Custom, Excise & Service Tax Tribunal
Cce & St, Indore vs Zyg Pharma Pvt. Ltd on 26 February, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Date of Hearing/Order : 26.2.2016
Appeal No. E/55704/2014-EX. (SM)
(Arising out of Order-in-Appeal No. IND/CEX/000/APP/213/2014 dated 3.9.2014 passed by the Commissioner, Customs, Central Excise & Service Tax, Indore)
For Approval & Signature :
Honble Mr. R.K. Singh, Member (Technical)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Lordships wish to see the fair copy of the order?
4.
Whether order is to be circulated to the Department Authorities?
CCE & ST, Indore Appellant
Vs.
ZYG Pharma Pvt. Ltd. Respondent
Appearance Shri G.R. Singh, D.R. - for the appellant Shri S.S. Gupta, C.A. for the respondent CORAM: Honble Mr. R.K. Singh, Member (Technical) Final Order No.50986/2016 Per R.K. Singh:
Revenue is in appeal against order in appeal dated 5.9.2014 in terms of which Cenvat credit of Rs.36,90,921/- was disallowed and ordered to be recovered along with interest; mandatory equal penalty was also imposed.
2. The facts of the case are as under :
The appellant is a manufacturer of pharmaceuticals and took credit of duty paid on wall panels and doors. The primary adjudicating authority held that the impugned goods were neither input nor capital goods and therefore the respondent had deliberately taken credit by indulging in wilful misstatement or suppression of facts. The Commissioner (Appeals) on the other hand held that the impugned goods were eligible to be called inputs and allowed the credit.
2. Revenue in its appeal and during the hearing contended as under :
(i) These goods do not fall within the scope of definition of capital goods/inputs.
(ii) There was no confusion that as per the definition of inputs and capital goods these goods fell neither in the category of inputs nor capital goods and respondent deliberately took the credit by indulging in wilful mis-statement or suppression of facts knowing fully well that the impugned credit was not admissible.
(iii) The clarification of CBEC dated 29.4.2011 cited by the Commissioner (Appeals) is totally out of place as that clarification pertains to the definition of inputs which came into effect from 1.3.2011 and even thereunder such credit would not be allowed. Ld. DR cited the judgements of Allahabad High Court in the case of CCE, Ghaziabad Vs. Rathi Steel & Power Ltd. 2015 (321) ELT 200 (All.) and Bombay High Court in the case of Tigrania Metal & Steel Industries P. Ltd. Vs. CCE 2015 (326) ELT 650 (Bom.)
3. Ld. Advocate for the respondent stated that in the light of the fact that;
{A}(i) The manufacture of the respondents product required the very clean and controlled environment.
(ii) Normal walls absorb moisture which generate bacteria and therefore these panels/doors are required to construct chambers inside which the quality of the environment can be controlled to a degree mandatorily required for the manufacture of pharmaceuticals, the impugned goods were clearly used in or in relation to manufacture of the final product and thus were eligible to be called input as per the definition of input given in Rule 2(k) both prior to 11.3.2011 and thereafter. There was no suppression/wilful mis-statement of facts and as a matter of fact the CBEC clarification dated 29.4.2011 treated even furniture and stationery used in an office within the factory as goods used in the factory and as used in relation to the manufacturing business and that this clarification would be germane to explain the scope of the words in relation to manufacture for the period prior to 1.3.2011 also.
{B} The respondent also filed periodical returns showing the impugned credit.
{C} There was no wilful mis-statement /suppression of facts on its part and consequently the extended period and mandatory equal penalty are not invocable.
