Rajasthan High Court - Jaipur
Commissioner Of Central Excise vs M/S Arvind Refractories & Ors on 17 January, 2013
Author: Mohammad Rafiq
Bench: Mohammad Rafiq
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR ORDER IN D.B. Civil Excise Reference No.12/2002 Commissioner of Central Excise, Jaipur-I, New Central Revenue Building, C-Scheme, Jaipur Vs. M/s Arvind Refractories Private Limited and Another Date of Order ::: 17.01.2013 Present Hon'ble Mr. Justice Mohammad Rafiq Hon'ble Dr. Justice Mrs. Meena V. Gomber Shri Sarvesh Jain, Counsel for petitioner Shri N.K. Goyal, counsel for respondent #### //Reportable// By the Court:-
This reference is made by the Commissioner of Central Excise, Jaipur-I, seeking a direction from this Court to the Customs, Excise and Gold (Control) Appellate Tribunal to state and refer following question to this Court under Section 35 of the Central Excise Act, 1944:-
Whether the redetermination of Annual Capacity of Production in view of the facts that the assessee had suppressed the actual production capacity at the time of fixing annual capacity production will tantamount to review of its own order by the Commissioner?
This court vide order dated 17.02.2003 issued notice to the respondents as to why the respondent no.2 the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi, (for short, 'the CEGAT') should not be directed to refer the aforesaid question for the opinion of this Court, and in pursuance thereof the respondents have filed reply.
Facts giving rise to this reference case are that respondent no.1 M/s Arvind Refractories Private Limited, F-629, RIICO Industrial Areas, Bhiwadi, District Alwar, (hereinafter shall be referred to as 'the assessee') is engaged in manufacturing of non-alloys M.S. Ingots falling under the Central Excise Tariff Heading No.7206.90. In terms of the provisions of Section 3A of the Central Excise Act, 1944 (for short, 'the Act of 1944') and Rule 96ZO of the Central Excise Rules, 1944 (for short, 'the Rules of 1944'), the central excise duty is chargeable on the goods manufactured by the assessee on the basis of annual capacity of production induction furnace. The annual capacity of production, which is based on total capacity of furnace, is determined in terms of Induction Furnace Annual Capacity Determination Rules, 1997 (for short, 'the Rules of 1997'). The assessee vide letter dated 18.08.1997 declared that they were having one furnace of ABB Type ITM4/1500. They also furnished copy of certificate issued by M/s ABB dated 12.08.1997, in support of their claim regarding furnace/crucible capacity for manufacturer of the furnace. Vide letter dated 29.09.1997, total capacity of the furnace was determined as 3MT and annual capacity of production was determined provisionally as 9600 MT (TCF as 3.00 MT) and in terms of Rule 3(1) of the Rules of 1997, the annual capacity of production was finalized as 9600 MT vide letter dated 25.09.1998.
Petitioner the Commissioner of Central Excise, Jaipur-I (hereinafter shall be referred to as 'the revenue') received an intelligence report that the assessee, in collusion with the manufacturer of the furnace i.e. M/s ABB Limited (for short, 'the manufacturer'), had suppressed the actual production capacity of their medium frequency induction melting furnace type ITM-4/1500, which was installed in their factory and therefore the officers of the revenue conducted inquiries. Shri Sunil Bansal, the Director of the assessee unit, in his statement dated 24.03.2000 and 29.03.2000, stated that they were unable to produce the copy of contract with the manufacturer of furnace, and admitted that the type of furnace installed in their factory, which was supplied by M/s ABB Limited, was ITM4/1500 KW. He also produced a certificate dated 12.08.1998 issued by the manufacturer, whereby the crucible capacity of the furnace was declared to be 2.50 MT to 3.00 MT for melting sponge iron as a component of charge material along-with scrap. He also produced a report of National Institute of Secondary Steel Technology, Mandi Govindgarh, certifying capacity of their furnace as 3.00 MT. In support, he further submitted verification done by Anti-Evasion, Central Excise Commissionerate, Jaipur-I, showing weighment of one heat as 2.965 MT.
