MAHINDRA UGINE STEEL CO. LTD., L.N.S. IYER, A.M. PALEKAR AND COMMISSIONER OF CENTRAL EXCISE Vs. COMMISSIONER OF CENTRAL EXCISE AND MAHINDRA UGINE STEEL CO. LTD.

JUDGEMENT

(1.) THE assessees herein who are engaged in the manufacture of motor vehicle parts falling under Chapter Heading 87.08 of the Schedule to the CETA, 1985, manufactured motor vehicle parts on job work basis out of raw material supplied by M/s. Mahindra & Mahindra and retained scrap generated during the course of manufacture, and sold the scrap. The cost of scrap (scrap credit) was reduced from the assessable value of motor vehicle parts supplied to Mahindra & Mahindra. The price of the parts was worked out as raw material cost + conversion charges + packing + tools amortisation cost less value of scrap generated. The department was of the view that scrap credit value was includible in the assessable value of such motor vehicle parts and that the assessees had undervalued the parts to the extent of scrap credit value. On this basis, show cause notice dated 3.3.2000 was issued inter alia proposing recovery of central excise duty of Rs. 1,90,70,826/ - and Rs. 21,304/ - on rust preventive oil, together with interest under Section 11AB of the Central Excise Act and Rule 57I(3) of the Central Excise Rules, proposing imposition of penalty under Section 11AC read with Rule 57I(4) and Rule 173Q, and proposing confiscation of plant, machinery, land, building etc. used in connection with manufacture of motor vehicle parts. The notice also proposed penal action under Rule 209A on vice president (finance) and senior manager (accounts) of the assessee company. The notice invoked the extended period of limitation on the ground of suppression - the show cause notice covered the period from 1996 -97 to 1999 -2000 (upto 31.10.1999). The notice was adjudicated by the Commissioner of Central Excise who confirmed the demand raised in the notice together with interest, and imposed penalties of Rs. 1,82,54,355/ -on the company, Rs. 35,000/ - on its vice president and Rs. 25,000/ - upon its senior manager. The order was challenged by the manufacturer and its officers. The Revenue also challenged the Commissioner's order on quantum of penalty (the department was of the view that the Commissioner should have imposed penalty equal to the duty as determined). All four appeals were disposed of by the Tribunal vide order No. C -I/2005 to 2008/WZB/2003 dated 2.9.2003, setting aside the duty demand and penalty in relation to inclusion of value of scrap in the assessable value of motor vehicle parts, while rejecting the department's appeal - the assessee did not press appeals filed on the issues of non -inclusion of die modification charges, processing cost on motor vehicle parts and reversal of modvat credit availed on inputs taken out of the factory, for the reason that the amounts were very small and had been promptly paid. The Tribunal's order was challenged by the Revenue before the apex court which, vide its order dated 25.1.2006 in Civil Appeal Nos. 10223 -10226 of 2003, remitted the matter to the Tribunal for rehearing with reference to the report of the Cost Auditor appointed by the Supreme Court during the course of hearing the appeal on 9.3.2005, in view of the various aspects relating to costing involved as highlighted by the Cost Accountant in his report. The apex court also directed the Tribunal to consider all other connected issues involved in the matter. This is how the appeals have come up for fresh hearing before us.

(2.) THE twin issues for determination are - (1) Whether value of scrap retained by the assessee is required to be included in the assessable value of motor vehicle parts manufactured on job work basis for M/s. Mahindra & Mahindra; (2) Whether the demand is barred by limitation. (The demand on rust preventive oil is not challenged).

(3.) FINDING on issue No. 1