Customs, Excise and Gold Tribunal - Tamil Nadu
K.K. Nag Ltd. vs Cce on 1 August, 2003
Equivalent citations: 2003(89)ECC442, 2003ECR332(TRI.-CHENNAI)
JUDGMENT Jeet Ram Kait, Member (T)
1. Both these appeals arise out of Order-in-Appeal No. 67/2001/(M-III) dated 31.5.2001 passed by the Commissioner of Central Excise (Appeals), Chennai by which he has modified the order passed by the original authority by reducing the duty to Rs. 8,338.10 and an equal amount of mandatory penalty under Section 11AC of the CE Act, 1944. He has also reduced the penalty under Rule 173Q to Rs. 5,000. The original authority had demanded duty of Rs. 1,10,576 under Rule 9(2) read with proviso to Section 11(A) of the CE Act, 1944 and imposed mandatory penalty equal to the duty demanded and also imposed penalty of Rs. 25,000 under Rule 173Q of the CE Rules, 1944. He has also demanded interest under Section 11AB of the Act.
2. The brief facts of the case are that the appellants who are a Small Scale Unit is engaged in the manufacture of Expanded Polystyrene (EPS) packing buffers popularly known as Thermocool falling under Chapter sub-heading 8923.90. On verification of the records of the appellants on visit by the officers, it was found that the appellants did not include amortized cost of moulds which were supplied by the customers free of cost, in the assessable value of EPS. In the circumstances show cause notice was issued to the appellants which culminated in the order of adjudication passed by the Additional Commissioner demanding duty and imposing penalty against which the appellants filed appeal before the lower appellate authority and the lower appellate authority modified the order of the original authority as noted above.
3. Aggrieved by the order of the lower appellate authority, appellants have filed Appeal No. E/1146/01. In the grounds of appeal they have inter alia stated that the finding of the Commissioner (Appeals) in para 6 to the effect that the appellants had not intimated to the department the fact of receipt of moulds free of cost, and hence there was suppression of fact, hence extended period has been correctly invoked, is not correct. Appellants contended that this view of the Commissioner (Appeals) was not correct as the Central Excise Act/Rules do not contain any provision nor have they prescribed any procedure of communicating aspects of the above nature to the department. Further, the Modvat Rules provide for movement of moulds and dies between the primary manufacturer and job worker and it is in this background that the buyers have forwarded the moulds in question to the appellants. It is also stated therein that the appellants lacked knowledge of the very aspect of amortization of the cost of mould which led to the non-disclosure to the department of the fact regarding receipt of moulds free of cost. They have also cited various case laws such as (I) Hon'ble Supreme Court judgment in the case of Chemphar Drugs, 1989 (21) ECC 66 (SC) : 1989 (21) ECR 182 (SC), Tamil Nadu Housing Board v. CCE, 1994 (74) ELT 9 (SO, Cosmic Dye Chemical v. CCE, Bombay, 1997 (75) ELT 721 (SC) in support of their plea that extended period of limitation cannot be invoked in the instant case. They have also cited the judgment of the Hon'ble Apex Court in the case of Akbar Badruddin Jiwani v. CC, 1999 (47) ELT 161 (SC) in support of their plea that mandatory penalty under Section 11AC of the Act cannot be imposed as mens rea has not been established in the instant case.
4. The learned Counsel appearing for the appellants while reiterating the grounds of appeal has also invited our attention to the Larger Bench decision of the Tribunal in the case of Mutual Industries Ltd. v. CCE, Mumbai, 2000 (117) ELT 578 and submitted that the appellants have accepted the dutiability of the goods and have already paid the differential duty involved for the normal period of six months commencing from 3.6.99 and in the present appeal filed by them, their contest is confined to the following aspects:
(a) Invocation of larger period for demand of duty alleging suppression and demand of duty of Rs. 6,364 relating to the extended period of limitation.
(b) Imposition of penalty of Rs. 8,338.10 under Section 11AC and Rs. 5,000 under Rule 173Q.
(c) Demand of interest under Section 11AB.
5. The department has come in appeal against the same impugned order on the following grounds:
(a) In this case, the moulds are customer specific. Therefore, while amortizing the cost of the moulds, such amortizing may have to be made only among the products so made for that customer alone.
