Custom, Excise & Service Tax Tribunal
Psl Limited vs Pondicherry on 6 September, 2018
1
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.: E/00327/2012
(Arising out of Order-in-Original No. 5/2012 (C) dated 20.01.2012
passed by the Commissioner of Central Excise, Puducherry
Commissionerate, Goubert Avenue, Puducherry )
M/s. PSL Ltd. : Appellant
Vs.
Commissioner of Central Excise, Puducherry : Respondent
Appearance:-
Shri. Santhana Gopalan D., Advocate for the Appellant Shri. A. Cletus, ADC (AR) for the Respondent CORAM:
Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial) Hon'ble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing/Decision:06.09.2018 Final Order No. 42390 / 2018 Per Bench :
The facts of the case are that M/s. PSL Ltd., the appellants herein, are engaged in manufacture of spirally welded steel pipes for Water Supply Projects and Gas Projects. They availed CENVAT Credit on the inputs/input services and capital goods. They also availed exemption under Notification No. 06/2006-CE dated 01.03.2006 for supply of such pipes to most of the water projects.
Pursuant to visit of Department officers to the factory of the 2 appellants in July 2010 and subsequent verification that followed, it appeared to the Department that appellants had short paid/not paid/ not reversed the CENVAT Credit/Central Excise Duty in respect of the following :
Issue/Sl. Issue in dispute Amount (in
No. Rs.)
I Non-reversal of appropriate amount on the 19,88,929/-
Cenvated coating material used in the exempted products for the year 2009-10 II Non-reversal of appropriate amount on the 7,66,415/-
Cenvated raw materials, filler wire and other consumables for the year 2009-10 III Undervaluation of the pipes manufactured on job 7,28,676/-
work basis by not properly adopting the value of the material both for duty payment and for 10% reversal for the year 2006-07 IV Differential duty in accordance with valuation in 40,70,960/-
terms of Rule 10(A)(iii) of the Valuation Rules for the period from 2007-08 to 2009-10 in respect of goods manufactured on job work basis and cleared to the project customers V Differential duty in accordance with valuation in 1,38,985/-
terms of Rule 10(A)(i) of the Valuation Rules for the period from 2007-08 to 2009-10 in respect of goods manufactured on job work basis and cleared to M/s. Madras Steel Tubes VI Ineligible credit availed on inputs exclusively used 41,77,866/-
in the exempted final products for the year 2010-11 TOTAL 11871831/-
2. Accordingly, a Show Cause Notice was issued to the appellants, inter alia proposing recovery/demand of the aforesaid disputed CENVAT Credit/Central Excise Duty with interest thereon as also imposition of penalty under various provisions of law. In adjudication, the Commissioner vide the impugned Order dated 3 20.01.2012 confirmed the demand of the amounts proposed in the Show Cause Notice with interest and also imposed penalty equal to the total amount demanded under Rule 15(2) of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act, 1944. Hence, this appeal.
3.1 When the matter came up for hearing, the appellants represented by Shri. Santhana Gopalan D. submitted that they are not contesting the following liabilities on merits.
Sl. Issue in dispute Amount (in
No. Rs.)
I Non-reversal of CENVAT Credit attributable to inputs, 19,88,929/-
viz. Cement, wire mesh, coal tar, enamel, paint thinner, epoxy paints, inner wraps, and outer wraps, etc., used in manufacture of exempted pipes [2009-10] II Non-reversal of CENVAT Credit attributable to inputs, 7,66,415/-
filler wire, welding electrode, etc., used in manufacture of exempted pipes [2009-10] III Non-reversal of CENVAT Credit on account of alleged 7,28,676/-
under-valuation of pipes manufactured on job work basis [2006-07] V Alleged under-valuation of pipes manufactured on job 1,38,985/-
work basis - for clearances to M/s. Madras Steel Tubes [2007-08 to 2009-10] 3.2 In respect of the remaining demands (Sl. Nos. IV and VI), Ld. Advocate made the following submissions/ contentions :
(i) Issue (IV) : Alleged under-valuation of Pipes manufactured on job work basis for clearance to project customer - Amount 4 demanded Rs. 40,70,960/- : The Ld. Advocate places reliance on the decision of CESTAT Chennai in M/s. Bhavani Enterprises and Ors. Vs. C.C.E., Pondicherry and vice versa - 2018(2) T.M.I. 139 CESTAT Chennai, wherein it was held that Rule 8 of the Central Excise Valuation Rules will not be applicable in respect of the job work activities done by the appellants therein. Ld. Advocate submits that the same ratio is applicable in the present appeal also.
