Madras High Court
The Commissioner Of Central Excise vs M/S.Hanil Lear India (P) Ltd on 10 January, 2014
Author: T.S.Sivagnanam
Bench: Chitra Venkataraman, T.S.Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 10.01.2014 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice T.S.SIVAGNANAM C.M.A.Nos.1141 & 1142 of 2010 The Commissioner of Central Excise, Chennai IV Commissionerate, M.H.U.Complex, No.692, Anna Salai, Nandanam, Chennai 600 035. ... Appellant in both appeals -vs- 1.M/s.Hanil Lear India (P) Ltd., 136, Arakonam Road, Thodukadu Village, Thiruvallur District. 2.Customs Excise & Service Tax Appellate Tribunal, South Zonal Bench, Shastri Bhawan Annexe, First Floor, No.26, Haddows Road, Chennai 600 006. ... Respondents in both appeals Civil Miscellaneous Appeals filed against the impugned Final Order Nos.980, 981 of 2009, dated 07.08.2009, on the file of the Customs Excise & Service Tax Appellate Tribunal, so far as it relates to waiver of the penalty imposed under Section 11AC and restore the penalty imposed by the Original Adjudicating Authority in the order in Original No.32 of 2005, dated 31.08.2005 of Central Excise Act, 1944. For appellant : Mr.P.Mahadevan SCCG For Respondent : No Appearance COMMON JUDGMENT
(The Judgment of the Court was made by T.S.SIVAGNANAM, J.) These appeals by the Revenue are directed against the common order passed by the Customs, Excise and Service Tax Appellate Tribunal (Tribunal) bearing Final Order No.980 & 981 of 2009, dated 14.08.2009 in E.No.124/2007 and E.No.200/2007, dated 14.08.2007 and the appeals have been admitted on the following substantial question of law:-
"Whether on the facts and in the circumstances of the case, the second respondent Tribunal is correct in passing the Final Order Nos.980 & 981 of 2009, dated 07.08.2009 in dismissing the appeal filed by the appellant with regard to imposition of penalty under Section 11AC of the Central Excise Act, 1944, without rendering a finding as to its non-applicability?"
2. The respondent/assessee are manufacture of Seats and Auto Interiors for cars falling under Chapter Heading No.9401 and 8708 respectively of the Central Excise Tariff Act, 1985. The assessee were availing Cenvat Credit on inputs including non-woven fabrics stating that due to heavy rain on 12.05.2001, non-woven fabrics kept in the godown were destroyed, the assessee availed insurance claim of Rs.16,18,469/-. The assessee had availed Cenvat Credit on the inputs which were said to have been destroyed and on which the assessee had received an insurance claim. The Revenue after scrutiny of the annual accounts issued a show cause notice to the assessee dated 20.10.2004, stating that as per Rule 3 Cenvat Credit Rules, Credit can be taken only when such goods were used in the manufacture of final products, whereas the inputs under reference on which credit was availed were not used in the manufacture of final products and therefore Cenvat credit at 16% on Rs.18,94,567/- claimed as insurance which works out to Rs.3,03,131/- has to be reversed. It was further stated that the assessee has not informed about the damage caused to the inputs/non utilisation of the said inputs in the manufacture of finished goods; and wrong availment and utilization of credit of the duty availed on the inputs; have deliberately suppressed these facts with an intent to evade payment of duty and therefore, the extended power of limitation under proviso to sub section (i) of Section 11A of the Central Excise Act, 1944, (Act) read with Rules 12 and 13 of Cenvat Credit Rules, 2001 is invoked. It was further stated that the assessee had contravened the erstwhile Rule 57AB of the Central Excise Rules, 1944 read with Section 38A of Act and Rule 3 of Cenvat Credit Rules,2001 and 2002 inasmuch as they had consciously availed the Cenvat Credit on inputs which were not used in the manufacture of final products. The assessee was called upon to explain as to why the wrongly availed credit should not be disallowed, why penalty should not be imposed under Section 11AC of the Act read with Rule 13 of the Cenvat Credit Rules, 2002 and why interest should not be demanded under Rule 12 of the Cenvat Credit Rules, 2002, read with Section 11AB of the Act.
3. In the written submissions of the assessee, it was stated that the fabrics were damaged due to heavy rain and fabrics were not inputs as such, but have been issued for production, cut into required patterns and that apart the quantity was converted as seat covers and as the inputs have already been issued for production and used in manufacturing process, the credit availed on inputs need not be reversed.
4. The Original Authority while adjudicating the show cause notice held that from the survey report which was marked as Appendix-E, the total assessed loss of fabrics is Rs.20,14,104.73/- and no other evidence was filed by the assessee in support of their claim that the inputs were issued for production and partly converted into seat covers i.e., work in progress. Further, the Original Authority held that the raw materials were damaged at the stock godown at KCT, ITI Complex and not in the registered factory premises of the assessee. Further, it was observed that the facts of the case came to light only due to audit objection and the assessee had not disclosed the full facts such as claiming of the insurance on inputs and the averment of the assessee that the damaged goods are work in progress clearly shows the intention to evade payment of duty. Accordingly, the proposal in the show cause notice was confirmed and the credit of Rs.3,03,131/- was disallowed and the penalty equivalent to the said amount was imposed along with interest as applicable. Aggrieved by such order, the assessee preferred appeal to the Commissioner (Appeals). The Commissioner (Appeals) by order dated 31.10.2006, observed that the assessee could not produce any evidence in addition to what they have produced before the Adjudicating Authority and thus having failed to prove that the goods were in work in progress, confirmed the order passed by the Adjudicating Authority, however, waived the penalty without assigning any specific reasons. Aggrieved by the same, the assessee as well as the Revenue preferred appeals to the Tribunal. The Tribunal by common order dated 14.08.2009, dismissed both the appeals, as the assessee did not press their appeal regarding the demand of duty.
