Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Nashik vs M/S Bhagwati Refineries Pvt. Ltd on 14 May, 2015
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. IV APPEAL NO. E/07/10 (Arising out of Order-in-Appeal No. AKP/65/NSK/2009 dated 05.10.2009 passed by the Commissioner of Central Excise & Customs (Appeals), Nashik.) For approval and signature: Honble Shri Anil Choudhary, Member (Judicial) =====================================================
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?
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Commissioner of Central Excise, Nashik
: Appellant
Versus
M/s Bhagwati Refineries Pvt. Ltd.
: Respondent
Appearance
Shri Sanjay Hasija, Supdt. (A.R.)
: For Appellant
Shri Jayesh Doshi, C.A.
: For Respondent
CORAM:
HONBLE SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL)
Date of Hearing : 14.05.2015 Date of Decision: 14.05.2015
ORDER NO.......................................................
Per: Anil Choudhary:
The Revenue is in appeal against order of the Commissioner (Appeals) dated 5/10/2009 wherein it is held that the respondent-assessee is not liable to pay any Excise duty under the provisions of Section 11D of the Central Excise Act.
2. The brief facts are that the respondent-assessee received crude oil (cotton seed) from the suppliers, which were mainly the oil industries milling oil from the oil seed. Due to some problem of getting set-off under the Sales Tax Act, the supplier of crude oil raised the bill for refined oil. As the supplier of crude oil was entitled to only the price of crude oil, whereas the bill was raised for the refined crude oil, the respondent issued debit note to adjust the difference in the price of invoice and money paid, by cheque (for crude oil). From perusal of the debit note it is evident that part of the amount is shown as processing charge and a part of it is shown as excise duty. The respondent has taken or credited the full amount of debit note including excise duty amount to processing charges account in its books. After processing of the crude oil the respondent-assessee have sold the refined oil and have in compliance with the provisions of Excise duty collected and paid the applicable duty, which is an admitted fact. The Revenue felt that the amount reflected in the debit note as Excise duty, amounts to such collection by the respondent-assessee, which is required to be deposited with the Central Government in terms of the provisions of Section 11D of the Act. Accordingly show-cause notice in February, 2008 was issued requiring the respondent to show-cause as to why the same should not be adjudicated and collected, being an amount of Rs. 23,06,387/ along with interest.
3. The show-cause notice was adjudicated vide order in the Order-in-Original dated 20/10/2008, it was held that the respondent-assessee is liable to pay the proposed amount under the provisions of Section 11D of the Act along with interest. Being aggrieved the appellant preferred appeal before the learned Commissioner (appeals), vide the impugned order was pleased to allow the appeal recording the following findings 7. The transaction done in this case is that the appellant is receiving crude oil from the suppliers. They refine it and refined oil is sold to various customers on payment of duty. The suppliers, though supplied crude oil, used to issue bills for refined oil at a price consisting of value of crude oil plus process charges for converting crude oil to refined oil. The appellant honours these bills to the extent of value of crude oil, but in order to adjust the amount towards process charge, the appellant used to issue job work bill/debit note for Rs. 2/- per Kg. However, Rs. 2/- has been divided as Rs. 1/- towards job charges and Rs. 1/- as Excise duty. This charging of Excise duty @ 1/- per Kg. is treated as recovery of amount representing Excise duty from the suppliers of crude oil and not paid to Govt. and hence, same was sought to be recovered under Section 11D of Central Excise Act, 1944.
8. Now it is to be seen as to whether recovery of Rs. 1/- from the suppliers really results in extra collection for the appellant. To understand the crux of the issue, it is necessary to go through once again in the transaction done by the appellant. The appellant refines the oil out of their own crude oil and also out of crude oil supplied by the suppliers. The crude oil supplied by various suppliers is refined and get mixed with the refined oil manufactured by appellant with purchased crude oil. The suppliers used to issue bills for refined oil, though they supply crude oil. The appellant is required to pay price of crude oil only out of the total price charged for refined oil by the suppliers of crude oil. The price of refined oil charged in the bills by the suppliers consists of price of crude oil plus job charges. In order to nullify the amount representing the job charges, the appellant used to issue job work bills/debit notes for the said job charges and thereby reduced the bill to the price of crude oil only. In effect, the amount payable to suppliers is limited only to price of crude oil. This paper adjustment is made only to nullify the bills of refined oil to the extent of job charges and bring the bills to the level of price of crude oil. Thus effectively the appellant is recovering only price of crude oil and not recovering any job charges from crude oil suppliers which also includes an element of Rs. 1 per kg of Central Excise duty. Ordinary prudent suppliers will not honour any bill towards excise duty if he has supplied the crude only, as everyone knows that the taxes like excise duty, sales tax is charged only to the customer and not to the supplier. Further the appellant was required to pay value of crude oil only as against the bill of refined oil raised by the suppliers. In order to adjust the bill for refined oil to the extent of cost of crude oil, the job work bill/debit note is a requirement of this paper transaction. Once it is understood that the appellant is required to pay only cost of crude oil as against bill for refined oil raised by the supplier, it is very easy to comprehend that, by raising the job work bill/debit notes, the appellant has not recovered anything. When effectively nothing has been recovered, the debit notes also including the component of excise duty cannot be construed to have recovered the amount representing excise duty. This job work bill/debit note can be issued showing any head viz. job charges or excise duty, but the fact remains that they were required to pay cost of crude oil only which has been paid by the appellant. In effect nothing has been recovered from the suppliers of the crude oil under head job work which also includes excise duty component as against allegation of such recovery in SCN and confirmed by OIO. Since nothing has been recovered from the supplier, there is no case of Section 11D.