(ii) Issue(VI): Availment of ineligible credit on HR Coils used exclusively in the manufacture of pipes - Amount demanded Rs. 41,77,866/- : Ld. Advocate takes us to Rule 6 of the CENVAT Credit Rules, as applicable during the pe10riod of dispute. He points out that as per Sub-rule (3) of Rule 6 notwithstanding anything contained in Sub-rules (1) and (2), a manufacturer can opt not to maintain separate accounts and follow the procedures laid down in that Sub-rule. In this case, although the HR coils were no doubt used exclusively in the manufacture of exempted pipes, however, as per Sub-rule (3) of Rule 6 they can very well opt not to maintain separate accounts. Ld. Advocate also draws our attention to the Tribunal decision in M/s. Honda Motor India Pvt. Ltd . Final Order No. 42826- 5 42827/2017 dated 08.11.2017. Ld. Advocate also submits that the demand is hit by limitation. He points out that the period of demand is 2006-07 to 2010-11 whereas the Show Cause Notice has been issued only on 07.03.2011; that they have filed ER-1 returns throughout the period of dispute and have indicated the amount of CENVAT Credit that has been reversed. He also submits that non-reversal or non-payment of proportionate credit amount on filler ware and other consumables used in the manufacture of pipes was only due to inadvertence. For these reasons he submits that there cannot be any justification for imposition of penalty. Ld. Advocate also submits that they have paid 5% of the value of exempted final product. However, that payment has not been taken into account while computing the demand in respect of credit availed on HR Coils. Hence, even if the demand on this issue is to be confirmed for argument's sake, the same would be required to be re-computed.
4.1 On the other hand, Ld. AR Shri. A. Cletus supports the findings in the impugned Order. In respect of the demand of Rs. 41,77,866/- in respect of HR Coils, Ld. AR submits that they are a job worker who has received specific order for manufacturing the pipes which they knew right from the beginning were not exempted. 6 Hence, they should not have taken credit ab initio on the HR Coils received from the principal manufacturer or even those which they have procured on behalf of the principal manufacturer. 4.2 On the issue of limitation, Ld. AR submits that although the appellant had filed ER-1 returns, they had not disclosed the actual amount that was required to be reversed. He draws our attention to para 7 of the Show Cause Notice where it is clearly indicated that appellants have declared in the ER-1 returns lesser amount reversed as if they were correctly reversing/paying the amount in terms of Rule 6 of the Rules.
