Custom, Excise & Service Tax Tribunal
M/S. Prakash Industries Ltd vs Cce, Raipur on 7 April, 2010
IN THE CUSTOMS,EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block 2, R.K.Puram,New Delhi-110066
Principal Bench, New Delhi.
For approval and signature:
Honble Mr. Justice R.M.S.Khandeparkar, President
Honble Mr. Rakesh Kumar, Member (Technical)
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Appeal No.E/687/07
(Arising out of Order-in-Original No.Commissioner/RPR/106/2008 dt.19.12.08 passed by Commissioner(Raipur)
M/s. Prakash Industries Ltd. Appellant
Versus
CCE, Raipur Respondent
And Appeal No.E/1544/07 (Arising out of Order-in-original No.Commissioner/RPR/20/2009 dt.2.3.09 passed by Commissioner(Raipur) M/s. Prakash Industries Ltd. Appellant Versus CCE, Raipur Respondent Appearance S/Sh. S.K.Bagaria and Rohit Choudhary, Advs. For Appellants Shri B.K.Singh, Jt.CDR for Respondent Coram: Honble Mr. JUSTICE R.M.S.KHANDEPARKAR, PRESIDENT Honble Mr. RAKESH KUMAR, MEMBER (TECHNICAL) Date of hearing: 7.4.2010 Date of Decision:7.4.2010 Order No.___________________________ Per Rakesh Kumar The Appellant is a manufacturer of Iron & Steel products namely Sponge iron, MS Blooms/Billets, Ingots, MS Runners & Risers etc. chargeable to Central Excise Duty under Chapter 72 of the Central Excise Tariff which are manufactured in their factory at Champa in District Janjgir-Champa. They are availing the benefit of Cenvat credit of duty paid on inputs and capital goods under Cenvat Credit Rules. They also have a factory at Raipur which uses the goods manufactured by the Appellant in their factory at Champa as inputs for manufacture of various steel products. The goods manufactured by the Appellant in their factory at Champa are partly sold by them at the factory gate to independent buyers and are partly cleared to their factory at Raipur for use in the manufacture of some finished products. The Appellant, during the period from 1.4.04 to 31.12.07 in respect of clearances to their unit at Raipur for captive consumption paid duty at the price at which the goods were sold to other independent buyers, while according to the Department, since as per the provisions of Section 4 of the Central Excise Act,1944 (hereinafter referred to as the Excise Act), transaction value has to be determined for each removal, in respect of clearances for captive consumption to their unit at Raipur, assessable value should have been determined under proviso to Rule 9 read with Rule 8 of the Central Excise Valuation Rules,2000 (hereinafter referred to as CEVR,2000) on the basis of 110% of the cost of manufacture. It is on this basis that two show cause notices SCN dt.14.1.2008 for 1.4.2004 to 28.2.2007 period and SCN dt.11.12.08 for 1.3.07 to Dec07 period were issued for
(a) demand of allegedly short paid Central Excise Duty amounting to Rs.47,77,47,780/- (Rs.34,68,85,554 + Rs.13,10,62.226/-) under proviso to Section 11A(1) pf the Excise Act, alongwith interest on this duty at the applicable rate as per the provisions of Section 11AB of the Excise Act; and
(b) imposition of penalty on the Appellant under Section 11AC of the Excise Act as well as under Rule 25 of the Central Excise Rules,2002 (hereinafter referred to as the CER,2002).
1.1 Show cause notice dt.14.1.08 was adjudicated by the Commissioner vide order-in-original No.Commissioner/RPR/106/08 dt.16.12.08 and the SCN dt.11.12.08 was adjudicated vide order-in-original No.Commissioner/RPR/20/2009 dt.2.3.09 by which -
(a) duty demands of Rs.34,68,85,554/- and Rs.13,10,62,226/- were confirmed alongwith interest under Section 11AB on this duty; and
(b) penalties under Section 11AC of the Excise Act of Rs.34,68,85,554/- and Rs.13,10,62,226/- were imposed on the Appellant.
1.2 It is against the above mentioned orders of the Commissioner that these two appeals have been filed.
2. Heard both the sides.
2.1 Sh. S.K.Bagaria, Advocate, the learned Senior Counsel for the Appellant made the following submissions:
(1) The main issue involved in this case i.e. whether the value of the clearances to the Appellants second unit at Raipur for captive consumption is to be determined by applying Rule 4 of CEVR,2000 or proviso to Rule 9 read with Rule 8 of CEVR,2000, stands settled in favour of the Appellants by the following judgments of the Tribunal.
