Customs, Excise and Gold Tribunal - Tamil Nadu
Cdc Carbolic (I) Pvt. Ltd. And C. Daniel vs Cce on 30 April, 2004
Equivalent citations: 2004(170)ELT212(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. All these three i.e. two appeals by the assessee and one by the Revenue, arise out of a common order in Original No. 5/98 dated 11.8.98 passed by the Commissioner of Central Excise. The order portion of the adjudication order demanding duty and imposing penalty etc. in terms of the impugned order are extracted hereunder :
a) I confirm the duty of Rs. 29,75,963 Rupees Twenty nine lakhs seventy five thousand nine hundred and sixty three only) demanded under Rule 9(2) of the Central Excise Rules, 1944 read with the proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944. (I allow adjustment of duty of Rs. 4,00,000 (Rupees Four lakhs) already paid by M/s. CDC Carboline (I) P. Limited, in the duty confirmed above). The balance shall be paid forthwith.
b) I also demand interest on the duty confirmed as above under Section 11AB of the Central Excise Act, 1944.
c) I impose on M/s. CDC Carboline (I) P. Limited a penalty of Rs. 7,35,384 (Rupees Seven Lakhs thirty five thousand three hundred and eighty four only) Under Section 11AC of Central Excise Act, 1944.
d) I also impose a penalty on M/s. CDC Carboline (I) P. Limited of Rs. 10,00,000 (Rupees ten lakhs only) under Rule 173Q(I) of the Central Excise Rules, 1944.
e) I impose a penalty of Rs. 5,00,000 (Rupees five laksh only) on Shri Daniel Chittayagam, MD, M/s. CDC Carboline (I) (P) Limited under Rule 209A of the Central Excise Rules, 1944.
f) I order expungement of MODVAT Credit of Rs. 1,29,917 (Rupees one lakh twenty nine thousand nine hundred and seventeen only) wrongly availed on packing material used in the manufacture of undeclared items viz. thinners.
g) I demand under Rule 571(5) interest on the ineligible MODVAT Credit taken by M/s. CDC Carboline (I) P. Limited.
h) I impose a penalty of Rs. 1,29,917 (Rupees one lakh twenty nine thousand nine hundred and seventeen only) on M/s. CDC Carboline (I) P. Limited under Rule 57I(4) of the Central Excise Rules, 1944.
i) I order confiscation of 18 drums of thinners valued at Rs. 20,400 under Rule 173 Q(1) of the Central Excise Rules, 1944. However, I allow the noticee to redeem the goods by paying a fine in lieu of confiscation of Rs. 10,200 (Rupees ten thousand two hundred only).
j) I order confiscation of the plant and machinery used in the manufacture and storage of excisable goods of M/s. CDC Carboline (I) (P) Ltd. situated at the factory at No. 357, SIDCO Industrial Estate, Ambattur, Chennai - 98 and factory at No. 14A, Athipet Road, Ambattur, Chennai under of Rule 173 Q(2) of the Central Excise Rules, 1944. However, I extend an option of paying a fine of Rs. 50,000 (Rupees fifty thousand only) in lieu of confiscation.
