Custom, Excise & Service Tax Tribunal
Phoenix Yule Ltd vs Coms,C.Ex - Kol-Iii on 19 June, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA
Excise Appeal No. 398/2008
(Arising out of Order-in-Appeal No.62/KOL-III/08 dated- 13.05.2008
passed by the Commissioner of Central Excise (Appeals), Kolkata-I)
Phoenix Yule Limited
Applicant (s)/Appellant (s)
Vs.
Commr. of Central Excise, Kol-III
Respondent (s)
Appearance:
Shri Hemant Jajodia, C.A. for the Appellant (s) Shri S. Mukhopadhyay, Supdt. (A.R.) for the Respondent (s) CORAM:
Hon'ble Shri P.K.Choudhary, Member (Judicial) Hon'ble Shri C.L. Mahar, Member (Technical) Date of Hearing:-19.06.2018 Date of Pronouncement:28-06-2018 ORDER NO. : FO/76376/2018 Per Shri C.L. Mahar Brief facts of the matter are that the appellant is engaged in manufacturing of Conveyor Belts falling under Central Excise Tariff Heading 40. The Conveyor Belts are being manufactured by the appellant for the various actual users and same are manufactured as per the specific design and requirement of their customers. It has been the contention of the Department that the appellant are engaged in manufacturing of Conveyor Belts as per specific requirements of their various buyers such as M/s. NTPC etc. The goods so supplied on order were tailor made as per Excise Appeal No. 398/2009 the specific requirements of the customer. Keeping in mind the specific requirements and specific needs of the customers for manufacturing the Conveyor Belts, the appellant have been undertaking work of drawing and engineering designing of such conveyor belts as per the specific requirements of various buyers. The appellant has been charging the buyers for drawing and engineering designing of such conveyor belts separately. The Department has been of view that the charges recovered by the appellant from their buyers should have formed the part of the assessable value under Section 4 of the Central Excise Act, 1944 as engineering designing and making drawing of same are intrinsic part of the manufacture of the product and thus of value of excisable goods i.e. Conveyor Belts.
2. On the above premise, a show cause notice came to be issued demanding differential Central Excise Duty of Rs.49,15,534/-. The Show Cause Notice had also asked for interest under Section 11AB and imposition of penalty as provided under Section 11AC of the Central Excise Act, 1944. The matter was adjudicated and above contentions of the Department were confirmed by the Additional Commissioner in his order- in-original dated 24th November, 2006. The Ld. Commissioner (Appeals) was also pleased to endorse the views of adjudicating authority in his order dated 13/5/2008 and now the appellant are before us against the above mentioned order-in-appeal.
3. The basic argument of the appellant against the impugned order-in- appeal have been that they have got themselves registered with Service Tax Department under the category of Engineering Drawing and Designing service and have been paying Service Tax on the amount charged/received by them from their various clients for work of 2 Excise Appeal No. 398/2009 engineering drawing and designing. It has also been the argument that they cannot be put to double jeopardy of taxation for the same activity by asking them for payment of excise duty on the same activity. The Ld. Advocate for appellant have agreed that on principle the charges for specific engineering drawing and designing recovered by them from the various buyers for manufacture and supply of specifically designed Conveyor Belts, should have formed the part of assessable value as per the provisions of Section 4 of Central Excise Act, 1944. However, since they have already discharged the duty under Service Tax as per the provisions of the Finance Act, 1994, same activity cannot be charged to central excise duty again.
4. The appellant have also contended that since they have been filing regular returns of service tax while paying the service tax, the Department was fully aware about the fact that they are engaged in the activity of engineering drawing and designing of various kinds of Conveyor Belts, however, the Department has never objected to the fact that they have been paying service tax on the designing charges and never asked the appellant to include these charges in the assessable value of their excisable goods and therefore, the invocation of extended time period under Section 11A is not justified as the element of fraud, mis- representation or suppression of facts etc. are absent in this case and therefore, the demand for extended period is not justifiable. At the same time, since elements of fraud, wilful misrepresentation and suppression of facts with intent to evade duty are not present in the case, the penalty imposed under Section 11AC of Central Excise Act, 1944 is also not justifiable on them. Ld. Advocate for the appellant have taken us through the judgement in case of K.R. Packaging Vs. Commr. of Central Excise and Service Tax, Meerut-I [2017 (51) STR 438 (Tri.-Del.) wherein this Tribunal has held that:
3 Excise Appeal No. 398/2009
" Though the activity undertaken by the appellant may amount to manufacture, however, since the Department has accepted the Service Tax paid by the assessee on the same activity, the Department cannot go back and ask for Central Excise duty on the same activity under the category of manufacture".