5. Heard both sides and have gone through the facts. 6.1 On the issue concerning demand of Rs. 40,70,960/- on alleged under-valuation of pipes manufactured on job work basis, we find that the Ld. Advocate is correct in his assertion that the issue is fully covered by the decision of CESTAT Chennai in M/s. Bhavani Enterprises and Ors. (supra). The relevant portion of the Order is reproduced as under :
"6. The issue posing for consideration is whether the appellants have correctly arrived at the assessable value of the job worked goods. The appellants have paid duty on the assessable valueworked out by taking into account the cost of materials plus conversion cost as laid down in the case of Ujagar Prints. The principal manufacturer (M/s.Marico) used the bottles in its factory for filling coconut oil. The department therefore contends that assessable value has to be 7 arrived as per Rule 8 of Valuation Rules, 2000. It is also contended that after 1.4.2007 the valuation should be done applying Rule 10A(iii) r/w Rule 8 of Central Excise Valuation Rules. It needs to be mentioned that Rule 8 applies when goods are not sold. The goods (HDPE bottles) are sold by appellant to M/s. Marico. The appellant does not captively consume the goods nor does M/s.Marico consume it on behalf of appellant. The very same issue has been considered by the Tribunal in the case of Advance Surfactants India Ltd. (supra) relied by the appellant. The Tribunal in the said case considered the Board circular F.No. 6/15/2009 dated 31.3.2010. The relevant portion of the order is reproduced for ready reference:-
"6. The undisputed fact in these cases is the appellant herein is a job worker manufacturing LABSA for M/s. HUL. It is also undisputed that HUL gives LAB and the appellant uses other consumables in the manufacture of LABSA. It is also undisputed that the appellant has been valuing the said LABSA cleared from factory premises, based upon the cost of material plus processing charges prior to 1-4-2007 when the provisions of Rule 10A were inserted into the Central Excise Valuation Rules, 2000. It is also undisputed that the said LABSA is returned back to M/s. HUL for further consumption in their factory premises for manufacturing of soaps and detergents. It is nobody's case that LABSA consumed by HUL is on behalf of the appellant herein.
7. On these factual matrix we need to appreciate the provisions under Rule 10A, which is reproduced herein under :-
"RULE 10A. Where the excisable goods are produced or manufactured by a job- worker, on behalf of a person (hereinafter referred to as principal manufacturer), then, -
(i) in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job-worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer;
(ii) in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker;
(iii) in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods :8
Provided that the cost of transportation, if any, from the premises wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods.
Explanation. - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him."
7.1 It can be seen from the above reproduced provisions that provisions of Rule 10A can be brought into play only when there is a situation where excisable goods are produced or manufactured by a job worker on behalf of a person and cleared to the buyer of the principal and/or cleared to a depot or a consignment agent. The intention of the Legislature was to capture the tax on the goods, on the value of the said goods when cleared to the ultimate consumers. In the case in hand, we find that provisions of Rule 10A(i) and (ii) does not arise as has been recorded by us in the earlier paragraphs. Provisions of rule 10A(iii) gets attracted which talks about a situation where 10A(i) or (ii) does not apply. The said provision (iii) very clearly mandate that in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable shall mutatis and mutandis apply for determination of value of the excisable goods. This would indicate that the provisions of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has to be gone through serially. It is not the Revenue's case that provisions of Rules 3, 4, 5, 6 and 7 would also apply in this case. Revenue is of the view that provisions of Rule 8 will apply. In order to understand the Revenue's case, we reproduce the provisions of Rule 8.
"RULE 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be [one hundred and ten per cent] of the cost of production or manufacture of such goods."
7. The ratio of above decision is applicable to the present case also.
8. Following the same, we are of the view that the impugned orders are not sustainable and the same is set aside. The appeals are allowed with consequential relief if any."
6.2 We find that the above ratio is applicable on all fours to the facts on hand. Hence, we hold that the demand of Rs. 40,70,960/- with interest, cannot be sustained and is, therefore, set aside. So ordered.
97.1 Coming to the issue on ineligible credit availed on HR Coils involving demand of Rs. 41,77,866/-, we find that the HR Coils were used only in manufacture of water pipes which were not in the exempted or non-dutiable category. In fact, from the facts on hand, from para 3.4 of the Show Cause Notice, it is evident that the appellants were being supplied HR Coils with size 10 X 1250 MM. by M/s. Koya Ltd. along with duty paid invoices and they also themselves procured HR Coils with sizes 11 X 1147 MM and 14.2 X 1553.4 MM. All these HR Coils were exclusively used in manufacture of exempted pipes and were not used in any other duty paid pipes. These facts have all been ascertained from the Stock Ledger of the appellant for the years 2008-09, 2009-10 and 2010-11.
