Custom, Excise & Service Tax Tribunal
Divya Dyeing &Amp; Export Pvt Ltd vs Cce Belapur on 14 June, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT No. I
APPEAL No. E/585/2010
(Arising out of Order-in-Appeal No. YDB/115/Bel/2009 dated
14.10.2009 passed by Commissioner of Central Excise (Appeals),
Mumbai-II)
Divya Dyeing and Export Pvt. Ltd. Appellant
Vs.
Commissioner of Central Excise, Belapur Respondent
Appearance:
Shri R.V. Shetty, Advocate, for appellant Shri S.J. Sahu, Assistant Commissioner (AR), for respondent CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial) Hon'ble Mr. Sanjiv Srivastava, Member (Technical) Date of Hearing: 14.6.2018 Date of Decision: 14.6.2018 ORDER No. A/86939/2018 Per: Sanjiv Srivastava The appeal is directed against the order in appeal dated 14.10.2009 of Commissioner (Appeal) Central Excise Mumbai Zone II dated 14.10.2009. By the said order Commissioner (Appeal) has upheld the order in original dated 20.12.2007 of Additional Commissioner Central Excise, Belapur.
2 E/585/2010 2.1 Appellant is engaged in the processing of manmade fabrics on job work basis for various manufacturers/ merchant exporters. During course of audit undertaken by the department it was found that major job work undertaken by the Appellant was for their sister concern namely M/s Divya Textiles, Mumbai. It was also noticed that the machinery valued at Rs 1,62,28,661/- (One Crore Sixty Two Lakhs Twenty Eight Thousand Six Hundred and Sixty One) used for doing the said job work was owned by their sister concern. As per the agreement 29.03.2000, the same has been installed in the premises of Appellant for processing of fabrics. After the expiry of the period of agreement period on 31.08.2001, the machinery continued to be installed in their premises. Initially the appellants made the free use of said machinery and thereafter purchased the same. In the financial records of the appellant the said amount of Rs 1,62,28,661/- to be paid by them towards the purchase of the said machinery from their sister concern was shown outstanding even on 31.03.2003, and against the said outstanding amount no interest was also being paid or required to be paid. After protracted enquiries, appellant gave the information in respect of the said machinery as follows-
3 E/585/2010 i. free usage of machinery for the period from 01.09.2001 to 31.08.2002;
ii. purchased by the appellant vide invoice no 1 dated 01.09.2002 and invoice no dated 1.12.2002 for an amount of Rs 1,62,28,661/-;
iii. payment against the said purchases made was done in thirteen installments and full payment being made on 31.03.2005;
iv. no interest was paid by them in respect of the delayed payment of the said amount to their sister concern.
2.2 It was also observed the job charges recovered by the appellants from their sister concern were considerably lower than the job charges, charged from the other customers. Hence department was of the view that job charges, charged by the appellant from their sister concern were influenced for the reason of free use of the machinery allowed by the sister concern initially and subsequently interest free outstanding amounts in the book of accounts towards the purchase of the said machinery. Hence a show cause notice demanding duty, by enhancing the value of job charges by the interest on the outstanding amounts during the periods of free usage to the actual date of payment in terms of Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods), 2000 was issued to them. Since 4 E/585/2010 essential facts with regards to the said free usage and purchase of the said machinery from the sister concern were suppressed from the department extended period of ,limitation was invoked for making the demand. 2.3 The show cause notice was adjudicated by the adjudicating authority. Adjudicating authority confirmed the demand of Rs 10,17,138/- (Rupees Ten Lakhs Seventeen Thousand One Hundred and Thirty Eight Only) [Rs 6,65,700/- (Central Excise Duty) + Rs 3,50,575/- (Additional Duty of Excise) + Rs 773/- (Education Cess)]. He ordered for recovery of the said amount confirmed along with interest at applicable rate. He also imposed a penalty of Rs 10,17,138/- (Rupees Ten Lakhs Seventeen Thousand One Hundred and Thirty Eight Only) on the Appellant under Section 11AC of the Central Excise Act.
2.4 Commissioner (Appeal) has in his order upheld the order of Adjudicating Authority hence this appeal before the tribunal.
