Custom, Excise & Service Tax Tribunal
Msp Sponge Iron Ltd vs -Rourkela Commissionerate on 17 June, 2022
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE
TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH : KOLKATA
REGIONAL BENCH - COURT NO.2
Excise Appeal No.75071 of 2022
(Arising out of Order-in-Appeal No.36/CE/RKL-GST/2019 dated 31.05.2019 passed
by Commissioner(Appeals) of GST, Central Excise & Customs, Bhubaneswar.)
M/s. MSP Sponge Iron Limited
(Haldiguna, GP Road, Gobardhan, Dist.-Keonjhar-758013, Odisha)
...Appellant
VERSUS
Commissioner of CGST & CX, Rourkela Commissionerate
.....Respondent
(KK-42, Civil Township, Rourkela-769012, Odisha.)
APPEARANCE
Shri Jitin Singhal, Advocate for the Appellant (s)
Shri S.Mukhopadhyay, Authorized Representative for the Respondent (s)
CORAM: HON'BLE SHRI P.K.CHOUDHARY, MEMBER(JUDICIAL)
HON'BLE SHRI P.ANJANI KUMAR, MEMBER(TECHNICAL)
FINAL ORDER NO. 75354/2022
DATE OF HEARING : 13 June 2022
DATE OF DECISION : 17 June 2022
P.K.CHOUDHARY :
The present Appeal has been filed by the Appellant challenging
the impugned Order-in-Appeal dated 31.05.2019 passed by the
Ld.Commissioner(Appeals), GST, CX & Customs, Bhubaneswar.
2. The facts of the case in brief are that the Appellant is a
manufacturer of Sponge Iron, Iron Ore, Pallets, MS Ingots and MS
Round classifiable under Chapter 72 of the first schedule to the Central
Excise Tariff Act, 1985. During the course of the audit of the Appellant,
the department noticed from their financial records/documents that the
Appellant had procured sponge iron from their related party during the
disputed period for manufacture of MS Ingot and the said MS Ingot was
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captively consumed by the Appellant for further manufacture of their
finished goods namely MS Round. It has been noticed by the
department that the cost of Sponge Iron procured from their related
unit was revised to Rs.7,787.48 PMT, Rs.8,046.43 PMT and Rs.8,210
PMT pertaining to the year 2004-05, 2005-06 and 2006-07 respectively
as per costing method (CAS-4) and the differential cost worked out to
Rs.73,27,979/-, Rs.79,67,028/- and Rs.93,29,594/- totaling to
Rs.2,46,24,602/- and the related manufacturing unit raised
supplementary invoices in favour of the Appellant relating to the above
period on which Cenvat credit has been availed and utilized by the
Appellant. But the differential value of sponge iron, being the major
unit for manufacture of MS Ingot/MS Round was not taken into
consideration for the cost of finished goods i.e. MS Ingots/MS Round by
the Appellant. It has been further noticed by the department that the
Appellant did not maintain cost sheet for manufacture of MS Ingot
which was captively consumed for manufacture of MS Round.
Accordingly, a show cause notice dated 31.10.2011 was issued for the
period from 01.04.2004 to 31.10.2006 was issued to the Appellant
invoking extended period of limitation on the ground that the Appellant
has not included differential cost of Sponge Iron valuing
Rs.2,46,24,602/- in the cost of MS Ingots consumed captively for
manufacture of MS Round cleared on transaction value during the
disputed period, therefore, by applying Rule 8 of Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2000, the
Appellant was required to show cause as to why Central Excise duty of
Rs.40,06,523/- should not be demanded along with interest and equal
penalty from the Appellant. The show cause notice has been
adjudicated by the Ld.Commissioner vide ex parte Order-in-Original
dated 14.02.2018 wherein Central Excise duty of Rs.40,06,523/- was
confirmed along with interest and imposition of equivalent penalty.
