Custom, Excise & Service Tax Tribunal
M/S. Contech Instruments Ltd vs Commissioner Of Central Excise, ... on 25 September, 2009
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. APPEAL NO. E/1597/07-Mum (Arising out of Order-in-Appeal No. SRK/364/Bel/2007 dated 20.9.2007 passed by the Commissioner (Appeals) Central Excise, Mumbai Zone-II For approval and signature: Honble Shri A.K. Srivastava, 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 : Yes
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
=============================================================
M/s. Contech Instruments Ltd.
:
Appellants
VS
Commissioner of Central Excise, Belapur
Respondents
Appearance
Shri Mayur Shroff, Advocate for Appellants
Shri P.K. Agarwal, SDR Authorized Representative
CORAM:
Shri A.K. Srivastava, Member (Technical)
Date of hearing : 25/09/2009
Date of decision.
ORDER NO.
Per : Shri A.K. Srivastava, Member (Technical)
1. The Appeal is against Order-in-Appeal No. SRK/364/Bel./2007 dated 20.09.2007.
2. Heard both the sides.
3. The facts, in brief are as follows:-
a. The Appellants, M/s. Contech Instruments Ltd., manufacture Electronic Balances falling under Chapter Sub-Heading 9016 and are availing the facility of Cenvat credit on the duty paid inputs. For the manufacture of Electronic Balances, the Appellants send inputs such as inductor coil, hybrid circuits, heat sink thermistors etc. to M/s. Leo Circuit Boards Pvt. Ltd., and M/s. Hermes Electronics under the cover of Job Work challan as per procedure laid down in Rule 4(5) (a) of Cenvat Credit Rules. The said inputs so supplied by the Appellants for processing under job work were being fitted on PCBs by both M/s. Leo Circuit Boards, Turbhe and M/s. Hermes Electronics, Turbhe and were subsequently cleared to the Appellants on payment of Central Excise duty.
b. Consequent to the visit of the Preventive Officers to the factory premises of the Appellants on 10.10.2005, proceedings were initiated against the Appellants on the basis that they were not getting back any goods duly processed after job work from either M/s. Leo Circuit Boards Pvt. Ltd. or from M/s. Hermes Electronics, since both these units used the said inputs, received under job work challan in the manufacture of Printed circuit boards assemblies (PCB assemblies) cleared to the Appellants on payment of Central Excise duty. The officers also visited M/s. Leo Circuit Boards Pvt. Ltd. and M/s Hermes Electronics. The aforesaid units, at the behest of the officers, discharged the Central Excise duty and interest to the extent of the cost of the said inputs not taken into consideration in determination of transaction value, while discharging Central Excise duty in respect of Printed Circuit Board assemblies cleared to the Appellants.
c. While duty on the inputs sent by the Appellants to M/s. Leo Circuit Boards Pvt. Ltd. & M/s. Hermes Electronics was recovered from the aforesaid units, it was also observed that the Appellants had not followed the proper procedure laid down under the Central Excise Act and the Rules made thereunder in as much as they had cleared the inputs, valued at Rs.11,99,725/-, under Job work Challans without reversing the Cenvat credit of Rs.1,95,795/-.
4. A Show Cause Notice dated 21.02.2006 was issued to the Appellants proposing recovery of Central Excise duty totally amounting to Rs. 1,91,956/- and Education Cess of Rs. 3839/- and also proposing imposition of penalty under Section 11AC of the Act and Rule 25 of the Central Excise Rules, 2002. Interest under Section 11AB of the Central Excise Act, 1944 was also demanded and proposed to be recovered.
5. On adjudication, the Show Cause Notice was dropped by the Assistant Commissioner on the basis of the following findings:-
a. The input/raw material sent under job-work challan under Rule 4(5) (a) of the Cenvat Credit Rules was utilized by M/s Leo Circuit Boards & M/s Hermes Electronics in the manufacture of PCBs and such PCBs were cleared on payment of duty to the Appellants. Duty was discharged by M/s Leo & M/s Hermes Electronics which included the value of raw material procured by them independently as well job work charges. No revenue loss has occurred at any stage at this point of time since M/s Leo & M/s Hermes Electronics paid duty.
b. Though the notice was silent on the aspect of whether the Appellants availed of credit on the said duty payment made by M/s Leo Circuit Boards & M/s Hermes Electronics, it appeared that invariably they are entitled to such credit.