(b) Commissioner (Appeals) while agreeing for invoking the extended period as also the amortization of the cost of moulds into the assessable value of the goods,.has differed with the amount of differential duty demandable on the basis that the costs of moulds should be spread over the total number of pieces that could be possibly made by such moulds and not by the number actually removed. This reasoning of the Commissioner may not be valid because the total number of pieces able to be manufactured from a mould may only be a hypothetical question of engineering which in this context may be irrelevant when we are dealing with facts and evidences whereas the number actually subjected to manufacture from a mould should be taken into consideration for amortization. It is also not the case of the assessee that he has actually used these customer specific moulds to make more number of pieces than that supplied to the respective customers and produced evidence to that effect and hence a blind guess of the assessee been accepted by the Commissioner (Appeals) without any discussion.
6. Shri P. Davaludu, learned JDR appearing for the department reiterated the grounds of appeal and prayed for setting aside the order-in-appeal and rejection of the appeal filed by the assessee and allowing the Revenue appeal. He has also referred to the comments received from the Additional Commissioner (Prev) of Chennai-III Commissionerate, a copy of which is filed in the file. In the comments, the Revenue has stated that the appellants have been paying duty on the moulds for some period and if they have any doubt they should have sought clarification from the department. But instead of doing that, they have held back the information from the department regarding free receipt of moulds. Since the appellants have indulged in non-disclosure of vital facts, the charge of suppression of fact is proved and hence longer period of limitation has been correctly invoked, argued the learned JDR. In the circumstances he has prayed for setting aside the order impugned and allowing the department's appeal and rejection of party's appeal.
7. We have carefully considered the submissions made by both the sides and gone through the case records and perused the various case laws cited. We observe that this is a case relating to inclusion or otherwise of amortization cost of the moulds in the assessable value of Expanded Polystyrene (EPS) packing buffers popularly known as Thermocool falling under sub-heading 8923.90. The assessee is having another unit at Pune who is the manufacturer of mould and the appellants-assessee herein had been receiving the same on payment of duty and taking Modvat Credit. From July 1998 onwards, they received the same free of cost from their customers for manufacture of EPS and the cost of which have not be amortized in the assessable value of the EPS for payment of duty. We find that there were conflicting decisions by two coordinate Benches of the Tribunal in regard to includibility or otherwise of the cost of moulds in the assessable value of the moulded components as in the case of Flex Industries Ltd v. CCE Meerut, 1997 (91) ELT 120 and in the case of CCE Aurungabad v. Marathwada Glass Co. Pvt Ltd., 1999 (89) ECR 94 and issue was referred to the Larger Bench of Five Members presided over by the Hon'ble President of the Tribunal Justice K. Sreedharan, and the Larger Bench decided the issue as in the case of Mutual Industries Ltd. v. CCE, Mumbai, 2000 (117) ELT 578 holding that proportionate cost of moulds, supplied free by customers and used in the manufacture of finished goods is includible in the assessable value. The Bench has also held that even after the manufacture of the maximum estimated number of finished product (moulded components), the mould continue to be of value as far as manufacture of moulded components is concerned. Therefore, the value of the mould should be enlarged as to the number of moulded components that could be made out of such mould and not the number of moulded components (finished product) actually manufactured and removed. Para 8 of the judgement is reproduced below for convenience of reference.
"8. Learned Counsel representing the appellant advanced a further argument in the following terms. According to him, the maximum number of times during which the mould could be used has been found to be 2,50,000. When the same mould is used for the manufacture of components above. 2,50,000 no value on account of the user of the mould can be added to the value of the finished product. In other words, according to learned Counsel, once the mould is utilised in the manufacture of maximum number of units, the mould becomes valueless and cannot thereafter go in to increase the value of the produce for the assessment of excise duty. We are not in a position to agree with this contention of the learned Counsel. Even after manufacture of the maximum number of units estimated, the mould continues to be of value as far as manufacturer is concerned for the manufacture of his finished product. But for the use of the mould he cannot manufacture his product. So the value of the mould which has outlived its maximum capacity must certainly go in the production of finished product as far as the manufacturer is concerned. This means that so long as the mould is in use in the manufacture of the finished product, it contributes certain value to be added to the value of the finished product, That additional value must necessarily go in assessing the duty payable on the finished product under the excise law."