Being aggrieved, the Appellant filed Appeal before the
Ld.Commissioner(Appeals) challenging the demand inter alia on the
merits of the case, violation of principles of natural justice and on
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limitation as well. The Ld.Commissioner(Appeals) dismissed the Appeal
filed by the Appellant vide the impugned Order-in-Appeal dated
31.05.2019. Hence the present Appeal before the Tribunal.
3. Shri Jitin Singhal, Ld.Advocate, appearing on behalf of the
Appellant vehemently argued that the demand in the present case is
completely time barred hence the impugned order is liable to be
quashed on this point alone. He also relies upon the judgement of the
Hon'ble High Court of Allahabad in the case of CC, CE & ST Vs.
Monsanto Manufacturer Pvt.Ltd. [2014 (35) STR 177 (All.)] to submit
that if the demand is time barred, then the Tribunal may not decide the
merits of the case. In short he submitted as under:-
3.1 Demand beyond five years i.e. (01.04.2004 to 31.09.2006) is
liable to be set aside as per the provisions of Section 11A of the Central
Excise Act, 1944. It was submitted that it is well settled law that
demand beyond the period of five years cannot be demanded from the
assessee. It was submitted that, as per Section 11A of the Central
Excise Act, 1944, the department can raise the demand against the
assessee only for a period of five years when they were able to satisfy
that the assessee has not paid the duty with an intention to evade
payment of such duty. In the present case, show cause notice has been
issued on 31.10.2011 therefore the department cannot ask for demand
prior to October 2006. Hence, the demand for the period 01.04.2004 to
30.09.2006 is unsustainable in the eyes of lawand liable to be set aside
on this ground alone.
3.2 Demand beyond one year (i.e. October 2006) is liable to be set
aside inasmuch as extended period cannot be invoked in the present
case. It was submitted that extended period of five years cannot be
invoked in the present case inasmuch as there is no evidence adduced
by the department to show that duty has not been paid due to
suppression of facts or willful misstatement with intention to evade
payment of duty. It was submitted that show cause notice is silent on
this aspect. Hence the demand is completely time barred. The present
case has been booked based on the audit objection by scrutinizing the
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financial records of the Appellant. It is well settled law that extended
period cannot be invoked if the demand is based on audit objection. In
support of his submissions, the Appellant relied upon following case
laws:-
a) Uniworth Textiles Ltd. Vs. CCE, Raipur
[2013 (288) ELT 161 (SC)]
b) Aditya College of Competitive Exam. Vs. CCE, Visakhapatnam
[2009 (16) STR 154 (Tri.-Bang.)]
(c) Mega Trends Advertising Ltd. Vs. CCE & ST, Lucknow
[2020 (38) GSTL 54 (Tri-All.)]
(d) Shree Bhagwati Steel Rolling Mills
[2015 (326) ELT 209 (SC)]
3.3 Demand on merits of the case is not sustainable in the eyes of
law. It was submitted that the department erred in relying upon Rule8
of Central Excise Valuation (Determination of Price of Excisable Goods)
Rules, 2000 which is not applicable to the facts of the present case. It
was submitted that in the present case, the Appellant has sold the
excisable goods and Rule 8 is applicable only when the goods are
exclusively captively consumed, which is not the fact of the present
case. It was further submitted that in the present case, Sponge Iron is
a raw material for MS Ingots and MS Ingot is a raw material for MS
Round. During the disputed period, the Appellant had cleared MS Ingots
to their customers and also consumed captively in the manufacture of
MS Round. The price of MS Round during the period of dispute had
been determined purely by commercial considerations, market
conditions and quality of MS Round. It is important to note that in
manufacture product is determined by the demand and supply and
depending upon the demand and supply, the prices are increased or
decreased and the manufacturer in this regard cannot always keep the
process above the cost of production. It is further submitted that there
is no evidence of flow back of money. It is further submitted that there
is no evidence to show that the prices is influenced by some extra
commercial considerations. The case of the Appellant is covered by the
Circular dated 15.01.2014 issued by the Board. It is submitted that the
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Appellant has paid the duty by duly following Section 4 of the Central
Excise Act.
3.4 It was submitted that once the duty demand is not sustainable in
the eyes of law then interest and penalty are also liable to be set aside.
It was further submitted that there is no intention to evade payment of
duty, hence the interest and penalty are liable to be set aside.
3.5 He therefore prays for setting aside the impugned order.
4. Shri S.Mukhopadhyay, Ld.Authorized Representative appearing
on behalf of the department justified the impugned order and prayed to
dismiss the instant Appeal being devoid of any merits.