Shri J.S. Rao, DGM of the manufacturer M/s ABB Limited, in his statement dated 25.10.1999 recorded before the Superintendent (Preventive) Division E Bangalore, stated that capacity of medium frequency furnace ITM 4/1500 KW was 339- KG. As regards certificate issued regarding capacity of furnace being 2.5 MT to 3.0 MT, he stated that the certificates were issued in respect of melting of sponge iron as a component of charge material along with scrap because during melting of sponge iron more slag was generated, higher volume of slag was being left and also thicker lining was kept. Vide letter dated 19.04.2000, said Shri J.S. Rao further stated that earlier statement dated 25.10.1999 for induction furnace ITM-4/15 KW of crucible capacity 3390 KG, would hold good for the assessee also.
Shri Tushar Mewar, Senior Marketing Manager of Power Generation Segment of M/s. ABB Limited, in his statement dated 20.07.1999, admitted that capacity of furnace mentioned in Technical Data (3390 KG) corresponds to melting of steel scrap as charge material. He further stated that capacity mentioned in the certificates corresponded to melting of sponge iron as a component of charge material along-with scrap, that the sponge iron melting generated more slag and had averse effect on the lining of crucible; that sponge iron melting could result into liquid metal overflow due to carbon boil. This statement was also relied upon, the same being in respect of all furnace of type ITM-4/1500 KW manufactured and supplied by the same manufacturer.
According to the revenue, the verification done by the anti-evasion and report of national Institute of Secondary Steel Technology, Mandi Govindgarh, cannot be considered as a acceptable proof because both of these were not the document prescribed under Rule 3 of the Rules of 1997. Moreover, verification done by the Officer of the Anti-Evasion of the Central Excise, Jaipur, does not specify the quantity of scrap charged in the furnace being the maximum that the crucible can take into. During further investigation, copy of contract between the assessee unit and the manufacturer was obtained through the Directorate General of the Central Excise Intelligence (erstwhile DGAE) from the record under their possession. Technical data of this contract clearly revealed that the furnace of type ITM-4/1500 KW supplied by the manufacturer to the assessee unit had the capacity of 3390 KW. Further the fact that the capacity of the furnace installed in the assessee unit was 3390 KW was corroborated from the facts contained in the statements of Shri J.S. Rao, DGM of manufacturer, Shri Tushar Mewar, Senior Marketing Manager of the manufacturer, statement of Shri Sunil Bansal, Director of the assessee.
On the basis of aforesaid, the revenue held it to be a case of tax evasion in respect of the central excise duty payable for the year 1997-98, 1998-99 and 1999-2000 and accordingly a show cause notice was issued to the assessee on 27.02.2001. The case was adjudicated by the Commissioner of the Central Excise, Jaipur-I, who, vide order dated 05.11.2001, redetermined the annual capacity of induction furnace/crucible installed in factory premises of the assessee as 10848 MT per annum in terms of sub-rule (1) of Rule 3 of the Rules of 1997; ordered for recovery of central excise duty amounting to Rs.20,15,000/- short paid by the assessee under Section 11A of the Act of 1944 read with Rule 96ZO of the Rules of 1944; imposed a penalty of Rs.20,15,000/- under Section 11AC of the Act of 1944 read with Rule 96ZO of the Rules of 1944 and further penalty of Rs.2,00,000/- under Rule 173Q of the Rules of 1944 and also ordered to recover the interest on the confirmed amount of duty from the day it became payable under Section 11AB of the Act of 1944. Aggrieved thereby, the assessee filed an appeal before the CEGAT, New Delhi, which, vide its order dated 18.03.2002, set aside the order of the Commissioner holding that the Commissioner has not been empowered to review his own orders, as he had finally determined the annual capacity of production of the assessee unit.
Shri Sarvesh Jain, learned counsel for the revenue submitted that the certificate stating capacity of furnace/crucible to be of 2.51 to 3.0 MT for melting sponge iron as a component of charge material along-with scrap was issued by the manufacturer after installation of furnace. It appears that those certificates were issued by the manufacturer in total disregard of the actual capacity of the furnace and were relevant only when the sponge was made as a component charge. Since the said certificate did not specify the percentage of sponge iron to be used as a charge component and further there was no evidence regarding use of sponge iron as a component in pre-dominance, the said certificate was not relevant and was misleading for the purpose of determining the total capacity of the furnace. Since the assessee, vide letter dated 01.09.1997, had opted to work under Rule 96ZO (3) of the Rules of 1944, they were paying central excise duty at the rate of Rs.5,00,000/- per month on the basis of capacity of the furnace. However, since the rated capacity of the furnace was actually 3.390 MT they were required to pay central excise duty of Rs.5,65,000/- per month on non pro-rate basis. It is contended that the assessee evaded central excise duty amounting to Rs.4,55,000/- during 1997-98, Rs.7,80,000/- during 1998-99 and Rs.7,80,000/- during 1999-2000, thus a total sum of Rs.20,15,000/- of central excise duty was evaded by willfully making false declaration and suppressing the material facts in contravention of provisions of the Rules of 1944 read with the Rules of 1997 with an intent to evade payment of central excise duty.