The relevant portions of K.R. Packaging (supra) are reproduced below:
"......3.From the record, it appears that during the period in dispute the assessee- appellants were paying regularly the Service Tax by declaring that the activity in question was merely a service. The Department had accepted the Service Tax without raising any objection. The assessee-appellants were having Service Tax registration and regularly submitting the half yearly returns for payment of the Service Tax. It is only on 30-3-2010 when the excise declaration was obtained by the assessee- appellants and prior to it, was subject to Service Tax. Further, the product manufacturer was availing the area based exemption.
4. It may be mentioned that it is the claim of the learned counsel for the assessee- appellants that once the banding activity covered within the scope of 'manufacturer' as per Section 2(f)(ii) and 2(f)(iii) of the Central Excise Act, 1944 read with Note 6 of Chapter 34 of the Central Excise Tariff, service element becomes secondary to principal manufacturing activity of banding and the appellant can no longer claim to be mere service provider as per the ratio laid down in the case of Vasantham Enterprises v. Commissioner of Central Excise, Chandigarh, 2015 (37) S.T.R. 1007 (T.-Del.). In this case, it was also observed that an incomplete declaration does not totally debar from eligibility to exemption after curing defects in said declaration, otherwise it would defeat the object of exemption. There is nothing on record to show any suppression of facts or intention to evade the duty by the assessee-appellants. Further, the Hon'ble Supreme Court in the case of Sambhaji v. Gangabai, 2009 (240) E.L.T. 161 (S.C.), has observed that :
"9. All rules of procedures are handmaids of justice. The language employed by the draftsman of processual (sic) law may be liberal or stringent, but the fact remains that the object of prescribing procedure is to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the opportunity of participating in the process of justice dispensation. Unless compelled by express and specific language of the statute, the provisions of CPC or any other procedural enactment ought not to be construed in a manner which would leave the court helpless to meet extraordinary situations in the ends of justice.
12. Processual law is not to be a tyrant but a servant, not an obstruction but an aid to justice. A procedural prescription is the handmaid and not the mistress, a lubricant, not a resistant in the administration of justice."
5.From the record, it appears that as per Section 2(f)(iii) which runs as under :
"which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or 4abeling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer."4 Excise Appeal No. 398/2009
It is vital to mention that in the instant case, the assessee-appellants were regularly paying the Service Tax and the Department had never raised any objection to the same for a considerable period, which implied that the Department was in agreement with the contention of the assessee-appellants that their packaging activity was taxable under the services rendered taxable by the Finance Act, 1994.
6.But the fact remains that as per the definition, it appears that the packaging activity done by the assessee-appellants did not fall within the ambit of 'packing services' and was, therefore, not liable for Service Tax by virtue of being "manufacture" as already discussed."
On the basis of above, they have contended that firstly, since the Department has already accepted the payment of Service Tax on the same activity of engineering drawing and designing therefore, they cannot ask the appellant for Central Excise duty on the value of the same by including it in the assessable value of their manufactured conveyer belts. Secondly, it has also been contended that since they have all along been filing Service Tax Return for the same activity with Department and therefore the charges of suppression of facts, mis-representation with intent to evade duty etc. are not invocable, therefore, no penalty can be imposed on them and the extended time period for demanding Central Excise duty under Section 11A also cannot be invoked.
5. The Ld. Departmental representative has vehemently opposed the arguments of the Ld. Advocate for the appellant and has contended the activity of manufacturing of the Conveyor Belts started with various buyers after negotiation with them and by ascertaining their specific engineering design requirements for each of them. The appellant had the required capabilities and know-how to make engineering designs for manufacture of the Conveyor Belts as per the specific requirement of the various customers.
6. In view of this, the Ld. Departmental representative contended that the charges of engineering drawing and designing are intrinsic to the manufacturing cost and assessable value of the manufactured goods and same are required to be included in the assessable value as per the 5 Excise Appeal No. 398/2009 requirements of Section 4 of the Central Excise Act, 1944. The Ld. Departmental representative has also relied upon the judgement in case of Idea Mobile Communication Ltd. Vs. Commr. of Central Excise & Customs, Cochin [2011 (23) S.T.R. 433 (S.C.)]. The contention of the Ld. D.R. has been that as per the above mentioned judgement of Hon'ble Supreme Court, the payment of tax under the wrong category does not absolve the assessee of responsibility of payment of Central Excise duty.
7. The relevant extract of the above mentioned judgement of Hon'ble Supreme Court is reproduced below:
"......18. The sales tax authorities have themselves conceded the position before the High Court that no assessment of sales tax would be made on the sale value of the SIM Card supplied by the appellant to their customers irrespective of the fact whether they have filed returns and remitted tax or not. It also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there is a liability to pay the same. If the article is not susceptible to tax under the Sales Tax Act, the amount of tax paid by the assessee could be refunded as the case may be or, the assessee has to follow the law as may be applicable. But we cannot accept a position in law that even if tax is wrongly remitted that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee. The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card."