4. I have considered the contentions of both sides. The definition of input given in Rule 2(k) of Cenvat Credit Rules is reproduced below :
Period prior to 7.7.2009; Rule 2(k) of CCR, 2004 defined inputs as :
(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Explanation 1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods;
Period w.e.f. 7.7.2009; Notification No. 16/2009-CE(NT) dated 7.7.2009 amended Rule 2(k) as under:
In the CENVAT Credit Rules, 204 (hereinafter referred to as the said rules) in rule 2 in clause (k), in explanation 2 after the words factory of the manufacturer, the following shall be inserted namely:-
but shall not include cement, angles, channels, Centrally Twisted Deform bar construction of factory shed, building or laying of foundation or making of structures for support of capital goods. Period 1.4.2011 onwards: Notification No. 3/2011-CE(NT) dated 1.3.2011 effective from 1.4.2011 amended the definition of inputs as under:
(k) Input means
(i) all goods used in the factory by the manufacturer of the final product; or
(ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or
(iii)all goods used for generation of electricity or steam for captive use; or
(iv) all goods used for providing any output service;
but excludes-
(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;
(B) any goods used for-
(a). construction of a building or a civil structure or a part thereof; or
(b). laying of foundation or making of structures for support of capital goods, except for the provision of any taxable service specified in sub-clauses (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of Section 65 of the Finance Act:
(C)Capital goods except when used as parts or components in the manufacture of a final product;
(D) motor vehicles;
(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and (F) any goods which have no relationship whatsoever with the manufacture of a final product.
Explanation For the purpose of this clause, free warrant means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer. The respondent has admitted that panels and doors were used to make cabins where medicines were manufactured. The penals were fixed from ground to ceiling to make cabins and the doors were installed therein to enable persons to go in and out of them. From this admitted use of the impugned goods, it is evident that the panels and doors constituted fixed structure of the factory namely cabins in side of which goods were manufactured. Thus these goods were not used in or in relation to the manufacture of pharmaceuticals and were therefore during the relevant period not qualified to be called inputs as per the definition cited above.
5. I find that in the show cause notice the only paragraph devoted to the alleged suppression of facts / wilful misstatement is para 5 which is reproduced below :
5 Further the Noticee has no point of time disclosed the matter of availment of cenvat credit on pre-fabricated building items, Doors & Office furniture falling under chapter heading No. 9406, 7308 & 9403 to the department and thus appears to have wilfully suppressed the fact with an intention to avail Cenvat credit wrongly. Thus, the extended period of 5 years as provided under proviso to Section 11A(1) of the Central Excise Act, 1944 appears to be invokable for recovery of Cenvat credit so wrongly taken by them as this was noticed during the udit of the records of the notice. Moreover, by availing such inadmissible credit as detailed in foregoing paras the Noticee contravened the provisions of Rule 2 & 3 of Cenvat Credit Rules, 2004 thus, rendered themselves for penal action under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. It is not in dispute that the respondent had been submitting its monthly returns clearly showing availment of the impugned credit. Thus it is incorrect to say that it did not disclose the fact of availment of Cenvat credit on the impugned goods. These returns do not require listing of the goods on which the credit has been taken and therefore the respondent cannot be held guilty of suppression on the ground that it had not listed the goods on which credit was taken in the monthly return. No provision of law has been brought to our notice by ld. DR which requires the respondent to give list of goods on which credit is taken. The judgement in the case Tigrania Metal & Steel Industries P. Ltd. (supra) cited by ld. DR is clearly distinguishable because in that case the assessee had changed its stand and contentions. In the case of Rathi Steel & Power Ltd. (supra) cited by ld. DR the goods involved were steel items for supporting structures of capital goods and therefore did not leave any scope for ambiguity regarding inadmissibility of credit in relation thereto. In this regard, I need to emphasise that wilful misstatement/ suppression of facts is a mixed question of facts and law and the judgements on this issue are pronounced in view of the specific facts and circumstances of each case. In case of CCE Vs. Chemphar Drugs Liniments - [2002-TIOL-266-SC-CX], the Supreme Court held that something positive other than mere inaction or failure on the assessees part or conscious withholding of information when assessee knew otherwise is required for invoking extended period. In the case of Continental Foundation Joint Venture Vs. CCE, Chandigarh-I {2007 (216) ELT 17 (SC)}, the Supreme Court went to the extent of saying that any incorrect statement by itself cannot be equated with wilful mis-statement.
Thus, I am of the view that the allegation relating to wilful mis-statement / suppression of acts is not sustainable and consequently extended period and mandatory penalty are not invocable.
6. In the light of the foregoing, I allow the appeal by way of remand to the primary adjudicating authority for de novo adjudication with the following direction/observations;
(i) Cenvat credit is not admissible in respect of the impugned goods.
(ii) Extended period of 5 years and mandatory equal penalty are not attracted.
(iii) The de novo adjudication should therefore be confined to only normal period of one year.
(R.K. Singh) Member (Technical) RM 9