2. Brief facts of the case are that the assessee are engaged in the manufacture of pains and coating for anti-corrosion and fire proof systems. Based on intelligence gathered, the Officers of the Headquarters Preventive Unit on a visit to the factory of the assessee on 18.9.97 seized thinner labels with CDC monogram. As a follow up action the officers on the same day conducted search at the rented premises of the appellants and 18 drums of thinner valued at Rs. 20,400/- were seized. Statement was recorded from Shri K Rajan, AGM on the same day in which he admitted the manufacture and clearances of thinner without payment of duty by re-packing etc for the years, 1994-95, 1995-96, 1996-97 and 1997-98 (up to 18.9.97)). The officers also visited the suppliers of the appellants viz. M/s. Y Chem Agencies and conducted search at that premises on 19.9.97 and statement was also recorded from the proprietor of Y Chem Shri Hariprasad, in which he has admitted that he was a Central Excise Registered dealer and was authorised to issue Modvatable documents under Rule 57GG. He has also stated that thinner was being received from M/s. Crystal Chemicals, Mumbai in plastic drums of 200 litres capacity without any label. which was being diverted to M/s. CDC. In his further statement dated 25.9.97 Shri Hariprasad referred to an Agreement with M/s. CDC for supply of thinner from April 1996 to 1997. He has also stated that documents were only issued on the direction of Shri Daniel Chittayagam, MD of M/s. CDC and that the transaction was only for mutual benefit. Since the agreement was only to issue documents without supply of materials for a commission of 2% of the sale of thinners, he used to return money to Daniel Chittayagam on encashment of the cheque after deducting the commission. Enquiry made by the Mumbai Central Excise Vide their letter No V/P1/12/13 Gr-C/97/201 dated 9.10.97 reported that there was no company by name M/s. Crystal Chemical at 203/B Prakash Nagar, Off Mougal Lane, Mahim Mumbai-16 and that the premises were the residential premises of one Ms. Deepak Govankar, A Senior Clerk in Bank of Baroda for the past 20 years. Statement was also recorded from Daniel Chittayagam on 1.10.97 in which he admitted manufacture of thinner was not made in the declaration made to the Department. He has also stated that during the year 1994-95 and 1995-96 thinner was manufactured in the factory and was cleared from there. During the year 1996-97 and 1997-98 (up to 18.9.97) the thinner supplied by M/s. Y Chem was sold by CDC after Re-packing and affixing their own label. He also admitted bout the non declaration to the department about the above activities. He also admitted that containers of all seizes which were declared in their Modvat declaration were used for both the paints and thinners though separate accounts were maintained for the containers used for the packing of thinners. It was in these circumstances that show cause notice issued to the appellants which culminated in the order of adjudication whereby he has demanded duty and imposed penalty as noted above.
3. The Department has come in Appeal on the ground that the Commissioner in the order in original has not confirmed the entire duty proposed in the show cause notice. Another point on which the department ha come in appeal is that the finding of the Adjudicating authority that penalty under Section 11AC is not imposable prior to its introduction, is not correct.
4. Shri V. Balasubramanian, learned Counsel appeared for the appellants and invited out attention to the findings recorded by the lower authority vide paras 16 to 26 of the impugned order. He has also submitted a gist of the written submissions he has made in the court on the date of hearing i.e. 20.1.2004. In the gist, it is inter alia stated that the whole demand is barred by limitation inasmuch as both the department and the assessee had been under the bona fide belief that the trading activity is not excisable. In supports of this plea, he has invited out attention to para of 4 their letter dated 23.3.1998 in reply to the show cause notice, wherein they have extacted the latter of the Supdt of Central Excise, dated 18.3.96. In the said letter of the Supdt. it is clearly stated that the appellants have cleared the trading goods along with the manufactured goods and hence duty is required to be paid. In other words, the department was aware of the fact that the appellants were engaged in trading as well as the other activities such as trading was also carried on by the appellant. Therefore the allegation that the department has been kept in dark about their activities is totally baseless, argued the learned Counsel. Further, all the removals were covered by Gate Passes and RT 12 returns have been periodically filed. Thus longer period of limitation, therefore, cannot be invoked. In support of his plea he has pressed into service the order of the Tribunal in the case of SD Kemex Industries Vs. CCE, Calcutta reported in 1995 (75) ELT 377. It was argued that activity of re-packing the thinner was not an activity of manufacture till 1.3.97 ie the date on which Chapter Note 5 to Chapter 38 was inserted vide Finance Act, 1997. Therefore the question of invoking the longer period upto 31.3.97 does not arise and thus the order is not sustainable.
4.1. So far as the period from 1.4.97 is concerned, the learned Counsel submitted that even though the activity was shifted outside the factory, there was no suppression inasmuch as they were under the bona fide belief that they were not liable to pay duty. The demand for the said period works out to Rs. 3,47,875/- and the appellant have already paid the same which fact is not in dispute. It was further submitted that the show cause notice is for the period 1993-97 and the demand was based on the statement of the one Hariprasad of M/s. Y Chem who has stated to have supplied only Modvatable invoices under Rule 57GG and not the goods, the learned Counsel submitted that the appellants have submitted complete details of thinner procurements for trading along with affidavits from the suppliers of thinner, other than M/s. Y Chem, and these affidavits have been brushed aside by the adjudicating authority.
4.2. As regards diversion of containers for packing thinners is concerned and on which Modvat credit has been availed and which were traded by them, the learned Counsel has submitted that the duty liability on this account worked out to Rs. 1,29,917/-. As against this, a sum of Rs. 1,50,000/- has already been pre-deposited.
