Madhya Pradesh High Court
Customs Central Excise And Service Tax vs Z Y G Pharma Pvt. Ltd. on 19 June, 2017
Author: Rajeev Kumar Dubey
Bench: Rajeev Kumar Dubey
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HIGH COURT OF MADHYA PRADESH : BENCH AT INDORE
D.B.: HON'BLE MR. S. C. SHARMA AND
HON'BLE MR. RAJEEV KUMAR DUBEY, JJ
CENTRAL EXCISE APPEAL No. 25 / 2016
THE COMMISSIONER
(NOW PRINCIPAL COMMISSIONER),
CUSTOMS, CENTRAL EXCISE & SERVICE TAX,
MANIK BAGH PALACE, INDORE
Vs.
Z Y G PHARMA PVT. LTD.,
PITHAMPUR, DHAR (MP)
*****
ORDER
( ___/06/2017) PER : S. C. SHARMA, J :-
THE present appeal has been filed by the Excise Department under sub-Section (2) of Section 35-G of the Central Excise Act, 1944 against the order dated 26/02/2016 passed by the Customs, Central Excise & Service Tax Tribunal, New Delhi.
Facts of the case reveal that the respondent - assessee M/s.
Z Y G Pharma Pvt. Ltd., is a manufacturer of P. P. Medicaments falling under Chapter Heading No. 30 of the First Schedule to the Central Excise Tariff Act, 1985. The respondent - assessee
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is also availing CENVAT credit facility of duty paid capital goods received in the factory as well as service tax paid on services received. An audit was carried out in respect of records of the assessee and it was pointed out by the audit that the assessee has taken CENVAT credit of Rs.36,90,921/- on pre-
fabricated building items, doors and office furnitures under Chapter Heading No. 9406, 7308 and 9403 by treating them as capital goods during the period 2007-2008 to 2010-2011 and 2011-2012 upto December, 2011. A Show Cause Notice was issued on 23/4/2012 to the respondent - assessee and the assessee filed the reply in the matter. The Assessing Officer has finally passed an Order in Original on 14/11/2013 and a demand to the tune of Rs.36,90,921/- has been confirmed along with an equivalent penalty of Rs,36,90,921/-. The respondent - assessee, in turn, preferred an appeal before the Commissioner (Appeals) and the Commissioner (Appeals) has allowed the appeal of the assessee by order dated 3rd September, 2014. Thereafter, the Department has preferred an appeal before the Appellate Tribunal and the Appellate Tribunal by impugned order dated 26/2/2016, has dismissed the appeal preferred by the Department.
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Learned counsel for the appellant - Excise Department has vehemently argued before this Court that the appellant is a manufacturer of Pharmaceuticals and took credit of duty paid on wall panels and doors. He has also argued that the Adjudicating Authority has rightly held that the impugned goods were neither input, nor capital goods and, therefore, the assessee had deliberately taken credit by indulging in willful misstatement or suppression of facts. He has further argued that the Commissioner (Appeals) has erroneously held that the impugned goods were eligible to be called inputs and has allowed the credit. The matter has been minutely scanned by the Tribunal and the Tribunal in paragraphs 4 to 6 has held as under:
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
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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;
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(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
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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.
The Tribunal has remanded the matter back to the Adjudicating Authority for de-novo adjudication. The Tribunal has held that the CENVAT credit is not admissible in respect of
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the impugned goods, however, the Tribunal has arrived at a conclusion that the extended period of five years and mandatory equal penalty are not attracted. Against the order passed by the Tribunal, the present appeal has been filed.
This Court has carefully gone through the order passed by the Tribunal and in fact, the Tribunal has upheld the contention of the Department so long as CENVAT credit has been claimed in respect of the impugned goods. The only issue which is bothering the Department is imposition of penalty.
The Division Bench of Gujarat High Court in the case of Commissioner Vs. Dynamic Industries Ltd., reported in 2014 (307) ELT 15 (Guj.) in paragraph 12 has held as under :
12. Accordingly, the substantial question of law raised in respect of the following three categories of service ie., (i) Customs House Agents Services, (ii) Shipping Agents and Container Services and (iii) Services of Overseas Commission is answered partly in favour of the assessee so far as aforesaid category nos. (i) and (ii) are concerned.