9. Further it is also to be seen whether the appellant is benefited unduly by issuing debit note including that of Rs. 1/- as excise duty. The appellant is receiving bills for refined oil from the suppliers though they receive only crude oil. When they are required to pay price of crude oil only, there cannot be any undue benefit by issue of debit note/job charges bill showing excise duty. Such job charge bills/debit notes are not reducing the value of crude oil but effectively reducing the cost of refined oil to the cost of crude oil. This ultimately results in no undue benefit of Rs. 1/- per kg which is shown as excise duty. In other words, there has been no recovery of any amount, regardless whether it is for job charges or for excise duty, by issue of job charges bill/debit notes. The very purpose of issue of job charges bill/debit notes is to reduce the bill amount of refined oil to the level of cost of crude oil as the appellant is required to pay only cost of crude oil.
10. The adjudicating authority has not accepted the contention of the appellant that the transaction of issue of debit note is book adjustment. On page 16 of OIO it has been stated that, However it is not clear from reply what benefit those suppliers were gaining out of this paper transaction. If the payment was required to be made only for crude oil, then what was necessity to show it in first transactions and deduct in second one. I find the assessees reply is not explaining the rationale behind such transaction. Such book adjustment is not allowed in accounting standard and even otherwise ethically not correct.
11. The adjudicating authority erred in stating that, it is not clear what benefit those suppliers were gaining out of this paper transactions. Shri Bharat Bachharaj Patwari, Partner of M/s Bharat Oil Industries in this statement dated 31.01.2005 has categorically stated that, they issue a sale bill of refined oil; that there was no movement of the refined edible oil physically from them to appellant or back; that the appellant paid them the bill by cheque for the refined oil by deducting the amounts of debit notes for job work charges plus the excise duty; that the reason for not selling the cotton seed wash oil to the refineries and for adopting the above procedure was that the State Government had imposed Sales Tax on the cotton seed wash oil as well as on the refined cotton seed oil; that if cotton seed wash oil was sold to the refineries then they did not get set off the sales tax paid on the crude oil; however if they got the refined oil manufactured on job work basis then they wee entitled to get the set off. From what has been deposed by Mr. B. B. Patwari in the statement it is clear that by such method, if at all, they are deriving sales tax benefit which has nothing to do with Central Excise, thus the adjudicating authoritys observation to the extent however it is not clear from reply what benefit those suppliers were gaining ? it not correct. Further even if the benefits available either to appellant or suppliers are not forthcoming, the same cannot be reason for confirmation of demand under Section 11D.
12. The appellant had asked for cross examination of the suppliers for bringing out nature of actual transactions. However, the appellants request was turned down by adjudicating authority, the appellant produced letter dated 13.05.2008 of M/s Mukund Oil Industries wherein they have stated that they manufacture crude oil only as they do not have refinery; that as per set off provisions of sales tax, set off is not available to input if the crude oil is sold. Hence, they were selling crude oil to appellant by raising the invoice of refined oil; that as the invoice of refined oil was getting accounted against which they were only entitled to receive the payment of crude oil only; that appellant used to raise debit note @ 2/- per kg towards difference of price between crude oil and refined oil. This letter of M/s Mukund Oil Industries and of M/s Suhil Oil have not been accepted by the adjudicating authority on the ground that there is no explanation to the fact that why crude oil was being sold in the name of refined oil and what was rationale behind such wrong declaration and that how debit note raised by appellant is only accounting entry.
13. The adjudicating authority is totally wrong in stating that no explanation is forthcoming as to why crude oil was being sold in the name of refined oil. M/s Mukund Oil have categorically stated that if the crude oil is sold, they are not entitled for set off and therefore, bill for refined oil is raised though crude oil is sold. Obliviously the debit note raised by the appellant is only for accounting entry as they are required to pay only for crude oil and the appellant is bound to raise debit note for difference between price of crude oil and refined oil. M/s Mukund Oil have thrown complete light on the transaction but the adjudicating authority have not accepted the same on the above incorrect ground.