8. We have heard both the sides and perused the appeal record. We are of the opinion that the assessable value of the manufactured products as provided under Section 4 of the Central Excise Act, 1944 includes all the cost elements which are prior to the clearance of the manufactured goods from the factory gate in the normal course of trade. In this case, 6 Excise Appeal No. 398/2009 since the engineering drawing and designing of the conveyor belts was to the specific requirements of each customer, for this purpose before undertaking manufacturing activity of conveyor belts, a detailed exercise were undertaken by the appellant with their customers/buyers to ascertain their requirements and then engineering drawing & design were made for manufacture of Custom made conveyor belts. We are of the opinion that such specific engineering design and drawing are pre-requisite for manufacturing the conveyor belts and therefore the value of such drawing and designs is intrinsic to the value of the product namely conveyor belts, manufactured by the appellant. Since these specific designs were pre-requisite for the manufacture and sale of their product ,therefore, the value of such engineering drawing and designing will certainly form the part of assessable value as provided under Section 4 of the Central Excise Act, 1944. Since this has not been done, we are of the view that the value of such engineering drawing and designing is includible in the assessable value of the manufactured products as demanded in the show cause notice.
9. In this regard we also take shelter of the judgement of this Tribunal in case of Paper Products Ltd. Vs. CCE, Mumbai-III [2005 (189) E.L.T. 248 (Tri-MUMBAI) which has also been endorsed by Hon'ble Supreme Court vide its order dated 12.7.2007 in the same matter [2007 (214) E.L.T. 161 (S.C.). It has been held by the tribunal in the above mentioned order that:
".......6.1 We have heard both the sides and found :
(a) The issue involved in this appeal relates to determine a simple fact, whether the amount recovered by debit notes on account of "Development and Maintenance of Design and Art work" are included in the invoice value of flexible packaging laminates. So far the legal position whether these charges are includible 7 Excise Appeal No. 398/2009 in the value of flexible packing or not there is no dispute in as much as the same are includible.
(b) from a perusal of various replies to the show cause notice submitted by the Appellant, as pointed out by the Jt. CDR. it is apparent that, the appellant has charged its stand from time to time. At times a plea has been taken these charges are not includible due to the fact these are reimbursed by the customers being the printing cylinder cost, and at times plea has been taken that these charges are not towards cost of the cylinders but for maintenance of printing cylinder.
(c) The appellant has now submitted that these charges are processing charges and are included in the cost of cylinder which has been amortised. In the cost sheets submitted by the appellant there is no mention of charges recovered by debit notes on account of "Development & Maintenance of Design and Art work". The annual report of the assessee itself says gravure printing involved image design and processing work. For the image design and art work, these charges have been recovered though this work could be done from outside advertising agencies. Photoengravings of design and art work on cylinder is a process which is done by a division of the appellant. The processing charges as mentioned in the invoice do not have a relation with the work of image design. In the cost sheets there is no mention of any charges recovered by debit notes. Hence, the cost sheets submitted by the appellant do not relate to amortization of charges recovered for "Development and Maintenance of Design and Art work" The customers of the appellants paid the price as reflected in invoice of flexible packaging and plus charges on account of "Development & Maintenance of Design and Art work". If the charges were included in the invoice value of the finished product no customer will pay these prices against such debit notes again. This would go to prove beyond doubt that the amount charged by raising debit notes on account of Development & Maintenance of Design and Art work are not incorporated in the value of finished product. We therefore accordingly uphold the order of confirmation of demand, as we find 8 Excise Appeal No. 398/2009 no evidence of the costs to have been amortised in full and recovered on invoice after payment of duty thereon."