3.0 Have heard Shri R V Shetty, Advocate for the Appellant and Shri S J Sahu, Assistant Commissioner (Authorized Representative) for the department. 3.1 Relying on various decisions of this tribunal and other authorities, Advocate for Appellant argued 5 E/585/2010 that notional interest on advances cannot be included in the assessable value. He further submitted that in the present case larger period of limitation for demanding the duty could not have been invoked as he was not required to disclose the information in respect of the said interest free advances to the department. He also contended against the imposition of penalty. The decisions relied upon by the appellant are as listed in table 1 below:
Table 1: Decisions Relied by the Counsel for Appellant CCE Mumbai IV Vs Damnet 2007 (216) ELT 3 (SC) Chemicals Pvt Limited Pahwa Chemicals Pvt Ltd 2005 (189) ELT257 (SC) Vs CCE Delhi Guest Keen Williams Ltd Vs 2007 (218) ELT596 (T) CCE Kolkata II Ujjagar Prints Etc Vs Union 1989 (39) ELT 493 (SC) Of India Mech Form Vs CCE Daman 2014 (309) ELT 493 (T) CCE Mumbai III Vs Paper 2009 (242) ELT 98 (T) Products Ltd CCE Mumbai III Vs ISPL 2003 (154) ELT 3 (SC) Industries CCE Coimbatore Vs Shanti 2007 (219) ELT 211 (T) Gears Ltd.
Hindalco Industries Ltd Vs 2003(161) ELT 346 (T) CCE Allahabad Denso Kirloskar Industries 2005(190)ELT204(T) Pvt Ltd Vs CCE Bangalore Metachem Metal Industries 2005(191)ELT 392(T) Vs CCE Kolkata I Commissioner Vs Laxmi 2004(163)ELTA65(SC) Precision Tools Ltd.
Motorola India (P) Ltd Vs 2007 (209) ELT 86 (T) CCE Bangalore Escorts JCB Ltd Vs CCE 2002 (146) ELT 31 (SC) Delhi II Commissioner Vs FAMM 2007(217)ELTA77 (SC) Ltd Commissioner Vs Midi 2015(320)ELTA333((SC)
6 E/585/2010 Extrusions Ltd Commissioner Vs Lloyds 2005(189)ELTA67(SC) Steel Industries 3.2 Arguing for the department learned Authorized Representative submitted that in the present case the fact that interest free advances in form of making free usage of the machines without payment of the cost of machine to the sister concern has influenced the job charges charged by the appellant from the sister concern. Definitely these charges were considerably lower than the job charges, charged from other similarly placed clients. In terms of Rule 6 of the Valuation Rules 2000, the value shall be deemed to be the aggregate of the transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. It is also a fact that Appellant has suppressed the information in respect of the free usage of machine etc., from the department and hence extended period as provided for in section 11A has been rightly invoked in this matter. He relied upon the decisions as in table 2 in support of his arguments:
Table 1: Decisions Relied by the Authorized Representative Mehta Exports Vs CCE 2009 (247) ELT 394 (T) Suresh Parshuram Cokhale 2013 (298) ELT 175 Vs CCE Pune (Bom) Denso Kirloskar Industries 2005(190)ELT204(T) Pvt Ltd Vs CCE Bangalore 7 E/585/2010 Ujjagar Prints Etc Vs Union 1989 (39) ELT 493 (SC) Of India CCE Vs International 2010 (253) ELT 502 (T) Bakery Products Ltd Leamak Healthcare Pvt Ltd 2014 (310) ELT 575 (T) Vs CCE ITW India Ltd Vs CCE 2015 TIOL 504 CESTAT MUM Jay Cee Auto Fab India (P) 2010 (260) ELT 263 (T) Ltd Vs CCE CCE Vs Hindustan National 2016 9132) ELT 193 & Glass Industries Ltd (SC) Lear Automotive India Pvt 2014 (3110 ELT 65 (T) Ltd Vs CCE & ST
4.0 Have considered the submissions made. With effect from 01.07.2000, the scheme of valuation under Central Excise was changed and transaction value was made the assessable value for the purpose of levy of excise duty. Simultaneously the valuation rules were also amended and new set of rules named Central Excise Valuation (Determination of Price of Excisable Goods), 2000 introduced. In terms of the rule 6 of said rules, following is provided-
"Rule 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.
Explanation 1 - For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied 8 E/585/2010 directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely : -
(i) value of materials, components, parts and similar items relatable to such goods;
(ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods;
(iii) value of material consumed, including packaging materials, in the production of such goods;
(iv) value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods.
