Custom, Excise & Service Tax Tribunal
M/S. Tube Products Of India vs Cce, Chennai-Iv on 26 November, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH, CHENNAI Appeal E/80/2007 (Arising out of Order in Original No. 8/2006 dated 14.12.2006, passed by the Commissioner of Central Excise, Chennai) M/s. Tube Products of India Appellant Versus CCE, Chennai-IV Respondent
Appeals E/61, 64, 66, 68, 69,71/2012 CCE & ST, LTU, Chennai Appellant Versus M/s. Tube Products of India Respondent (Arising out of Order in Appeal No. 60 71/2011 dated 28.10.2011, passed by the Commissioner of Central Excise, & Service Tax (Appeals) LTU, Chennai) Appearance Shri R. Parthasarathy, Adv., For the Appellant/Respondent Ms. Indira Sisupal, AC (AR), For the Respondent/Appllant CORAM Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member FINAL ORDER No. 41632-41637 & 41640/2015 Date of Hearing: 29.05.2015 Date of pronouncement: 26.11.2015 Per: R. Periasami Both the assessees appeal and six Revenues appeal are taken up together for disposal as the issue involved in these appeals are identical in nature.
2. Appeal No. E/80/2007 The brief facts of the case are that the appellants are engaged in the manufacture of steel strips, sheets and tubes etc., falling under Chapters 72 and 73 of the Central Excise Tariff Act, 1985 and discharging excise duty. They are receiving back certain customer rejected goods under their invoices and they are taking cenvat credit under Rule 16(1) of CER, 2001/CER, 2002. Subsequently, the same goods were sold in auction and the appellants are paying duty at the time of removing the goods as per the transaction value. It was alleged that the appellants are not reversing equal amount of cenvat credit availed for the rejected goods. After detailed investigation, a SCN dated 28.11.2005 was issued demanding differential duty and education cess between the cenvat credit taken and duty paid on the clearances to the dealers and also proposed interest and penalty under Section 11 AC of the Act. The adjudicating authority in his impugned order confirmed the demand of Rs.1,21,99,895/- being the cenvat credit availed under provisions of Section 11A and also demanded interest and imposed equivalent penalty under Section 11A. Hence the present appeal.
3. Appeal No. E/61, 64, 66, 68, 69, 71/2012 The brief facts of these cases are that the respondent filed refund claims before the adjudicating authority being the differential duty arising on account of difference between the cenvat credit taken when the rejected goods were brought under Rule 16(1) of CER and duty paid on the transaction value when the goods were re-sold. The adjudicating authority issued a SCN following the principles of natural justice, rejected the refund claim. Against this, the respondents filed appeals before the Commissioner (Appeals) and the lower adjudicating authority in his order dated 28.10.2011, by following the Tribunals decision in the case of Apollo Tyres Ltd. Vs. CCE, Pune-III 2011 (272) E.L.T. 84 (Tri. - Mumbai), set aside the impugned orders and allowed the respondents appeals with consequential relief. Aggrieve by this order, the Revenue filed appeals before this Tribunal.
4. The Ld. Advocate representing the appellant assessee submitted a written synopsis and reiterated the same. He submitted that they followed the procedure set out in Rule 16(1) of CER for return of the finished goods rejected and taken cenvat credit on the duty paid on them. He further submitted that the goods were rejected by the customers on account of technical defects, quality/ dimensional defects, cancellation of orders/indent, cancellation of schedule and change of schedule etc. He submitted that the same goods were after inspection, resold under auction to the highest bidder on as is where is basis. While clearing them they pay excise duty as per the transaction value at the time of resale. He drew the attention of the Bench to the allegation in the SCN at para 6 and 6.1 at page 119, where the department alleged that visual inspection is process whereas the adjudicating authority in his order at para 5.1 and 5.5 clearly held that no process undertaken by them. He further submitted that if no process is undertaken, first leg of Rule 16(2) will not be applicable and the second leg of Rule 16(2) will apply. He also submitted that Rule 16 (3) is not applicable since the same was not invoked in the SCN. The adjudicating authority invoked 16(3) and confirmed the demand, which is beyond the scope of SCN. Once, the adjudicating authority has held that mere visual inspection is not a process, which amounts to manufacture. Therefore, they are clearly attracted to 16(2) second leg in any other case and they have correctly paid the duty. He also submitted that in this case, there is no dispute on the applicability of 16(1) or 16(2) and there was no reason to seek the Commissioner of Central Excise issue to issue any guidelines under Rule 16(3). Whereas, the Commissioner while confirming the demand held that they have failed to seek clarification/guidelines from the Commissioner (Appeals) under Rule 16(3). He relied on the following case laws:-
1. Apollo Tyres Ltd. Vs. CCE, Pune-III 2011 (272) E.L.T. 84 (Tri. - Mumbai),
2. Craftsman Automation (P) Ltd. Vs. CCE, Coimbatore 2010-TIOL-945-CESTAT (Mad.) He submitted that on identical issue for the interpretation of Rule 16(2), this Bench has already allowed the appeal by following the decision in the case of Apollo Tyres Ltd. (supra). He further submitted that this Tribunals order has been accepted by the department and no appeal has been filed by the Revenue.
