Custom, Excise & Service Tax Tribunal
) Tejas Networks India Ltd vs Commissioner Of Central Excise (St) on 2 August, 2013
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, SOUTH ZONAL BENCH
CHENNAI
Appeal Nos.E/277 to 279/08
[Arising out of Order-in-Original No. 10/2008 (C) dt. 28.3.2008 passed by the Commissioner of Central Excise, Pondicherry]
For approval and signature :
Honble Shri P.K. Das, Judicial Member
Honble Shri Mathew John, Technical Member
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not ? :
3. Whether the Members wish to see the fair copy of
the order? :
4. Whether Order is to be circulated to the Departmental authorities ? :
1) Tejas Networks India Ltd.
2) Shri Chakradhar Gandhi
3) Shri A.S.Narayanachar Appellants
Versus
Commissioner of Central Excise (ST) Respondent
Pondicherry Appearance:
Shri V. Balasubramaniam, Advocate For the Appellant Shri K.S.V.V. Prasad, JC (AR) For the Respondent CORAM :
HonbleShri P.K. Das, Judicial Member HonbleShriMathew John, Technical Member Date of Hearing : 02-08-2013 Date of Decision : 02-08-2013 FINAL ORDER No.40474-40476/2013 Per Mathew John
1. Three appeals arising from a common order are being disposed of by this order. The first appellant was a company manufacturing excisable goods during the period April 2003 to March 2006. The second appellant, Shri Chakradhar Gandhi, was Manager (Finance) of the first appellant company. The third appellant, Shri A.S.Narayanachar was Office Managerof the appellant company.
2. The appellant company was a manufacturer of optical transmission equipment such as STM N (N=1, 4, 16) commonly called as multiplexers. The first appellant was having one of their manufacturing units at Muthialpet, Pondicherry. In October 2005, they started another unit at Thavalakuppam and subsequently closed down the factory at Muthialpet. They were also having their registered office at Bangalore wherein their research centre was also located. Department received information that the appellant was clearing multiplexers under delivery challans without payment of excise duty to their different offices and also to various parties in different parts of the country. Officers conducted investigations in the matter for the period 01-04-2003 to 31-03-2006 and unearthed evidences showing such clearances. The appellants were issued with a Show Cause Notice demanding excise duty not paid and consequent interest and penalties on the three appellants. After adjudication there is a demand of Rs.3,27,08,295/- confirmed against the appellant-company along with appropriate interest. Further there is a penalty equal to the said amount imposed on the appellant company under section 11AC of the Act. Further penalties of Rs.2,00,000/- each have been imposed on Shri. A. S. Narayanachar and Shri. Chakrathar Gandhi under Rule 26 of Central Excise rules 1944. The appellant company had paid Rs. 1,78,67,340/- towards duty liability and Rs.10,68,267/- towards interest liability before the issue of Show Cause Notice. These amounts are appropriated against the demand in the adjudication order. Aggrieved by the adjudication order the appellants have filed this appeal before the Tribunal.
3. Removal excisable goods are held to be proved under three categories of clearances as follows:
(i) Goods cleared under challans showing purposes such as Field Replacement/ Advance Field Replacement/ Rework and Demo to their field offices and customers, involving short payment of duty amounting to Rs. 91,45,837/-;
(ii) Goods cleared for the purported purpose of testing involving short payment of duty amounting to Rs.1,94,92,177/-;
(iii) Goods cleared in the guise of consignments for making good goods short shipped under various invoices involving short payment of duty amounting to Rs.40,70,280/-.
4. The appellants are challenging the order on following grounds:
(i) The valuation of goods for goods cleared by them to their Bangalore office and field offices without payment of duty should be based on cost construction method rather than based on the value of comparable goods. They contend that each transaction has to be treated as an independent transaction of a different type of goods and the demand worked on the basis of price of comparable goods is not maintainable;
(ii) Demand of duty on removals for replenishments of short-shipments is not sustainable because Revenue has not proved receipt of consideration for such goods despatched;
(iii) Extended period of time cannot be invoked in this case.