Insofar as category No. (iii) ie., services of Overseas Commission, is concerned, the same is answered in favour of the Revenue and against the assessee. So far as present appeal is concerned, after extending the period of limitation under the proviso to Sec. 11 A and 11 AB of the Act, the Show Cause Notice is issued by the Joint commissioner, Central Excise, upon the respondent - assessee on the ground of contravention of provisions of Rule 2(1)(ii) and 9(2) read with Rule 3(1) of the Rules admittedly, the respondent - assessee had shown availment of Cenvat credit in part (iv) and (v) of E.R.-1 Returns filed by it. The appellant - Department has sought to justify its action by submitting that during the course of audit by the Office of
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the Accountant General, when a detailed examination of the material was done, it was realised that the respondent - assessee has availed Cenvat Credit on the services of all the three categories. The respondent - assessee has rightly pointed out that all the service providers charge the service tax on all the three services and such services sincere were rendered at the port of export, which was the place of removal, the services were in relation to manufacturing activities as far as the first two services are concerned. However, insofar as the third service where this Court has held in favour of the Revenue and against the respondent - assessee, we are of the opinion that the extended period of limitation would not be available to the Revenue in absence of any material to indicate suppression on the part of the respondent - assessee. It is not in dispute that there was no suppression nor any misrepresentation in respect of Cenvat credit availed by the respondent - assessee in respect of these services.
In the aforesaid case also, the availment of credit was discovered during the course of audit when detailed examination of material was done.
In the present case, there was no suppression or misrepresentation in respect of availment of CENVAT credit and, therefore, this Court is of the considered opinion that in the light of the judgment delivered by the Division Bench of Gujarat High Court, the Tribunal was justified in remanding the matter back and holding that mandatory equal penalty and extended period of 5 years are not attracted.
The High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore Vs. Sanmar Speciality Chemicals
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Ltd., reported in 2016 (43) S.T.R. 347 (Kar.) in paragraph 7 and 8 has held as under :
7. It is an admitted fact that the input tax credit was claimed in the return of the assessee from time to time and therefore, it was not a matter for suppression of facts, as sought to be canvassed on behalf of the appellant.
8. Once full facts were disclosed, the normal period of limitation would be one year, whereas the proceedings are initiated after the expiry of a period of one year. Therefore, we do not find that the Tribunal has committed any error in observing that the demand was barred by limitation.
In the aforesaid case also, as facts were fully disclosed and there was no suppression, it as held by the Division Bench that extended period of limitation is not invokable.
A similar view has been taken in the following cases Cosmic Dye Chemicals Vs. CCE reported in 1995 (75) ELT 721 (SC); Simplex Infrastructures Ltd., Vs. CST reported in 2016 (42) STR 634 (Kar.); Gopal Zarda Udyog Vs. CCE reported in 2005 (188) ELT 521 (SC); Apex electricals Pvt.
Ltd., Vs. UOI reported in 1992 (61) ELT 413 (Guj.); Unique Resin Industries Vs. CCE reported in 1995 (75) ELT 861 (T);
CCE Vs. Chemphar Drugs and Liniments reported in 1989 (40) ELT 276 (SC); Padmini Products Vs. CCE reported in 1989 (43) ELT 195 (SC); Pushpam Pharmaceuticals Co. Vs. CCE reported in 1995 (78) ELT 401 (SC); Anand Nishikawa Co.
Ltd., Vs. CCE reported in 2005 (188) ELT 149 (SC); CCE Vs.
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Pioneer Scientific Glass Works reported in 2006 (197) ELT 308 (SC); Uniworth Textiles Ltd., Vs. CCE reported in 2013 (228) ELT 161 (SC); Pahawa Chemicals Pvt. Ltd., Vs CCE reported in 2005 (189) ELT 257 (SC); CCE Vs. N. R. Agarwal Industries reported in 2014 (300) ELT 213 (Guj.); CCE Vs. Triveni Engineering & Industries Ltd., reported in 2005 (317) ELT 408 (Allh.); Associated Pigments Ltd., Vs. CCE reported in 1993 (68) ELT 514 (Cal.); CCE Vs. Punjab Laminates Pvt. Ltd., reported in 2006 (202) ELT 578 (SC); and, Cadila Pharmaceuticals Ltd., Vs. CCE order dated 10/11/2016 passed by the Gujarat High Court, at Ahemdabad and, therefore, this Court is of the considered opinion that the Tribunal was justified in holding that extended period of five years and mandatory equal penalty are not attracted.
No substantial question of law arises in the present appeal and, therefore, the admission is declined.
(S. C. SHARMA) (RAJEEV KUMAR DUBEY)
JUDGE JUDGE
KR