passed Order-in-Original dated 26-2-2002 demanding differential duty of Rs. 28,15,489/- along with penalty of Rs. 27,45,561/- Under Section 11AC of the Central Excise Act, 1944. A further penalty of Rs. 2 lakhs Under Rule 173Q of the Central Excise Rules was also imposed. Challenging that order, the Appellant filed appeal before the CESTAT, Bangalore, which has been dismissed by the CESTAT vide orders dated 16-10-2004, however, penalty of Rs. 2 lakhs imposed Under Rule 173Q of the Rules has been set aside.

(2.) In this appeal preferred against the order of the CESTAT, learned Counsel for the Appellant submitted that he was not questioning the order on merit insofar as it holds that the 'other works overhead' should have been calculated in the cost which was to be calculated by the Appellant for payment of Excise duty. However, he submitted that the Department could not invoke the extended period of limitation and if that is impermissible, demand for the period July, 1995 to June, 2000, would be time-barred. Therefore, the only question to be determined is as to whether extended period of limitation as per proviso to Section 11AC of the Central Excise Act could be invoked by the Department or not.

(3.) It is not in dispute that the Appellant had not included the cost of 'other works overhead' in arriving at the assessable value though it forms part of the costing element of 'conversion cost' shown in the costing report. The argument by the learned Counsel for the Appellant, however, was that there was no intentional omission/suppression on its part inasmuch as the differential duty was paid on the basis of average cost of raw material as intimated by P & G in their cost audit report and therefore, the Appellant acted bona fide in relying upon the said report and recalculating the differential duty based thereupon.