5. On limitation, he submitted that the demand is hit by limitation and out of the total demand of Rs. 1,13,47,938/- was hit by limitation and submitted that they have filed TR-1 returns for the month of February to March, 2003 and he drew out attention to page 73 and 85 of the paper book, wherein TR-1 returns at column 6A and 7B, they have clearly indicated that returned under Rule 16(1), and removed as such under Rule 16(2). They have consciously bifurcated and indicated in the returns. Further he submitted that while removing the goods they have clearly described in the invoices removed as such. He drew our attention to invoices at page 28 of the paper book. He submitted that therefore the demand is hit by limitation.
6. On the Revenue appeals, he submitted that subsequently they have changed the practice w.e.f. July, 2006, where they have reversed the entire credit taken on the rejected goods returned to their factory and filed refund claims for the difference between credit taken and duty payable on the transaction value on resale. He reiterated the findings of the OIA and submitted that the Commissioner (Appeals) allowed their appeal by following the Tribunals decision in th case of Apollo Tyres Ltd. (supra). He further submitted that again they have changed their method of paying duty only on the transaction value w.e.f. October, 2012, where the department issued SCN demanding differential duty, which is still pending for the period from June, 2010 to April, 2014. Therefore, he prayed that in view of the Tribunals decision in the case of Apollo Tyres Ltd. (supra) and this Tribunals decision in the case of Craftsman Automation Ltd. (supra), the demand is not sustainable in the assessees appeal and they are eligible for refund and to uphold the Commissioner (Appeals) order and to reject the Revenue appeals.
7. The Ld. AR appearing on behalf of the Revenue reiterated the findings of the OIO. On the limitation, she submitted that the returns are filed before the Superintendent under Rule 12, whereas returns of duty paid goods rejected was received under Rule 16(1), where the intimation was filed before the authority. She drew our attention to para 5.8 of the OIO and submitted that the appellants having one unit at Maharashtra and the other unit at Chennai and followed two types of practice which was clearly brought out in the OIO. She submitted that the appellant assessees paid equal amount of duty taken on the rejected goods in Maharashtra, whereas in Chennai, they followed a different practice and cleared the goods on payment of duty and not reversed the equal amount. She also submitted that the appellants were following this procedure of clearing the duty paid goods and turn the factory into storage for trading of goods in the guise of return of goods and claimed refund. Further, she submitted that Rule 16(1), duty paid goods can be returned only for remarking, refining, reconditioning and the word used in any other purposes should be interpreted in line with Section 3 of CEA. She reiterated the grounds f appeal and relied on the following citations:-
1. Toyota Kirloskar motor Pvt. Ltd. Vs. CCE, LTU, Bang.
2008 (225) ELT 385 (Tri.- Bang.)
2. Markfed HDPE Sacks Plant Vs. CCE, Ludhiana 2011 (271) ELT 396 (Tri.- Del.)
3. Hindalco Industries Ltd. Vs. CCE 2007 (215) ELT 547 (Tri.-Mum.)
8. We have carefully considered the submissions of both sides and examined the records of both assessee and Revenue appeals. The short issue involved in assessees appeal relates to demand of equal amount of credit availed on the duty paid goods returned under Rule 16 (2) o Central Excise Rules. The Revenue appeals is on the identical issue but related to refunds rejected by the adjudicating authority but the appeals were allowed by the L.A.A. for the subsequent period.
