Custom, Excise & Service Tax Tribunal
Morde Foods Pvt Ltd vs Cce Pune Ii on 8 November, 2019
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
EXCISE APPEAL NO: 86805 of 2015
[Arising out of Order-in-Original No: PUN-EXCUS-002-PR.COM-004-15-16
dated 16th June 2015 passed by the of Principal Commissioner of Central Excise,
Pune - II.]
Morde Foods Pvt Ltd ... Appellant
55/1, Victoria Building, Dr. BA Road, Byculla,
Mumbai - 400 027
versus
Principal Commissioner of Central Excise ...Respondent
Pune - II, ICE House, 41A Sassoon Road, Pune 411001 APPEARANCE:
Shri Rohan P Shah, Sr Advocate with Shri Arihant Tater, Chartered Accountant, and Ms Mitika Baghel, Advocate for the appellant Shri RK Dwivedi, Additional Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE DR SUVENDU KUMAR PATI, MEMBER (JUDICIAL) FINAL ORDER NO: A/87045 / 2019 DATE OF HEARING: 10/05/2019 DATE OF DECISION: 08/11/2019 PER: C J MATHEW Though in this challenge of M/s Morde Foods Pvt Ltd to order-
in-original no. PUN-EXCUS-002-PR.COM-004-15-16 dated 16th June E/86805/2015 2 2015 of Principal Commissioner of Central Excise, Pune-II, the grounds of appeal exhaustively plead that the impugned order has erred on determining higher duty liability, that computation itself is erroneous and that the imposition of penalty is improper, the submissions of Learned Counsel are restricted to the bar of limitation on recovery by notice dated 24th December 2014. It is contended that the duty liability, with other detriments, on past clearances beyond the normal period of limitation would not lie. Accordingly, the arguments of Learned Authorised Representative are similarly limited and we restrict our findings to that plea alone.
2. The appellant is a manufacturer of 'sugar and sugar confectionery' and 'chocolates and other food preparations' which, with effect from 24th December 2008, were required to discharge duty liability under section 4A of Central Excise Act, 1944. Admittedly, while the appellant does clear their manufactured products to 'industrial' and 'institutional' buyers which are specifically excluded from the purview of Legal Metrology Act, 2011, it was the case of central excise authorities that packages, bearing the inscription 'For Industrial Use/Institutional Use As Raw Material Not For Retail Sale', were also being sold to ultimate consumers, assessed by reference to section 4 between 1st December 2009 and 31st August 2014, and not to the applicable section 4A, of Central Excise Act, 1944 entailing differential duty of ₹ 4,06,47,261, along with interest thereon under E/86805/2015 3 section 11AB of Central Excise Act, 1944, besides imposition of penalty under section 11AC of Central Excise Act, 1944.The evidence relied upon for the diversion of goods claimed to have been intended for industrial or institutional use are the statements of the distributors of the appellant as well as of their own directors and employees.
3. As a preliminary, it was informed, on behalf of the appellant, that duty liability of ₹ 1.65 crores had been discharged before the issue of show cause notice. Learned Counsel submits that the dispute turns on an interpretation of the applicability of the alternate system of evaluation prescribed in Central Excise Act, 1944 and which was itself subject to the provisions of the Legal Metrology Act, 2011 and its predecessor statute. It is also submitted that the audit of the transactions was conducted annually and that this would preclude resort to the allegation of having suppressed, or misrepresented, facts pertaining to clearance of manufactured goods. Clarifying that the goods were being cleared to the retail market by affixing, and assessing on the basis of, 'retail selling price' from 12th September 2013, it is also contended that circular no. 625/16/2002-CX dated 28th February 2002 of Central Board of Excise & Customs would give impression that assessment under section 4A of Central Excise Act, 1944 was not warranted. It was pointed out that, even though the packages kept at the premises of the distributors were available for inspection, the statutory authorities, under the Legal Metrology Act, 2011, did not consider such to be a E/86805/2015 4 violation and, therefore, it would appear that requirement of 'retail selling price' was not mandated. For this, he made elaborate submissions by reference to provisions of Legal Metrology Rules, 2011 and the intent which is implicit in the rule 2(k) therein.
