Custom, Excise & Service Tax Tribunal
M/S Behr India Ltd vs Commissioner Of Central Excise, ... on 10 May, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/1407/05 (Arising out of Order-in-Original No. 6/CEX/P-III/2005 dated 25.1.2005 passed by the Commissioner of Central Excise, Pune-II). For approval and signature: Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri Raju, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s Behr India Ltd. Appellant Vs. Commissioner of Central Excise, Pune-II Respondent Appearance: Shri Gajendra Jain, Advocate with Shri Rajesh Ostwal, Advocate for Appellant Shri V.K. Agarwal, Addl. Commissioner (AR) for Respondent CORAM: SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL) SHRI RAJU, MEMBER (TECHNICAL) Date of Hearing: 10.05.2016 Date of Decision: 10.05.2016 ORDER NO. Per: M.V. Ravindran
This appeal is directed against Order-in-Original No. 6/CEX/P-III/2005 dated 25.1.2005 passed by the Commissioner of Central Excise, Pune-II.
2. The relevant facts that arise for consideration are that the appellant herein is Central Excise registered assessee manufacturing Air Conditioner kits for passenger vehicles falling under Chapter sub-heading 8415.00 of Central Excise Tariff Act, 1985. In the month of April, 2002, the appellant had carved out a portion in the factory premises and converted the same into Behr India Pvt. Ltd. 100% EOU and registered the premises with the authorities as 100% EOU and deleted the said portion from the ground plane of Behr India Ltd. The assessee when cr carved out a 100% EOU, they also transferred MODVAT/CENVAT Credit availed capital goods and inputs. It is the case of the Revenue in the show-cause notice that the appellant should have reversed the MODVAT/CENVAT Credit attributable to the capital goods and inputs transferred to their 100% EOU as the said 100% EOU is unit with separate registration and identity, hence provisions of Rule 3(4) of the Cenvat Credit Rules, 2002 on such clearances needs to be discharged. The appellant contested the show-cause notice on various grounds, one of them being that there is no removal of such capital goods and inputs , hence provisions of Rule 3(4) is not attracted and that the issue is covered by the judgment of the Tribunal in the case of Jamna Auto Industries Ltd. 2001 (130) ELT 181. The adjudicating authority after following the due process of law, came to a conclusion that there is no force in the statements made by the appellant. Coming to such a conclusion, he confirmed the demand raised with interest and also imposed penalties.
3. Learned Counsel, after taking us through the entire case records, submits that the 100% EOU is also having the same name as the appellant; there is no transfer or sale of the goods to any other unit and the entire capital goods and inputs were within the factory premises. He would submit that the identical issue came up before the Bench in the case of Sandvik Asia Ltd. 2016-TIOL-1053-CESTAT-MUM and in the case of Sandoz Pvt. Ltd. 2011-TIOL-673-CESTAT-MUM, wherein the Tribunal held in favour of the assessee. It is his submission that the judgment of Sandoz Pvt. Ltd. was upheld by the Hon'ble High Court of Bombay as reported at 2013 (291) ELT 325 (Bom). He would submit that for the period in dispute in this case, the provisions of Cenvat Credit Rules did not have anything to indicate that the credit should not be availed by an EOU nor there was any rule that credit should be availed. He would submit that in the case of Sandoz Pvt. Ltd. and in the case of Sandvik Asia Ltd., this issue was gone into by Bench and held in favour of the assessee. It is his submission that reading of provisions of Rule 17 of Central Excise Rules, 2002 and Cenvat Credit Rules, 2002, the issue is very clear that appellants need not reverse any MODVAT/CENVAT Credit on inputs and capital goods. It is his further submission that assuming that the appellant is not eligible or needs to reverse the CENVAT Credit, the said CENVAT Credit can be availed as credit by the 100% EOU. Hence, this is a pure case of revenue neutral situation.
4. Learned AR, on the other hand, would read the provisions of Rule 3(4) of the Cenvat Credit Rules, 2002 as applicable during the relevant period and submit that the said rule compels for discharge of CENVAT Credit if they are removed from the factory. It is his submission that DTA unit and the EOU are separate and the transferring to inputs and capital goods to 100% EOU is nothing but removal of the duty paid capital goods and the inputs. It is his submission that the appellant is required to discharge the duty liability on such removal. He relies upon the statement of the Hon'ble High Court of Karnataka in the case of Associated Cement Co. Ltd. 2009 (236) ELT 240 (Kar) for the proposition that physical removal of the goods to another company is nothing short of physical removal in respect of inputs for which MODVAT credit was availed. Hence, the provision of Cenvat Credit Rules applies. He would also relied upon other judgment of Hon'ble High Court of Delhi in the case of Pure Drinks Ltd. 2012 (281) ELT 51 (Del) for the same proposition. It is his submission that identical view has been expressed by the Tribunal in the case of J.K. Paper Mills 2014 (309) ELT 359 (Tri-Kol).
5. We have considered the submissions made at length by both sides and perused the records.
5.1 The issue involved in this case is regarding whether the appellant is required to reverse the MODVAT/CENVAT Credit availed on capital goods and inputs which were procured by them when transferred to 100% EOU within the factory premises or otherwise. Undisputed facts are that the appellant is eligible to avail CENVAT Credit on the capital goods and the inputs; the 100% EOU established in the place which was registered with the authorities as a factory of the appellant; subsequently after establishing of 100% EOU appellant had deleted that portion of the land from the approved premises as a DTA unit and they had transferred the capital goods and inputs to 100% EOU.