c. The Preventive Section impressed upon M/s Leo & M/s Hermes Electronics to discharge duty liability on the value portion of the input/raw material supplied to them by the Appellants and also went one step further and opined that the procedure of clearing the input/raw material vide job-work challans itself was wrong.. The show cause notice proceeded to opine that the Appellants ought to have cleared the raw material as if they were clearing inputs to M/s Leo & M/s Hermes Electronics Such an approach was nothing but running around in circles as invariably the Appellants would also be entitled to take credit of the duty paid by M/s Leo & M/s Hermes Electronics on the value portion of the input/raw material. Thus there was no necessity to seek reversal of the credit availed by the Appellants on the raw material supplied by them to M/s Leo & M/s Hermes Electronics. More so, in view of the fact, that duty had already been discharged by M/s Leo & M/s Hermes Electronics on the value portion of raw material received by them from the Appellants.
d. In the event that demand for reversal of credit by the Appellants were to be confirmed, M/s Leo & M/s Hermes would invariably be entitled to credit on the raw material received by them from the Appellants. Thus the stand taken by the department in the notice was at cross-purposes since on the one hand, duty had already been recovered from M/s Leo/ M/s Hermes Electronics on the value portion of the raw material supplied by the Appellants whereas on the other hand, the notice sought to reverse the credit on the raw material supplied by the Appellants to M/s Leo & M/s Hermes. At no point of time did the department suffer any loss of revenue on account of the aforesaid practice being followed by the Appellants, M/s Leo Circuit Boards & Hermes Electronics.
6. The Departmental Appeal against the aforesaid order was allowed by the Commissioner (Appeals) on the ground that since the Appellants had placed purchase orders for supply of Printed Circuit Boards on M/s. Leo Circuit Boards and M/s. Hermes Electronics and the same were being supplied to the Appellants on payment of duty, the transaction was on principal to principal basis and the Appellants were required to clear the inputs to the said units after reversal of credit taken in accordance with Rule 3(5) of the Cenvat Credit Rules 2002/2004.
7. The Ld. Counsel for the Appellants submitted that the demand had been rightly dropped by the adjudicating authority. It was contended that the inputs such as inductor coil, hybrid circuit, heat sink thermistors etc., on which credit had been availed by the Appellants, had been undisputedly sent under the cover of Job Work challan as per the procedure laid down under Rule 4(5) (a) of Cenvat Credit Rules for processing to M/s. Leo Circuit Boards & M/s Hermes Electronics and the said two units had fitted the inputs so supplied on PCBs. The assembled PCBs were sent to the Appellants by the aforesaid units on payment of duty. It was thus submitted that when the inputs were sent to the aforesaid two units for making assembled PCBs on behalf of the Appellants and the Assembled PCBs were used by the Appellants in the manufacture of Electronic Balances, there was no necessity to seek reversal of the credit availed by the Appellants on such inputs supplied by them to M/s Leo & M/s Hermes Electronics. It was submitted that the Appellants, as principal manufacturers, were entitled to take Cenvat Credit on the assembled PCBs as the assembled PCBs were used in the manufacture of Electronic Balances, which is the final product of the Appellants. The Ld. Counsel also submitted that the payment of duty on the assembled PCBs could not be the basis for calling upon the Appellants to reverse the credit on the inputs supplied by the Appellants to the aforesaid two units for the purpose of fitting them to the PCBs. He relied upon the following decisions in this connection:-
a. Abhishek Auto Industries Ltd. Vs. Commissioner of C. Ex. Delhi III, Gurgaon- 2004 (175) ELT 407 (Tri. Del.) b. Crocodile (India) Pvt. Ltd. V/s. Commissioner of Central Excise, Salem- 2006 (205) ELT 419 (Tri.- Chennai) c. Commissioner of Central Excise, Chandigarh Vs. Ranbaxy Labs Ltd. 2006 (203) ELT 213 (P & H) d. Maruti Udyog Ltd. Vs. Commissioner of Central Excise, New Delhi 1999 (114) ELT 608 (Tribunal) It was also submitted that on the basis of the factual matrix of the case, the adjudicating authority had given a categorical finding that the Department did not suffer any revenue loss at any point of time on account of the practice being followed by the Appellants, M/s. Leo Circuit Boards & Hermes Electronics. The above finding as to revenue neutrality has not been upset by the Commissioner (Appeals). It was submitted that when the revenue neutrality was not disputed by the Commissioner (Appeals), there was no basis to demand duty towards Cenvat Credit from the Appellants. The following judgments were relied upon in the context of revenue neutrality:-
a. Commissioner of C. Ex. & Cus., Vadodara Vs. Narmada Chematur Pharmaceuticals Ltd.- 2005 (179) ELT 276 (S.C.) b. Commr of Central Excise & Cus. (Appeals), Ahmedabad Vs. Narayan Polyplast- 2005 (179) ELT 20 (S.C.) c. Commissioner of C. Ex., Pune Vs. Coca- Cola India Pvt. Ltd. 2007 (213) ELT 490 (S.C.) d. Commissioner of Cus. & C. Ex. Vs. Textile Corporation. Marathwada Ltd.- 2008 (231)ELT 195 (S.C.) e. Commissioner of C. Ex. Jamshedpur Vs. Jamshedpur Beverages- 2007 (214) ELT 321 (S.C.) It was also submitted that the PCB assembly was used by the Appellants in the manufacture of the Electronic Balances and the Cenvat Credit of the duty paid on the PCB assembly was available as the Cenvat Credit to the Appellants. The duty on the value portion of the inputs viz. inductor coil, hybrid circuit, heat sink thermistors etc. was recovered by the Department from M/s. Leo Circuit Boards & M/s. Hermes Electronics. The Department cannot recover duty from the aforesaid units on the value portion of the inputs sent to them on the one hand and seek reversal of the Cenvat Credit on the aforesaid inputs from the Appellants on the other hand. Thus it was rightly held by the adjudicating authority that the stand taken by the Department was at cross-purposes and no reversal of Cenvat Credit on the said inputs was required on the part of the Appellants.