4. According to Learned Counsel, there have been different interpretations placed by different High Courts which could justifiably have confused the appellant on the applicability of the relevant provisions of Central Excise Act, 1944. He drew attention to the decision of the Hon'ble High Court of Bombay in Larsen & Toubro Ltd v. Union of India [2012 (275) ELT 153 (Bom)] that '15. The petitioners' submission is that the packaged goods sold will cease to be a retail package if they are not meant for use by the ultimate consumer. The expression shall not include industrial or institutional consumer as set out in proviso to Rule 2(p). The explanation of industrial or institutional consumer as contained in Rule 2A being restricted to the rule would not be applicable. The words industrial or institutional consumer under the proviso to Rule 2(p) it is submitted will have to be given its normal dictionary meaning. It is only if Rule 3 applies, would the action of the respondents in attaching the petitioners' packages be legal, otherwise it would be illegal.
It is in that context that we have to understand the expression ultimate consumer as set out in the definition of retail package or retail sale in the context of industrial or institutional consumer. The definition of retail sale, is sale for consumption by individual or group of individuals or any other consumer.
E/86805/2015 5 Retail package is defined to mean packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of the commodity contained therein. The object therefore appears to be disclosure of the sale price to a customer for consumption, whether such consumer be individual, group of individual but excludes industrial or institutional consumer. An industrial consumer who purchases a retail package by retail sale would be normally a consumer in the absence of the proviso. The question is who are the industrial or institutional consumers under the proviso to Rule 2(p) who are excluded from the definition of ultimate consumer. Can there be a distinction between a consumer who directly purchases the product and consumes the product or a consumer who purchases the product say for individual use or an industrial consumer for making another product, say a switch board and who does not fall within the explanation to Rule 2A namely a purchaser not purchasing directly from the manufacturer or packer. Are such consumers excluded from the expression ultimate consumer as set out in the proviso to Rule 2(p) or other consumer as set out in Rule 2(q) or for that matter consumer under Rule 2(o). That the package is a pre- packed commodity in no longer res integra after Whirlpool (supra). Therefore, Chapter II would apply only to pre-packed packages. Rule 2A excludes certain consumers like institutional and industrial as set out therein and as already explained. The petitioners however, want this Court to accept the submission that apart from industrial and institutional consumers as excluded by explanation to Rule 2A, there are also other consumers both industrial or institutional who if they buy retail packages from the retail dealer as in the instant case from their stockists, if they are not ultimate consumers, to them also Chapter 3 would not apply.' and if the Hon'ble High Court of Karnataka in EW AC Alloys Limited E/86805/2015 6 v. Union of India [2012 (275) ELT 193 (Kar)], with particular reference to '30. Therefore, a harmonious reading of these provisions, keeping in mind the object with which the Act is passed, it is reasonable to arrive at the conclusion that the meaning assigned to industrial consumer and institutional consumer in the explanation 2-A cannot be attributed to the meaning of those consumers in proviso to Rule 2(p). Rule 2(p) and Rule 2- A operate in distinct and separate fields. Therefore, the object is very clear. This Act is meant only for an individual consumer or a group of individuals who purchase packaged commodities from a retail dealer. To protect their interest, this Act and Rules are enacted and compliance of Rule 6 was made mandatory. The proviso contained in the definition of 'retail package' as per Rule 2(p) defines the ultimate consumer, which shall not include industrial or institutional consumers. Therefore, it is clear that the protection under this Act is confined only to individuals and persons who are eking out livelihood by self employment and not to institutional and industrial consumers or consumers who purchase goods in large quantities. Therefore, requirement of Rule 6 is not required to be complied with by a manufacturer who sells his packaged goods to an industrial or institutional consumer through a stockist.'
5. It is further contended that the issue itself is not beyond legal doubt as is apparent by the reference to Larger Bench in State of Maharashtra v. Subhash Arjundas Kataria [2012 (275) ELT 289 (SC)].
