Custom, Excise & Service Tax Tribunal
M/S. Tata Iron & Steel Co. Ltd vs Commissioner Of Central Excise, ... on 10 April, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. E/1026/2006-Mum. (Arising out of Order-in-Original No. 18/RKM/Th.II/05 dated 28.12.2005 passed by the Commissioner of Central Excise, Thane-II ) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. Sahab Singh, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see : No
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 : Yes
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
=============================================================
M/s. Tata Iron & Steel Co. Ltd.
:
Appellant
VS
Commissioner of Central Excise, Thane-II
:
Respondent
Appearance
Shri Gajendra Jain, Advocate for Appellant
Shri V.K. Singh, Additional Commissioner (A.R) for respondent
CORAM:
Mr. S.S. Kang, Vice President
Mr. Sahab Singh, Member (Technical)
Date of hearing : 10/04/2012
Date of decision :
ORDER NO.
Per : Sahab Singh
M/s. Tata SSL Ltd., (hereinafter referred to as the appellants) are manufacturer of Wire Rods and Billets and Scrap.
2. A random scrutiny revealed that the appellant were using the following three routes for manufacturing wire rods.
(i) They were manufacturing wire rods from billets manufactured in their mini steel plant;
(ii) They were manufacturing wire rods from billets purchased from M/s. Ispat Ltd.;
(iii) They were also manufacturing wire rods on job work basis from billets received from TISCO, Jamshedpur and clearing the same for further use in their own units at TWP Tarapur and Borivali.
3. In all the three categories, the appellants were clearing wire rods to their own units at Tarapur and Borivali. During the course of audit, it was noticed that the appellants were under valuing the wire rods cleared to their own units at Tarapur and Borivali. On being asked by the department, the appellant furnished the debit notes and invoices for conversion charges billed to TISCO, Jamshedpur, vide their letter dated 09.06.2003. On further query by the Department as to how they had arrived at the value for clearances of wire rods to their own units, the assessee vide their letter dt. 25.6.2003, submitted a statement of cost of production for transfer price of wire rods to their units at Tarapur and Borivali. On scrutiny of the above mentioned costing statement it appeared to the department that appellant had misdeclared the value on which duty was paid on wire rods cleared by them to their own units inasmuch as they had, while working out the transfer price to their own unit based on the cost of production, taken lower conversion cost as compared to the higher conversion cost charged by them to M/s. TISCO Jamshedpur. Thus, the appellant in their costing statement have declared lower conversion cost in respect of clearances to their own units at Tarapur & Borivali, whereas they have billed higher rate of conversion cost to M/s. TISCO Jamshedpur. In order to evade the Central Excise duty the appellants appeared to have chosen to issue debit notes instead of regular billing through invoice. Accordingly, a show cause notice dt. 8.8.2005 was issued to the appellants demanding duty from July 2000 to March 2003 amounting to Rs.1,17,90,962/- under provisions of Section 11A of the Central Excise Act. It was also proposed to charge the interest under Section 11AB and imposition of penalty under Rule 25 of the Central Excise Rules and under Section 11AC of the Central Excise Act. The said show cause notice was adjudicated by the Commissioner vide his order dt. 18.12.2005 confirming the demand along with interest and imposition of penalty equal to the duty on the appellant. The appellants are in appeal against the impugned order before this Tribunal.
4. The learned Advocate appearing for the appellant submitted that they are manufacturing wire rods in their Tarapur factory out of billets manufactured from scrap in their own unit, from the billets purchased from M/s. Ispat Ltd. and M/s. TISCO, Jamshedpur. In addition they are also manufacturing wire rods from billets supplied by M/s. TISCO Jamshedpur on job work basis. The wire rods manufactured by them are cleared to appellants units at Borivali and Tarapur on stock transfer basis by determining value in terms of Rule 8 of the Central Excise Valuation Rules, 2000 i.e., 115% of cost of production whereas the billets received from M/s. TISCO for job work are converted into wire rods and sent back to M/s. TISCO on payment of duty in terms of formula prescribed by Hobble Supreme Court in the case of Ujagar Prints. He submitted that Revenue is demanding the duty in the present case treating the job charges recovered from TISCO, Jamshedpur as cost of production which is not correct. Job charges charged by them from TISCO for converting the billets supplied by TISCO into wire rods on job work basis cannot be the basis of demand of duty as job charges recovered by them from TISCO Jamshedpur not only included the conversion cost but also the profit element. The departments contention to compare the job charges with the cost of conversion is wholly incorrect. He submitted that in terms of Rule 8 it is only the cost of production which is to be taken into consideration and thereafter 15% of the cost of production is added as profit to arrive at the assessable value. Since the job charges already included the amount of profit in respect of clearances to TISCO Jamshedpur, to treat job charges as cost of conversion and thereafter further add the 15% as profit is totally unsustainable. To illustrate the issue he has taken the figures for the month of December 2000 in which the appellant has charged Rs. 1700/- PMT for conversion of billets into wire rods in case of TISCO Jamshedpur whereas the cost in respect of other wire rods comes to Rs.1,491/- PMT. After adding 15% profit i.e. 223.65 the appellants have paid the duty in respect of interplant transfer at rate of Rs. 1714.65 PMT. He pointed out that therefore the appellants have paid more duty for the period of December 2000. Similar, situation exists in respect of the entire period in dispute. The appellants have not charged the conversion cost from TISCO but they have charged the job charges/conversion charges which is inclusive of cost of conversion +profit. He further contended that the entire exercise is revenue neutral if any duty is paid by them the same is available as CENVAT credit to the recipient unit. He also pointed out that the demand issued to them on 8th August 2005 for the period July 2000 to March 2003 is time barred as the appellant had filed the declaration in 2000 itself vide their declaration dated 21.7.2000 declaring the assessable value of wire rods manufactured by them out of billets received from various sources. Since there was no mis-declaration on their part the provisions of Section 11A is not applicable and the demand is also hit by time limitation.