5. The Ld Advocate for the appellant did not contest the fact that goods manufactured by the appellant company were cleared under challans for advance replacements, demo, testing, rework, replenishments to various offices of the appellant situated elsewhere, without payment of duty. He only contested that in respect of goods cleared on stock transfer basis were not marketable and if at all marketable, the value of such goods should be the value based on cost construction method and not value based on price of comparable goods. Ld. Advocate contests that the goods removed on stock transfer basis were not saleable either in the open market or to any specific customer. He contests that parts of goods were not saleable to any customer. The goods being equipment and customer specific, supplied only against purchase orders and subject to performance test, they could not have been used for any purpose except as replenishments for short shipments. So the goods were not saleable in the open market or to any other customers.
6. He relies on the following decisions:
(i) CCE Vs. Fizer India Ltd - 2008 (231) E.L.T. 642 (Tri. - Del.) (CESTAT);
(In this case, Revenue demanded duty on goods transferred to sister unit which prices were more than the price at which goods were sold to independent buyers)
(ii) Bharat Petroleum Corporation - 2007 (218) ELT 585 (T) (This case is about value of goods sold at administered prices)
(iii) IFB Automative (P) Ltd. -2006 (204) ELT 74 In this case, the goods transferred to other unit was cleared on payment of duty on transaction value from the second unit)
(iv) PCC Pole factory - 2003(158) ELT 429 SC (Here the PCC pole manufactured by Electricity Board was used in its business of transmission of electricity no sale to third party was involved)
(v) BSNL Vs. CCE 2007 (215) ELT 229 (This is an order at stay stage. Telephone exchanges were installed out of duty paid materials. The prima facie finding was that such telephone exchanges were not marketable)
7. He argued that the goods were cleared for research and development at Bangalore facility and for replacement for which no consideration was received and hence it is appropriate that Rule 8 of Valuation Rule is applied.He contests that each transaction has to be separately valued.
8. In respect of duty on removals for making good short shipments, the Ld. Advocate submits as follows:
(i) The department relied on the delivery challans for alleging removal of goodsbut other facts recorded in the delivery challans were ignored; that the goods had been clearedonly for replenishments of short shipments, cannot be ignored, and the reliance on delivery challans cannot be made on piecemeal basis.
(ii) No extra price was charged for the removals for replenishment of short supplies, as those supplies were made against the original purchase orders / related invoices on which duty had been fully discharged.
(iii) The department has not brought out any case that any extra price was charged on those clearances.
(iv) As the packing lists in all cases hadbeen prepared ahead of actual removals, the short shipments that occurred did not get reflected in thepacking lists.
(v) As the short shipmentswere not noticed immediately and noticed only at the time of actual installation, there was nowritten correspondences, and the fact of it was communicated over phone for rectifyingactionThe evidencegathered during the enquiry with the customers, did not bring in any evidence that thegoods supplied to compensate short shipments were actually sold and any price charged for it.
(vi) As admitted in the impugned order itself, the enquiry was not conducted for each delivery challan, and even in the selective enquiries made with the customers the versions varied. In particular, M/s. VSNL and M/s. Tata Tele Services, did not dispute the fact thatthere were short shipments, which could be noticed only during installation.
(vii) As admitted in the impugned order, the Appellants had accepted theduty liability in 45 cases where the supplies were made through their sales offices and thereis no reference to corresponding invoice no in the delivery challans.
(viii) There was not any enquiry caused delivery challan-wise to find out whether the goods removed under the delivery challans had actually reached the original customers or not.
9. In respect of extended period of time the Ld. Advocate submits that the department knew about the fact of clearances of goods without payment of duty by 31-03-2006 but they issued Show Cause Notice only by 01/11/2007 and hence the demand is time barred. He relies on the decision on the following decisions:
(i) Nizam Sugar Factory VS. CCE-2006 (197) ELT 465 (SC);
(ii) Gammon India Ltd Vs. CCE reported at-2002 (146) ELT 173 (Tri-Mum) as affirmed by the Hon. Apex Court as reported at Commissioner v. Gammon India Ltd. - 2002 (146) E.L.T. A313.
(iii) CCE Vs. Bhalla Enterprises-2004 (173) E.L.T. 225 (S.C.).