10. The second question, which is before us for the decision, is since the assessee has already taken service tax registration for the same activity and have been paying service tax, whether they need to pay Central Excise duty again on the same activity and whether the charges of suppression, mis-statement, fraud or mis-representation are invocable in this case for demanding duty under the extended time proviso of Section 11A(1) of the Central Excise Act, 1944 and whether the penalty under Section 11AC is also imposable on them. In this regard, we are of the opinion that the tax under any statute is to be assessed and paid as per the requirement of that statute. Even though the assessee might have paid the tax wrongly under a different tax statute, it in fact does not satisfy the compliance of the statute under which the assessee is rightly required to pay his tax liability. This view has also been taken by the Hon'ble Supreme Court in the case of M/s. Idea Mobile Communication Ltd. (supra). The relevant extract of the Hon'ble Supreme Court's judgement is reproduced hereunder:
"......18. The sales tax authorities have themselves conceded the position before the High Court that no assessment of sales tax would be made on the sale value of the SIM Card supplied by the appellant to their customers irrespective of the fact whether they have filed returns and remitted tax or not. It also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there is a liability to pay the same. If the article is not susceptible to tax under the Sales Tax Act, the amount of tax paid by the assessee could be refunded as the case may be or, the assessee has to follow the law as may be applicable. But we cannot accept a position in law that even if tax is wrongly remitted that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee. The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card."9 Excise Appeal No. 398/2009
11. Thus, we hold that assessee appellant should have included the charges of engineering drawing and design in the assessable value of conveyor belts as per the provisions of section 4 of Central Excise Act, 1944. We also find that payment of service tax on the charges recovered from the buyer of engineering drawing & design is not a proper compliance of provisions of Central Excise Act, 1944 and thus short payment of central excise duty stands recoverable. Now we come to the question whether the provisions of Section 11A of Central Excise Act, 1944 demanding duty under the extended time proviso are invocable in this case or not ?
12. Before going to the above question let us have a relook at the facts of the matter. It is a matter of record that the appellant have taken registration for service tax under the category of engineering drawing and designing and have been filing the service tax return paying service tax periodically with the department.
13. The Section 11A (1) under the proviso provides that "where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or of the Rules made there under with the intent to evade payment of duty, the period of demand is extendable upto five years.
14. In view of the above provisions, we find that for invoking the extended time proviso under Section 11A of the Central Excise, we need to find whether the elements of fraud, collusion, mis-statement or suppression of facts with intent to evade duty was present or not. It is a matter of fact that the appellant is registered for service tax with the same 10 Excise Appeal No. 398/2009 department and is regularly filing their service tax return as well as service tax on the engineering drawing and designing service. We also find that there is no element of mis-statement or suppression or fraud on the part of appellant with an intent to evade central excise duty. It is a matter of record that on the same service, the appellant have duly discharged the service tax liability and all the returns were before the Department and therefore we are of the view that in this case the elements required for invoking extended time proviso are not present and thus the extended time proviso under Section 11A of Central Excise Act, 1944 is not invocable. While forming the above view, we have also considered following judgements of Hon'ble Supreme Court in the case of Collector of Central Excise Verses H.M.M. Limited 1995 (76) ELT 497 (S.C.) wherein it is held that :
"There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been noticed or that the assessee was guilty of willful mis-statement or suppression of fact. In the absence of such averments in the show cause notice it is difficult to understand how the Revenue could sustain in the notice under the proviso to Section 11A (1) of the Act."
The Apex Court in the case of M/s. COSMIC DYE CHEMICAL Versus Collector of Central Excise, Bombay [1995 (75) ELT 721 (S.C. ), held as under:
"Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e. , intent to evade duty is built into these very words.So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word "wilful" preceding the words "mis-statement or suppression of facts" which means with intent to evade duty. The next set of words "contravention of any of the provisions of this Act or Rules" are again qualified by the immediately following words "with intent to evade payment of duty".
It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Mis-statement or suppression of fact must be wilful." In the case of M/s. CONTINENTAL FOUNDATION JT. VENTURE Versus COMMR. OF C. Ex., CHANDIGARH-I, [2007 (216) ELT 177 (S.C.) The Hon'ble Apex Court held as under;
11 Excise Appeal No. 398/2009
"The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement."
From the foregoing, we are of opinion that when department invokes the extended period, it need to necessarily substantiate the essential allegations to justify invocation of extended period under Section 11A (1) proviso. Thus, we find no enough justification for invoking extended time period for demand.
15. In view of above, we pass following order in the matter :
(i) We hold that the charges recovered by the appellant towards engineering drawing and designing for manufacture of conveyor belts of specific dimension and designs from their buyers are includible in the assessable value of their manufactured product as per the provisions of Section 4 of Central Excise Act, 1944.
(ii) We however, also hold that the extended time proviso under Section 11A (1) for demanding duty for five years is not invocable in this case as per the facts of the matter and therefore the central excise duty beyond a period of one year is not demandable.
(iii) In view of above (i) & (ii) we remand the matter back to the original adjudicating authority for a limited purpose of calculation and confirmation of Central Excise duty for the 12 Excise Appeal No. 398/2009 normal period of one year as per the provisions of Section 11A of Central Excise Act, 1944.
16. In view of above, the appeal is decided accordingly.
(Pronounced in the Court on 28/06/2018)
Sd/- Sd/- 28/6/18
( P.K.CHOUDHARY) (C.L. MAHAR)
Member (Judicial) Member (Technical)
k.b/-
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