4.3. As regards, mandatory penalty under Section 11AC, it was submitted that since the period of dispute is prior to introduction of Section 11AC, mandatory penalty under this Section cannot be imposed. So far as the penalty under Rule 173Q is concerned, there was no proposal in the show cause notice and hence imposition of penalty under Rule 173Q vide order impugned is not sustainable.
5. So far as the appeal of C. Daniel Chittayagam who has been visited with a penalty of Rs. 50,00,000/- under Rule 209A is concerned, the learned Counsel has submitted that the Revenue has not brought on record any thing as to how, this individual as Chairman and Managing Director of the appellants Company was responsible for the alleged evasion of duty and hence imposition of penalty on him is not sustainable. Further, no show cause notice was issued to M/s. Y Chem Agencies who was found to have indulged in issue of Modvatable documents without actual supply of goods. There was thus discrimination on the part of the Revenue in imposing penalty on the CMD of the appellants. He, therefore, prayed for setting aside the penalty on the CMD.
6. As regard the Department's appeal, the learned Counsel submitted that it is devoid of merits firstly in view of the fact that so far as the aspect of re-determination of duty is concerned, the issue is settled by the judgments of the Hon'ble Supreme Court in the case of CCE Vs. Maruti Udyog Ltd. reported in 2002 (141) ELT 3 (SC) and in the case of CCE, Vs. Srichakra Tyres Ltd reported in 2002 (142) ELT A-279 (SC). As regards, penalty under Section 11AC, it is settled law that the provisions of Section 11AC cannot be invoked prior to its introduction.
7. Shri C Mani, appearing on behalf of the Revenue referred to the grounds wherein it is inter alia stated as under :
(a) Even though the Commissioner has found that the assessee were clearing thinner without declaring the same to the department and hence longer period of limitation is invocable for demand of duty and that confiscation of plan and machinery was also warranted, yet the Commissioner while confirming the duty demand has arrived at the assessable value considering the invoice price as cum duty price. Acceptance of the assessee's prayer for taking the value of clearances as cum-duty price is not correct. The Commissioner should not have allowed abatement of excise duty from the total aggregate value of clearances for each year from 1993-94 to 1997-98.
(b) In terms of Section 4(4)(d) (ii), value does not include the amount of duty of excise, sales tax and other taxes, if any, payable on the goods. Therefore, such taxes claimed as abatements are indeed payable and abatements will not apply to goods cleared without payment of any taxes. Further, In terms of Section 4(1)(a) of the CE Act, the normal price of the goods is the price at which such goods are ordinarily sold by the assessee to buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not related persons the price is the sole consideration for sale. Therefore, the normal price of the goods must be deemed to be the value of the goods. Section 4(4)(d)(ii) of the Act provides that the value will not included the element of Excise duty, if any payable on such goods. the phrase "if any" signifies that if no duty is payable, nothing will be deducted from the wholesale price. It is only when the excise duty is actually payable that the duty elements can be excluded form the whole sale price. In the present case, where the price is not inclusive of any duty payable on goods, then the question of deduction of any duty for determination of value will not arise. Unless the assessee shows that the price of the goods includes an amount of excise duty payable by him, no question of exclusion of duty element form the price for determination of assessable value under Section 4 will arise. When the assessee has not paid any Central Excise duty and there is no specific indication that the sale price deposed by him is inclusive of any excise duty, their claim for deduction of duty element from sale value in terms of Section 4 cannot be accepted.
(c) Section 11AC is a new Section introduced in the Act with effect from 28.9.96 and not a repeat of the Act. There was nothing in this Section to prohibit is applicability to cases which were already pending adjudication and more so to cases which were registered and where the Show Cause notices have been issued on or after 28.09.1996.
7.1 The learned JDR therefore, prayer for allowing their appeal and rejections of the appeals filed by the assessee-appellants.
8. We have considered the rival submissions, gone through the case records and perused the various case laws cited. As could be seen from the narration of facts outlined above, the appellants are engaged in the manufactures of specialty paints etc. an clearing the product after complying with all the statutory requirements and were paying duty. Along with the activity of manufacture of paints they are also undertaking processing of re-packing and re-labelling to thinners and were clearing the same from their factory.