It was also held in the judgment that the assessee having filed classification list and price list and supplied detailed terms and conditions of each contract, the extendable period of limitation is not invokable and that the Department cannot sleep for years over the matter of additional consideration arising out of free supply of input moulds by customers and then accuse the assessee of suppression.
8. In the case before us the assessee, after pronouncement of the judgment by the Larger Bench, holding that proportionate cost of mould is includible in the assessable value of moulded components viz. EPS, have paid duty for a period of six months. Now that the doubt in regard to includibility of proportionate cost of mould has been set at rest by the above cited Larger Bench ruling, we are called upon to answer the following questions in this case.
(1) Whether cost of mould should be reckoned considering the actual number of moulded components manufactured or the number of moulded components that could be manufactured out of such mould.
This question has also been answered by the Larger Bench that the number of moulded components/finished products that could be manufactured out of such mould has to be taken into consideration for the purpose of amortization. Therefore, the finding arrived at by the Commissioner (Appeals) in this regard is upheld.
(2) Whether there was suppression of fact on the part of the appellants and larger period can be invoked for demand of duty.
The allegation of the department is that the appellants have held back information from the department in regard to receipt of moulds free of cost from their customers. It is not the case of the department that the appellants have not maintained various statutory records, or have not supplied the terms of the contract with their customers for manufacture of moulded components (EPS) or that they have not supplied the price list or the classification list to the department. The officers of the department responsible for approving the classification list and price list must have been made aware of the terms of the contract for supply of the free moulds and manufacture of EPS out of such moulds. As held by the Larger Bench in the cited judgement (supra), the department ought to have noticed the fact regarding supply of moulds free of cost at the time of approving the classification list/price list. If the officers of the department failed to do so at the relevant time, the department cannot accuse the appellants of holding back information from the department on a subsequent date at their convenience. The appellants have also taken the plea that they were not aware of the rule position, that they were required to add the cost of mould to the assessable value of EPS. Therefore, in the facts and circumstances of the case, mens rea is not established in this case and intent to evade payment of duty on the part of the appellants is absent. Further there was conflicting decisions of the two co-ordinate Benches of the Tribunal regarding includibility of the cost of moulds in the assessable value of the moulded components. There are catena of judgments by the Hon'ble Apex Court such as Chemphar Drugs, 1989 (21) ECC 66 (SC) : 1989 (21) ECR 182 (SO Tamil Nadu Housing Board, 1994 (74) ELT9(SC), Cosmic Dye Chemical, 1997 (75) ELT 721 (SC), In all these judgments, the ingredients required for invoking longer period of limitation in terms of the proviso to Section 11 A(1) has been set out and in the present case going by the records, it cannot be said that there was intent to evade payment of duty. We also note that the Hon'ble Apex Court has dismissed a Civil Appeal No. D 9759 of 2000 filed by Commissioner of Central Excise, Mumbai-II against CEGAT Order No. 142/2000-B dated 14.12.1999 in the case of Consolidated Pnuematic Tools Co. (P) Ltd. v. Collector holding that when Classification list has been approved by the department, limitation period under Section 11A is not available, as reported in page A68 ELT Vol 155 Part I, Ist July 2003. The Tribunal had allowed the appeal of the party on ground of limitation following the ratio of the ruling of the Hon'ble Apex Court in the case of Cotspun, 2000 (69) ECC 451 (SC) : 1999 (113] ELT 353. We are therefore of the considered opinion that duty cannot be demanded for the extended period and we set aside that portion of the impugned order holding that duty is demandable for the extended period.
(3) Whether mandatory penalty under Section 11AC, and penalty under Rule 173Q is imposable in this case and whether interest can be demanded under Section 11 AB of the Act.
We have held above that the appellants cannot be alleged to have suppressed the fact from the department in the facts and circumstances of the case. We have also held that mens tea cannot be alleged against the appellants and it cannot be said that there was intent on the part of the appellants to evade payment of duty. Therefore, we set aside the order of imposition of penalty both under Section 11AC and Rule 173Q, and so also the order of demand of interest under Section 11 AB of the Act ibid.
9. In view of our above analysis and finding, the impugned order is modified to the extent indicated above.
10. In the result, while the appeal filed by the Revenue is dismissed as devoid of merits, the appeal filed by the assessee-appellants is partially allowed.