5. Heard both sides and perused the Appeal records.
6. On perusal of records, we find that the show cause notice
demands major part of Central Excise duty liability for the period
beyond five years from the date of the show cause notice and the
Adjudicating authority has also confirmed the same, which has been
further upheld by the Ld.Commissioner(Appeals). We find that the show
cause notice is issued on 31.10.2011 while the demands have been
confirmed for the period from 01.04.2004 to 31.10.2006. In our view,
the provisions of Section 11A of the Central Excise act, 1944 mandates
recovery of the tax not paid/short paid for a period of up to five years
by invoking extended period. The show cause notice dated 31.10.2011
definitely cannot demand Central Excise duty liability for the period
prior to October 2006. To that extent, demand of Central Excise duty
liability which is confirmed for the period from 01.04.2004 to
31.09.2006 is liable to be set aside and we do so.
7. As far as for the remaining demand for the period i.e. October
2006 falling under five years of limitation and beyond one year of
limitation, we find that apart from the general aversion, there is no
evidence to show that duty has not been paid by way of fraud or
suppression of facts with intention to evade payment of duty. The case
has been booked on the basis of audit objection by scrutinizing the
financial records of the Appellant. It is well settled law and as held by
the Tribunal in the case of Aditya College of Competitive Exam. Vs.
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Excise Appeal No.75071 of 2022
CCE, Visakhapatnam (supra) and Mega Trends Advertising Ltd. Vs. CCE
& ST, Lucknow (supra) that extended period of five years cannot be
invoked in the case of audit objection. The Hon'ble Supreme Court in
the case of Uniworth Textiles Ltd. Vs. CCE, Raipur (supra) has held
thus:-
"12. We have heard both sides, Mr. R.P. Bhatt, learned senior
counsel, appearing on behalf of the appellant, and Mr. Mukul Gupta,
learned senior counsel appearing on behalf of the Revenue. We are not
convinced by the reasoning of the Tribunal. The conclusion that mere
non-payment of duties is equivalent to collusion or willful
misstatement or suppression of facts is, in our opinion, untenable. If
that were to be true, we fail to understand which form of non-payment
would amount to ordinary default? Construing mere non-payment as
any of the three categories contemplated by the proviso would leave
no situation for which, a limitation period of six months may apply. In
our opinion, the main body of the Section, in fact, contemplates
ordinary default in payment of duties and leaves cases of collusion or
willful misstatement or suppression of facts, a smaller, specific and
more serious niche, to the proviso. Therefore, something more must
be shown to construe the acts of the appellant as fit for the
applicability of the proviso.
13. This Court, in Pushpam Pharmaceuticals Company v. Collector of
Central Excise, Bombay - 1995 Supp (3) SCC 462 = 1995 (78) E.L.T.
401 (S.C.), while interpreting the proviso of an analogous provision in
Section 11A of The Central Excise Act, 1944, which is pari materia to
the proviso to Section 28 discussed above, made the following
observations :
"4. Section 11A empowers the Department to re-open
proceedings if the levy has been short-levied or not levied within
six months from the relevant date. But the proviso carves out
an exception and permits the authority to exercise this power
within five years from the relevant date in the circumstances
mentioned in the proviso, one of it being suppression of facts.
The meaning of the word both in law and even otherwise is well
known. In normal understanding it is not different that what is
explained in various dictionaries unless of course the context in
which it has been used indicates otherwise. A perusal of the
proviso indicates that it has been used in company of such
strong words as fraud, collusion or wilful default. In fact it is the
mildest expression used in the proviso. Yet the surroundings in
which it has been used it has to be construed strictly. It does
not mean any omission. The act must be deliberate. In taxation,
it can have only one meaning that the correct information was
not disclosed deliberately to escape from payment of duty.
Where facts are known to both the parties the omission by one
to do what he might have done and not that he must have
done, does not render it suppression."
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[Emphasis supplied]
............
............
