Customs, Excise and Gold Tribunal - Mumbai
Audco India Ltd. vs Commissioner Of Central Excise on 3 April, 2003
ORDER Gowri Shankar, Member (T)
1. The application is for waiver of deposit of duty of Rs. 55.02 lakhs and penalty totalling Rs. 55.52 lakhs.
2. The assessee utilise various inputs in the manufacture of industrial valves. The amount represents modvat credit on some quantities of these inputs the value of which was deemed by the applicant as expenditure on the ground of depreciation and obsolescence. In his order, the Commissioner has held that since the fact that the value of these goods was claimed as expenditure in the assessee's balance sheet and other records establishes that the inputs were not utilised as required by law towards manufacture of finished goods and demanded the credit that was taken of the duty paid on them and imposed penalties.
3. The contention of the counsel for the applicant is that the value of these inputs have been claimed as expenditure in accordance with the Accounting Standards 2 of the Council of the Institute of Chartered Accountants of India which provides with regard to inventories "if there is no reasonable expectation that net realisable value would cover the cost incurred, (as a result, for example, or deterioration, obsolescence or a change in demand), it is necessary that cost which cannot be recovered should be charged against the revenue of the current period. Therefore, inventories are normally stated at the lower of historical cost and net realisable value." He claims that the inputs were used with regard to finished products in which the demand was negligible either in the current year or in the past two years, and therefore they were to be considered slow moving or non moving. He contends that this was only an exercise for accounting and cannot necessarily would lead to the conclusion that the inputs cannot be utilised at all. He relies upon in this regard the Tribunal's decision in Bharat Heavy Electricals Ltd. v. CCE 2002 (50) RLT 208. He further contends that the extended period of limitation invoked in the demand will not be applicable. The applicant indicated the fact of charging these goods to expenditure in its profit and loss account form part of the balance sheet in the years in question which were handed over to officers of the department who came to audit. He relies upon the judgment of the Supreme Court in National Radio & Electronics Co. Ltd. v. CCE 2000 (115) ELT 35. He further contends that the inputs have in fact been used in the subsequent year and have been demonstrated before the Commissioner. The Commissioner has not considered this.
4. The departmental representative contends that the accounting standard which provides for valuation of inventories where there is no reasonable expectation that the net realisable value cover the cost incurred itself shows that these goods could not be utilised. By application of Rule 57 I (2) therefore the credit taken of this duty paid on the inputs has to be repaid. He distinguishes the decision of the Tribunal on the ground that it was not an issue in that decision that the inputs were no longer used as such. He contends that the mere mention of a line in the profit and loss account relating to depreciation and obsolescence could not impel the officers that this related to inputs on which credit had been taken and that nothing prevented the assessee from informing the department directly and simply.
5. Sub-rule (2) of Rule 57I requires payment of duty by the manufacturer5 of inputs on which credit had been taken which had not been fully accounted for in the manners specified in the section relating to modvat. The manners of these disposal specified are utilisation towards manufacture of finished product that subject to payment of duty or other manners of disposal specified in the rule or clearance as such without payment of duty or sending to job works. Prima facie we find that the assessee for its accounting purposes were specified the net realisable value the inputs in question could not be based on the historical cost and therefore chose to determine their value on the basis of net realisable value i.e. the cost at which it could be dispose of in its (and) it is reasonable to conclude that it did so because it could not utilise these inputs. Whether at some point in the future these inputs would once again could retain the value may have to be gone into in detail. These are not the issues that were under consideration in the Tribunal's decision relies upon by the applicant. We are also at this stage of the view that the mere mention in the balance sheet does not constitute sufficient enough to say that the relevant facts were placed before the departmental officers. It is only after detailed investigation that the officers could identify that part of the inputs of which was termed as expenditure what relate to the inputs on which credit was taken. It is to be borne in mind that the departmental officers are not experts in accounting. We direct deposit of Rs. 20 lakhs by the applicant within a month from the receipt of this order upon which we waive deposit of the remaining duty and penalties and stay their recovery.
6. Compliance on 3.6.2003.