8. The learned SDR submitted that the Appellants had placed purchase order for supply of Printed Circuit Boards on M/s. Leo Circuit Boards and M/s. Hermes Electronics and the same were being supplied to the Appellants on payment of duty. Hence the transaction was on principal to principal basis and the Appellants were required to clear the inputs to the said units after reversal of the credit taken in accordance with Rule 3(5) of the Cenvat Credit Rules 2002/2004. Thus the inputs were wrongly sent under the Job work Challans under Rule 4(5) (a). The learned SDR also argued that compliance with the Rules was mandatory and every word in the Rule showed legislative intent. He thus argued that the non-compliance of the Rules would lead to the denial of the Cenvat Credit. On the aspect of revenue neutrality, the learned SDR contended that while the aspect of revenue neutrality could be considered by the Apex Court and the High Courts, the Tribunal was not the forum before which the plea of revenue neutrality could be raised. In support of his submission that the conditions/ stipulations provided by the Rules under the Cenvat Scheme had to be adhered to, he relied upon the following decisions:-
a. Order No. S/278-279/WZB/2009/EB/C-II of the Tribunal in the case of M/s. Tata Motors Ltd. Vs. Commissioner of Central Excise, Pune-I. b. Commissioner of Central Excise Vs. Spectra Electronics Pvt. Ltd. 2009 (235) ELT 795 (H.P.) c. Commissioner of C. Ex. Chandigarh Vs. Karamchand Appliances Pvt. Ltd. 2009 (238) ELT 706 (H.P.) d. S.K. Foils Ltd. Vs. Commissioner of Central Excise, New Delhi-III-2009 (239) ELT 395 (P& H) e. Union of India Vs. Dharmendra Textile Processors- 2008 (231) ELT 3 (S.C.)
9. I find that the Show Cause Notice clearly records the fact that the Appellants were sending the inputs such as inductor coil, hybrid circuits, heat sink thermistors etc. for processing to M/s. Leo Circuit Boards Pvt. Ltd. and M/s. Hermes Electronics under the cover of the Job work Challan as per the procedure laid down in Rule 4(5) (a) of the Cenvat Credit Rules. It is further recorded that the said inputs were being fitted on the PCBs by the aforesaid units and subsequently cleared to the Appellants on payment of the Central Excise duty. What is averred in the Show Cause Notice is that since the two units have cleared Printed Circuit Board Assemblies (PCB assemblies) to the Appellants on payment of Central Excise Duty, the Appellants were not getting back any goods duly processed under the jobwork either from M/s. Leo Circuit Boards Pvt. Ltd. or from M/s. Hermes Electronics. Consequently, the impugned notice sought reversal of the Credit on inputs sent by the Appellants to the aforesaid units on the ground that the procedure envisaged under Rule 3(5) of the Cenvat Credit Rules ought to have been followed by the Appellants. The necessary sequitur to payment of duty on the PCB Assemblies is that the Appellants are entitled to the credit on the said PCB Assemblies, which are received by the Appellants in their factory for the manufacture of the Electronic Balances. When the components such as inductor coil, hybrid circuits, heat sink thermistors etc. have been accepted as inputs for the Appellants by the Department, the eligibility of the Appellants to the Cenvat Credit on such inputs cannot be disputed. In the present case, M/s. Leo Circuit Boards Pvt. Ltd. and M/s. Hermes Electronics were paying duty on the value attributable to the PCBs cleared by them after fitting the components supplied by the Appellants. Thus the Cenvat Credit on the inputs sent to the two units as well as the Cenvat on the duty paid by the two units was available to the Appellants, as the Assembled PCBs were received by the Appellants for the manufacture of the Electronic Balances. The following decisions clearly lay down that the job worker can pay duty on the processed goods though he could have returned such goods to the principal manufacturer without payment of duty and the principal manufacturer is entitled to the Cenvat Credit of such duty paid by the job worker :-