(i) Larger Bench judgment in the case of Ispat Industries Ltd vs CCE, Raigad reported in 2007(209)ELT.185(Tri.-LB).
(ii) Balajee Electro Steel Ltd. vs CCE, Ranchi 2007(219)ELT.563
(iii) Howrah Gases Ltd. vs CCE, Bolpur 2008(230)ELT.512 Against the above judgments, no appeal have been filed by the Revenue. There is no dispute that sales were made by the Appellants factory at Champa to independent buyers also and only a part of the production was cleared to Raipur factory for captive consumption.
(2) Both the factories are owned by the Appellant. Both are liable to duty. Duty paid by Champa factory was available as Cenvat credit to Raipur factory. Therefore, it was full and completely revenue neutral situation and there cannot be any incentive for the Appellant to pay less duty on the goods cleared to Champa factory.
(3) There is no dispute that the present case is covered by Section 4(1)(b) and therefore, the value has to be determined by Applying CEVR,2000. When value can be determined under Rule 4 of CEVR,2000, there is no need to apply Rule 8 or proviso to Rule 9 read with Rule 8. Even under Rule 4, the transaction value determined will be for each removal.
(4) The Boards circular No.643/34/2002-CX dt.1.7.2002 had been considered by the Tribunal in the Larger Bench judgment in the case of Ispat Industries Ltd. vs CCE, Raigad(supra).
(5) Rule 8 of CEVR,2000 applies only if the excisable goods are not sold by the assessee at all and are entirely captively consumed. Rule 8 will not apply if in addition to the clearances for captive consumption, there are sales to independent buyers also.
(6) Since the issue is fully and directly covered by the Larger Bench decision of this Tribunal, the appeal is liable to be allowed on this ground alone.
(7) Even if proviso to Rule 9 read with Rule 8 is applied, there is no short levy as during the period of dispute i.e. from March07 to Dec07, the Appellant paid duty on clearances for captive consumption to their Raipur unit on values ranging from Rs.18,000/- per m.t. to Rs.20,000/- per m.t., while cost of production during this period, as certified by independent cost accountants M/s. Rakshit and Associates was Rs.15,168/-; Rs.16,215/- and Rs.16,633/- per m.t. Ld. Commissioner has wrongly ignored the cost accountals certificate, even though M/s. Rakshit & associates were on the Departments panel and the cost auditors report was based on the audited accounts of the Appellant.
(8) The only basis of the show cause notices is the cost report dt.3.7.06 for 2004-05. This report, on the Appellants representation being forwarded to the Cost Auditor by the Department, was revised. The said revised report was obtained by the Department itself and it could not be ignored. The Commissioner ignored the Appellants request for supply of revised report which is a breach of natural justice.
(9) Since the duty paid by the Appellant in respect of clearances to their unit at Raipur for captive consumption was available as Cenvat credit to the Raipur unit, the case is revenue neutral and hence there could not be any intention to evade the duty. All the clearances to Raipur unit were admittedly under Central Excise invoices. Monthly E.R-1 returns were being regularly filed. The SCNs are based on cost auditors report under Section 14A of the Excise Act obtained by the Department on 3.7.06. Therefore, the longer limitation period under proviso to Section 11A(1) is not available to the Department. For the same reason, no penalty under Section 11AC is imposable.
2.2 Shri B.K.Singh, the learned Jt.CDR, made the following submissions:
(1) From a plain reading of Rule 8 of CEVR,2000, it is clear that it covers both the types cases the cases where only a part of the goods are cleared to captive consumption and remaining are sold to independent buyers as well as the case where there is no sale of the goods manufactured and entire production is captively consumed. Therefore, it is wrong to read the word exclusively in the Rule 8, which is not there.
(2) Since under the transaction value based assessment under Section 4 of the Excise Act, as it stood w.e.f. 1.7.2000, the transaction value has to be determined for each removal, wherever the clearance of the goods is for captive consumption, it is Rule 8 of CEVR,2000 which will be attracted. Rule 4 to 10 of CEVR,2000 are for different situations and there is no provision for applying them sequentially. Therefore, in every clearance for captive consumption, it is Rule 8 which will be applicable irrespective of whether the entire clearances are for captive consumption or only a part of the clearances are for captive consumption and remaining clearances are to independent buyers.
(3) The judgment of the Larger Bench of the Tribunal in the case of Ispat Industries Ltd. vs CCE, Raigad(supra) is not correct as it has read the word exclusively in Rule 8 which is not there and has proceeded on the assumption that Rule 4 to 10 of CEVR,2000 have to be sequentially applied for which there is absolutely no provision.
