Custom, Excise & Service Tax Tribunal
M/S.Pricol Ltd vs Commissioner Of Central Excise, ... on 12 June, 2017
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/376/2007
[Arising out of Order-in-Original No.03/2007 Commr., dated 28.02.2007 passed by the Commissioner of Central Excise, Coimbatore]
M/s.PRICOL LTD.
APPELLANT
Versus
COMMISSIONER OF CENTRAL EXCISE, COIMBATORE
RESPONDENT
Appearance:
For the Appellant Shri G. Natarajan, Advocate For the Respondent Shri K. Veerabhadra Reddy, JC (AR) CORAM:
Honble Shri D.N. Panda, Judicial Member Honble Shri Madhu Mohan Damodhar, Technical Member Date of hearing/ Reserved on :
30-01-2017 Date of Pronouncement : 12-06-2017 FINAL ORDER No. 40920 / 2017 Per Madhu Mohan Damodhar The appellants are engaged in the manufacture of Speedometer and parts and accessories thereof. During the period from Feb'03 to Nov'04 they got components of speedometer manufactured through job work for which purpose they supplied moulds and dies (manufactured by themselves) to the job workers. These moulds and dyes were cleared on payment of duty based on assessable value as determined by the appellants. This valuation was done without regard to CAS-4 (Cost Accounting Standards) adopted and implemented by the CBEC. The department issued a show cause notice for demanding differential duty on the goods based on CAS-4 value, with interest thereon, and for imposing penalty. The assessee replied, accepting duty liability but contesting the proposal to levy interest and to impose penalty. In adjudication of the dispute, ld. Commissioner passed the impugned order, wherein demand of duty of Rs.60,18,344/- was confirmed against the assessee under the proviso to Section 11A (A) of the Central Excise Act, 1944 (hereinafter referred to as the Act") for the aforesaid period. Interest was also demanded under Section 11AB of the Act and penalty equal to duty was imposed under Section 11AC of the Act. The appellants have paid the entire amount of duty demanded by the Commissioner.
2. It is the contention of Shri G.Natarajan, ld. Advocate for the appellant, that the demand of duty, interest and penalty relates to the period Feb.03 Nov.04. Appellant was paying duty on the value of the goods cleared before CAS-4 was introduced to determine the assessable value of the goods manufactured. The CAS -4 was prescribed by Boards Circular dated 13.02.2003. The goods earlier cleared to the job workers were without following CAS-4 guidelines since that costing standard was made applicable during the end of the Financial Year 2003-04.
2.2 Revenue intended that from Feb.03-Mar.03, Apr.03-Sept,04 and Oct.04 to Nov.04, the job worked goods should be valued following the CAS-4 norm and duty is payable on the basis of assessable value, so determined. Consequently, the duty involved for the three periods was Rs.52,56,297, Rs.3,55,910, and Rs.4,06,137 aggregating to Rs.60,18,344 as tabulated in page 2 of the adjudication order [Ref: P.No.40 of the appeal folder].
2.3 The duty element was discharged in two strokes. The major amount of Rs.52,56,297 was discharged on 18.01.2005 and the other amounts were discharged on 05.02.2005. For convenience of reading, the period with the demand in question as tabulated in page no. 40 of adjudication order is reproduced below:
Clearance period Amount paid TR-6 Challan No. & Date Apr.03 Sept.04 52,56,297 12/04-05, dt-18.01.2005 Feb.03 & Mar.03 3,55,910 14/04-05, dt-05.02.2005 Oct.04 & Nov.04 4,06,137
-do-
60,18,344 2.4 On the above factual background appellant says that it had no intention of causing any loss to Revenue. Having discharged the duty element, it is not liable to penalty of Rs.60,18,344 levied under section 11 AC of the Central Excise Act, 1944. According to the appellant, elements of section 11AC are not present and that too the CAS-4 having coming into force at a later date, there should not be levy of penalty. Ld. Advocate, relies on the decision of the apex courts judgment in the case of Union of India Vs Rajasthan Weaving and Spinning Mills reported in 2009 (238) E.L.T. 3 (S.C.) to say that unless any of the elements of section 11AC of the Central Excise Act, 1944 is present, there shall not be penalty.