The dispute in the present appeals relates to the item "thinner". The allegation of the department is that the appellants have clandestinely manufactured and cleared thinner and held back information in this regard from the department and hence longer period of limitation is invocable for demand of duty. They were showing clearance of thinners in their Central Excise records, GP1, invoice and RT 12 returns. The contention of the appellants was that re-packing and re-labelling thinners for the period from 1.3.94 to 31.3.96 did not amount to manufacture as for the said period as the matter is covered by the judgment of the Tribunal in the case of Hindustan Petroleum Corporation Vs. CCE reported in 1985 (19) ELT 425, wherein it was held that re-packing g of duty paid goods does not amount to manufacture. We observe that the tariff entry was amended in 2/97 under chapter 38, the effect of which is that the process of re-packing and re-labelling od thinner amounted to manufactured. For the period from 1.4.97, the contention of the appellants was that their activity was shifted outside their premises there was no suppression involved, since they were under the bona fide belief that their activity of re-packing continued to be an activity not amounting to manufacture. In the above back ground of the case and considering the arguments advanced by both the sides the following issues arises for determination.
(a) Whether the activity of re-packing of thinner amounted to manufacture and whether Longer period of limitation in terms of the proviso to Section 11A(1) can be invoked in this case and whether duty is demandable for the period up to 1.3.1997.
We find from the records that the Jurisdictional Supdt. of Central Excise in his letter dated 18.3.96 addressed to the appellants has clearly stated that, in addition to the goods manufactured in the factory , the appellants were also engaged in trading of items such as metal lathe, mastic thinner, caulk etc. In the said letter, the appellants were directed to stop the activity of bringing such trading goods into the factory premises for supply along with manufactured goods and they were also advised to suspend the trading activity till such time permission was granted to them. This shows that the activity carried on by the appellants were well within the knowledge of the Department. Further, the contention of the appellants that all the removals were reflected in the Excise gate pass and RT 12 returns were regularly filed and which have been assessed, is not denied by the Department. Further, no evidence has been brought in by the Department that the appellants have the necessary infrastructure for the manufacture of thinner. In the face of this letter of the Supdt supported by documentary evidence for the removal of the goods, the charge of the department that the appellants have manufactured thinners is not backed by evidence and has to be rejected and we do so.
So far as duty on the thinner is concerned, the activity of re-packing of blended thinner did not amount to manufacture till 28.2.1997 and it was brought as an activity of manufacture with effect from 1.3.97 vide Chapter Note 5 to Chapter 38 inserted by Finance Act, 1997. Therefore, the question of demand of duty for the period prior to 28.2.1997 does not arise. The Tribunal in the case of Hindustan Petroleum Ltd. Vs. CCE reported in 1985 (19) ELT 425 has held that re-packing of duty paid goods does not amount to manufacture. Similar view has been taken in the case of Indrol Lubricants & Specialities Ltd. Vs. CCE reported in 1999 (1211) ELT 544, Aero Pack Proucts. Vs. CCE reported in 2002 (142) ELT 577. As for the period from 1.3.1997 is concerned, the appellants have shifted the activity of re-packing out side their factory premises and this claim is not disputed by the Revenue. The basis of the allegation of the department is that one Shri Hariprasad of M/s. Y Chem Agencies has stated in his statement dated 25.9.97 that he never supplied thinners but had only raised Modvatable invoices in the name of appellants for a commission. The appellants have produced purchase orders invoice and delivery chellans of the said M/s. Y Chem Agencies apart from payment of bill to the said supplier for the supply effected. The point is, in the face of this material evidence like, purchase orders, payment of bill by means of cheque, can the statement of the proprietor of M/s. Crystal Chemicals be taken to be true. As noted above, the allegation of the department is based on the statement of the said Hariprasad of M/s. chem Agencies that he has not supplies goods, but only the Modvatable invoice. In this connection, it is necessary to look into the rule regarding maintenance of stock account by Registered dealers as per prescribed pro forma viz. RG 23D. Rule 57GG requires that the stock register is kept ready by the Registered dealer for inspection by the proper officer on demand. It is surprising that there is no scrap of paper by way of evidence to show that the register required to be maintained by the dealer was inspected by the proper officer more particularly in the face of the statement of the dealer that he has not supplied the goods, but only the invoice for commission. The silence on the part of the department in not drawing proceedings against the dealer as also the officer responsible for inspection of the stock register, is not understandable. In the absence of that, the statement of the dealer cannot be given any credence. Therefore, we hold that while no duty can be demanded for the period up to 28.3.1997, duty is payable for the period from 1.4.97 which liability has been accepted by the appellants and they have also paid duty of Rs. 4,00,000/- as against the demand for the said period amounting to Rs 3,47,875/-.