Explanation 2. - Where an assessee receives any advance payment from the buyer against delivery of any excisable goods, no notional interest on such advance shall be added to the value unless the Central Excise Officer has evidence to the effect that the advance received has influenced the fixation of the price of the goods by way of charging a lesser price from or by offering a special discount to the buyer who has made the advance deposit.
Illustration 1. - X, an assessee, sells his goods to Y against full advance payment at Rs. 100 per piece. However, X also sells such goods to Z without any advance payment at the same price of Rs. 100 per piece. No notional interest on the advance received by X is includible in the transaction value.
9 E/585/2010 Illustration 2. - A, an assessee, manufactures and supplies certain goods as per design and specification furnished by B at a price of Rs. 10 lakhs. A takes 50% of the price as advance against these goods and there is no sale of such goods to any other buyer. There is no evidence available with the Central Excise Officer that the notional interest on such advance has resulted in lowering of the prices. Thus, no notional interest on the advance received shall be added to the transaction value."
5.0 In terms of the said Rule 6, money value of additional consideration received in any form has to be added the transaction value to arrive at the assessable value. In terms of explanation 2 appended to the said rule, notional interest on advances will have to be added to the transaction value only if the advanced received has influenced the fixation of price/ transaction value in respect of the customer who has tendered such advance. The explanation also provides that the test for determination whether such advance has influenced fixation of price/ transaction value with in respect of such customer can be charging of lower price for the same good from him in comparison to other customers. The said principle which has been incorporated in the Rule 6 of Valuation Rules of 2000, has been approved by the Apex Court and tribunal in series of decisions as follows:
i. Metal Box India Ltd Vs CCE [1995 SCC (2) 90] 10 E/585/2010 "10. So far as Contention 2 is concerned, it is true that Ponds (1) Limited was almost a wholesale buyer of the appellant's goods, namely, metal containers manufactured by it as it was lifting 90 per cent of the total production of the appellant. For that purpose huge amounts were being advanced free of interest by Ponds (1) Limited to the appellant. When Ponds (1) Limited was given 50 per cent discount from normal price then the material aspect that Ponds (1) Limited had advanced large amounts free of interest had necessarily entered into consideration between the parties.
Therefore, special treatment was given by the assessee to Ponds (1) Limited. It has to be appreciated that if Ponds (1) Limited had not given these amounts, the appellants would have been required to borrow these amounts for purchasing raw materials and other accessories from outside like banks etc. and would have been required to pay large amounts of interest which naturally would have got reflected in the purchase price to be charged from the buyers as it would be a part of cost of production which was to be passed on to the customers of the appellant's goods. It has been laid down by Section 4(1)(a) that normal price would be price which must be the sole consideration for the sale of goods and there could not be other consideration except the price for the sale of the goods and only under such a situation subsection (1)(a) would come into play. If the price in a particular transaction is not the sole consideration flowing directly or indirectly from the buyer to the assessee- manufacturer, either in cash or any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods. In these circumstances the Tribunal was perfectly justified in upsetting the decision of the Collector and confirming the decision of the Assistant Collector when 11 E/585/2010 the latter held that notional rate of interest on the advances given by the wholesale buyer, Ponds (1) Limited, to the appellant should be reloaded in the price so as to reflect the correct price of the goods sold by the appellant. The Tribunal was right when it considered the fact that after agreement entered by the appellant with Ponds (1) Limited, the appellant got large amounts of Rs 75 lakhs in 1980, Rs 100 lakhs in 1981 and Rs 200 lakhs in 1982 free of interest and these advances were maintained at the 95 same level on the first working day of every month as specifically provided for in the agreement column 9 as the special agreement between the parties and it had a direct impact on the pegging down of purchase price which ultimately was charged by the appellant from the wholesale buyer, Ponds (1) Limited. The said price charged by the appellant from Ponds (1) Limited could not be said to be normal price of containers on account of extraneous reason, namely, that a favoured treatment was given to Ponds (1) Limited which had given such large amounts to the appellant free of interest for purchasing raw materials and accessories for manufacturing the containers which were ultimately sold by the appellant to Ponds (1) Limited. The Tribunal has also noted the reasoning of the Assistant Collector on this aspect to the effect that the extent of such deduction in the price can reasonably be attributed to the interest amount payable on the advance which M/s Metal Box India Limited had obtained from any other source with interest-bearing loan, would have been loaded on the cost of manufacture and sale price of the metal containers naturally increasing the concessional price charged from Ponds (1) Limited.