10. The Ld A. R. for Revenue submits that Rule 8 is applicable where the excisable goods are used in further manufacture of other articles. In this case the excisable goods were sold from the R&D Centre or field offices and there is no question of applying Rule 8 which reads as under:
RULE 8.?Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods.
11. He submits that the appellant was not using the goods in further manufacture of other articles either in the factory of manufacture or in their R& D laboratory at Bangalore. So this rule would not apply. He further submits that the case laws quoted by the appellant is applicable to a situation where the goods manufactured in the other unit is cleared on payment of appropriate duty on transaction value whereas is in this case the goods either disappeared at other offices or it were used for replacing defective parts. He argues that under Central Excise laws when goods are cleared for replacement of a defective part in an equipment earlier cleared on payment of duty, excise duty is payable on the part going for replacement because excise duty is on manufacture and payable on clearance. Even when goods are supplied free of cost excise duty is payable.
12. He further submits that mostly the evidence is to the effect that the appellant cleared goods on the pretext of
(i) Testing,
(ii) Replacements, or
(iii) shipments to make good short shipments.
13. The goods cleared for testing did not come back even after two or three years. The appellants were not able to explain where the goods had gone. So it is very clear that these goods were sold to different customers without payment of duty.
14. In the case of field replacements he submits that excise duty liability arises when goods are manufactured and cleared. Even in cases where there is no price realization excise duty is payable. So the argument of the appellant that excise duty need not paid in cases where additional price realisation is not proved is not a legally sustainable defence.
15. In the case of shipments to make good short shipments also he points out that the evidence is to the effect that the clearances were actually not on account of any short shipment but just a method for clearing goods without payment of duty. So long as manufacture and clearance are proved duty is payable. The challans clearly establish manufacture and clearance.
16. Further, he submits that the prices of goods were calculated on the basis of prices declared on delivery challan in cases where such prices were declared. In other cases prices of comparable goods were adopted and Annexure B(i) of SCN shows in details of invoice numbers of the comparable goods which were taken as basis. The appellants have not given any convincing reason why these prices could not be applied except for arguing that the price as per Rule 8 should have been adopted. He submits that this argument is not a legally maintainable argument.
17. The Ld. A. R. for Revenue relies on a few decisions and argues that extended period of time of 5 years from the date of knowledge is applicable in the cases involving suppression, mis-declaration and similar actions with intent to evade payment of duty. The decisions relied upon are,-
(i) CCE Vs. Kalvert Foods India Pvt. Ltd. - 2011 (270) ELT 463 (SC).
(ii) CCE Vs. Mehta and Co-2011(264) ELT 481 (SC)
18. We have considered submissions on both sides. Firstly, we note that the decisions cited by appellants as mentioned in para6 above has no relevance to facts of this case as may be seen from the facts of each case noted in the same paragraph. We agree with the argument of the Ld. A. R. that the goods cleared without payment of duty for which duty is now demanded cannot be considered as goods cleared to other units of the appellant for further manufacture of other excisable goods. These are cases of clearances for evasion of duty. In such circumstances valuation under Rule 8 will not apply and the value of comparable goods is correctly applied. The detailed work sheet annexed to Show Cause Notice shows that value for each clearance has been worked out separately for each transaction based on available data. During adjudication proceedings the appellant has not given any data to correct errors if any therein. So we donot see any merit in the argument of the first appellant in this matter.
19. One of the arguments of the appellant is that the parts in question which were sent out without payment of duty were suitable for use only by the customer to whom it was sent. Hence it has to be considered as not marketable. This is not a correct argument. For goods to be marketable it is not necessary that goods in question should be generally available in the market. Marketability does not depend upon the number of purchasers. This is the finding of the Hon Apex court in A.P. State Electricity Board Vs. CCE-1994 (70) E.L.T. 3 (S.C.). Huge machineries as also small parts of one machinery may be designed to the order of one customer and such item may not be useful to others. Still such goods will be considered as marketable. This contention has no merit.
