Custom, Excise & Service Tax Tribunal
M/S Jaishree Packaging vs Cce, Chennai-I on 8 April, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal No. E/42572/2013
(Arising out of Order-in-Appeal No. 84/2013(M-I) dated 14-11-2013 passed by the Commissioner of Central Excise (Appeals), Chennai
M/s Jaishree Packaging, Appellant
Versus
CCE, Chennai-I, Respondent
Appearance:
Shri.R. Parthasarathy, Advocate, for the Appellant Ms. Indira Sisupal, AC (AR), for the Respondent CORAM HonbleShri P.K. Choudhary, Judicial Member Date of Hearing: 08/02/2016 Date of Pronouncement: 08/04/2016 Final Order No. 40592 / 2016 Per P. K. Choudhary M/s Jaishree Packaging, herein after referred to as the appellants was a partnership firm engaged in the manufacture of the corrugated cartons and boxes and were registered with the central excise department as manufacturer. The appellants availed cenvat credit for inputs used in relation to the manufacture of corrugated cartons and boxes etc. Due to certain contingencies in the business, the appellants leased out their factory building along with the machinery installed in the factory to M/s Jaishree cartons, (hereinafter referred to as lessee) by leave and license agreement date 14.04.2009.
2. The appellants had stock of raw materials in the form of kraft paper and also WIP (i.e partially processed cartons and boxes) which were also transferred to the lessee by raising sale bills, though there was no physical removal of inputs in the form of raw materials and WIP. The Appellant has also given a letter to the jurisdictional authorities of their intention to transfer the stock of inputs as well as WIP without payment of duty or reversal of credit as per Rule 10 of the Cenvat Credit Rules 2004. The appellants have also surrendered their central excise registration and the quantum of raw materials and WIP transferred on sale basis was utilized in the manufacture of the cartons and boxes by the lessee and also the same was accounted in the books of accounts and no objection was raised by the jurisdictional authorities.
3. At the time of the internal audit, it was indicated that the appellant ought to have reversed the credit in respect of stock of inputs and WIP which was transferred to the lessee by raising the sale invoices and further it was observed that the cenvat credit rules will be applicable only in respect of transfer of ownership of the company along with the assets and liabilities which was not so in the instant case. A Show cause notice was issued to the appellant demanding Rs 2,15,167 for the wrong availment of Cenvat credit on the inputs and semi finished goods and proposed penalty under Rule 15 of the CCR 2004. The appellant have put forth their contention before the adjudicating authority by way of Reply to show cause notice and vide order dated 29.07.2010, the Dy. Commissioner of Central Excise confirmed the demand to the tune of Rs.2,15,367/- being the CENVAT credit relatable to the quantum of input and WIP transferred to the lessee with an observation that Rule 10 of the CENVAT Credit Rules was not applicable in the instant case. A penalty of Rs.20,000/- under Rule 15 of the CENVAT Credit Rules was imposed. Aggrieved by the order, the appellant had preferred an appeal before the Commissioner (Appeals) wherein the order of adjudication was confirmed. Hence the present appeal.
4. The appellant was represented by Mr.R.Parthasarathy, Consultant and the Respondent was represented by Ms.IndiraSisupal, learned A.R. (AC).
5. The consultant submitted that the learned Commissioner (Appeals) has grossly erred in his conclusion that Rule 10 of the CENVAT Credit Rules which provides for transfer of inputs to another person without any requirement of reversal of credit would be applicable only in those cases of transfer of factory along with transfer of liability; that Rule 10(1) includes transfer of factory by a manufacturer to another site or transfer of factory is occasioned on account of change in the ownership or on account of sale, merger, amalgamation or transfer of factory to a joint venture with specific provisions for transfer of liabilities; that the stipulation of transfer of liability is applicable only in respect of transfer of ownership of the factory on account of sale, merger, amalgamation or joint venture; that Rule 10 provides for transfer of credit and also inputs even in respect of transfer of factory on account of lease of the factory and in the case of lease, there is no physical transfer of the location of the factory; that it was legally impossible to transfer the raw materials and WIP on lease since the same cannot be returned to the lessor in the event of termination of lease agreement; that the requirement of reversal of credit arises only when the inputs or WIP are removed from the factory and in absence of any such removal, no reversal of credit is legally required since the same are transferred to the lessee on sale basis which were duly accounted for in the books and were utilized for the manufacture of final products which were cleared on payment of duty; further reliance was placed on many judgements of the High Court and Tribunal and placed heavy reliance on the following rulings viz., Metzeller Automotive Profiles India Pvt. Limited, reported in 2004 (167) ELT 208 (Tri Del). The imposition of penalty was also contested.
6. On the other hand, the Learned DR reiterated the findings in the order in appeal and further placed reliance on the decisions in Majestic Auto Limited vs. Commissioner of Central Excise, Ghaziabad, reported in 2004 (173) ELT 145; Yee Kay Technocrat (P) Limited v. CCE, reported in 2013 (292) ELT 48; Pure Drinks Limited vs. Union of India, reported in 2012 (281) ELT 51 (Del)
7. Heard both sides. The issue involved is as to whether the transfer of unutilized credit by the appellant who is the lessor, on lease of capital goods and factory building and on sale of inputs is in order.
In the facts of the case, it is seen that the appellant have sold the inputs as such and at the same time the factory and capital goods have been let on lease. In this scenario, the question is as to whether the transfer of credit on inputs which are sold is in order.
8. The appellants relies on Rule 10 of the CENVAT credit Rules which according to me would not be relevant as there is lack of total transfer on lease. Only capital goods and factory buildings are involved in the lease agreement while the inputs have been kept out of the lease transaction separately. Since Rule 10 of the CENVAT Credit Rules is not applicable, it has to be seen independently, whether the transfer of Credit on the inputs which are not physically removed is in order.
Though there is no physical removal of such inputs, in my view the admitted position is that there is a sale which would invite raising an invoice and which would necessitate payment of duty equivalent to the credit taken.And the same could have been availed by the lessee to take credit. Therefore, whether there has been physical removal or not, fact remains that proper procedure has not been followed, though credit would have been available to the lessee. Hence, the issue is purely academic which cannot lead to raisingof a demand by the Revenue as there is no loss to the revenue.
9. The fact that the appellant lessor is a manufacturer utilizing the inputs and discharging on the final products is not under dispute. Therefore on purchase of the inputs, the lessee is entitled for the credit.
10. Coming to the case laws relied on by both sides, heavy reliance have been placed on the aspect of physical removal. The rulings rendered by various High Courts and Tribunals which are in favour of the Revenue and the assessee respectively, would in my view not be applicable for the aforesaid reason that there is no loss of revenue to the exchequer. Therefore, the impugned order is liable to be set aside. Duty demand is set aside. As there is no malafide, penalty is also set aside.
(Order Pronounced in the open court On.) ( P.K. CHOUDHARY) JUDICIAL MEMBER RKP 1