11. On the facts on record, therefore, it must be held that the Tribunal was perfectly justified in taking the view that charging a separate price for the metal containers supplied to M/s Ponds (1) Limited could not 12 E/585/2010 stand justified under Section 4(1)(a) proviso and, therefore, to that separate price charged from the Ponds (1) Limited, the extent of benefit obtained by the assessee on interest-free loan was required to be reloaded by hiking the price charged from M/s Ponds (1) Limited to that extent. Contention 2 also, therefore, fails and is rejected."
ii. CCE Mumbai III Vs ISPL Industries [2003 (154) ELT 3 (SC)] "7. Shri R.P.Bhat, learned senior counsel appearing for the Revenue submits that amount of advance taken by a manufacturer from its customers free of interest and such money being utilized for the purposes of manufacture of the goods, entails profit to the manufacturer to the extent of interest which would have been paid by the manufacturer to the bank. The benefit which accrues to the manufacturer amounts to profit to him, liable to be added in the assessable value of goods. Such buyers advancing money are favoured buyers, enjoying special concession or benefits at the hands of the manufacturer to the detriment of the revenue. He has taken us through the order passed by the Commissioner of Central Excise where it has been observed that price charged from a favoured buyer would not be a normal price. Therefore, notional interest on the interest free advance taken from the favoured buyer would justifiably be added to the assessable value. We find that reliance has been heavily placed upon the decision reported in 1995 (75) ELT P.499 = 1995 (2) SCC P.90, M/s.Metal Box India Ltd. Vs. Collector of Central Excise, Madras. The facts in the case of the Metal Box are that Ponds (India) Ltd. has been buying about 90% of the total production of metal containers manufactured by the assessee. For 13 E/585/2010 the said purpose huge amounts were being advanced by Ponds (India) Ltd. free of interest to M/s.Metal Box. In its turn the assessee gave 50% discount in price, as compared to the normal price, to Ponds (India) Ltd. This Court while dealing with the question observed "when Ponds (I) Limited was given 50 per cent discount from normal price then the material aspect that Ponds (I) Limited had advanced large amounts free of interest had necessarily entered into consideration between the parties. Therefore, special treatment was given by the assessee to Ponds (I) Limited.
" It is further observed, had Ponds (I) Limited not given the advance, the assessee would have borrowed the same for purchasing the raw materials etc. from banks on which large amount of interest would obviously have been paid which in turn would have got reflected in the purchase price to be charged from the buyers as amount of interest payable to the banks on the loan would be part of cost of production passed on to the customers of the assessee. It has been held : "Section 4(1)(a) that normal price would be price which must be the sole consideration for the sale of goods and only under such a situation subsection (1)(a) would come into play. If the price in a particular transaction is not the sole consideration flowing directly or indirectly from the buyer to the assessee-manufacturer, either in cash or any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods."
We therefore, find that the main basis of adding the notional interest in assessable value of goods was on account of interest free loan which factor was responsible for determination of price between the parties namely, discount of 50% i.e. the price other than the normal price. There came to be two prices one for those who may not have advanced any interest free 14 E/585/2010 loan to the manufacturer and the other for Ponds (I) Limited which was a bulk purchaser to the extent of nearly 90% of the production for which purpose advance was also made available to the manufacturer without interest. The fact of interest free loan, has direct nexus with price fixation at a lower amount than the normal price.