20. The question whether short shipments and subsequent replacement to make good the short shipment was genuine or not is a question of fact rather than law. The main defence given is that the appellant has not realized any extra money is not a good defence when an allegation with evidence to prove clearance without payment of duty sufficient to shift burden of proof to the appellant was presented. In view of the findings given in para 28 of the adjudication order, we are of the view that the second consignments sent on the pretext of goods short shipped were clandestinely removed. Excise liability does not depend on realisation of money but on manufacture and removal. Evidence as presented shows clearance the same goods twice. So the defence should have been with reference to their books of accounts showing manufacture and removal. No such defence is attempted. Further, we find that the appellant has been freely removing goods under the pretext of testing to be done, replacement of defective pieces etc without payment of duty and proper accounting of the goods after testing etc. So in the case of short shipment also we are of the view that this is only a method adopted for clandestine removal and not cases of genuine supplies to make good short shipments. We also note that there are far too many such cases which indicates malpractice rather than genuine mistake.
21. The argument of the first appellant that SCN was issued after one year from the date of knowledge and hence time barred is not a legally correct argument. Section 11A of Central Excise Act provides time limit from the relevant date as defined therein. As per provisions in this section date of knowledge by the department is not the relevant date in any situation. If that be the case the question will arise how date of knowledge can be ascertained because for issue of notices further investigation and various details will be required. All the details will not be known at one go. The decision of the Apex Court in the case of Nizam Sugar Factory is in a different context. In this case there was a demand on the production of impure Carbon dioxide emanating as a by-product during the process of fermentation of molasses in the appellants factory. On such carbon dioxide demand was issued for SCN dated 28-2-1984 and for the period April, 1982 to September, 1982 the department had raised demands under two different SCNs. Again demand was issued on 16-7-1987 for the period assessment years 1982-83 to 1986-87 alleging that the appellant was supplying carbon dioxide to another unit as per agreement dated 19-3-1983; that they had not taken necessary licence; had not followed the procedure prescribed under the rules; and had not discharged duty liability.The ruling is to the effect that after a notice is issued invoking extended period on an issue for a particular period for short levy of subsequent period extended period cannot be invoked since the relevant facts were known to the department. The decision also is not to the effect that extended period of time will not be available for conducting investigation and issue of Show Cause Notice in any matter where suppression is involved. This cannot interpreted to mean that an assessee against whom SCN is issued for clandestine removal invoking extended period the assessee is immune from invocation of extended period for all future clandestine removals. This decision does not say that time limit should be reckoned from date of knowledge. The case of Gammon India (supra) relied upon by the Ld. Advocate is in totally different circumstances. It is about excisability of goods manufactured at site for building a bridge. The issue of excisability itself was in doubt. The assesse had corresponded with the department on the issue. The construction of the bridge was happening in public view. In that case the Tribunal and the Hon Apex Court held that extended period of time could not be invoked for issuing demand notice. We note that in the case of Bhalla Enterprises the Hon Apex Court did not give a final decision in the matter. In the case of Kalvert Foods India Pvt. Ltd (Supra) and Mehta and Co.(Supra) involving clandestine removals Hon Apex Court gave rulings on the issue. If any deviation is to be done from the law as appearing in the Act, these decisions are more appropriate to apply to the facts of this case rather than the case of Gammon India. Going by such test the demand is within time limit and is sustainable.
22. Thus on the various issues contested by the main appellant we do not see any merit and we do not see any reason to interfere with the order passed by the adjudicating authority against the first appellant.
23. However in the case of the second appellant and the third appellant they are only employees of the first appellant which is a company. Nothing has been brought on record to show that they have personally gained by the duty evaded. In such circumstances after imposition of adequate penalty on the first appellant there is no justification to impose penalty on the second and their appellants also. So the penalties imposed on second and third appellant are set aside.
24. Thus Appeal filed by M/s Tejas Networks India Ltd. is rejected. Appeals filed by Shri Chakradhar Gandhi and Shri A.S.Narayanachar are allowed by setting aside the penalties imposed on them.
(Operative part pronounced in open court on 2-8-13)
(MATHEW JOHN) (P.K.DAS)
TECHNICAL MEMBER JUDICIAL MEMBER
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