6. Referring to the decision in Schneider Electrical India (P) Ltd v.
E/86805/2015 7 Commissioner of Central Excise [2014-TIOL-337-CESTAT-MUM] that '29.4.3 In the present case, the appellant have deliberately contravened the provisions of Standards of Weights and Measures Act and the Packaged Commodity Rules made thereunder. Therefore, they have to suffer the consequences of the contraventions. For such contraventions the appellant cannot claim benefits under the provisions of Central Excise Act by holding that the appellant was not liable to discharge excise duty under Section 4A of the Central Excise Act. In the present case, a deliberate contravention of the Standards of Weights and Measures Act in utter disregard to the law was also a contravention under the provisions of Central Excise Act and these contraventions had been committed by the appellant with an intention to evade payment of legitimate Central Excise duty. In these circumstances, the invocation of extended period of time is completely justified and, therefore, the main demands made invoking the extended period of time is clearly sustainable.
29.4.4 The appellants also resorted to subterfuge by making mis-declarations on the packages that they are meant for industrial consumers and not for retail sale. There was no exemption under rule 34 of the PCR from declaration of MRP even if the goods were meant for industrial or institutional customers, if they were sold by numbers and displayed for sale by the stockists and retailers. The appellants' agreements with the stockists required the latter to display these goods for sale and the stockists have also confirmed this fact in their statements given before the investigating authorities. There is also no dispute that the appellants' goods are sold by numbers. Thus to circumvent the law, the appellants resorted to mis-
E/86805/2015 8 declarations, which clearly reveals their guilty mind. Thus the charge of suppression of facts and wilfull mis-statement of facts with an intent to evade excise duty is writ large and established beyond doubt. In such circumstances, invocation of extended period of time for demand of duty is completely justified and I agree with the findings of the ld. Member (Technical) in this regard.' Learned Authorised Representative submits that the declaration on the packages, demonstrating intent to suppress the actual targeted market, should warrant the consequence. Further, according to him, the instructions pertaining to filing of returns under the different types of clearances required separate indication and the failure to do so cannot be attributed to ignorance. It was further submitted that the invoice price-based assessment was itself faulty in that the appellant had given specific directions on the markup for retail sale. It was submitted that the conduct of audit is not defense against the invoking of the extended period as that is based on a desk review and not the actual situation pertaining in a factory of clearance. It is also submitted that the statements of the director, as well as the employees, on applicability of Legal Metrology Act, 2011, and its predecessor statutes, do not give room for any doubt of the deliberate intent with which the clearances were effected. Indeed, according to him, the manner in which the director had conceded the enhancement of assessable value reinforces the case of the central excise authorities. Reliance has been placed by him on the decision in DSP Merrill Lynch Limited v. Commissioner of E/86805/2015 9 Service Tax, Mumbai [2016 (44) STR 436 (Tri. - Mumbai)] '5. At first glance, the case seems to be badly time barred in view of the fact that the demand for the period October, 1998 to March, 1999 was held to be time barred by the Tribunal in its Order appearing at 2007 (7) STR 59 (Tri.-Mumbai). But on a close reading of the judgment, we find that it was delivered on the basis that the High Court had directed CBEC to clarify the position, which was done in June, 2001. In the circumstances, it was held that respondent could not have known that the services rendered were in the nature of Management Consultancy Services. We find that in the case of Steel Cast Ltd. (supra), the invocation of longer period of limitation was rejected on the ground that a lot of confusion prevailed on the relevant issue during the relevant time. The facts in the present case are at variance with the facts in the judgments cited. Here we find that, amongst many petitioners who may have represented to the Board in pursuance of the High Court Order 7-11-2000, one petitioner were the appellant. In pursuance to the High Court Order, the CBEC gave a clarification dated 27-6-2001 stating that the said services are in the nature of Management Consultancy Services. Having received this clarification in pursuance of High Court Orders, the appellant who themselves had approached the High Court cannot turn their back to the High Court directions and now take a stand that the confusion was still prevailing and, therefore, they could not deposit the tax for the period April-June, 2001. We may even say that this would, in a way, amount to not complying with the spirit