(4) Even if a situation when part of the goods manufactured by an assessee are captively consumed and remaining goods are cleared to independent buyers is covered by Rule 4 of CEVR,2000, it is covered only in a general manner while Rule 8 specifically covers the clearances for captive consumption. Honble Supreme Court in case of State of Rajasthan vs Gopi Kirpa reported in AIR 1992 SC 1754, has held that if a special provision is made on a certain subject, that subject is excluded from the general provision. Therefore, in a case where Rule 8 is applicable, Rule 4 cannot be applied.
(5) Boards circular No.643/34/2002-CX dt.1.7.2002 issued by the Board for clarification of various doubts in respect of new Section 4 and the CEVR,2000, clarifying that if the same goods are partly sold by an assessee and are partly consumed captively, the goods captively consumed would be valued as per Rule 8, as, as per the new Section 4, transaction value has to be determined for each removal, has to be treated as contemporaneous exposition in respect of CEVR,2000 and the same has to be taken into account for ascertaining the scope of a Rule 4 of CEVR,2000. Honble Supreme Court in the case of State of Tamil Nadu vs Mahi Traders reported in 1989(40)ELT.266(SC) has held that contemporaneous exposition by the administration authorities is a very useful and relevant guide to the interpretation of the expression used in te statute and such interpretation should be shown to be wrong before it is overturned.
3. We have carefully considered the submissions from both the sides and perused the records. The undisputed facts are that the Appellant clear a part of the goods about 50%, manufactured by them in their factory at Champa to their factory at Raipur for its captive use and the remaining goods are sold to independent buyers. The point of dispute is about the valuation of the goods cleared to Raipur unit for its captive consumption. According to the Appellant, since the sale price of the same goods being sold to independent buyers is available, that price must be adopted as the assessable value in terms of Rule 4 of the CEVR,2000, while according to the Department, irrespective of whether sale price of same goods to independent buyers is available or not, the value of the goods cleared to the Appellants other unit at Raipur for its captive use must be determined under Rule 8 of CEVR,2000, as, as per the provisions of Section 4 of the Excise Act, as it stood w.e.f. 1.4.2000, assessable value of the goods, attracting duty at an advalorem rate, is the transaction value, as defined in this Section and the transaction value has to be determined for each removal and that Rule 8 of CEVR,2000 specifically covers all the cases when the removal/clearances are for captive consumption. It has also been pleaded on behalf of the Department that Tribunal judgment of Larger Bench of the Tribunal in case of Ispat Industries Ltd. vs CCE, Raigad(supra) is not correct.
4. The relevant portion of Section 4(1) of the Excise Act during the period of dispute is as under:
Section 4 Valuation of excisable goods for purposes of charging duty of excise (1) where under this act, the duty of Excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -
(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;
(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
x x x x x x x.
4.1 This unlike the old section 4 which existed during the period prior to 1.7.2000, wherein normal price declared by an assessee for different classes of buyers and accepted by the Assessing Officer, was the assessable value, in the new Section 4 w.e.f. 1.7.2000, the assessable value is the transaction value as defined in Section 4(3) (d), which has to be determined for each removal and it must satisfy four conditions
(i) it must be the price of delivery at the time of removal,
(ii) it must be the price for delivery at the place of removal,
(iii) the price must be the sole consideration for sale and
(iv) the transaction must be at arms length i.e. the assessee and the buyer are not related person within the meaning of this term as defined in Section 4(3)(b).
4.2 When any one or more of the above conditions are not satisfied or the goods are not cleared for sale, Section 4(1)(b) becomes applicable and the assessable value has to be determined under CEVR,2000 framed under Section 37 of the Excise Act.
4.2.1 From perusal of these Rules, it will be very clear that each rule from Rule 4 to 11 covers a specific situation. Rule 4 is applicable when price at the time of removal, as defined in Section 4(3)(cc) is not available but is available at some other time. Rule 5 is applicable when the price of the goods is for delivery at a place, other than the place of removal, as defined in Section 4(3)(c). Rule 6 is applicable when the price is not the sole consideration for sale. Rule 7 is applicable when the excisable goods after their clearance from the factory/warehouse are sold from Depot, Consignment Agents premises or any other place. Rule 8 is applicable 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. Rule 9 & 10 are applicable where the entire sales are to be or through related person, as defined in Section 4(3)(b). Rule 11 is applicable where the assessable value cannot be determined under Rule 4 to 10 i.e. the case is not covered by the situations mentioned in Rule 4 to 10 and under this Rule, the assessable value is determined by best judgment method. Since the Rules are situation specific, there is no provision in CEVR,2000 for sequential application of Rules 4 to 10.