Shri Sarvesh Jain, learned counsel for the revenue, argued that the findings of the Commissioner were inconformity with the decision of the Tribunal in the case of M/s Perfect Engineering Works Vs. CCE Baroda 1996 (81) ELT 182, wherein, in similar circumstances, it was held that assessment can be reopened. He further relied on the Division Bench judgment of the Jharkhand High court in Union Enterprises Vs. Union of India (UOI) and Others 2008 (1) CR 493 (Jhr), wherein it was held that the Commissioner has power to redetermine production capacity of furnace. Learned counsel also relied on judgments of the Customs, Excise and Services Tax Appellate Tribunal (for short, 'the CESAT') in Union Enterprises Vs. CCE 2004 (112) ECR 356 (Kolkata) and argued that the Commissioner was well within his right in redetermining the annual production capacity.
Per contra, Shri N.K. Goyal, learned counsel for the respondent-assessee, opposed the reference and argued that once the annual capacity of production has been determined by the Commissioner, he is divested of his powers to redetermine the same because in law no power of review has been conferred upon him.
Shri N.K. Goyal, learned counsel for assessee has further argued that the power of review has to be conferred by the statute expressly. Such powers cannot be assumed to be exercised. Total capacity was determined as 3.0 MT provisionally on 29.09.1997 and thereafter physical verification was made by anti-evasion on 01.01.1998, which found the capacity to be only 2.965 MT. The provisional determination was finalized only after this physical verification and it is therefore that the provisional determination was finalized on 25.09.1998 after one year. The National Institute of Secondary Steel Technology, Mandi Govindgarh, an expert governing body in the field, established by the Ministry of Steel, Government of India, verified the parameters of furnace and issued the certificate dated 20.12.1998, the total capacity of furnace was 3.0 MT. Certificate by Shri N. Vishwanath of M/s. ABB Limited about capacity of furnace being 2.5 MT to 3.0 MT for melting was also produced. It was denied that there was any intentional or willful suppression or mislead by assessee with a view of evading tax. The allegation of willful suppression or mislead is totally false.
Shri N.K. Goyal, learned counsel for assessee, in support of his arguments, relied on the judgments of CEGAT in Tarun Castings Private Limited Vs. Commissioner of Central Excise, Jaipur 2002 (142) ELT 400 (Del.), Pooja Castings Private Limited Vs. Commissioner of C. Ex., Jaipur-I 2004 (163) ELT 356 (Del.) and CESTAT in Commissioner of Central Excise, Ahmadabad Vs. Jai Ambe Textiles 2010 (252) ELT 142 (Ahmd.) and that of Supreme Court in Union of India Vs. K.M. Shankarappa 2001 (127) ELT 8 (SC).
We have given our anxious consideration to rival submissions and perused the material on record.
The question that calls for consideration by this court is whether Central Excise Commissioner has the power to redetermine annual capacity of production. In other words, can the Commissioner redetermine annual capacity of production induction furnace/crucible installed in the factory premise of the assessee by enhancing the same from 9600 MT to 10848 MT in terms of sub-rule (1) of Rule 3 of the Rules of 1997. Premise on which the aforesaid capacity has been redetermined by the Commissioner is evident from following discussion made in his order:-
....It is amply clear from the facts of the case that the capacity of the assessee's furnace was determined under Rule 3(1) of Induction Furnace Annual Capacity Determination Rules, 1997 on the basis of a copy of manufacturers certificate which was subsequently proved to be a fake & fabricated document as discussed in the preceding para's supra. Subsequently correct capacity of the said furnace was found to be 3390 Kgs. As such I am left with no option but to re-determine the capacity of the said furnace and by doing so I am not violating the provisions of law, as section 11A, Section 3A and Rule 3 of Induction Furnace Annual Capacity Determination Rules, 1997 are independent from those of section 35E ibid. and review procedure is not only the course for reopening the assessment. My above findings are in conformity with Hon'ble Tribunal's decision in the case of M/s Perfect Engineering Works Vs. CCE, Baroda 1996 (81) ELT 182 (Tribunal) where it was held that assessment can be reopened in similar circumstances.