5. The Revenue has preferred these appeals against the common order passed by the Tribunal presumably under the belief that the Tribunal has also interfered with the demand of duty, when the fact is that the assessee accepted the demand of duty and not pressed their appeal before the Tribunal. Therefore, there one appeal at the instance of the Revenue would alone survive for consideration.
6. We have heard Mr.P.Mahadevan learned Senior Standing counsel appearing for the Revenue. Though the respondent/assessee has been served and their name is printed in the cause list, none appears for the respondent/assessee.
7. The short question which falls for consideration is as to whether the Cenvat Credit availed by the assessee ought to be reversed and whether the assessee willfully suppressed material fact with an intent to evade payment of duty so as to attract penalty.
8. It is not in dispute that the assessee did not inform the department about the alleged damage to the goods, it is only during the course of audit objection, the entire matter came to light. Before the Original Authority, the assessee was unable to produce any document to show that the inputs on which they have availed Cenvat Credit, were used for production and partly converted into seat covers i.e., work in progress. The Adjudicating Authority has recorded a factual finding that the raw materials were damaged at the stock godown and not in the factory premises of the assessee. As the assessee failed to establish that the inputs were used in the production or partly used in the production, the question of availing Cenvat Credit on those goods, which was said to have been damaged, does not arise. Therefore, as rightly held by the Original Authority, the Cenvat Credit has to be reversed by the assessee, moreso, when they were unable to produce any documents to show that those goods were used for production or partly used in the production i.e., work in progress. Even before the first Appellate Authority, the assessee were not able to produce any material to prove this fact. Therefore, the order passed by the Original Authority as confirmed by the Appellate Authority, is fully justified.
9. The first Appellate Authority while confirming the order passed by the Original Authority as regards the demand of duty, by a single line deleted the penalty imposed. The penalty has been imposed on account of the contumacious conduct of the assessee by suppressing material facts with an intent to evade payment of duty. On a reading of the show cause notice dated 20.10.2004, it is clear that the Authority has given a specific finding that there was wrong availment and utilization of credit of duty availed on inputs and the assessee had deliberately suppressed the facts with an intent to evade payment of duty. The assessee did not submit any reply to the show cause notice, but at the time of personal hearing had given their written submissions. Even in the written submissions, they were unable to establish that there was no willful suppression of material facts with an intent to evade payment of duty. Furthermore, the Adjudicating Authority noticed that but for the audit objection, the full facts would not have come to light, the assessee did not report about their insurance claim that they availed and in such circumstances, the provision of Section 11AC of the Act read with Rule 13 of the Cenvat Credit Rules clearly stand attracted. Therefore, there is no justification on the part of the first Appellate Authority for having deleted the penalty. When the Revenue preferred appeal as against this order to the Tribunal, the Tribunal by a non-speaking order without assigning any reasons confirmed the order passed by the first Appellate Authority by merely observing that the order passed by the first Appellate Authority is reasonable and has been passed taking into account the entire circumstances of the case. We are unable to subscribe to the manner in which, the Tribunal had dismissed the appeal filed by the Revenue while confirming the order passed by the first Appellate Authority. When the Original Authority had clearly recorded a finding that the conduct of the assessee was with an intention to evade payment of duty, the penal provisions stand attracted and penalty is imposable.
10. Therefore, we have no hesitation to allow the appeal filed by the Revenue and the order of penalty. As regards the order for payment of interest, that being for the delayed payment is automatic and the assessee is liable to pay interest as applicable on the Cenvat Credit disallowed under Section 11AB of the Act read with Rule 12 of the Cenvat Credit Rules, 2002, is restored to file. Accordingly, C.MA.No.1141 of 2010 is allowed and nothing survives for consideration in C.M.A.No.1142 of 2010, since the assessee itself has not pressed the Appeal before the Tribunal and the same is closed. No costs.
(C.V.,J) (T.S.S.,J) 10.01.2014 Index : Yes/No Internet :Yes/No pbn CHITRA VENKATARAMAN,J and T.S.SIVAGNANAM,J Pbn To
1) The Deputy Commissioner of Central Excise, Poonamallee Division Chennai IV Commissionerate C-48, TNHB Building, I Floor, II Avenue, Anna Nagar, Chennai 40.
2) The Commissioner of Central Excise (Appeals), 26/1, Mahathma Gandhi Road, Chennai 34.
3) The Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Shastri Bhawan Annexe, 1st Floor, 26 Haddows Road, Chennai 6.
C.M.A.Nos.1141 & 1142 of 2010 10.01.2014