Custom, Excise & Service Tax Tribunal
Sanvijay Rolling & Engg. Ltd. vs Commissioner Central Goods And Service ... on 22 February, 2022
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CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
MUMBAI
REGIONAL BENCH - COURT NO. I
ExciseAppeal No. 914 of 2009
(Arising out of Order-in-Original No.02/2009/Cdated 13.05.2009passed by the
Commissioner of Customs & Central Excise, Nagpur)
M/s Sanvijay Rolling & Engineering Ltd. .... Appellant
F-16, MIDC, Hingna Road, Nagpur-440 016
Versus
Commissioner of Customs & Central Excise .... Respondent
Nagpur
Telangkhedi Road, Civil Lines Nagpur-440 001.
WITH
Excise Appeal No. 85693, 85694, 85928 & 85929 of 2013
(Arising out of Order-in-Appeal No.PVR/240 TO 243/NGP/2012 dated 30.11.2012
passed by the Commissioner of Customs & Central Excise (Appeals), Nagpur)
M/s Sanvijay Rolling & Engineering Ltd. .... Appellant
F-16, MIDC, Hingna Road, Nagpur-440 016
Versus
Commissioner of Customs & Central Excise .... Respondent
Nagpur
Telangkhedi Road, Civil Lines Nagpur-440 001.
Appearance:
Shri Rajesh Ostwal, Advocate for the Appellant
Md. Shamshad Alam, Authorized Representative for the Respondent
AND
Excise Appeal No. 87463, 87464, 88204, 88205 of 2013
(Arising out of Orders-in-Appeal No. PVR/176, 177/NGP/2013 dated 15.03.2013,
PVR/278, 281/NGP/2013 dated 24.05.2013 passed by the Commissioner of
Customs & Central Excise (Appeals), Nagpur)
M/s Sanvijay Rolling & Engineering Ltd. .... Appellant
F-16, MIDC, Hingna Road, Nagpur-440 016
Versus
Commissioner of Customs & Central Excise .... Respondent
Nagpur
Telangkhedi Road, Civil Lines Nagpur-440 001.
AND
Excise Appeal No. 89404, 89405 & 89769 of 2013
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(Arising out of Orders-in-Appeal No. NGP/EXCUS/OOO/APPL/773/13-14 dated
22.08.2013, NGP/EXCUS/OOO/APPL/758/13-14 dated 19.08.2013,
NGP/EXCUS/OOO/APPL/827/13-14, dated 12.09.2013 passed by the Commissioner
of Customs & Central Excise (Appeals), Nagpur)
M/s Sanvijay Rolling & Engineering Ltd. .... Appellant
F-16, MIDC, Hingna Road, Nagpur-440 016
Versus
Commissioner of Customs & Central Excise .... Respondent
Nagpur
Telangkhedi Road, Civil Lines Nagpur-440 001.
AND
Excise Appeal No. 85268, 85269 of 2014
(Arising out of Order-in-Appeal No. NGP/EXCUS/000/APPL/892-893/13-14dated
22.10.2013, NGP/EXCUS/000/APPL/894/13-14dated 22.10.2013 passed by the
Commissioner of Customs & Central Excise (Appeals), Nagpur)
M/s Sanvijay Rolling & Engineering Ltd. .... Appellant
F-16, MIDC, Hingna Road, Nagpur-440 016
Versus
Commissioner of Customs & Central Excise .... Respondent
Nagpur
Telangkhedi Road, Civil Lines Nagpur-440 001.
Appearance:
Shri D. H. Nadkarni, Advocate for the Appellant
Md. Shamshad Alam, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL)
FINAL ORDER NO. A/85137-85150/2022
Date of Hearing: 17.09.2021
Date of Decision: 22.02.2022
Per: P. Anjani Kumar
Heard both sides and perused the records of the case.