3. Revenue represented by Shri K.Veerabhadra Reddy (JC) AR, contends on the other hand that appellant was conscious of the applicability of the Circular dated 13.02.2003 to value the tools cleared to the job workers following that costing standard. That was not done. Therefore, beginning from Feb.03 to Nov.04 duty was payable by the appellant on the basis of assessable value of goods determinable following CAS-4 as applicable during that material period is unavoidable. When there is default in payment of duty, interest is also payable. So also, when appellant has conscious knowledge of applicability of the circular, to determine the value of the tools cleared following CAS-4, the appellant has deliberately not paid duty element for the period April 2003 to September 2004 till 18.01.2005, in terms of that cost standard itself indicates that the elements of section 11AC are present having undervalued the assessable value of goods cleared intentionally. Therefore, the authority rightly imposed penalty following the decision of the apex court in the case of Rajasthan Spinning & Weaving Mills cited above.
4. Heard both sides and perused the records. The issue that comes up for decision is on a short compass namely, that whether the duty liability was short paid before issue of the show cause notice on 05.01.2006, whether penalty is imposable on the appellants under Section 11AC of the Central Excise Act and whether there was deliberate undervaluation of goods for the material period, without following CAS-4.
5. To understand this issue, it would be useful to reproduce the provisions of Section 11AC as it existed during the period of dispute. Section 11AC was inserted in the Central Excise Act, 1944 w.e.f. 28.09.1996 by Section 76 of the Finance (No.2) Act, 1996 (33 of 1996). It was amended w.e.f. 12.05.2000 by Section 100 of the Finance Act, 2000. The said section as it existed during the period of dispute is reproduced as follows :
"SECTION 11AC. Penalty for short-levy or non-levy of duty in certain cases. Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined :
Provided that where such duty as determined under sub-section (2) of section 11A, and the interest payable thereon under section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent. Of the duty so determined :
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :
Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty as reduced or increased, as the case may be, shall be taken into account :
Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty/five percent. of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect.
Explanation. - For the removal of doubts, it is hereby declared that (1) the provisions of this section shall also apply to cases in which the order determining the duty under sub-section (2) of section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;
(2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person."
[Emphasis added]
6. Section 11AC of the Act provides for levy of quantum of penalty equal to duty evaded, in the circumstances prescribed by that section. The moot question is whether on the issues as framed under para-4 aforesaid, whether the duty liability evaded paid up before issue of show cause notice, warrant levy of penalty equal to the amount of duty under Section 11AC ibid?
7. Applying the principles of interpretation to the Section 11AC ibid, the following will emerge :
i) The intention of Legislature: The section 11AC as mentioned above was inserted w.e.f. 28.09.1996 by Section 76 of the Finance Act, 1996. While commending to the legislature in the Central Excise Act, 1944,in the course of presentation of the Union Budget 1996 and Finance Bill, 1996, the relevant portion of the Budget Speech to this proposal is reproduced below :-
"I am proposing suitable changes in the Customs and Excise Acts to provide for mandatory penalty, together with interest, for evasion of duties on account of fraud, collusion, misstatement or suppression of facts. Henceforth, the mandatory penalty for evasion of duty on these counts shall be equal to the amount of duty evaded. "
ii) Thus, the intention of the Legislature in introducing Section 11AC was very clear, namely, to provide for a stringent and mandatory penalty for evasion of duties on following circumstances :
(1) Applicability : where any duty of excise has not been levied / paid, short levied/short paid/erroneously refunded (2) Qualifying factors : such short payment etc. has arisen by reasons of fraud (or) collusion (or), any willful misstatement (or) suppression of facts (or) contravention of any of the provisions of this Act or the Rules made thereunder, with intent to evade payment of duty
(iii) If any of these ingredients are present, the person who is liable to pay duty as determined under sub-section (2) of Section 11A ibid, shall also be liable to pay a penalty equal to the amount of duty so determined.
(iv) We do not find any room or liberty under Section 11AC for any discretion in the quantum of penalty. The section has very clearly laid down that when all the aforementioned conditionalities are satisfied, the person who is liable to pay duty as determined shall also be liable to pay penalty equal to the duty so determined.