9. On perusal of the records we find that there is no dispute on the facts that certain quantities of finished goods were rejected and returned by the customers for various reasons and the cenvat credit of duty paid was taken by the appellants under Rule 16(1) and subsequently the rejected goods were sold in auction as such and cleared on payment of duty on the transaction value in terms of second leg of sub-rule (2) of Rule 16. Revenues contention is that the assessees should have paid the amount equal to the cenvat credit taken at the time of receipt of the rejected goods in terms of first leg of sub-rule (2) of Rule 16. Whereas, the assessees contended that they have correctly paid the excise duty while removing the said goods and stated that they are covered under the second part of sub-rule (2) of Rule 16 under the term used any other case stated in the said sub-rule. We find that both sides sought to interpret the provisions of Rule 16 in their own way. The period of dispute is from 01.07.2001 to 30.06.2005 in the assessees appeal and from July, 2007 to March, 2010 in the Revenues appeals. Since the whole issue revolves on interpretation of Rule 16, the same is reproduced as under:-
16. Credit of duty on goods returned to the factory.-
(1) Where any goods on which duty has been paid at the time of removal thereof are subsequently returned to the factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such return in his records and shall be entitled to have CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2001 and utilise this credit according to the said rules.
(2) If the process to which the goods are subjected before returning does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods returned under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.
(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner. As seen from the above, we find that the sub-rule (1) stipulates circumstances under which duty paid goods can be returned to the factory and the assessee is entitled to take credit of duty paid on the said goods. The sub-rule (2) contemplates two situations (i) if the process undertaken by the assessee does not amount to manufacture, then they shall pay the amount equal to the cenvat credit taken and (ii) in another case, the assessee pay duty on the returned goods as per the transaction value. In the instant case, it is established beyond doubt that no process has been carried out on the returned goods. Therefore, on the question of whether first part of sub-rule or the second part of sub-rule of Rule 16 is applicable, we find on the very same issue has been dealt in detail by the Tribunals co-ordinate Bench, Mumbai in the case of M/s. Apollo Tyres Ltd. Vs. CCE, Pune-II (supra) allowed the appeal. The relevant paragraph of the Tribunals order is reproduced as under:-
4.?I have given careful consideration to the submissions. The case on merits would rest on correct interpretation of Rule 16. This provision was examined by a Division Bench of this Tribunal in the case of Hindalco Industries Ltd. (supra), but in that case, the first clearances were rejected by the consignee and hence brought back to the assessees factory. After undertaking certain processes, in which waste and scrap were generated, the assessee cleared such waste and scrap on payment of duty at the rate applicable on the date of removal. The Tribunal found that the waste/scrap did not arise out of any process of manufacture and hence the credit taken by the assessee requires to be reversed under Rule 16(2). The Tribunal held that, if the process to which the goods returned by the original consignee were subjected to did not amount to manufacture, the amount of credit availed under sub-rule (1) of Rule 16 had to be reversed under sub-rule (2). In the instant case, the tubes returned by the original consignee were removed as such without any process whatsoever. Even the show-cause notice admits these facts. The question is whether the second clearances of the goods would be covered by the first part of sub-rule (2) of Rule 16 as canvassed by the Revenue or by the second part of the sub-rule as contended by the assessee. In this context, it is pertinent to note that the goods returned by the original assignee were admittedly received by the assessee under sub-rule (1). They were received in the assessees factory for being re-made, refined, re-conditioned or for any other reason. Learned SDR has chosen to read the underlined expression ejusdem generis with the preceding expressions (re-made, refined, etc.). He means to say that, under sub-rule (1) of Rule 16, duty-paid goods returned by a customer can be brought back to the factory of production only for some kind of a process. On the other hand, the learned counsel has argued that such goods could be brought back into the factory of production for any other reason also. He submits, the appellant cleared the goods as such, for logistic reasons, to other tyre-manufacturing units of the company. Learned counsel has endeavoured to fortify his arguments by referring to the expression, in any other case found in the text of sub-rule (2).