5.2 On this factual matrix, we notice that the inputs and capital goods were within the factory premises of the appellant even after carving out of the EOU by them. Provisions of rule 3(4) of the Cenvat Credit Rules are attracted only when the MODVAT/CENVAT Credit availed inputs or capital goods are removed from the factory premises is undisputed. The only question remain is whether the transferring of capital goods to their own 100% EOU requires such discharge of duty liability. In our view both the lower authorities have misdirected the finding and came to conclusion that the appellant is required to reverse the CENVAT Credit.
5.3 Firstly, we find that the adjudicating authority has held that through two different legal entities and two different registrations have been given, one as a DTA and other as a 100% EOU, hence it should be considered as removal of capital goods and inputs. We do not agree to this proposition as it is undisputed that the EOU is also named as Behr India Ltd. (100% EOU) and Balance-sheet of the appellant is one and the same though the legal status of the EOU is bit different than the DTA, it cannot be said that both are separate units. In our view this observation of the adjudicating authority cannot withstand scrutiny of the law as has been held by the Bench in the case of Sandvik Asia Ltd. (supra). We reproduce the relevant paragraphs: -
2. Proceedings were initiated against M/s Sandvik Asia Ltd on 30th September 2005 in connection with CENVAT Credit availed by them prior to 1st September 2004 on raw materials received at their factory in Dapedi for manufacture of tools'. A part of the said plant was, in accordance with procedure prescribed in the Foreign Trade Policy, converted as a 100% Export Oriented Unit and the available stock of raw materials and work-in-progress was placed at its disposal for use in production. Prior to conversion on 1 st September 2004, the assessee had utilised the entire credit available in the CENVAT Credit account for discharge of excise duty liability.
3. The case of Revenue was that, though CENVAT Credit was taken on the entire raw material procured by it, usage of a part of it by the 100% Export Oriented Unit after 1st September 2004 was tantamount to removal and non-utilisation for manufacture of excisable goods; such removal should have been preceded by reversal of the credit taken on such goods. Hence, the assessee was held liable to duty equivalent to the CENVAT Credit that had been wrongly availed in contravention of Rule 2(g) of CENVAT Credit rules, 2002. It is that finding of the original authority that was set aside in the impugned order which is the subject of this appeal.
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6. We observe that this dispute has arisen from the morphing of the manufacturing operation as an Export Oriented Unit. An infrequent occurrence, it is even more rare for such an occurrence to be accompanied by transfer of raw materials in this manner. That, probably, is one of the reasons for the absence of any reference to such a contingency in the CENVAT Credit Rules, 2002. It is more likely that it was not perceived as having an impact at all on revenue. The transformation does not alter the works undertaken in the unit. Nor is the statutory jurisdiction altered. Eligibility for CENVAT Credit remains unchanged except that, as an Export Oriented Unit, duty-free procurement is an alternative.
7. Excise duty is fastened on goods and not on the status of the manufacturer; payment of duty and availment of credit of duty so paid is in relation to goods. As long as the goods on which CENVAT Credit has been taken are used in production, revenue is not jeopardized. Instead of procuring goods without payment of duty, the respondent has used already duty neutralized' goods for manufacture of export goods. Had the CENVAT Credit been reversed by the erstwhile unit before he conversion, the newly minted Export Oriented Unit would be entitled to avail CENVAT Credit of like amount. These circumstances of revenue neutrality are a clear pointer to the rationale for redundancy of a specific provision for such an event in the CENVAT Credit Rules.
8. We also find that not only is there no revenue impact but that there is no transfer at all. The role of M/s Sandvik Asia Ltd in the manufacturing premises remains unchanged. There is no transfer to speak of, much less removal of raw materials. Hence, the provision of CENVAT Credit Rules cited by the original authority to confirm the demand is clearly inapplicable. While coming to such a conclusion as reproduced hereinabove (one of us Shri M.V. Ravindran was a Member of the Bench), the Bench took a view that the ratio laid down by the Tribunal in the case of Sandoz Pvt. Ltd. (supra) are covering the issue of the respondent therein, which in this case also apply. In our view, the appellant has made out a case in his favour as has been held by the Tribunal in the case of Sandoz India Ltd. and Sandvik Asia Ltd. (supra). While coming to such a conclusion, the judgment of the Hon'ble Bombay High Court in the case of Sandoz Pvt. Ltd. was considered.
5.4 As regards the case laws relied upon by the learned AR that even if there is no physical removal, it should be considered as removal and transaction of absolute sale as held in ACC Ltd. (supra). In our view the Hon'ble High Court came to such a conclusion by relying upon the agreement between the parties involved, in which case the respondent therein had sold the power unit to another company, M/s Tata Electric Company. Hence, Hon'ble High Court took a view that this amounts to nothing short physical removal.
5.5 As regards the case law relied upon by the learned AR in the case of Pure Drinks Ltd. (supra), we find that the issue involved in that case is totally different, which is in respect of glass bottles which are removed and whether would fall under category of waste arises from processing of inputs. The ratio of the said decision as is sought to be applied by the learned AR seems to be incorrect as para 8.2 of the said judgment would apply to appellants case, who is here in appeal.
5.6 As regards the judgment of the Tribunal in the case of J.K. Paper Mills on which reliance was placed, the said capital items were sold to another company and not to their own company.
6. In view of the foregoing, in the factual matrix and the authoritative judicial pronouncement, we have to hold that the appellant has made out a case in his favour. Accordingly, the impugned order is set aside and the appeal is allowed with consequential relief, if any, in accordance with law.
(Operative portion of the order pronounced in Court)
(Raju) (M.V. Ravindran)
Member (Technical) Member (Judicial)
Sinha
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Appeal No. E/1407/05