Custom, Excise & Service Tax Tribunal
Ceat Ltd vs Cce Mumbai Iii on 10 October, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPLICATION NO. E/S/1788/10
IN APPEAL NO. E/1658/10 - MUM
(Arising out of Order-in-Appeal No. PKS/161/BEL/2010 dated 02.07.10 passed by the Commissioner of Central Excise (Appeals), Mumbai II.)
For approval and signature:
Honble Shri. P.R. Chandrasekharan, 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 :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Yes
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
CEAT Ltd.
Appellant
Versus
CCE Mumbai III
Respondent
Appearance Shri Bharat Raichandani, Advocate for Appellant Shri Sanajay Kalra, A.A.R for Respondents CORAM:
Shri. P.R. Chandrasekharan, Member (Technical) Date of Hearing : 10.10.2011 Date of Decision : 10.10.2011 ORDER NO.
Per P.R. Chandrasekharan The present appeal and stay application are directed against order-in-appeal No. PKS/161/BEL/2010 dated 02.07.10 passed by the Commissioner of Central Excise (Appeals), Mumbai.
2. The appellant M/s. CEAT Ltd. are manufacturer of tyres and other items falling under Chapter 40 of the Central Excise Tariff Act, 1985. During the period of dispute i.e. from 11.8.2001 to 18.08.2004, they had cleared tyres to Original Equipment Manufacturers (OEM in short) at concessional rate of duty under Notification No. 03/2001-CE dated 01.03.2001. Some of the goods so cleared were rejected by the consignee and such goods rejected were cleared by the appellant from the premises of OEM on payment of appropriate duty. A show-cause notice dated 10.03.2006 was issued to the appellant demanding interest under Section 11AB of Central Excise Act, 1944 read with Rule 8 of Central Excise Rules, 2002 and also proposing imposition of penalty under Rule 27 of the said Rule. The case was adjudicated by the jurisdictional Asst. Commissioner who dropped the proceedings. The department preferred an appeal before the Commissioner (Appeals) who vide Order dated 03.10.2007 held that as the appellant did not bring the goods back to the factory and cleared the same from the premises of O.E.M., they are liable to pay interest under Rule 6 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. The appellant preferred an appeal before this Tribunal and this Tribunal vide Order dated 04.11.2009 remanded the case back to the appellate authority with direction to take a fresh decision on the issue after considering the assessees arguments with reference to Rule 6 under proviso thereto. The appellate authority has passed the impugned order in pursuance to the said direction. The appellate authority has held as follows:-
7. In the facts and circumstances of the case, it therefore emerges that for the Central Excise purposes, the goods were cleared from the factory, when they were dispatched to the OEM and the duty liability arises from that day onwards. If that be so, Rule 6 of the said Rules provided for a situation where the goods cleared under concessional rate of duty and not used for the intended purposes, the amount equal to differential duty leviable on such goods but for the exemption and that already paid along with interest and the provisions of Section 11A and Section 11AB of the Central Excise Act shall apply mutatis mutandis for effecting such recoveries. The Apex Court in the case of CCE vs. SKF India reported in 2009 (239) ELT 385 has held that the differential duty was paid only later, when the assessee issued supplementary invoices to its customers demanding the balance amount. Seen thus, it was clearly a case of short payment of duty though indeed unintended and without any element of deceit etc. The payment of differential duty thus clearly come under sub-section (2B) of Section 11A and attracted levy of interest under Section 11AB of the Act. In the case in hand, also, the short payment of duty was unintended, and, paid by the appellant, and hence interest liability would arise automatically. 2.1 The appellant is before me against the impugned order.
3. The learned Counsel for the appellant submits that in this case it is not disputed that the tyres which were cleared to the OEMs at concessional duty under Notification No. 3/2001 dated 01.03.2001. As per proviso to Rule 6, after procurement of excisable goods at concessional rate of duty for manufacture of excisable goods, if the goods are defective or damaged or unsuitable or surplus to the needs of the manufacturer, he may return the subject goods to the original manufacturer of the goods from whom he had obtained these and every such returned goods shall be added to non-duty paid stock of the manufacturer of the subject goods and dealt with accordingly. The appellant has not brought back the goods only for avoiding unnecessary transport expenses and the rejected tyres were transferred to the nearest depot of the appellant after payment of differential duty for subsequent sale in the replacement market. This diversion of rejected tyres from OEMs to the replacement market was done under intimation to the department. Section 11AB of the Act is applicable only when there is short levy or short payment or non-levy or non-payment or erroneous refund of duty and the above section applies only when there is a determination of duty under sub-section (2) or duty has been paid under sub-section (2B) of Section 11A. In the case under consideration, there is no short payment of excise duty coming under the category of Section 11A (2) or Section 11A (2B) and, therefore, the provisions of Section 11AB are not attracted. If the appellant had brought back the goods to their factory, then the goods should have been added in non-duty paid stock and they could have cleared the goods subsequently on payment of appropriate duty. In such an event, no interest liability would have accrued. Merely because they did not bring back the goods but chose to sell the same from the premises of the OEM itself they cannot be saddled with interest liability. Rule 6 of the said Rules provides for payment of differential duty along with interest only by the recipient of the goods and not by the supplier of the goods. There is no provision under the said Rule for payment of interest by the supplier of goods and, therefore, the question of demand of interest liability does not arise. The reliance placed by the lower appellate authority on the judgement of the apex court in the case of CCE vs. SKF India reported in 2009 (239) ELT 385 is totally mis-placed as the facts are distinct and distinguishable. The SKF case (supra) dealt with the situation where the goods were cleared from the factory on payment of duty at a lower price. The prices were revised subsequently with retrospective effect and differential duty was paid later when the assessee issued supplementary invoices to his customers demanding balance amount. The honble apex court in the facts of the case, held that there was a case of short payment of duty and the assessee is liable to pay interest under Section 11AB. In the present case, the tyres were cleared to the OEMs under concessional rate of duty under Notification 3/2001 dated 01.03.2001. Parts of the goods were rejected by the OEMs and the same were diverted after payment of differential duty. It is not a case of revision of prices as contemplated in the SKF judgement and, therefore, the ratio of judgement does not apply. The learned Counsel for the appellant also submits that the transactions undertaken in this case are very similar to the case covered under Rule 16 of the Central Excise Rules, 2002. Under Rule 16, the assessee can bring back duty paid goods for re-making, re-fining, re-conditioning etc. and the assessee can take CENVAT credit of duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2004 and utilize this credit in accordance thereto. Subsequently after re-making/refining/re-conditioning etc. the goods can be removed and the manufacturer has to pay duty liability on re-conditioned goods at the appropriate rates at the value determined under the valuation provisions provided under Central Excise Act. In this case also, there is no liability to pay any interest on the goods received back which are re-processed and removed from the data of original clearance.