8.1 The Jurisdictional High Court of Madras in the case of Arun Vyapar Udyog Pvt. Ltd. Vs CESTAT Chennai 2014 (306) ELT 130 (Mad.) has held that discharge of duty liability before issuance of show cause notice is immaterial for application of Section 11AC. The relevant paras of the said judgment are reproduced as under :
"6.?The Honourable Supreme Court in the decision of Union of India (supra) held that payment of differential duty, whether before or after the show cause notice is issued, cannot alter the liability for penalty and the condition for which are clearly spelt out in Section 11AC of the Central Excise Act. The Honourable Supreme Court pointed out that penalty under Section 11AC of the Central Excise Act, as the word suggest, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the Section. Therefore, the contention of the appellant that the duty was paid prior to issuance of show cause notice does not in any manner advance its case. The question that has to be considered is whether there is intention to evade payment of duty. The period which is subject matter of issue was 2001-02. The Enforcement Wing of the respondent Department visited the appellants factory on 23-12-2003 i.e., nearly after about two years after the relevant period i.e. 2001-02. In the course of such surprise inspection, the stock was verified and the accounts of the appellant were scrutinized. On such verification and scrutiny, it came to light that the appellant adopted a notional price in respect of consignment sales and they had admitted that there was some delay in receipt of sale patties from the consignment agents and the Director of the Company admitted the liability and accepted to pay the differential duty. The Original Authority after considering the materials placed before him pointed out that as declared in the invoices that the removals specified in the notice are towards consignment agents, the responsibility of paying differential duty lies with the noticee. The Original Authority further pointed out that when the appellant was conscious of the notional value for sale towards consignment agent, the responsibility of paying differential duty is rest on the appellant. More so, when they had earlier been paying differential duty for such consignment sales, the plea of the assessee was liable to be rejected. Admittedly, the matter would not have come to light but for the surprise inspection done by the Enforcement Wing of the respondent Department. If it was a genuine case where the appellant could not remit the differential duty on account of delay in receipt of sale patties, as soon as they have been received they ought to have remitted the differential duty. But that was not done and they intentionally withheld payment of differential duty for the subsequent period which clearly established that there was wilful intention to evade payment of duty.
7.?In the light of the above discussion, the question of law raised by the appellant viz., whether penalty and interest are leviable when duty has been paid before issuance of show cause notice has to be necessarily answered against the appellant in the light of the judgment of the Supreme Court in Union of India v. Rajasthan Spinning & Weaving Mills [2009 (238) E.L.T. 3 (S.C.)]. As regards the contumacious conduct of the appellant in wilfully evading payment of duty, we find no reason to interfere with the factual finding recorded by the Appellate Authority and confirmed by the Tribunal.
8.2 The Hon'ble Supreme Court has, on more than one occasion, considered the scope and extent of Section 11AC. In their land mark judgement in the case of Union of India Vs Dharmendra Textile Processors 2008 (231) ELT 3 (SC), the Apex Court held that no discretion is available on quantum of penalty under Section 11AC of the Central Excise Act, 1944. The Apex Court held that mens rea is immaterial for application of the Section 11AC of the Act. Authority imposing penalty has no discretion to reduce or waive penalty under any of the ingredients of section 11AC is present.
8.3 The Hon'ble Supreme Court again dwelt into the same issue in the case of UOI Vs Rajasthan Spinning & Weaving Mills 2009 (238) ELT 3 (SC), wherein the Apex Court touched upon the ratio of the judgment in Dharmendra Textile (supra) to clarify that Section 11AC would not apply to every case of non-payment or short payment of duty but conditions mentioned in Section 11AC ibid should exist for penalty thereunder. However, once Section 11AC is applicable, there would be no discretion available on quantum and penalty equal to duty may be imposed thereat. Relevant part of the said judgement is reproduced as under :
"23.?The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides."
8.4 The Hon'ble Apex Court in the Rajasthan Spinning judgment also clarified that payment of duty before or after notice cannot alter liability to penalty to Section 11AC, if applicable, observing as under :
"2.?What are the conditions and the circumstances that would attract the imposition of penalty under Section 11AC of the Central Excise Act (The Act, hereinafter)? In the two cases before us the Tribunal has taken the view that there was no warrant for levy of penalty since the assessees had deposited the balance amount of excise duty (that was short paid at the first instance) even before the show cause notice was issued. On the other hand, on behalf of the Revenue, the appellants in the two appeals, it was contended, relying upon a recent decision of this Court in Union of India v. Dharamendra Textile Processors, 2008 (231) E.L.T. 3 (S.C.) that mere non payment or short payment of duty (without anything else!) would inevitably lead to imposition of penalty equal to the amount by which duty was short paid. In our view the reason assigned by the Tribunal to strike down the levy of penalty against the assessees is as misconceived as the interpretation of Dharamendra Textile is misconstrued by the Revenue. We completely fail to see how payment of the differential duty, whether before or after the show cause notice is issued, can alter the liability for penalty, the conditions for which are clearly spelled out in Section 11AC of the Act."