5. Coming to the point of dispute in this case as to whether the assessable value of the goods cleared by the Appellant to their Raipur plant for its captive use is to be determined under Rule 4 or Rule 8 of the CEVR,2000, it would be worthwhile looking at these Rules first. The Rule 4 and Rule 8 are as under:
Rule 4. The value of the excisable goods shall be based on the value of such goods by the assessee for delivery at any other time nearest to the time of removal of the goods under assessment, subject, if necessary to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable.
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 percent of the cost of production or manufacture of such goods.
5.1 From a plain reading of Rule 4, it is clear that this Rule is applicable in a situation where the value of the goods at the time of removal i.e. the time of clearance from the factory, is not available, but the value of such goods i.e. the goods identical to the goods under assessment, is available at some other time, as, if the price for delivery at the time of removal is available, there would be no necessity to apply this rule and if neither the price at time of removal is available nor the price of such goods for delivery at any other time is available, this rule cannot be applied. Thus for applicability of this rule, two conditions must be satisfied-
(a) Absence of price of the goods under assessment at the time of removal i.e. at the time of removal from the factory gate; and
(b) There is sale of such goods i.e. the goods identical to the goods under assessment, at some other time.
5.1.1 One situation where this can happen is where the goods after their clearance from the factory are sold from Depot or consignment agents premises, in which case, while the Depot / Consignment agents premises would be the place of removal, as per the provisions of Section 4(3)(c), but assessable value in accordance with provisions of Rule 7 of CEVR,2000 would be the price of such goods at the time of clearance from the factory, but at the time of clearance of the goods under assessment from the factory, there are no sales of such goods from depot/consignment agents premises, as a result of which there is no price of the goods available at the time of removal. In such a situation, this rule provides for determination of value of the goods under assessment, on the basis of the sale price of such goods at the time nearest to the time of removal after adjustment for price variation due to time gap, if necessary.
5.1.2 The other situation where the conditions (a) & (b) mentioned in para 5.1 above would be satisfied when the goods under assessment manufactured by the assessee are cleared for captive consumption in the same factory or to some other factory of the assessee or the goods cleared are not meant for sale but for distribution as gifts or for distribution as free samples, but sale price of such goods i.e. the goods identical to the goods under assessment at some time other than the time of removal is available for the reason that there is sale of such goods to independent buyer also. Therefore, a situation where part of the goods manufactured are cleared for captive consumption in the same factory or another factory of the same manufacturer and part of such goods are sold to independent buyers, would be covered by Rule 4 and the assessable of the goods cleared for captive consumption would have to be determined by the method prescribed in this rule. Through Rule 8 also covers the situation -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, by applying the principle of harmonious construction, the cases of part captive consumption, part sale to independent buyers, covered by the wordings of Rule 4, would get excluded from the purview of Rule 8 and Rule 8 would be applicable only to those cases of clearances for captive consumption where there is no sale price t independent buyers at any time i.e. there are no sales at all, for example, hundred percent clearances being made for captive consumption or clearances being made partly for captive consumption and partly for distribution as free gift/free samples, without any sales to independent buyers. Thus Rule 4 would be applicable when the two conditions for its applicability as mentioned in para 5.1 above are satisfied and then two conditions are satisfied when part of the goods are cleared for captive consumption either in the same factory or in another factory of the same manufacturer and part of the goods are sold to independent buyers and once a case is specifically covered by Rule 4, there would be no question of applying Rule 8. The view expressed in the Boards circular No.643/34/2002-CX dt.1.7.02 is, therefore, not correct. We find that larger bench of the Tribunal in the case of Ispat Industries Ltd. vs CCE, Raigad(supra) had expressed the same view, though for different reasons.
6. In view of the above discussions, in these cases, the duty is payable on the assessable value determined vide Rule 4 of CEVR,2000 not under Rule 8 ibid and since the duty has been paid on the value determined under Rule 4, there is no short payment of duty.
7. Since the main issue has been decided in favour of the Appellant, there is no necessity to go into the other issues like denial of natural justice and limitation raised, in the appeals.
8. The impugned orders, therefore, are not sustainable, the same are set aside. The appeals are allowed.
(Order pronounced in the open Court on..) (Justice R.M.S.Khandeparkar) President (Rakesh Kumar) Member Technical km ??
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