8. The other case on the point which has been relied upon by the learned counsel for the respondents is reported in 1998(2) SCC 24, VST Industries Ltd. Vs. Collector of Central Excise, Hyderabad. The appellant in that case carried on business of manufacture and sale of cigarettes exigable to excise duty. The goods manufactured by them were sold in wholesale. The main dealers would sell the cigarettes to the wholesalers. The appellants sold the goods on cash- and-carry basis as well as by extending credit facility to some of its main dealers. Since it was felt that there was delay in remittances of the amount on account of sale on credit, the manufacturers introduced a credit facility scheme under which such main dealers were to make interest free security deposit equivalent to about 21 days of their normal monthly purchases. They could also purchase the goods on cash basis as well, if they so desired. The other dealers who were not availing of the credit facility as well as those availing of such facility, the goods were sold to both at the same price. That is to say no special concession or discount was given to those who deposited interest free security for credit facility. The revenue, however, served a notice under Rule 5 of the Valuation Rules, 1975 for adding the notional interest on the security amount advanced interest free, so as to arrive at the normal price of the goods. This Court negated the case of the revenue for reloading the assessable value by adding notional interest on the amount of interest free advance deposited as security by some of the dealers. One of 15 E/585/2010 the main considerations was that uniform price was being charged by the manufacturer from all its dealers. That is to say the price was not influenced by the fact of interest free security deposit made by dealers availing the credit facility. This Court also observed that the case of Metal Box (supra) is clearly distinguishable since in that case lesser price was being charged from M/s.Ponds (I) Limited as compared to other buyers. Therefore, one of the relevant factors would be as to whether the price is affected by the fact of interest free advance or remains uniform for all. If the price is not influenced by the fact of interest free advance, there would be no occasion to contend that the price charged uniformly from both sets of the buyers would still not be a normal price.
11. It is clear that the mere fact of making an interest free advance by a buyer to the manufacturer, by itself will not be a sufficient ground to reload the assessable value with notional interest. It would be necessary for the revenue to show that such advance has influenced in the lowering of the price and that it is not depicting the normal price of the goods. There may be different reasons for taking advances, as indicated above in the earlier part of this judgment. Learned counsel for the appellant submits that all that the revenue has to show is that interest free advance has been made by the buyer to the manufacturer which would lead to a presumption that it is to the advantage of the manufacturer having influenced the fixation of price as well. We, however, fail to appreciate the submission made on behalf of the revenue for drawing a presumption that fixation of price is influenced by such an advance. In this connection, we may refer to the Board's circular of 1998 quoted earlier, clause (iii) of which clearly provides that if there is no difference in the selling price for both categories of the wholesale buyers and there is also "no proof" that on account of 16 E/585/2010 advance deposits taken from some buyers, the price charged from all buyers has been reduced, then element of notional interest on advance deposits, cannot be added. Obviously, where there are two prices, one for those who have made the advance and the other who have not, it would require no further proof of the lower price having been influenced by the interest free advance made by the buyer. But otherwise it would require proof and the proof for the purposes of holding that interest free advance has influenced the price would obviously be provided by the revenue. There is no scope for any such presumption as canvassed on behalf of the appellant. We find the same position to be continued in the later amendment in the Rules of 2003 referred to above. As in illustration 2, it talks of evidence to show that interest free advance has resulted in lowering of the prices. The departmental circulars and the amendments in the Rules at the relevant time and subsequently too, do not envisage of any presumption to be drawn by mere fact of interest free advance by the buyer to the manufacturer. It requires proof and evidence to show that fixation of price has been influenced on the lower side by such a transaction of interest free advance."
6.1 In the present case there is no dispute on the facts that Appellant was making use of the machinery supplied to it by sister concern without making any payment towards the purchase of machine for the period under dispute. Neither they had paid any interest in respect of the amounts to be paid as price for the purchase of the said machine. Though they had been 17 E/585/2010 using the machinery from 1.09.2001 the complete payment in respect of the same was made in thirteen installments upto 31.03.2005. It is also an admitted fact that appellant has not paid any interest to the sister concern against the delay in the payment of the amount towards the purchase of such machinery. Thus amount due to be paid against the said machinery was nothing but an interest free advance given by the sister concern to the appellant. Thus in terms of Rule 6, the notional interest due in respect of these advances need to be added to the transaction value for determination of the assessable value if it can be shown that the these interest free advances have influenced the transaction value in respect of the sister concern and the job charges charged from them were lower than the job charges in respect of other customer.
6.2 In the show cause notice it has been stated that "It was seen during the course of the EA 2000 Audit that the job charges charged by the assessee to M/s Divya Textiles for processing of the fabric were on the lower side as compared to the job charges charged from other customers. Hence it appears that the job charges were influenced by the free use of the machinery of M/s Divya Textiles by the assessee and the subsequent interest free sale of such machinery by M/s Divya Textiles to the 18 E/585/2010 assessee as no interest had been charged towards delayed payment of such huge outstanding amount against the purchase of the said machines." 6.3 After consideration of the submissions made by the Appellant leaned adjudicating authority, found that "16. I find that assess has not submitted any evidence that their processing charges for Divya Textiles were not lower as compared to other. Thus this allegation in the show cause notice is correct." The appeal filed by the Appellant before Commissioner (Appeal) was dismissed by Commissioner (Appeal) for non compliance with the stay order asking appellants to pre-deposit 50% of duty deposit.