of High Court's Order. It is a different matter that the Banking service was introduced from 1-7-2001, which covered under its ambit the various financial services rendered by the appellant. But the question remains why the appellant after pursuing with E/86805/2015 10 the High Court which ordered the CBEC to issue a Circular which was done, chose not to pay service tax under the category of Management Consultancy Service for the period April-June, 2000. The answer of the ld. Counsel is that the despite these events, extended time period cannot be invoked because of all activities were in the knowledge of the department. We are unable to appreciate this response for the reason that even if activities are rendered by the appellant, the department does not know whether the activities are performed and payments for all the activities were received during the period April-June, 2000. This knowledge can only be sourced from the ST returns. It must be appreciated that in the returns no payments are shown to have been received prior to April, 2000. Therefore, Department had no knowledge that services continued to be rendered during April-June, 2000. A legal obligation is cast upon the appellant to declare the value of taxable services under ST-3 Returns. Unless assessees enumerate the value of services rendered in the ST-3 Returns, department cannot dream that the service tax was not paid. Even in a normal case, for an assessee who renders various services, the department comes to know of the value of services received only through the ST-3 Returns for a particular period. In case the ST-3 Returns do not indicate value of certain services, it will amount to suppression of facts. In the present case the appellant had declared the value of financial services for the period July, 2000 onwards in the ST-3 return for the period April-September, 2000, but they failed to declare the value of services rendered during the period April-June, 2000 in the same return. The system of service tax payment is such that department can check the factum of value of services only from what is declared in the ST-3 returns. In the present case, the fact that services having value were rendered became known to the department only when audit was conducted in 2002, and it was then discovered that the appellant had failed E/86805/2015 11 to declare the value of services rendered during the period April-June, 2000. Therefore, the judgments cited by the ld. Counsel cannot be relied upon in the facts of the present case.
5.1 The judgment in the case of HSBC Securities and Capital Markets (I) P Ltd. was delivered in a similar context. The relevant portion of the judgment is:
"We have gone through the said order. It appears that a public notice was issued on 18-2-2001 and in response to that certain agencies have represented and it is in that context that the said order was issued to clarify the doubts of such agencies. Appellants have not produced any evidence which indicate that they had such doubt and for they have approached the departmental authorities for clarification about their Service Tax liability on this aspect. In fact, after issue of the clarification 37-B Order, it was the duty of appellant to pay the tax for the past period (at least normal period) or challenge the order.
In the present case, it was the duty of the appellant to pay the tax for April-June, 2001 after receiving Board's clarification dated 27-6-2001 which was issued on the directions of the Hon'ble High Court of Bombay.
5.2 The judgment in the case of Nizam Sugar Factory was delivered in a different context. The issue there related to the duty on production of impure carbon doixide emerging as a bye-product. A show cause notice was issued for the period February, 1978 to September, 1982 on 28-2-1984. Subsequently, another show cause notice was issued covering the years 1982-1983 to 1986-1987 invoking the extended time period. The Hon'ble Apex Court held that once the first show cause notice was issued, the second show cause notice could not be issued invoking the extended time period as the facts were already in the knowledge of the authorities. Whereas in the present case it is not known to the authorities that the appellants are continuously providing all the services. It is on E/86805/2015 12 record that the said services were not provided even prior to April, 2000. Further the value of services for the period July- September was declared in the ST-3 returns filed for the period April-September, 2000. But the value of services for the period April-June was not declared in the same ST-3 Return which is the statutory return. This non-declaration certainly amounts to suppression of facts and the contravention of the Service Tax Statute/Rules with intent to evade payment of duty. It was all the more obligatory on the part of the appellant since they had pursued the matter in the High Court who directed CBEC to issue a clarification which was done on 27-6-2001. It can even be said that the spirit of the Bombay High Court order was not followed by the appellant. Therefore, in our considered view, the extended period of limitation is invokable in the present case.'
