Customs, Excise and Gold Tribunal - Tamil Nadu
Jairaj Ispat Ltd. vs Commissioner Of Central Excise on 28 September, 1999
Equivalent citations: 2000(67)ECC732, 2000(115)ELT346(TRI-CHENNAI)
ORDER V.K. Ashtana, Member (T)
1. This appeal arises out of the Order-in-Original No. 3/99, dated 25-1-1999 wherein the learned Commissioner has re-determined the annual capacity of production of the appellants' induction furnace under Section 3A of the Central Excise Act, 1944 together with Notification 20/97-C.E. (N.T.), dated 25-8-1997 prescribing Induction Furnace Annual Capacity Determination Rules, 1987 made effective finally from 1-8-1997.
2. Heard Shri J. Sankararaman, learned Counsel and Shri K. Vishnu, learned Consultant for the appellants and Shri S. Kannan, learned DR for the Revenue. For brevity the facts relating to this issue and the nature of dispute before us were considered at some length in our Stay Order No. 966/99, dated 18-6-1999 1999 (114) E.L.T. 152 (Tribunal) by which waiver of pre-deposit and stay had been granted. The same is extracted below :
"4. The learned Advocate submits that as provided under Section 3A, the annual capacity of the induction furnace is to be determined as per the above noted rules prescribed by the above noted notification. Taking us to the rules, he submits that there is no dispute that the rules will apply to their induction furnace. He further submits that the learned Commissioner had called for an authenticated copy of the manufacturer's invoice upon which they had purchased the said furnace in 1985 (on 31-7-1985). The same was supplied and based on further enquiries made by the Commissionerate including technical consultation with the Chartered Engineer (vide his certificate dated 27-8-1997) taking all the relevant factors into consideration, the learned Commissioner vide order dated 23-9-1997 had fixed the capacity at 2.50 Mts.
5. The learned Advocate submits that some time later, the Commissionerate Officers visited their unit along with the same Chartered Engineer, the actual production on 28-5-1998 was measured and it was revealed that the first heat produced 3.050 MTs and the second heat produced 3.455 MTs of the end product. Based on this, the Commissionerate issued show-cause notice dated 16-11-1998 seeking to re-fix the said annual capacity on the ground that the applicants had mis-declared the capacity in the first instance.
6. The Order-in-Original impugned, submits learned Advocate, goes even beyond the charge of mis-declaration and holds in para 6.1 thereof as follows :-
"6.1 . Regarding the determination of the furnace no doubt the invoices furnished by the assessee have to be considered. If the capacity of furnace is to be determined on the basis of the capacity declared on invoice than the actual capacity has to be within the range of capacity shown in invoice but for minor variation. In this case, the actual capacity as ascertained varies with the invoice capacity by 40%. That means either invoice does not pertain to the furnace installed or assessee has carried out changes in the furnace subsequently. Although the rules provided for determination of the induction furnace capacity on the basis of invoices produced, there is no prohibition for verification and demand of duty according to the law. The furnishing of invoice with a capacity, which does not tally with the actual production, amounts to misdeclaration. Therefore, the duty proposed to be demanded based on verification of actual production is sustainable in law. Accordingly, the proposal for imposition of penalty is also proper and correct since the assessees suppressed the facts by misdeclaring the capacity of furnace and did not discharge the duty liability on actual production. Hence, the seizure of goods also appears to be justified. The reference to rules regarding fixation of annual capacity for textile processors is not relevant to fixation of ACP for induction furnaces."
Thus, the learned Commissioner seeks to re-determine the capacity on the conjecture that either the invoices tendered by them and considered by him before the capacity was initially fixed did not pertain to this furnace or that the capacity of the furnace had been changed thereafter. The learned Advocate submits that firstly, this conclusion is merely based on conjecture, as the show-cause notice did not lead any evidence to support this and secondly, this finding goes beyond the show-cause notice, which had merely charged that they had suppressed the said capacity when it was fixed initially.
7. The learned Advocate further takes us to the said rules and submits that the capacity is to be fixed as per Rule 3(1) thereof which makes it mandatory on the Commissioner to call for the said invoices and to base his decision on the position of this invoice. The learned Advocate submits that this step was fully carried out to the entire satisfaction of the Commissioner which resulted in the said capacity fixation of the order dated 23-9-1997. He submits that only if such an invoice is not available, then can the Commissionerate take resort to Sub-rule (2) thereof for fixation of the capacity in terms of either comparable furnaces or otherwise by best judgment. Since at the initial stage, such an invoice was made available, it was considered and even after taking advice of the Chartered Engineer, the said invoice was found reliable and accordingly the capacity was fixed initially, therefore, the Commissionerate is now totally prevented from taking resort to Sub-rule (2) ibid at any stage. The learned Advocate further submits that Rule 4 is the only rule, which provides for a review of the said capacity. This rule provides that in case, the capacity is to be determined for a part of year, it shall be done on pro-rata basis, which is not the issue involved here. The only other way in which the review of the capacity is enabled by rule is when the manufacturer himself approaches the department with an intimation that he wants to change the said capacity by making technological changes in the said furnace. It is nobody's case here that such a request was made before the Commissioner by the present applicants. Therefore, the learned Advocate submits that there is no provision by which the capacity determined to the satisfaction of the learned Commissioner can be re-determined again suo motu by the department. In these circumstances, the learned Advocate submits that he has a very strong prima-facie case on merits and presses full waiver and stay for the pre-deposit, pending consideration of the main appeal.