7.2 This being the case, the availment of CENVAT Credit will be barred by Sub-rule (1) of Rule 6 of the Rules which reads as under :
"(1) The CENVAT Credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2) [Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.]"10
7.3 The circumstances mentioned in Sub-rule (2) of Rule 6 ibid. relate to a situation where the inputs would be used in manufacture of both dutiable as well as exempted/non-dutiable final products. In Sub-rule (2), the manufacturer is required to maintain separate accounts for the inputs used for dutiable final products as well as those used in exempted/non-dutiable final products. Sub-rule (3) only provides an option not to maintain such separate accounts, subject to following certain conditions laid down therein. 7.4 The net takeaway is that when it is known ab initio that the inputs would be used only in dutiable final products, there is then no need for the appellant to travel beyond Sub-rule (1) of Rule 6 ibid. Hence, the appellants cannot then avail credit of inputs used exclusively for exempted final products. Ergo, the appellants should not have availed the credit ab initio.
7.5 Viewed in this light, the action on the part of the appellants to first avail the credit in respect of HR Coils and then adopt the procedure under Sub-rule (3) of Rule 6 ibid., which, in any case, was not available to them, is definitely a contravention of Rule 6 of the Rules. The appellants would very well be required to reverse the 11 amount of CENVAT Credit of Rs. 41,77,866/- availed in respect of such HR Coils.
7.6 It is submitted by the Ld. Counsel for appellant that the appellants have reversed 5% of the value of the exempted goods. Hence, we are of the view that the appellant has to be given adjustment of the amount already reversed as above. For this limited purpose of re-quantification of demand on this issue, after giving adjustment of the amount already reversed by the appellant, we remand the matter to the adjudicating authority. 8.1 With regard to the issues which the appellant is not contesting on merits and show in the table in para 3.1, the Ld. Counsel for appellant advanced arguments on the ground of limitation. He submitted that the appellants had maintained separate records with regard to HR Coils that were used for the manufacture of exempted goods. All the figures for raising demand have been adopted by the Department from the accounts maintained by the appellant. Thus, in their statutory records, the appellants have disclosed the entire details.
8.2 So also, the credit availed was disclosed in the ER-1 returns. They happen to take the credit only on the bona fide belief that they 12 are eligible for credit. Even in para 7 of the Show Cause Notice, it is seen that the reversal of credit was not proper for the reason that the appellants had adopted a formula for arriving at the amount to be reversed by calculating the weight of the input used in the manufacture of pipes. Thus, it cannot be said that they had suppressed any facts with intent to evade payment of duty. Further, in respect of the credit availed on HR Coils, they have reversed 5% credit which has been disclosed to the Department in their ER-1 returns.
9. We find that there is no positive evidence to show suppression of facts with intention to evade payment of duty attracting the ingredients for invocation of extended period. In such event, the demand for the extended period with respect to the issues which are not contested on merits and stated in the table in para 3.1, requires to be set aside as being time barred, which we hereby do.
10. We make it clear that the appellant is liable to pay the duty demand falling under the normal period. For the same reasons the penalties imposed are also set aside. For the limited purpose of re- quantification, we remand the matter to the adjudicating authority. 13
11. From the above discussions :
(i) No interference is made with respect to the demands in issues I, II, III and V conceded by appellant on merits.
However, the demands for the extended period are set aside along with the penalties imposed for the normal period.
(ii) The impugned Order in respect of the demands in Sl.
No. IV is set aside on merits.
(iii) The impugned Order in respect of Sl. No. VI is upheld for the normal period only. However, the penalties are set aside.
(iv) For the purpose of quantification as above, matter remanded to adjudicating authority.
12. The appeal is partly allowed in above terms.
(Dictated and pronounced in open Court)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S.)
Member (Technical) Member (Judicial)
Sdd