a. Abhishek Auto Industries Ltd. Vs. Commissioner of C. Ex. Delhi III, Gurgaon- 2004 (175) ELT 407 (Tri. Del.) b. Crocodile (India) Pvt. Ltd. V/s. Commissioner of Central Excise, Salem- 2006 (205) ELT 419 (Tri.- Chennai) c. Commissioner of Central Excise, Chandigarh Vs. Ranbaxy Labs Ltd. 2006 (203) ELT 213 (P & H) d. Maruti Udyog Ltd. Vs. Commissioner of Central Excise, New Delhi 1999 (114) ELT 608 (Tribunal) Thus the payment of duty by M/s. Leo Circuit Boards Pvt. Ltd. or by M/s. Hermes Electronics cannot lead to the conclusion that the Appellants were not getting back any goods duly processed under job work and the averment to that effect in the impugned notice is mis-conceived. The issue of Purchase orders by the Appellants to the two units cannot detract from the fact that the components sent by the Appellants to the aforesaid units were undisputedly inputs for the Appellants and that the said inputs were sent for processing to the two units. Furthermore, the processed goods viz. assembled PCBS were sent to the Appellants by the two units, albeit on payment of duty. Under the circumstances, the sending of the inputs by the Appellants under Rule 4(5) (a) challans to the two units cannot be faulted with. Though the Commissioner (Appeals) has proceeded on the basis that the Appellants were issuing purchase orders to the two units and thus the transaction was not job work but on principal to principal basis yet it is significant that the charges against the Appellants in the impugned notice are not framed on the basis of the said purchase orders but on the sole basis that M/s. Leo Circuit Boards Pvt. Ltd. & M/s. Hermes Electronics were clearing the PCB assemblies to the Appellants on payment of duty. Thus the Commissioner (Appeals) has proceeded on a basis extraneous to the impugned notice.
10. In the present case, even if the Appellants were to follow the procedure under Rule 3(5) of the Cenvat Credit Rules and reverse the credit on the inputs sent for processing, the said credit would have been ultimately available to the Appellants in the manufacture of the Electronic Balances as the Assembled PCBs have been received by the Appellants from the two units as the prevalent Rule 3(6) of the Cenvat Credit Rules, 2004 provided that the amount paid under sub-rule (5) shall be eligible as CENVAT credit as if it was a duty paid by the person, who removed such goods under sub-rule (5). In the present case, M/s. Leo Circuit Board Pvt. Ltd. and M/s. Hermes Electronics have also, at Departmental behest, paid duty on the value attributable to the input components sent by the Appellants. No suppression or intent to evade duty is alleged against the Appellants in the impugned notice or found by the Commissioner (Appeals) in the impugned order. The entire duty paid by the two units is thus available to the Appellants as the Cenvat Credit for the manufacture of the Electronic Balances. It thus follows that the non-reversal of the credit by the Appellants does not have any revenue implications and the adjudicating authority has rightly observed that at no point of time did the Department suffer any loss of revenue on account of the practice followed by the Appellants, M/s. Leo Circuit Boards & Hermes Electronics. The finding of the adjudicating authority to the effect that there are no revenue implications involved has not been upset by the Commissioner (Appeals). It has thus to be held that the issue is revenue neutral and the impugned notice was rightly dropped by the adjudicating authority. The contention of the learned SDR that the plea of revenue neutrality can be raised only before the Apex Court and the High Courts and not before the Tribunal is clearly not acceptable. Time and again, the Tribunal has accepted the plea of revenue neutrality and has held the demand to be unsustainable, if the facts so warrant. Revenue neutrality is a question of fact and the Tribunal as a final fact finding authority is well within its powers to entertain the plea of revenue neutrality and set aside the demand as unsustainable, if the facts so warrant. The Honble Apex Court in the case of Commissioner of Customs and Central Excise Vs. Textile Corpn. Marathawada Ltd. 2008 (231) ELT 195 (S.C.) has upheld the order of the Tribunal holding that the Respondent-therein was entitled to Modvat Credit of duty payable at each stage of processing of fabrics when duty was paid at final stage and the situation was thus revenue neutral. In the present case, the Appellants were entitled to the Cenvat Credit on the inputs sent for processing and on the assembled PCBs, when paying duty on the Electronic Balances. Thus the ratio of the Apex Court Order in the aforesaid case is squarely attracted and the demand raised in the impugned notice cannot be sustained. The following Orders of the Honble Apex Court holding that there can be no sustainable demand in a revenue neutral situation are also squarely applicable in the context of Appellants case:-
a. Commissioner of C. Ex. & Cus., Vadodara Vs. Narmada Chematur Pharmaceuticals Ltd.- 2005 (179) ELT 276 (S.C.) b. Commr of Central Excise & Cus. (Appeals), Ahmedabad Vs. Narayan Polyplast- 2005 (179) ELT 20 (S.C.) c. Commissioner of C. Ex., Pune Vs. Coca- Cola India Pvt. Ltd. 2007 (213) ELT 490 (S.C.) d. Commissioner of C. Ex. Jamshedpur Vs. Jamshedpur Beverages- 2007 (214) ELT 321 (S.C.)