2. Brief facts of the case are that the M/s Sanvijay Rolling &
Engineering Ltd, the appellants are engaged in the manufacture of angles,
channels, flat bars, round, Joints (Rolled Products for short) of Iron and
Steel; the inputs are Iron and Steel billets/blooms/slabs etc. The appellants
manufacture the said rolled products on their own account out of the
Billets/Blooms/Slabs purchased by them as also on job work basis out of the
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'inputs' supplied free of cost by the input suppliers; During the period in
dispute, the appellants manufactured Rolled products on job work basis for
various customers such as Steel Authority of India (SAIL), KEC International
etc; the input suppliers (except SAIL and Jindal) use the rolled products in
the manufacture structurals cleared on payment of duty. Such structurals
are used for construction of Transmission Towers.
2.1. The clearances made by theAppellantsare divided in to three categories
(based on the customer for whom job work was undertaken).
(A). Category A:Principal manufacturer clears the job-worked goods as
such; Excise duty was paid on the price at which the goods were sold by the
principal manufacturer to their customers. The following are covered under
this category.
(i) Steel Authority of India Ltd., Nagpur (SAIL)
(ii) Jindal Steel & Power Limited, Mumbai (Jindal)
(B). Category B:Principal manufacturer clears the job-worked goods after
further processing; Excise duty was paid on the assessable value arrived at
by aggregating (i) landed cost of raw materials; (ii) conversion charges
including profit of the appellants & (iii) 10% profit margin on total cost. The
list of customers covered under this category is as under:
(1) Kalpataru Power Transmission Ltd., Gandhinagar (KPTL)
(2) Bajaj Electricals Ltd., Mumbai (Bajaj)
(3) Jyoti Structures Limited, Mumbai (Jyoti)
(C). Category C: Principal manufacturer clears job-worked goods after
further processing by the principal manufacturer; Excise duty was paid on
the assessable value arrived at by aggregating (i) landed cost of raw
materials & (ii) conversion charges including profit of the appellants. The list
of customers covered under this category is as under:
(1) KEC International Ltd., Butibori, Nagpur (KEC)
(2) RPG Transmission Ltd., Jabalpur (RPG)
(3) Associated Trans Rail Structurers Ltd. Vadodara (ATSL)
(4) Larsen & Toubro Ltd., Chennai (L&T)
2.2. Revenue alleged thatthe Appellants have retained the scrap in respect
of the job work done for the aforesaid principal manufacturers and that the
value of scrap retained by the appellants is required to be added while
working out the conversion cost, and consequently to the assessable value.
The department asserts that the difference between the weight of raw
material received and weight of finished goods supplied is scrap as per
purchase orders; the price of such scrap of such quantity is includable in the
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assessable value. Various Show Cause Notices were issued to the different
units of the appellants seeking to demand of duty and impose penalty; show
case notices did also propose penalties on various officials of the company.
The SCNs were confirmed by Commissioner of Customs and Central Excise,
Nagpur, vide Order No 2/2009/C dated 13.05.2009. Show Cause Notices
confirmed by lower authorities were also confirmed by Commissioner
(Appeals) Nagpur, vide orders No. PVR/240-243/2012 dated 30-11-2012;
No. PVR/176,177/2013 dated 15-03-2013; PVR/278,281/2013 dated 24-05-
2013; No.773/2013 dated 22-08-2013; No. 827/ 2013 dated 12-9-2013 and
No 892,893,894/2013 dated 22-10-2013. Hence, the following appeals are
filed.
Sr. Appeal No. Name of the Impugned Order Period in Duty Penalty
No. Appellant No. & date dispute demand u/s 11AC
(Rs.)