5.?In my view, one cannot overlook the manner in which sub-rule (2) opens. The sub-rule opens thus :
If the process to which the goods are subjected before being removed... It appears to me that sub-rule (2) pre-supposes that the goods received by the assessee under sub-rule (1) should be subjected to some process. If this process does not amount to manufacture, the assessee shall pay an amount equal to the CENVAT credit taken under sub-rule (1), at the time of the second clearance. If the process amounts to manufacture, they shall pay duty at the appropriate rate based on the value determined under Section 4 of the Act. The expression in any other case found in the second part of sub-rule (2) is significant. In my view, a case in which the manufacturer of final product receives the goods back from the customer under sub-rule (1) and removes the same as such without undertaking any process thereon is also covered by the second part of sub-rule (2). The expression any other case is apparently wide enough to cover such a case. In the D-3 intimation given by the appellant to the department, the purpose of bringing the returned duty-paid goods back into their factory was shown as storage. The appellant did not mention any process in the D-3 intimation. In their reply to the show-cause notice also, they did not claim that the goods returned by the first consignee were subjected to any process before its second clearance to other units. Neither the original authority nor the first appellate authority entered any finding to the contra. In the order-in-original, on the other hand, there is an observation to the effect that the appellant had removed the goods as such without carrying out any process. The order-in-original was upheld by the Commissioner (Appeals). The appellate authority also recorded thus : The fact that the goods did not undergo any process amounting to manufacture is not in dispute. Having so found, the lower authorities have demanded reversal of the CENVAT credit on the premise that the first part of sub-rule (2) of Rule 16 covers second clearances of finished goods as such without undertaking any process. I have already held that such second clearances, as in the instant case, are also covered by the expression any other case figuring in the second part of sub-rule (2). It would follow that the duty paid by the appellant on their second clearances of tubes is in order and no additional amount of duty can be demanded from them.
6.?In the result, the demand of duty is set aside on merits and consequently there can be no penalty on the appellant either. The appeal is allowed with consequential relief to the appellant. Further, this Tribunal Bench in the case of Craftsman Automation (P) Ltd. Vs. CCE, Coimbatore (supra), in its order dated 27.04.2011 on identical issue followed the above decision and allowed the appeals. The relevant portion of this order is reproduced as under:-
2. I have heard both sides. Rule 16(2) stipulated that if the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on the goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of Section 3 or Section 4 or Section 4A of the Act, as the case may be. The assessees have not subjected the returned goods to any process and, therefore, they are covered by the second limp of Rule 16(2), in the light of Tribunal's decision in Apollo Tyres Limited Vs Commissioner of Central Excise, Pune-III [ 2010-TIOL-549-CESTAT-MUM ]. The case law cited by learned SDR, namely, Shimoga Technologies Ltd. Vs Commissioner of Central Excise, Mysore [2007 (208) E.L.T.31 (Tri.-Bang.)] and Jinabakul Forge Pvt. Ltd. Vs Commissioner of Central Excise, Belgaum [2007 (220) E.L.T.210 (Tri.-Bang.)] are distinguishable as in those cases, the rejected goods were subjected to some process.]
3. Following the ratio of the Apollo Tyres decision, which is applicable on all fours to the facts of the present case, I set aside the impugned orders and allow the appeals. We are in agreement with the above decisions and the same are applicable to the present case as the issues are identical and the duty paid goods are rejected and returned to the factory of the assessee and without doing any processes the said goods were sold by auction to third party as is where is basis and cleared on payment of excise duty on the transaction value as per Section 4 of the Central Excise Act.
10. The Revenue relied on the Tribunal decision in the case of Toyota Kirloskar Motor Pvt. Ltd. Vs. CCE, Bangalore (supra), and Hindalco Industries Ltd. (supra) and also other case laws, where decisions were rendered prior to Apollo Tyres case and Tribunal Benchs decision in the case of Craftsman Automation (P) Ltd. (supra), and therefore, the same are not relevant to the present case.
11. In view of the forgoing discussions and by maintaining this Tribunals decision in the case of Craftsman Automation (P) Ltd. case, which relied M/s. Apollo Tyres (P) Ltd. case, we hold that in the present case, the second leg of sub-rule (2) of Rule 16 ie., in any other case is applicable and they had correctly discharged excise duty on the returned goods cleared as such. The appellants are not liable to pay the amount equal to cenvat availed on the returned goods. Accordingly, the demand is set aside in the assessees appeal. Consequently, they are not liable for any penalty and the same is also set aside.
12. On the Revenues appeals, since the main issue on merits decided and the demand is set aside in the main appeal, we do not find any infirmity in the Commissioner (Appeals) Order, wherein he relied on the above Tribunal Order and set aside the order of the adjudicating authority and allowed consequential refund and the impugned orders are liable to be upheld.
13. In view of the foregoing discussions:-
(i) We set aside the impugned order No. 8/2006 dated 14.12.2006 and allow the assesses appeal with consequential benefit.
(ii) We uphold the impugned OIAs No. 60 71/2011 dated 28.10.2011, and reject all the six Revenue appeals.
(Pronounced in open court on 26.11.2015) (P.K. CHOUDHARY) (R. PERIASAMI) JUDICIAL MEMBER TECHNICAL MEMBER BB 1