11. The interim order of the Tribunal in the case of M/s. Tata Motors Ltd. Vs. Commissioner of Central Excise, Pune-I, cited by the learned SDR, cannot be applied in the present context. In the said case, the issue was whether the Job worker could take Cenvat Credit on his own goods used in the processing of Job worked goods. In that context, it was held that when M/s.Tata Motors were working under Rule 4 (5) (a), they could not have utilized the credit taken on paints (used in job work goods) for clearing job worked goods viz. painted body shells as they were clearing the said shells without payment of duty to the principal manufacturer. In the present case, the Appellants are undisputedly entitled to the Cenvat Credit on the inputs viz. inductor coil, hybrid circuits, heat sink thermistors etc. The Appellants herein are not the job workers but the manufacturers of the final product viz. Electronic Balances. Thus the facts of the present case are distinguishable from that in the case of M/s. Tata Motors. Even otherwise, the Order in the case of M/s.Tata Motors is an interim order and cannot be relied upon as a precedent. The following decisions are also inapplicable in the context of the present case:-
a. Commissioner of Central Excise Vs. Spectra Electronics Pvt. Ltd. 2009 (235) ELT 795 (H.P.) b. Commissioner of C. Ex. Chandigarh Vs. Karamchand Appliances Pvt. Ltd. 2009 (238) ELT 706 (H.P.) c. S.K. Foils Ltd. Vs. Commissioner of Central Excise, New Delhi-III-2009 (239) ELT 395 (P& H) In all the aforesaid decisions, the duty paying documents were suffering from serious lacunae and were invalid for the purpose of availment of credit. Such duty paying documents were held to be invalid for the purpose of the Cenvat Credit as ignoring such lacunae would lead to the possibility of the misuse of the Cenvat Scheme. In the case of M/s. Spectra Electronics Pvt. Ltd., the Honble High Court noted that under the concerned Rules, there were negative covenants regarding the specifications concerning invoices, which made the requirements mandatory in nature. In the case of M/s. Karamchand Appliances Ltd. also, the Honble High Court held that benefit of Modvat was not extendable in respect of invoices, which were printed in one colour as the rule specifically provided that the invoices should be in different colour and each invoice should be separately marked for Buyer, Transporter, Excise & assessee; the purpose behind the said rules being to ensure that no credit can be claimed on the said invoice more than once. In the case of S.K. Foils Ltd. Vs. Commissioner of Central Excise, New Delhi, the Honble High Court held that carbon copy of the invoice was not a valid document for taking Cenvat Credit as there was no provision for granting Cenvat Credit on the basis of carbon copy and the original copies of invoices were required to be produced. In all the aforesaid cases, the concerned Honble High Courts held that the compliance pertaining to the specifications could not be relaxed as there was a possibility of fraud and misuse, which could be damaging to the revenue. The above decisions cannot be made applicable in the present case, where the situation is undisputedly revenue neutral and the eligibility of the Appellants to the Cenvat Credit on the inputs sent to the two units remains undisputed. In the present case, there are no revenue implications involved and the demand against the Appellants is unsustainable as held by the various Orders of the Apex Court referred to earlier. In the context of the present case, the Judgment of the Honble Apex Court in the case of Union of India Vs. Dharmendra Textile Processors- 2008 (231) ELT 3 (S.C.) is inapplicable as there is no dispute to the availability of the credit on the inputs and there are no revenue implications involved.
12. I thus hold that the impugned order passed by the Commissioner (Appeals) is not sustainable. The same is set aside and the Appeal is allowed with consequential relief as per law.
(Pronounced in court on /10/2009)
A.K. Srivastava
Member (Technical)
Sm
14