8. The learned DR, on the other hand, submits that in view of the clear evidence available on record when by the manufacturers own consent, the capacity was measured by the competent technical authority i.e. by the same Chartered Engineer and it has been revealed that the capacity mentioned in the said invoice appears to be deficient even by about 40% than the production capacity now found out on experimentation, therefore, there is a loss of revenue and the learned Commissioner was well within his rights to have redetermined the capacity, under Sub-rule (2) by using the best judgment method. This method was based on the actual verification of two heats and was therefore, not arbitrary or subjective. The learned DR further submits that since initially fixation was based on the declaration by the manufacturer in the form of invoice produced, therefore, when it was found that there was mis-declaration remedial action clearly lies with the revenue and the power to re-determine, when there is a mis-declaration, is inherent in rule.
9. We have carefully considered the rival submissions and the records of the case. We find that the learned Advocate has built up a strong prima-facie case in the applicants favour for the following reasons :-
(a) The basic principle involved behind the determination of annual capacity of induction furnaces under Section 3A is on the principle of a deemed or estimated capacity. Clearly, a deemed capacity will be different from the actual capacity. In this connection, we note that the Explanation (1) of Section 3A of the Act clearly takes this position as follows :-
"(1) Notwithstanding anything contained in Section 3, where the Central Govt. having regard to the nature of the process of manufacture or production of excisable goods of any specified description, the extent of evasion of duty in regard to such goods or such other factors as may be relevant, is of the opinion that it is necessary to safeguard the interest of revenue, specify, by notification in the Official Gazette, such goods as notified goods and there shall be levied and collected duty of excise on such goods in accordance with the provisions of this Section."
A plain reading thereof shows that the duty determined on the basis of the annual production capacity determined in the prescribed rules shall be deemed to be duty of excise leviable for the purposes of Section 3 etc.
(b) We also find that a perusal of the Annual Capacity Determination Rules noted above show that the said capacity has to be determined under Rule 3. Sub-rule (1) of Rule 3 makes it mandatory on the Commissioner by using the words "shall call for an authenticated copy of manufacturer's invoice or trader's invoice, who have supplied or installed the furnace". On receiving such an invoice, the rule further enjoins the Commissioner to ascertain the total capacity of the furnace on the basis of that invoices. To us, the import of this Rule is two fold. Firstly, if the invoice is called for and it is submitted, then normally the capacity shall have to be fixed on the basis of the said invoice. Secondly, only if the Commissioner harbours some misgivings/doubts about the genuineness of the invoice i.e. that the invoice may not pertain to the furnace which is actually existing, then he has to make necessary enquiries in this regard and then to base his decision on the evidence which is collected by the department by such enquiry to the effect that the invoices tendered were not pertaining to the equipment under consideration and is therefore not an invoice available for this equipment. Having come to this conclusion that invoice does not pertain to the equipment, he would arrive at a position where the valid invoice is not available, as is mentioned in Sub-rule (2). Only then the learned Commissioner would be in a position to determine the capacity in terms of Sub-rule (2) thereof in the instant case. It is not disputed that the said invoice was made available, that it was considered, that while considering the same the assistance of Chartered Engineer was also employed; and that there was minor discrepancy certified by the said Chartered Engineer and what was indicated in the invoices, the Commissioner chose to rely concisely on the invoice capacity and fix the same as the capacity of 2.50 MTs.
(c) Having come to this position in sub-para (b) above, we do not find any provision in the rules or even in Section 3A of the Act under which this rules have been formulated, which empowers the Commissioner to have further investigation SUO motu on his own conduct particularly in the form of actual production trials and then use the result thereof for upsetting his earlier decision. We do find that there is a wide variation between the results of actual production and so obtained on this method, as noted above in the Order-in-Original impugned. However, in the absence of any provision in the rules or Act to empower re-determination of the annual capacity, we find that the submissions of learned Advocate, on prima-facie consideration, having great merit.
(d) We also find merit in the submission of the learned Advocate that no where does the rule enjoin them to declare annual capacity, the only burden that Sub-rule (1) of Rule 3 supposes on them is on being called upon to do so by the Commissioner to supply an authenticated copy of invoice, we note it is not disputed that they have fulfilled this duty. Supply of a such document cannot in our considered prima facie opinion tantamount to a declaration of the capacity of the production. What is supplied is merely evidence on facts. Evidence on facts supplied is distinct from a declaration under law.
10. In view of the aforesaid analysis and consideration we are of the prima facie view that the applicant has therefor made out a strong case on merits. In view of this, we order full waiver of pre-deposit of duty, interest and penalties, as prayed for in the said stay application and we also grant stay from recovery thereof, during the pendency of the appeal."