6.4 Against the said order of dismissal appellant filed the appeal bearing No E/868/08 along with stay application bearing No E/S/1422/08. The said stay application and appeal was disposed by this tribunal vide order 6/10/2018. While disposing of the appeal, asking appellants to make pre-deposit as ordered by the Commissioner (Appeal), Tribunal observed in para 8 "On perusal of the records, we find that the allegations in the show cause notice are that the applicant has charged lower job work charges to the suppliers of machinery, i.e. Divya Textiles. On a specific query from the Bench, the 19 E/585/2010 Counsel could not produce any evidence to show the job charges are same as charged the other job workers. In the absence of any records, it is difficult to come to a conclusion to come to a conclusion that the applicant has charged the same job work charges to all." 6.5 Again in the proceedings before the Commissioner (Appeal), appellant failed to substantiate and produce evidence to the effect that the job charges from the sister concern and other customers were identical. During the course of argument of the present appeal, counsel for appellant was specifically asked to substantiate and produce evidence in this regards which he failed to produce.
6.6 During the course of hearing both counsel of appellant and also authorized representative of revenue had referred to a plethora of case law, mentioned in para 3.1 and para 3.2 above. There is no doubt with regard to the legal preposition sought to be established by the said decisions. In para 5.0 references has been made to the two leading decisions of the Apex Court and Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rule, 2000 wherein the same preposition has been laid down. However Counsel has not been able to establish from the facts in hand, that 20 E/585/2010 the said preposition can support the case of party. In absence of any evidence that can show that Appellant were charging same job charges from their sister concern and other similarly placed customers, following the said decisions, we have to hold that in the present case interest free advances have influenced the transaction value between them and their sister concern. Accordingly notional interest on such advances have to be added to the transaction value for determination of the correct assessable value in terms of Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
7.1 On Limitation Counsel for appellant relying on the Apex Court decision in case of CCE Mumbai IV Vs Damnet Chemicals Pvt Ltd [2007 (216) ELT 3 (SC)] and Pahwa Chemicals Pvt Ltd Vs CCE Delhi [2005 (189) ELT 257 (SC)] argued that extended period of limitation cannot be invoked in this case as they have not willfully suppressed any fact from the department and they had no intention to evade payment of duty. Thus they challenged the finding of the Commissioner (Appeals) and Adjudicating Authority on this account. It is a fact on record that the matter came to light only when the unit was audited. Thereafter enquiries were made by the department from the appellant and as recorded in para 21 E/585/2010 2 of the Show Cause Notice the entire details were made available only after protracted communications. 7.2 It is recorded in the show cause notice that "During the checking of the financial accounts of the assessee as on 31.03.2003 the amount of Rs 1,62,28,661/- payable to M/s Divya Textiles on account of purchase of aforesaid machines remained outstanding against the assessee and no interest was paid by the assessee to M/s Divya Textiles for free use of the machines and subsequent delayed payment of the purchase price as mentioned above. Enquiry was therefore made and assessee was asked by the Range Supdt to furnish information about the free use and interest free purchase of the said machines, the details of the amount outstanding financial year wise against purchase of the said machines and the details of payment made for such purchase. Upon repeated requests and reminders, the assessee furnished payment particulars vie their letter dated 14.03.2006. In the said letter, the assessee furnished the information regarding then exact period of free use and details of the subsequent period of interest free delayed payments against the said machines. However the said information did not contain full particulars about the payments made for purchase of the said machine and further information 22 E/585/2010 was furnished by the assessee vide their letter dated 17.05.06. It was seen from the information furnished by the assessee that the machines valued at Rs 1,62,28,661/- were being used by the assessee from 01.09.2001 to 31.08.2002 without paying any consideration to M/s Divya Textiles. The said machines were subsequently purchased by the assessee for Rs 1,62,28,661/- vide Invoice no 1 dated 01.09.2002 and No 2 dated 01.12.2002. It was further seen that the purchase price was paid by assessee to M/s Divya Textiles in 13 installments and the full payment was finally cleared only by 31.03.2005 as per the payment ledgers submitted by the assessee."