8.5 The ratio propounded in Dharmendra Textile and Rajasthan Spinning & Weaving Mills judgements (supra) was relied upon subsequently also by the Apex Court in their following judgements:
(1) CCE Mumbai Vs Sunil Silk Mills 2011 (267) ELT 438 (SC) (2) CCE Kolkata Vs Praxair India Pvt. Ltd. 2012 (278) ELT 579 (SC)
8.6 The ratio of Dharmendra Textile Processors (supra) was also followed in a very recent judgement of Supreme Court in the case of CCE Chandigarh Vs Stesalit Ltd. 2017 (3470E TL 385 (SC). The Supreme Court once again reiterated that under Section 11AC of the Central Excise Act, 1944, there was no discretion to reduce quantum of penalty. The Hon'ble Apex Court observed as follows :-
"14. As rightly argued by the learned counsel for the appellant, the issue urged herein was examined by three judge Bench of this Court in Union of India &Ors. v. Dharamendra Textile Processors &Ors. (supra). It was a reference made to examine the correctness of the two earlier decisions of this Court rendered in Dilip N. Shroffv. Jaint Commissioner of Income Tax, Mumbai & Anr., (2007) 6 SCC 329 = 2007 (219) E.L.T. 15 (SC) and Chairman, SEEI v. Shriram Mutual Fund &Anr., (2006) 5 SCC 361. Their Lordships examined the issue in detail and held that the law laid down in the case of Dilip N. Shroff (supra) isnot correct whereas the law laid down in the case of SEEI (supra) is correct. The following observations of Their Lordships are apposite which reads as under:
"15. The stand of learned counsel for the assessee is that the absence of specific reference to mens rea is a case of casus omissus. If the contention of learned counsel for the assessee is accepted that the use of the expression "assessee shall be liable" proves the existence of discretion, it would lead to a very absurd result. In fact in the same provision there is an expression used i.e. "liability to pay duty". It can by no stretch of imagination be said that the adjudicating authority has even a discretion to levy duty less than what is legally and statutorily leviable......."
"19. In Union Budget of 1996-1997, Section llAC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In Para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.
20. Above being the position, the plea that Rules 962Q and 9620 have a concept of discretion inbuilt cannot be sustained. Dilip Shroff case was not correctly decided but SEBl case has analysed the legal position in the correct perspectives. The reference is answered"
(emphasis supplied)
15. Applying the aforementioned law to the facts of this case, we are of the considered opinion that the Tribunal erred in reducing the amount of penalty from Rs. 2,06,000/- to Rs. 50,000/-. Indeed, the Tribunal, in our opinion, failed to take into consideration the law laid down in the case of Dharamendra Textile Processors (supra) which the Tribunal was bound to take while deciding the appeal and instead the Tribunal wrongly placed reliance on its own decision in the case of Escorts JCB Ltd. v. CCE - 2000 (118) E.L.T. 650 (Tribunal). We also find that the Tribunal gave no justifiable legal reasons for reducing the penalty amount."
9.1 To judiciously apply the above interpretation and settled law in respect of Section 11AC ibid, to the matter before us, the following aspects need to be critically examined :
(i) Whether the valuation was made in accordance with CAS-4 ?
(ii) Whether there was undervaluation of the assessable value for not following CAS-4 ?
(iii) Whether undervaluation was deliberate?
(iv) Whether there was deliberate short payment of duty resorting to undervaluation of assessable value ?
(v) Whether the deliberate undervaluation has resulted prejudice to the interest of Revenue and amounts to a fraud ?
(vi) Whether penalty under Section 11AC is leviable ? If so, the quantum of penalty leviable?
9.2 From the facts of the appeal, it is clear that period of dispute is April 2003 to November 2004. Circular No.692/8/2003-CX. Dt. 13.02.2003 had been issued by the Board to mandate that assessable value should be worked out as per Cost Accounting Standard-4 (CAS-4) method of cost accounting for the goods manufactured by the assessee and cleared to their job workers.