3. The learned Counsel further submits that the Revenue has not issued any notice proposing to revise the capacity fixed earlier under Section 3A of the Act either on the ground that the evidence shown in the said invoice was fraudulent or on the ground that the appellants had surreptitiously made changes in the induction furnace without taking prior permission from the department as per Section 3A(4). There is no evidence led by the department to allege either of these. Instead the impugned order merely holds that when on actual verification in two heats actual quantity produced therein it was found that variation is to the extent of 40%, of the additional production than the capacity already determined, then integrity of the invoice considered earlier has been rendered doubtful. Learned Counsel submits that there is vast difference between the position that doubts were harboured and that these doubts are well founded. However, no evidence has been led. He submits that during re-lining the induction furnace with particular lining refractories, actual production gets changed because the quality of the refractory action of these linings get changed due to wear and tear. Therefore, it is possible that the same induction furnace, without any capacity changes made therein, will produce different quantity during different periods of its operation and life cycle. He submits that if this is not so, then there was no need for the scheme for annual capacity determination as deemed production. He further submits that the Chartered Engineer in his report to the Collector, after trial conducted in his presence of two heats, has clearly mentioned therein that there was no change in the setting of the transformers, which goes to show that there was no evidence that any changes were made in the induction furnace with respect to its capacity. Hence he submits that it is also not the department's case that the appellants had surreptitiously made any change in the furnace. He submits that in these circumstances, the law provides that once the Collector has applied his mind, caused basic enquiries on the authenticity of the invoice provided to him and fixed the production capacity as per Section 3A and the rules made in this behalf, there is nothing either in the Section or the rules by which the Collector can revise at his own behest the production so fixed merely on the basis of two trials for ascertaining the actual production into two heats. Unfortunately, this is actually what has been done and therefore, he submits that this action is against the prevailing law in the matter. He prays that the impugned order needs to be set aside.
4. The learned DR submits a detailed re-action in the form of comments which he has obtained from the Commissionarate, copy of which has been filed in the Court on 27-9-1999. The position advocated by the Revenue in this copy is summarised as follows. It is contended by the Revenue in these comments that when invoice was submitted and enquiries made leading to the original order fixing the said capacity under Section 3A the learned Commissioner did not harbour any doubt pertaining to the said invoice. However, intelligence gathered showed that the furnace was producing a much larger quantity of the final product than the deemed quantity fixed in the said order. To verify this the Revenue conducted two trial productions under the supervision of technically qualified Chartered Engineer and the results were recorded in a mahazar. It is the contention of the Revenue that when it comes to their notice that the actual production is more by over 40% than the deemed production capacity fixed, then the Revenue cannot sit idle, as obviously the duty being paid is far less than what was actually payable. Therefore, the learned DR submits that in such a situation, the Commissioner has correctly taken upon himself the review of production capacity fixed earlier for re-fixing it on such objective consideration.
5. We have considered the rival submissions and records of the case. We reiterate our findings in the stay order reproduced above pertaining to the nature of the scheme under Section 3A of the Act, particularly the fact of the scheme concerning fixation of 'deemed production' which shall be deemed to be the annual actual production. We also reiterate our findings in the said stay order that Section 3A clearly provides' that the Commissioner shall fix the annual capacity of production in a hierarchial manner as provided therein that is to say that if the manufacturer produces authenticated copy of the invoice, then unless it is shown by the Revenue that the said invoice is fraudulent and it is supported by evidence collected during enquiries, then alone the Commissioner can proceed to fix the annual capacity based on the capacity of similar furnace in his Commissionarate. If this is also not possible, then alone, the Section empowers him to use his best judgment. In this case, the Revenue wants to use this power pertaining to best judgment to re-open the matter after having fixed the capacity once in terms of this Section on the basis of authenticated invoice. We are of the considered opinion that unless the Revenue is in a position to show even at this stage that by leading detailed evidence obtained through enquiries etc. that the invoice produced by the appellants was fraudulent and did not pertain to this furnace, then the Commissioner has no power under the rules therein to suo motu review his own order merely on the basis of intelligence gathered and trial productions. We also reiterate our prima facie view in the stay order that it is only the assessee who is to approach the Commissioner in case he wants to change the capacity of the furnace. In this case no evidence against the appellants is led by the Revenue to show that the appellant had surreptitiously made some changes. On the contrary, as pointed out by the learned Counsel, the Chartered Engineer appointed by the Revenue in his report categorically stated that there is no evidence to show that any change was effected. Therefore, we have come to the conclusion that without any evidence led by the Revenue to dispute the authenticity of the invoice earlier considered, and without any other evidence led by the Revenue to show that there was surreptitious change in the furnace by the appellants, and because it is only as a result of either that original capacity becomes erroneous, then in these limited circumstances, the law does not provide any power to the Commissioner to re-open the impugned order. Therefore, we find that the Order-in-Original impugned has erred in law to this extent and it is set aside. Ordered accordingly. The appeal is allowed with consequential relief to the appellants as per law.