Further I find that section 3A of Central Excise Act, 1944 and Rule 4 of Induction Furnace Annual Capacity Determination Rules do not place any ban for re-determination of the annual capacity.
The assessee's contention, that capacity has been finally determined after due verification and all the facts were in the knowledge of the department, is unfounded and incorrect. As the verifications if any conducted by the department are of no relevance to this case as the departmental officers were neither technically expert nor the same was a legal requirement as per Rule 3 of Induction Furnace Annual Capacity Determination Rules, 1997. The parameters could be changed by the assessee by changing the thickness of lining. Further to above, since the assessee in collusion with M/s ABB Ltd. willfully mis-stated and suppressed the facts of the actual capacity of furnace installed in their factory premises with an intent to evade actual duty liability by mis declaring capacity of furnace as 2.5 MT to 3.0 MT instead of 3.390 MT by furnishing a false certificate obtained from M/s ABB Ltd., hence the extended period has rightly been invoked for recovery of duty short paid in the case. The case laws cited by the assessee are quite distinguishable from the facts of the present case and are of no help to the assessee.
Now I come to the issue of determination of total capacity of the subject furnace installed in the factory premises of the assessee on the basis of supporting documents and circumstances of the case I find that certificate of National Institute of Technology is irrelevant as sufficient material facts of the case are available on record which prove the TCF as 3.390 MT. Further no relevancy can be given to certificate issued by National Institute of Technology as they have no authority from the department.
On examination of statement dt. 25.10.99 of Shri J.S. Rao, DGM M/s. ABB Ltd., statement dt. 20.7.99 of Shri Tushar Mewar, Sr. Marketing Mgr., Power General Segment M/s. ABB Ltd. copy of contract available on record and relied upon documents of the subject show cause notice I find that TCF is 3.390 MT which have been suppressed by the assessee willfully, intentionally to evade Central Excise duty. Thus total capacity of the furnace is to be re-determined as 10848 MT per annum and assessee are also liable for penal action for suppression of material fact from the department.
Clearly, the determination of annual capacity production was made by the Commissioner as per the provisions contained in Rule 3 of the Rules of 1997, on the basis of information, datas and details furnished by the assessee, which is reproduced hereunder:-
3.The annual capacity of production referred to in rule 2 shall be determined in the following manner, namely:
(1) the Commissioner of Central Excise (hereinafter referred to as the Commissioner) shall call for an authenticated copy of the manufacturer's invoice or trader's invoice, who have supplied or installed the furnace or crucible to the induction furnace unit, and ascertain the total capacity of the furnaces installed in the factory on the basis of such invoice or document;
(2) if the invoice or document referred to in sub-rule (1) is not available for any reason with the manufacturer then the Commissioner shall ascertain the capacity of the furnaces installed in the induction furnace unit on the basis of the capacity of comparable furnaces installed in any other factory in respect of which the manufacturer's invoice or other document indicating the capacity of the furnace is available or, if not so possible, on the basis of any other material as may be relevant for this purpose. The Commissioner may, if he so desires, consult any technical authority for this purpose;
(3) the annual capacity of production of ingots and billets of non-alloy steel in respect of such factory shall be deemed to be as determined by applying the following formula :-
ACP = TCF X 3200, where -
ACP = Annual Capacity of Production of the factory producing ingots and billets of non-alloy steel in metric tonnes;
and TCP = Total capacity of the furnaces installed in the factory producing ingots and billets of non-alloy steel in metric tonnes.
(4) the Commissioner of Central Excise shall, as soon as may be, after determining, the total capacity of furnaces installed in the factory as also the annual capacity of production by an order intimate to the manufacturer.