9.3 However, during the entire period of dispute, the goods moulds and dies, manufactured by the appellant though cleared on payment of duty, however, the assessable value thereof was not worked out in accordance with CAS-4.
9.4 The short payment of duty liability on account of non-adoption of CAS-4 value continued for as many as 22 months which resulted in differential duty liability amounting to Rs.60,18,344/-. Non-adoption of the CAS-4 value resulted in undervaluation of the assessable value.
9.5 Notwithstanding the guidelines on the manner of calculation of assessable, as per CAS-4, issued by Board on 13.02.2003, appellant did not adopt CAS-4 valuation. When any new procedural requirement is introduced, there would always be a transition period wherein the assessees may have some confusion or doubt on the procedural requirement. This is understandable. However, we certainly cannot relate to the contention of the appellant that delay in switching over to CAS-4 valuation was due to the reason that they had to collect particulars/details as per the CAS-4 method. A continued hiatus of "twenty two" months can in no way explain the conduct of the appellant. Discernably therefore, the appellants knowingly and willfully adopted lesser assessable/transaction value in contravention of Rules 4 & 8 of Central Excise (Valuation) Rules, 2000 read with Rule 8 of Central Excise (Valuation)Rules, 2000. Such undervaluation over a period of one and half years resulting in evasion of duty of Rs.60,18,344/- calls for levy of penalty. Appellants paid the differential duty liability only in January/February 2003, after around two years from the CAS-4 introduction, that too after intervention by the department. Contumacious conduct of appellant came to record.
9.6 Viewed in this context, undervaluation of assessable value by the appellant by not adopting CAS-4 valuation for as many as 22 months is nothing but a deliberate undervaluation with the intention of evading full duty liability required to be discharged under law. The acts and omissions of the appellant in this case are very much acts of fraud with intent to evade payment of duty.
9.7 The Hon'ble Apex Court in the case of S.P. Chengalvaraya Naidu v. Jaganath- AIR 1994 SC 853 described "fraud" as : "an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another's loss. It is a cheating intended to get an advantage".
9.8 In the case of T.Suryachandra Rao (2005) 6 SCC 149, the Hon'ble Apex Court observed as under :
"By "fraud" is meant an intention to deceive; whether it is from any expectation of advantage to the party himself or from ill will towards the other is immaterial. A "fraud" is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another's loss. It is a cheating intended to get an advantage.
9.9 From the above, we are in no doubt that the conduct of the appellants will surely come within the ambit of "Fraud", with deliberate intention to deceive and cause prejudice to the interest of Revenue.
9.10 Viewed in this light, we find that all the provisions of Section 11AC ibid will apply to this case, hence there cannot be any discretion in the imposition of penalty equal to the differential duty determined.
10. Appellant's other plea is that for an earlier period, dispute on non-payment of duty liability to the tune of Rs.1,29,62,003/- for the period Jan 1994-Dec 1998, came up before this very forum, and that vide Tribunal's Final Order No.611 & 612/2005 dated 11-3-2005, it was inter alia held that demand is not sustainable on time bar. However, on examination of the facts, what emerges is that the earlier controversy concerned non-payment of duty on tools cleared to job workers on the presumption that they would be eligible for Nil duty clearances under Notification No.67/95. But that issue was not related to CAS-4 valuation, which in any case was introduced only w.e.f.
13-02-2003. The allegations and modus herein are totally separate. Hence the case laws relied laying down that allegation of suppression for same issue cannot be raised for subsequent periods, will not help the appellant.
11. Conditionalities of Section 11AC being satisfied in the light of discussions herein above, and also drawing sustenance from the judgments of Hon'ble Supreme Court in Dharmendra Textile Processors and Rajasthan Spinning & Weaving Mills (supra), we have no hesitation in concluding that penalty equal to the duty determined, namely Rs.60,18,344/- is imposable on the appellant under Section 11AC of the Central Excise Act, 1944, as it stood during the relevant period. This being so, we do not find any infirmity in the impugned order for which appeal filed by appellant is dismissed.
(Pronounced in open court on 12.06.2017)
(MADHU MOHAN DAMODHAR) (D.N. PANDA)
TECHNICAL MEMBER JUDICIAL MEMBER
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E/00376/2007