4. The learned A.R. appearing for the Revenue reiterated the reasonings given by the lower appellate authority.
5. I have carefully considered the rival submissions. After hearing the argument, I find that the appeal itself can be disposed of at this stage. Therefore, after granting stay from pre-deposit of dues adjudged, I proceed to decide the appeal.
6. In the instant case the appellant cleared the goods on payment of appropriate duty under Notification 3/2001 and by following the prescribed procedure to OEMs. A small part of the goods were rejected by the OEMs. Instead of bringing the goods back to the factory, the appellant cleared the goods from the premises of OEMs by paying differential duty liability i.e. difference between normal rate and concessional rate and the duty liability was discharged on the transaction value i.e. at the price at which the goods were sold in the replacement market. Rule 6 of the Central Excise (Procurement of Excisable Goods at Concessional Rate of Duty for manufacture of excisable goods) Rules, 2001 reads as follows:-
Rule 6. Recovery of duty in certain cases. - The said Asst. Commissioner or Deputy Commissioner shall ensure that the goods received are used by the manufacturer for the intended purpose and where the subject goods are not used) by the manufacturer for the intended purpose, the manufacturer shall be liable to pay the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of removal from the factory of the manufacturer of the subject goods, along with interest and the provisions of Section 11A and Section 11AB of the Central Excise Act, 1944 (1 of 1944) shall apply mutatis mutandis for effecting such recoveries.
(Provided that if the subject goods on receipt are found to be defective or damaged or unsuitable or surplus to the needs of the manufacturer, he may return the subject goods to the original manufacturer of the goods from whom he had obtained these and every such returned goods shall be added to the non-duty paid stock of the manufacturer of the subject goods and dealt with accordingly.) Explanation. For the removal of doubts, it is hereby clarified that subject goods shall be deemed not to have been used for the intended purpose even if any of the quantity of the subject goods is lost or destroyed by natural causes or by unavoidable accidents (during transport from the place of procurement to the manufacturers premises or from the manufacturers premises to the place of procurement) or during handling or storage in the manufacturers premises. 6.1 The main body of the rule deals with differential duty liability and interest liability thereon. In case a manufacturer who is a recipient of the goods does not use the goods for the intended purpose, it does not create any differential duty liability or interest liability on the supplier of the goods who is actual manufacturer of them. As far as the supplier of the goods is concerned he has to bring back the rejected goods to his factory and add the same to the non-duty paid stock and deal with the goods accordingly. In other words, if he brought back the returned goods to the factory and cleared them subsequently he has to discharge only normal duty liability and no interest liability whatsoever arises. Merely because the manufacturer has not brought back the goods to his factory to avoid transportation expenses but clears the same on payment of differential duty from the premises of the OEM themselves, it does not create an interest liability on the supplier of the goods. Therefore, I hold that the view taken by the lower appellate authority is not sustainable in law in view of the express provision contained in Rule 6 of the Rules, 2001.
6.2 I also notice that in the instant case, the interest has been demanded on the differential duty paid during the period from August, 2001 to August 2004. The differential duty has been discharged during this period and the fact has also been intimated to the department. However, the demand for interest liability has been made vide show-cause notice dated 10.03.2006 i.e. after a gap of more than 1= years. There is no allegation of any suppression on the part of the appellant. Even though Section 11AB does not contemplate any time limit for issue of notice for recovery of interest, as has been held in a number of judicial pronouncements, when there is no specific time limit for issuing demands for recovery of duty, such action needs to be initiated within a reasonable period and what is reasonable depends on the facts and circumstances of the case. Under the exercise of law, whenever there is a short levy or short payment, non-levy or non-payment or erroneous refund, the demand has to be raised within a period of one year from the relevant date. When the normal time limit for demand of duty is one year, the demand for interest liability also should be the same. In the instant case the demand has been raised after a period of more than 1= years and, therefore the demand is also barred by limitation of time.
7. In the result the appeal succeeds and is accordingly, allowed. The stay petition is also disposed of.
(Dictated in Court) (P.R. Chandrasekharan) Member (Technical) nsk 9