Rule 3(3) of the Rules of 1997 clearly provides that the annual capacity of production of ingots and billets of non-alloy steel in respect of such factory shall be determined by applying the formula given in the said Rule. That would mean that if the formula is applied to wrong information furnished by the assessee, it will result in incorrect annual capacity of production being determined.
The Commissioner in the present case was justified in making redetermination because he round additional and further evidence which substantiated his belief that earlier determination was based on concealment of facts or at-least incorrect capacity of furnace provided by the assessee. While the assessee provided the information for being assessed on the basis of certificate from manufacturer about the capacity of furnace to be 2.5 MT to 3.0 MT for melting on that basis annual capacity production was determined provisionally on 9600 TCF vide letter dated 29.09.1997 and it was finalized as such vide letter dated 25.09.1998 but during investigation by Anti-Evasion, a copy of contract between the assessee unit and manufacturer was obtained through the Directorate General of the Central Excise Intelligence (erstwhile DGAE) from the record under their possession. Technical data of this contract revealed the furnace of type ITM-4/1500 KW was supplied by the manufacturer M/s ABB Limited to the assessee unit which had capacity of 3390 KG, which was further corroborated from the facts mentioned in the statement of Shri J.S. Rao, DGM of manufacturer, Shri Tushar Mewar, Senior Marketing Manager of the manufacturer, statement of Shri Sunil Bansal, Director of the assessee. If these were the facts, the Commissioner has rightly, on the basis of this additional and further evidence that came, redetermined the annual production capacity as it was a case of willful mis-declaration, collusion and fraud against revenue. Annual capacity production of furnace which was determined on the basis of specific information provided by the assessee and the specification earlier provided was not found to be correct. Redetermination on the basis of fresh evidence was the only course open to the Commissioner.
Second proviso to Section 3A (2) of the Act of 1944 provides that in a case where the factor relevant to the production is altered or modified at any time during the year, the annual production shall be redetermined on a proportionate basis having regard to such alteration or modification. If there is an altertion or modification in any factor relevant to production specificed, such production shall have to be redetermined as held by the Supreme Court in Para 22 of CCE v. Doaba Steel Rolling Mills, (2010) 14 SCC 751, which reads as under:-
22. Rule 3 of 1997 Rules framed in terms of Section 3A(2) of the Act lays down the procedure for determining the annual capacity of production of the factory. Sub-rule (3) of that Rule contains a specific formula for determination of annual capacity of production of hot rolled products. This is the only formula whereunder the annual capacity of production of the factory, for the purpose of charging duty in terms of Section 3A of the Act, is to be determined. Second proviso to sub-section (2) of Section 3A of the Act contemplates re-determination of annual production in a case when there is alteration or modification in any factor relevant to the production of the specified goods but such re-determination has again to be as per the formula prescribed in Rule 3(3) of the 1997 Rules.
There can be alternation or modification in a factor relevant to specified production in terms of second proviso to Section 3A(2) of the Act, not only for reason of installation of additional furnace or technical upgradation etc. but this can also happen due to discovery of additional and further information proving that an incorrect factor was earlier made basis for determination of production capacity.
Section 11A of the Act of 1944 specifically confers powers on the Central Excise Officer to determine duty where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty. In terms of sub-rule (2) of Rule 3 of the Rules of 1997, the Commissioner may, if he so desires, consult any technical authority to determine the annual capacity of factory in which the goods should manufacture, and that Rule does not create any bar for redetermination of such a capacity, if it is shown that specification made available by the assessee was incorrect. If correct datas, correct information and specification have by any source whatsoever later become available to the competent authority, and he is satisfied that earlier determination was based on incorrect information/specification provided by the assessee, he can certainly make redetermination.
In our considered view, therefore, the matter gives rise to a debatable and significant question of law. We are, therefore, inclined to direct the Tribunal to state and refer following question under Section 35H of the Central Excise Act, 1944 to this court. Ordered accordingly. We have slightly modified the question of law prepared to be referred. The question to be referred is as follows:-
Whether the Commissioner having once determined the Annual Capacity of Production, can, on discovery of new and additional evidence/material, which the assessee failed to disclose or suppressed, can redetermine the same?
Petition is disposed of.
(Dr. Meena V. Gomber) J. (Mohammad Rafiq) J. //Jaiman//
All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.
Giriraj Prasad Jaiman PS-cum-JW