1 E/914/2009 Sanvijay Rolling OIO No 02/2009/C November 2003 68,80,566 68,80,566
& Engineering 13.05.2009 to March 2008
Limited
2 E/85928/2013 -Do- OIA No PVR/240 July 2004 to 44,30,024 44,30,024
TO 243/NGP/2012 March 2009
30.11.2012
3 E/85929/2013 -Do- -Do- October 2006 to 27,98,153 27,98,153
March 2009
4 E/85694/2013 -Do- -Do- July 2004 to 38,03,150 38,03,150
March 2009
5 E/85693/2013 -Do- -Do- March 2005 to 5,88,483 5,88,483
March 2009
6 E/87463/2013 -Do- OIA No PVR/176/ Feb 2010 to Sept 4,18,236 4,18,236
NGP/2013 2010
15.03.2013
7 E/87464/2013 -Do- OIA No PVR/177/ March 2010 to 1,66,725 1,66,725
NGP/2013 Feb 2011
15.03.2013
8 E/88204/2012 -Do- OIA No PVR/278/ Feb 2010 to Sept 1,81,642 1,81,642
NGP/2013 2010
24.05.2013
9 E/88205/2013 -Do- OIA No PVR/281/ Dec 2009 to Sept 3,82,939 3,82,939
NGP/2013 2010
24.05.2013
10 E/89404/2013 -Do- OIA No NGP/ April 2009 to 1,85,356 1,85,356
EXCUS/OOO/APP Feb 2010
L/773/13-14
22.08.2013
11 E/89405/2013 -Do- OIA No NGP/ April 2009 to Jan 2,19,966 2,19,966
EXCUS/OOO/APP 2010
L/758/13-14
19.08.2013
12 E/89769/2013 -Do- OIA No NGP/ March 2011 to 30,292 30,292
EXCUS/OOO/APP Nov 2011
L/827/13-14,
12.09.2013
13 E/85268/2014 -Do- OIA No NGP/ Oct 2010 to June 7,14,064 7,14,064
EXCUS/000/APP 2011 & July
L /892-893/13-14 2011 to Feb
22.10.2013 2012
14 E/85269/2014 -Do- OIA No NGP/ Oct 2010 to June 9,852 9,852
EXCUS/000/APPL 2011
/894/13-14
22.10.2013
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3. Learned counsel for the appellants submits, on the demand pertaining to
clearances of Category-I, that when Transaction value is available, there is
no need to determine the value as per Valuation Rules / Ujagar Prints
Formula; excise duty was paid at the value at which the raw material
supplier (SAIL or Jindal) has sold the goods to the independent
customers; The issue is settled by the CESTAT in case of Srutech
Tubes2017-TIOL-3859-CESTAT-MUM holding that when the duty has
been paid on the price at which the raw material supplier has paid the
duty, no differential duty demand can be sustained. He submits that
Rule 10A was introduced in Central Excise Valuation Rules, 2000 with effect
from 1.4.2007; this Rule provides that in case of job work, the job worker is
required to discharge duty at the price at which the principle manufacturer
sells the said goods to independent customer; the Appellants have paid duty
as per this Rule; in spite of this fact, department has confirmed the demand
for the period after 1.4.2007 also, contrary to Rule 10A of CEVR, 2000.