7.3 Honourable apex court in the case of Madras Petro-Chem Ltd. [1999] 108 ELT 611 (SC) relied upon by the Revenue would squarely apply. In the said decision, the honourable apex court had held as follows:
"14. The proposition of law as laid down is not in dispute. We find in the present case as aforesaid, a clear finding was recorded that the petitioner was aware and was obliged to file RG 1 Register, gate passes and also of clearances in the RT 12 returns by disclosing the particulars which was not done in the present case. The finding recorded in this case, especially in the background that this was a case of self removal procedure in which there is obligation cast on the assessee to make proper and correct declaration and entries in the production register RG 23 E/585/2010
1. Further finding was that it was not by inadvertence. There could be no other inference if it was not by inadvertence, then deliberate, then it is not in the realm of inaction of the assessee but with the objective of a gain, which in other words would be conscious withholding of the information. Thus unhesitantly we conclude, on the facts of this case, proviso to section 11 would be applicable, hence, show-cause notice is held to be within time."
7.4 Applying the above ratio to the facts of the case before us, the invocation of extended period of time to confirm the tax demand cannot be faulted at all and we hold accordingly. The Honourable High Court of Gujarat in Salasar Dyeing and Printing Mills P. Ltd. v. Commissioner of Central Excise and Customs, Surat-I [2013] 290 ELT 322 (Guj) has held that:
"15. Upon reading the relevant provisions contained in section 11A of the Act, it becomes clear that in the case of duty which has not been levied or paid, or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion, wilful misstatement, suppression of facts, etc., period of service of notice on the person chargeable with such duty would be five years instead of one year provided in normal circumstances. Nowhere does this provision refer to the period of service of notice after fraud, collusion, wilful misstatement or suppression, etc., comes to the knowledge of the Department. In simple terms, the Department could recover unpaid duty up to a period of five years anterior to the date of service of notice when the case falls under the proviso to sub-section (1) and 24 E/585/2010 such omission is on account of fraud, collusion, wilful misstatement, etc."
7.5 Further Hon'ble Apex Court has in case of C.C.E.,Visakhapatnam vs M/S.Mehta & Co [2011 (2) SCR 874] has held-
"24. The cause of action, i.e., date of knowledge could be attributed to the appellant in the year 1997 when in compliance of the memo issued by the appellant and also the summons issued, the hotel furnished its reply setting out the details of the work done by the appellant amounting to Rs. 991.66 lakhs and at that stage only the department came to know that the work order was to carry out the job for furniture also. A bare perusal of the records shows that the aforesaid reply was sent by the respondent on receipt of a letter issued by the Commissioner of Central Excise on 27.2.1997. If the period of limitation of five years is computed from the aforesaid date, the show cause notice having been issued on 15.5.2000, the demand made was clearly within the period of limitation as prescribed, which is five years."
7.6 In case of Usha Rectifier Corpn (I) Ltd. Vs. Commissioner of Central Excise [(2011) 11 SCC 571] held as follows-
"12. Submission was also made regarding use of the extended period limitation contending inter alia that such extended period of limitation could not have been used by the respondent. The aforesaid contention is also found to be without any merit as the appellant has not obtained L-4 licence nor they had disclosed the fact of manufacturing of the aforesaid goods to the 25 E/585/2010 department. The aforesaid knowledge of manufacture came to be acquired by the department only subsequently and in view of non-disclosure of such information by the appellant and suppression of relevant facts, the extended period of limitation was rightly invoked by the department."
7.7 Hon'ble Supreme Court has in case of Dharam Pal Satya Pal[(2005) 4 SCC 337] held as follows:
"It was urged that the assessee was under a bonafide impression that no duty was leviable on the goods; the full quantity of disputed goods was used captively and, therefore, proforma credit / modvat credit was available in respect thereof and, therefore, there was no intent to evade payment of duty. In support of the aforestated submissions, it was urged that suppression or breach of rules by itself would not amount to intention to evade; that some positive act of deliberate suppression or breach of rules was required to be shown by the department; that, if the assessee showed that credit available to it was equal to the demand then there may not be the case of intention to evade payment of duty. In this connection, reliance was also placed on the judgments of this Court in Amco Batteries Ltd. v. Collector of Central Excise, Bangalore reported in 2003 (153) ELT 7; Padmini Products v. Collector of Central Excise reported in 1989 (43) ELT 195; and Formica India Division v. Collector of Central Excise reported in 1995 (77) ELT 511.