7. We take note that statutory authorities for enforcement of Legal Metrology Act, 2011 have not initiated any action against the appellant herein. The contents, or lack thereof, in the returns prescribed under Central Excise Rules, 2000 does not find, a place in the impugned order or the show cause notice.
8. It is seen from the impugned order that elaborate submissions had been made on the aspect of limitation and, as pointed out by Learned Counsel, these appear to have been disposed of cursorily thus '34. Whether there is any willful suppression of material facts, on the part of the assessee in this case and whether extended period of limitation is invokable to demand short-paid Central Excise duty for the period beyond one year, in terms of proviso to Section 11A(U/ E/86805/2015 13 Section 11A(4) of the Act, as the case may be:
In this regard, I find that the assessee have, interalia, contended that, they have been audited by the Central Excise authorities on multiple occasions, but no objections were found on the valuation of the goods removed by them; that the department was well aware of the products manufactured by them and cannot contend that they were not aware that the goods manufactured by them were covered under the MRP provisions; that therefore, the Department now cannot contend that they have suppressed information, when they have been filing timely returns and has duly made all disclosures required under law; that they rely upon the decisions in the following cases viz. Commissioner of Central Excise & S.T. Vs. Kartik Engineers Pvt. Ltd. [2014 (308) E.L.T. 550 (Tri.- Ahmd); SDL Auto Pvt. Ltd. Vs. CCE [2013 (294) E.L.T. 577 (Tri.- Del.)]; Suvikram Plastex (P) Ltd.
Vs. CCE [2008 (225) E.L.T. 282 (Tri. - Bang.)]; that therefore, the SCN is barred by limitation and is liable to be set aside.
34.1 However, I find that the aforesaid contentions of the assessee are not tenable. In this era of self-assessment regime, the assessee is expected to take utmost care while assessing and removing the goods manufactured by them. In spite of the heavy onus cast upon them, the assessee have wrongly assessed the goods manufactured by them and cleared the same to their distributors/dealers under the provisions of Section 4 of the Act although such goods were being sold in 'retail packages' 'for retail sale' as discussed in the preceding paras, and hence were required to be assessed under Section 4A of the Act.
34.3 In this regard, I find that the assessee are engaged in E/86805/2015 14 two types of sales - one directly to the industrial / institutional consumers and the other to distributors/dealers, who are engaged in 'retail sale' of these products, as discussed in the preceding paras. However, the goods cleared to their distributors/dealers were marked "For Industrial Use/ Institutional Use As Raw Material. Not For Retail Sale", although the assessee were aware of the fact that these goods were being sold by their distributors/dealers in retail to the "ultimate consumer' for their own consumption. I find that this is a clear cut case of mis-declaration, and these facts were never in the knowledge of the department until the same was detected by the Officers of DGCEI and therefore, the department is well within its right to invoke larger period for demanding the differential Central Excise duty in respect of such clearances made by them by suppressing the facts, under the provisions of proviso to Section 11A(1) / Section 11A(4) of the Act, as the case may be, and I hold so. In this regard, I place reliance upon the decision of the Hon'ble CESTAT in the case of- M/s. Bombay Dyeing 6b Mfg. Co. Pte. Ltd. Vs. CCE, Mumbai - 1999 (113) ELT 331 (Tri.) - wherein it is held that 'where assessee is in such knowledge and where the department have no knowledge of the situation, the department can allege suppression of facts ......'' '
9. Limitation is to be decided on the facts of each case. The appellate authorities can only adjudge whether the facts have been appreciated properly and applied against established law. The adjudicating authority does not appear to have applied its mind to this essential aspect that has a bearing on the outcome of the process initiated by the show cause notice. In the circumstances, we consider it appropriate to set aside the impugned order and remand the matter back E/86805/2015 15 to the original authority for a fresh decision on this sole aspect after granting an opportunity to the appellant to be heard on all the submissions made before us.
10. Appeal is accordingly disposed off.
(Order pronounced in the open court on 08/11/2019) (C J Mathew) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) */as07110811