3.1. Learned counsel submits, on the issue of clearances in respect of
category-II and Category-III, that no part of the demand is sustainable; in
terms of Rule 4(5)(a) of the Cenvat Credit Rules, the manufacturer of final
product can take credit on inputs received in its factory and send the inputs
to the job worker for the manufacture of intermediate product and receive
the intermediate product for using the same in the manufacture of the final
product; in such a situation, the job worker who manufactures the
intermediate product is not liable to pay any duty on the intermediate
product manufactured out of the raw material supplied to him; since the
appellants could have followed the alternate procedure under Rule 4(5)(a);
the Appellants could have manufactured the finished product out of the raw
material supplied on job work basis and return the same to raw material
supplier without payment of duty under the aforesaid rule; in such a
situation, question of demanding differential duty would not arise. Apex
Court in the case of International Auto Limited2005 (183) ELT 239 (SC), in a
matter involving similar proceedings, set aside the demand by observing
that it is the Modvat of such final product which would have to be included in
the cost of the inputs and in respect of which Modvat credit could be taken
at the time of clearance of the final product; the Tribunal 2017-TIOL-3859-
CESTAT-MUMhaving misconstrued the provisions of Rule 57F(2)(b), its
decision cannot stand. He submits that CESTAT followed the above
judgement in Law Kim Ltd 2007 (218) ELT 142(T) and the issue is also
settled in favour of the Appellants by the judgment of CESTAT in the case of
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P.R. Rolling Mills 2010 (249) ELT 232 which has been affirmed by the
Supreme Court2010 (260) ELT A84 (SC), on a set of identical facts, holding
that P.R. Rolling Mills could have cleared the bars/ sections without payment
of duty to the Raw material supplier and therefore, when no duty was liable
to be paid, adding of value of scrap also would not arise at all. He also relies
upon the following cases submitting that it was held that the value of scrap
need not be included in the assessable value
(i). SRF Limited VsCCE - 2007 (220) ELT 201 (T) affirmed by Supreme Court at 2016
(331) ELT A138 (SC)
(ii). Ghatge Patil Industries Vs CCE - 2015 (320) ELT 646 (T) affirmed by Supreme
Court reported as 2015 (322) ELT A28 (SC)
(iii). Automotive Stampings and Assemblies- 2019 (5) TMI 1169 - CESTAT MUMBAI
(iv). Ad-manum Packaging Vs CCE - 2016 (341) ELT 348 (T)
(iv). CCE Vs Reclamation Welding Limited - 2014 (308) ELT 542 (T)
(v). CCE Vs Raja Magnetic Limited - 2017-TIOL-1420-CESTAT-BANG
(v). Standard Drums and Barrels- Final Order No. A/86853-86854/2018 dated 28.6.2018
(vi). Sigma Punch Vs CCE 2018-TIOL-1347-CESTAT-BANG
(vii). CCE Vs Rane Brakes Lining - 2018-TIOL-1058-CESTAT-MAD
(viii). Ghatge Patil Vs. CCE - 2014-TIOL-1760-CESTAT-MUM
(ix). Nirlon Limited- 2015 (320) ELT 22 (SC)
3.2. Learned counsel submits further that the Appellants determined
the value by taking (i) landed cost of raw material plus (ii) conversion
charges plus (iii) 10% on the landed cost of raw material even though
they were not required to add 10% on the landed cost plusconversion
charges; alleged non-inclusion of the addition of scrap value, is more
than neutralized with the addition of notional profit of 10%; the
Appellants have paid duty on a higher value. He submits, without
prejudice to the above, the consequences of payment of duty on the
scrap sale price would be revenue neutral as credit of the same is
available to the recipients and on that basis the demand of duty is an
exercise in futility as held in CCE Vs Special Steel - 2015 (329) ELT
449 (T) (affirmed by Supreme Court at 2016 (334) ELT A123 (SC) and
Sanvijay Rolling Vs CCE - 2018 (11) GSTL 344 (Bom.). He further
submits that the demand has been computed on the entire difference
between the weight of raw material supplied by the raw material
supplier and weight of finished goods to be cleared to the raw material
supplier as per the purchase order; in other words, the demand has
not been computed on the actual scrap arising in the process of
manufacturing; in the case of appellants, there is approximately
burning loss of 4.25% department has not taken into account the
process loss and burning loss while assuming that the entire difference
is towards the scrap; department had raised this issue in the similarly
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placed manufacturers like VinarIspat, Shilpa Re-rollers, however,
giving benefit of burning loss. He submits thatthe scrap sale price is to
be deducted to arrive at the conversion cost, when the raw material cost
takes into account the gross weight of the raw material. The appellants had
taken into account the price of the gross weight of the raw material without
deducting the scrap value realised. Hence, the value of gross weight
included the quantity of scrap also and therefore the addition of scrap value
again would result into double taxation. Hence, the demand is not
sustainable on this ground also. He submits that the scrap sale price is to be
deducted to arrive at the conversion cost, when the raw material cost takes
into account the gross weight of the raw material; the appellants had taken
into account the price of the gross weight of the raw material without
deducting the scrap value realised; hence, the value of gross weight includes
the quantity of scrap also; therefore, the addition of scrap value again would
result into double taxation and hence, the demand is not sustainable on this
ground also.