(b) Whether the appellants have wrongly taken the benefit of Modvat Credit on packing materials.
The appellants have admitted the that they have diverted Modvat availed containers for packing thinners, which were traded by them. Duty on this account demanded is 1,29,917/- which liability has been accepted by them and they have pre-deposited 1,50,000/- in terms of the Stay order. This demand is confirmed.
(c) Confiscation of 18 drums of Thinners.
In view of our above discussion, we do not find any material to sustain the order of confiscation of 18 drums of thinners and therefore, the redemption fine of Rs. 20,400/- is set aside the we order accordingly.
(d) Penalty under Section 11Ac and interest under Section 11AB.
We have already held above that the longer period of limitation in terms of proviso to Section 11A(1) cannot be invoked in this case as the Revenue has failed to bring home the charge of suppression of fact against the appellants. Therefore, mandatory penalty of Rs. 7,35,384/- imposed on the appellants under Section 11AC is not sustainable and is set aside. Even other wise the provision for mandatory penalty came into force with Hon'ble Apex Court that this provisions cannot be applied retrospectively. Demand of the interest under Section 11AB is also thus not sustainable and is set aside.
(e) Penalty under Rule 173Q.
We find force in the submissions of the learned Counsel for the appellants that there was no proposal in the show cause notice of imposition of penalty under rule 173Q. Therefore, penalty imposed under Rule 173Q is set aside.
(f) Penalty under Rule 209A on Managing Director.
We have held above that the Department has failed to bring home the charge of suppression of fact against the appellants. We have also held that mere statement of the supplier of the goods, viz. Hariprasad of M/s. Y Chem that he has not supplied the goods, but only the modvatable documents on a commission, cannot demolish the documentary evidence such as purchase order, invoice, delivery challan and payment of bill by means of cheque produced by the appellants. Further in the impugned order, we note that there is no detailed discussion about role played by the Managing Director in regard to his involvement in the violations of rule alleged against him. It is also not understandable as to why the department chose to remain silent when it was found that the dealer has not issued goods, but only the modvatable documents.
The action of the Department in not drawing proceedings against that dealer was therefore clearly discriminatory. In views of above, we do not find any material to sustain the penalty on the Managing Director and accordingly we set aside the penalty of Rs. 5,00,000/- imposed on the Managing Director under Rule 209A.
(g) Penalty under Rule 571 and interest under Rule 571(5).
The appellants have admitted that they have wrongly taken the Modvat Credit and admitted the liability on this account and have also paid the amount in terms of the direction contained in the Stay Order. We are, therefore of the considered opinion that penalty of Rs. 1,29,917/- has been rightly imposed on them and we sustain the same. Interest has also been rightly demanded from the appellants and we confirm the order of demand of interest.
(h) Confiscation of Plant and machinery.
In view of our above finding that the department could not bring the charge of any mala fide intention on the part of the appellants, we do not find any material to sustain the order confiscation of the plant and machinery and we set side the same.
9. As noted above, the Department ha come in appeal on two grounds viz (a) the value of clearance should not have been taken as cum-duty price and (b) Mandatory Penalty under Section 11AC should have been imposed even prior to the introduction of Section 11AC. As regards the first ground, we find that this issue is no longer res integra as the issue as has already been decided in favour of the assessee by the Hon'ble Apex Court in the case of CCE, Delhi vs. Maruti Udyog Ltd. reported in 2002 (141) ELT 3 (SC) wherein it was held that cum duty price when charged, then in arriving at the excisable value of the goods the element of duty which is payable has to be excluded. It was also held therein that wholesale price which is charged is deemed to be the value for the purpose of levy of excise duty under Section 4 of the Act, but the element of excise duty, sales tax or other taxes which is included in the whole sale price is to be excluded in arriving at the assessable value. It was also held by the Apex Court that sale price realised by the assesse is to be regarded as the entire price inclusive of duty when he has by necessary in implication, taken on the liability to pay all taxes on the goods sold and has not sought to realise any sum in addition to the price obtained by it from the purchaser and that purchaser is under no obligation to pay any amount in excess of what had already been paid as the price of the goods. As regards the second ground, we have already held above that provisions of Section 11AC cannot be invoked prior to the date of its insertion in the statute book.
10. In the result, while revenue appeal is dismissed as devoid of merits, the appeal filed by the assessee-appellants are partly allowed to the extent indicated above and the appeal of C Daniel Chittayagam is allowed.