17. In fact, the Act contemplates a positive action which betrays a negative intention of willful default. The same was held by Easland Combines, Coimbatore v. The Collector of Central Excise, Coimbatore - (2003) 3 SCC 410 = 2003 (152) E.L.T. 39 (S.C.) wherein this Court held :-
"31. It is settled law that for invoking the extended period of limitation duty should not have been paid, short levied or short paid or erroneously refunded because of either fraud, collusion, wilful misstatement, suppression of facts or contravention of any provision or rules. This Court has held that these ingredients postulate a positive act and, therefore, mere failure to pay duty and/or take out a licence which is not due to any fraud, collusion or willful misstatement or suppression of fact or contravention of any provision is not sufficient to attract the extended period of limitation."
[Emphasis supplied] ................
19. Thus, Section 28 of the Act clearly contemplates two situations, viz. inadvertent non-payment and deliberate default. The former is canvassed in the main body of Section 28 of the Act and is met with a limitation period of six months, whereas the latter, finds abode in the proviso to the section and faces a limitation period of five years. For the operation of the proviso, the intention to deliberately default is a mandatory prerequisite.
20. This Court in Aban Loyd Chiles Offshore Limited and Ors. v. Commissioner of Customs, Maharashtra - (2006) 6 SCC 482 = 2006 (200) E.L.T. 370 (S.C.) observed :-
"The proviso to Section 28(1) can be invoked where the payment of duty has escaped by reason of collusion or any willful misstatement or suppression of facts. So far as "misstatement or suppression of facts" are concerned, they are qualified by the word "willful". The word "willful" preceding the words "misstatement or suppression of facts" clearly spells out that there has to be an intention on the part of the assessee to evade the duty."
21. The Revenue contended that of the three categories, the conduct of the appellant falls under the case of "willful misstatement" and pointed to the use of the word "misutilizing" in the following statement found in the order of the Commissioner of Customs, Raipur in furtherance of its claim :
8Excise Appeal No.75071 of 2022 "The noticee procured 742.51 kl of furnace oil valued at Rs. 54,57,357/- without payment of customs duty by misutilizing the facility available to them under Notification No. 53/97-Cus., dated 3-6-1997"
22. We are not persuaded to agree that this observation by the Commissioner, unfounded on any material fact or evidence, points to a finding of collusion or suppression or misstatement. The use of the word "willful" introduces a mental element and hence, requires looking into the mind of the appellant by gauging its actions, which is an indication of one's state of mind. Black's Law Dictionary, Sixth Edition (pp 1599) defines "willful" in the following manner :-
"Willful. Proceeding from a conscious motion of the will; voluntary; knowingly; deliberate. Intending the result which actually comes to pass...
An act or omission is "willfully" done, if done voluntarily and intentionally and with the specific intent to do something the law forbids, or with the specific intent to fail to do something the law requires to be done..."
8. We find from the records that there is no evidence in respect of mala fide intention on the part of the Appellant hence by respectfully following the aforementioned law as laid down by Hon'ble Supreme Court, we hold that the present show cause notice is barred by limitation.
9 Since we have held that the entire demand is time barred, therefore, we refrain from going into the merits of the case as held by the Hon'ble High Court of Allahabad in the case of CC & CE & ST Vs. Monsanto Manufacturer Pvt.Ltd. (supra), where the Hon'ble High Court has held as follows:-
"22. The Tribunal came to the conclusion that the demand by the Revenue was beyond the period of limitation of one year prescribed under Section 73(1) of the Finance Act, 1994 and that the period of five years could not have been invoked. That part of the judgment of the Tribunal has been confirmed in the companion appeal. Once that be the position and the Tribunal having came to the conclusion that the extended period of limitation could not have been validly applied, the Tribunal, in our view, acted outside its jurisdiction in entering upon the merits of the dispute on whether the demand for duty should be confirmed. Once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues raised by the Revenue."9
Excise Appeal No.75071 of 2022
10. In view of the above discussion, we find that the impugned order is not sustainable and the same is set aside. The Appeal filed by the Appellant is allowed with consequential relief, if any.
(Order pronounced in the open court on 17 June 2022.) Sd/ (P.K.CHOUDHARY) MEMBER (JUDICIAL) Sd/ (P.ANJANI KUMAR) MEMBER (TECHNICAL) sm