5. The learned Additional Commissioner (A.R.) appearing for the Revenue submitted there is settled legal position regarding the method of valuation to be adopted in the case of appellant, who are supplying the goods to their sister units. The assessments in the appellants case are to be made in terms of Rule 8 of the Valuation Rules, 2000. He submitted that according to the appellant difference between conversion charges declared for the goods supplied to the TISCO Jamshedpur and those applied for computing the declared value of the goods in respect of interplant transfer is on account of profit element added in the conversion charges in case of supplied to TISCO, Jamshedpur. He submitted that the appellants were directed to substantiate this contention by supporting data and they had still not explained difference between cost of conversion adopted by them and the conversion charges recovered from the TISCO, Jamshedpur. He contended that in the absence of any explanation the conversion charges recovered from TISCO, Jamshedpur are to be treated as conversion cost in the case of interplant transfer to their sister units at Borivali and Tarapur. Therefore, the duty has been correctly demanded and confirmed in the show cause notice. As regards to the argument of revenue neutrality, he submitted that revenue neutrality will not be sufficient to hold that there was no intention to evade duty. As regards, the contention of the appellant on the time limitation, the learned adjudicating authority has discussed the issue in detailed in para 34 & 35 of the adjudication order and it has been held that failure to declare necessary information will amount to suppression of fact and such the extended period has rightly been invoked by the adjudicating authority.
6. After hearing both sides. We find that the issue involved in the present appeal is determination of the assessable value of wire rods manufactured from the billets purchased by them from various sources and supplied to their own wire unit at Tarapur & Borivali. Since the goods are not sold and are used for the consumption in their sister units, the valuation of the goods is to be done in terms of Rule 8 of the Valuation Rules 2000 which reads as under:`-
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 115% of the cost of production or manufacture of such goods.
It is the contention of the Revenue that appellant has undervalued the cost of production inasmuch as one of the cost component i.e. the conversion cost was under declared by them leading to undervaluation of the said goods as they were showing the higher conversion cost in respect of goods sent to TISCO Jamshedpur.
7. We find that the show cause notice was issued on the basis of Invoice No. 94344 dt. 31.07.2003, Invoice No. 42329 dt. 15.10.2001, Invoice No. 45525 dated 04.03.2002 and Invoice No. 94747 dt. 20.03.2001 and sales debit note 40235 dt. 31.3.2003 all issued by the appellants. On going through all these invoices and the debit note we find that the amount is shown as a conversion charges in respect of the goods supplied to TISCO Jamshedpur. It is the contention of the appellants that the conversion charges in respect of goods supplied to TISCO Jamshedpur included the element of profit also. The Commissioner has confirmed the demand holding in para 25 of the order that appellants were not able to explain and substantiate the difference between the cost of conversion adopted by them in respect of interplant transfer to Borivali and Tarapur units and the conversion cost actually charged from TISCO Jamshedpur, which the department has detected while scrutinizing the debit note issued by the assessee for the said process. The Commissioner has held that higher amounts are shown as a conversion cost in those debit notes as compared to the lower conversion cost applied by the assessee while computing the cost of production declared to the department by them. We find that the Commissioner has held that show cause notice is based on the conversion cost of actually charged on the basis of detection while scrutinizing the debit notes. We find that in the debit note and the invoices mentioned in the show cause notices, the appellants have shown the amount as conversion charges and not the conversion cost and it is the stand of the appellant that the conversion charges are inclusive of conversion cost + profit element. This explanation given by the appellants is reasonable and needs acceptance. The finding of the Commissioner in para 25 of the order that the debit notes issued by the appellants are showing the conversion cost actually charged is not correct as the amount in the debit note is shown as the conversion charges. Since for the purpose of valuation under Rule 8 of the Central Excise Valuation Rules, the cost of production is required to be taken, this cost of production cannot be equated to the conversion charges charged by the appellant in respect of goods supplied to TISCO, Jamshedpur. Accordingly, we hold that the conversion charges shown in debit note/invoices issued to TISCO Jamshedpur cannot be taken as a conversion cost and taken as a basis for the purpose of assessments of wire rods cleared to their Borivali and Tarapur units. We, accordingly set aside the order and allow the appeal.
(Pronounced in court on .. ) (S.S. Kang) Vice President (Sahab Singh) Member (Technical) Sm ??
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