14. From what has been discussed in para 7 to 13, I hold that the appellant have not recovered any amount from the crude oil suppliers representing excise duty. The debit notes raised, showing excise duty also, are only for reducing bill amount of refined oil to the level of cost of crude oil as the appellant have procured only crude oil and not the refined oil. Even if the departments stand that debit notes were issued showing Rs. 1/- per kg as Central Excise duty, as one of the components, is accepted; no proof what so ever has been furnished that the amounts mentioned in debit notes were actually realized from the suppliers. What is important is recovery of an amount in the name of Central Excise Duty and not mere raising of bill/debit note to that effect. Under the circumstances, the confirmation of demand under Section 11D in not tenable.
15. During the relevant period, Section 11D stipulated that Any person who is liable to pay duty under this Act or Rules made there under, and has collected any amount in excess of the duty assessed or determined and paid on any excisable goods under this Act or Rules made there under, FROM THE BUYER OF SUCH GOODS in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government. Therefore, the requirement of the law is that the amount which is collected from buyer of such goods, in addition to the excise duty paid by the buyer should be paid back to the Central Government under Section 11D. As explained above, the suppliers of crude oil can by no stretch of imagination can be termed as buyers of refined oil. In fact, they are the suppliers of crude oil and buyers of refined oil are various customers to whom the refined oil has been sold by the appellant. As there is no allegation in the SCN that appellant have collected any extra amount from his customers of refined oil, Section 11D is not applicable in the instant case.
4. Being aggrieved against the Commissioner (Appeals) order, Revenue has filed the present appeal. The learned A.R. has stated that once an amount collected is labelled as Excise duty the same is fit for collection under the scheme of Section 11 D of the Act. The debit note issued by the respondent-assessee clearly shows that the amount charged and recovered showing as Excise duty. The explanation regarding book adjustment in the facts and accepted by the Commissioner (appeals) is not proper because it does not revealed correct fact. Such explanation is an after thought and is not based on records. Further the learned Commissioner (Appeals) in the impugned order by observing in para-7, the supplier of crude oil, used to issue invoice for refined oil. The price of refined oil consisted the value of crude oil plus processing charges for converting from crude oil to refined oil. Further the Commissioner (Appeal) concluded that this adjustment has got nothing to do with Central Excise duty. The Commissioner (Appeals) findings and observations amounts to travelling beyond the scope of show-cause notice and the Order-in-Original. The show-cause notice is limited to the fact as to whether some amount has been recovered by the assessee in the name of Excise duty and not paid to the Department. The bills issued by the assessee clearly show that they are showing Rs. one per KG as Excise duty and such amounts have been recovered by them. The Commissioner (Appeals) have erred in accepting the contention of assessee that there is no recovery of any amount, which is contrary to records as maintained by the assessee. Further the Commissioner (Appeals) have erred in accepting this explanation of the assessee and not accepting the records which clearly evidence recovery in the name of Excise duty. Further the Commissioner (Appeals) erred in holding that the raw material supplier are seller, and Section 11D is not attracted. Further it is evident from the case records that duty was recovered twice. This fact has not been denied by the assessee and in defence the assessee had stated that although the duties is allegedly recovered twice, in the first case it was book adjustment only and had not recovered from the raw material supplier, as it was adjusted in the books of account by way of adjustment entries. Accordingly the learned A.R. prays for setting aside the impugned order and restoration of the Order-in-Original.
5. Heard. The learned Counsel for the respondent-assessee defended the facts and vehemently argued that the basic ingredients for charging of Excise duty under Section 11D, being absent, the Commissioner (Appeals) rightly held in favour of the assessee. It is admitted fact on record that the respondent-assessee received crude oil on which no Excise duty was chargeable. It is further admitted fact that the purchase invoices are for refined oil under the exigency of business, the assessee used to issue debit note as stated hereinabove, for adjusting the amount not payable. In view of the findings in the impugned order the learned Counsel prays for dismissing the appeal of Revenue. This appeal was earlier heard on 1st May, 2015 when the Tribunal directed the Counsel for the assessee to produce the extract of the books of account like, copies of Central Excise account, processing charges account, profit and loss account and balance sheet, audit report along with related journal, cash book, bank book etc. On the next date of hearing that is today, the assessee filed before this Court, the copy of document as directed including the extrac of the books of accounts and also the true copy of the ledger accounts. After going through the same I am satisfied that the finding of the Commissioner (Appeals) are correct and there is no illegality or impropriety in the impugned order. Further I hold that the basic ingredients as required under Section 11D, for attracting liability are absent in the facts of this case, like recovery of any amount in the name of duty from the buyers of such goods, that is excisable goods, and such person should be the person liable to pay duty under the scheme of the Excise Act. These elements being absent I conclude that the respondent-assessee was not required to pay any duty under the provisions of Section 11D of the Act.
6. Thus, the appeal is dismissed. The respondent-assessee will be entitled to consequential benefit if any, in accordance with law.
(Pronounced in open Court) (Anil Choudhary) Member (Judicial) Sp 9