We do not find merit in the above contentions. In this matter, we are concerned with the application of the above judgments to the facts of this case. The words "wilfulness" and "intent" in section 11A are expressions of mental state at the time of manufacture and clearance of the goods. The situs of the levy of central 26 E/585/2010 excise is on manufacture. Pricing and value of clearances are matters specially within the knowledge of the assessee. As stated above, the assessee herein was in the business of manufacture of chewing tobacco and its preparations for last couple of years. In the course of business, the assessee had dealt with similarly situated traders. It was fully aware that those traders who produced similar compounds had their units licensed or registered and yet the assessee herein did not take steps to get the above two units, in which the impugned compound (kimam) was manufactured, registered or licensed. As stated above, it has been buying a similar kimam from various traders. These circumstances constituted evidence of suppression brought on record by the department in answer to which it was contended on behalf of the assessee that they were under a bonafide impression that the compound was not excisable and that the benefit of proforma and modvat credit together with the benefit of exemption under notification no.121/94 dated 11.8.1994 was substantially equal to the demand for duty herein and, therefore, there was no intention to evade payment of duty.
7.8 In view of above decisions and facts as narrated in Show Cause Notice, extended period of limitation as provided under proviso to Section 11A (1) has been rightly invoked.
8.0 Since taxes has not been paid when the demand of interest cannot be set aside. It is a settled law that interest is an absolute liability cannot be waived in any circumstances. Reliance is placed on decision of 27 E/585/2010 Hon'ble Bombay High Court in the case of CCE & C. Aurangabad Vs. Padmashri V.V. Patil S.S.K. Ltd. 2007(215) ELT 23 (Bom.) 9.1 Since in the present case tax has been evaded by resorting to fraud, suppression, mis-statement etc. penalty under Section 11AC is justifiable and accordingly upheld. As it is already proved that the noticee had suppressed the facts, the consequences shall automatically follow. Hon'ble Supreme Court has settled this issue in the case of U.O.I Vs Dharmendra Textile Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Apex Court in case of Ram Narain Popli v CBI [2003( 3 )SCC 641] wherein it was observed as under:
"The cause of the community deserves better treatment at the hands of the Court in the discharge of its judicial functions. The Community or the State is not a persona non grata whose cause may be treated with disdain. The entire community is aggrieved if economic offenders who ruin the economy of the State are not brought to book. A murder may be committed in the heat of moment upon passions being aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the community in the system to administer 28 E/585/2010 justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye, unmindful of the damage; done to the National Economy and National Interest, as was aptly stated in State of Gujarat v. Mohanlal Jitamalji Porwal and Anr., AIR (1987) 1321)".
9.2 Kerala High Court has in case of Assistant Commissioner of Central Excise Vs. Krishna Paduval 2006 (1) STR 185 (Ker) observed in para 11 as follows:
"11. The penalty imposable under S. 76 is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of S. 68 and the Rules made thereunder, whereas S. 78 relates to penalty for suppression of the value of taxable service. Of course these two offences may arise in the course of the same transaction, or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing value of taxable service, the person liable to pay service tax fails to pay. Therefore, penalty can certainly be imposed on erring persons under both the above Sections, especially since the ingredients of the two offences are distinct and separate. Perhaps invoking powers under S. 80 of the Finance Act, the appropriate authority could have decided not to impose penalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation of the said Section 29 E/585/2010 also. In any event we are not satisfied that an assessee who is guilty of suppression deserves such sympathy. As such, we are of opinion that the learned Single Judge was not correct in directing the 1st appellant to modify the demand withdrawing penalty under S. 76. Therefore, the judgment of the learned Single Judge, to the extent it directs the first appellant to modify Ext. P1 by withdrawing penalty levied under S. 76, is liable to be set aside and we do so. The cumulative result of the above findings would be that the Writ Petitions are liable to be dismissed and we do so. However, we do not make any order as to costs."
10.0 In view of above we do not find any merits in the appeal. Accordingly appeal is dismissed.
(Pronounced in court)
(Dr. D.M. Misra) (Sanjiv Srivastava)
Member (Judicial) Member (Technical)
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