4. Learned Counsel for the appellants submits also that in respect of appeals
E/914/2009, E/85928, E/85929, E/85694 and E/85693 of 2013, except for
the period from November 2007 to March 2008, the entire demand of duty is
beyond the normal period of limitation; the unit was visited regularly by
CERA/EA-2000 Audit and no objection was raised on the ground that the
scrap sale price was not included in the assessable value; the appellants had
bonafide belief that the view adopted by them regarding the non-includibility
of scrap value in the assessable value is correct in law; the view entertained
by the appellants is supported by judicial pronouncements; the following
decisions were in favour of appellants:
(i). Hindustan Engineering & Industries Ltd 2002 (144) ELT 418 (T)
(ii). Lloyds Steels Industries Ltd- 2003 (163) ELT 128 (T)
(iii). Mahindra Ugine Steel Co Ltd-2003 (157) ELT 435 (T).
4.1. Learned Counsel for the appellants submits that the appellants'
bonafide belief is also supported by the fact that the appellants were clearing
scrap on payment of duty; from the various decisions reported, it would be
clear that it was almost an industry practice to retain scrap and arrive at the
assessable value considering the gross weight of the input raw material;
entire facts are recorded in books of account and other records maintained
by the appellants in their usual course of business; there was nothing
covertness or clandestine in the activities of the appellants. Learned counsel
submits that in view of the submissions made above, invocation of larger
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period is not correct; the Appellants have not contravened any provision and
therefore, imposition of penalty under Rule 25 is also not sustainable; since
demand is not sustainable and therefore interest is also not payable.
5. Learned Authorised Representative for the department reiterates the
findings of OIOs and relies on the following cases.
(i). Jay Engineering Works Ltd1997 (93) ELT 492 (Tri)
(ii). General Engineering Works 2007 (212) ELT295 (S.C)
(iii).Thermax Babcock & Wilcox Ltd 2018 (364) ELT945 (Tri. - LB)
(iv). Ankur Packaging Pvt. Ltd 2015 (320) ELT482 (Tri. - Mumbai)
6. Learned counsel for the appellants submits, in rebuttal of the submissions
of Authorised Representative, that the department placed reliance on the
judgment of Supreme Court in the case of General Engineering; however,
Supreme Court delivered this decision vide order dated 10.3.2005 reported
2007 (212) ELT 295 (SC); Tribunal followed the same in the judgements
cited by AR; subsequently, Hon'ble Supreme Court delivered the judgment
of International Auto on 17.3.2005 reported 2005 (183) ELT 239 (SC);
moreover, the judgment in General Engineering Works did not deal with the
implication of Rule 4(5)); CESTAT in the case of P.R. Rolling Mills considered
this judgment of General Engineering and held that value of scrap need not
be includible in terms of alternate procedure of Rule 4(5)(a) and this
judgment of CESTAT has been affirmed by Supreme Court; in view of the
subsequent judgment of International Auto which was followed by the Apex
Court in various other judgments cited above, reliance placed on the
judgment of General Engineering Works is incorrect. He submits that the
decision of Larger Bench in the case of Thermax Babcok& Wilcox would not
alter the legal position settled by five judgments of Supreme Court including
in the case of International Auto and P. R. Rolling Mills etc.
6.1. Learned counsel for the appellants submits reliance on the decision of
Larger Bench in the case of Thermax Babcock & Wilcox Limited (supra) is
misplaced as the facts of the case were not identical; question which was
referred to Larger Bench was
"In the facts and circumstances of the present case, when the principal manufacturer
(Babcock) clears the final product without payment of duty by availing exemption under
a notification, whether the job worker M/s. Thermax, who manufactures intermediate
parts of boiler on the inputs sent by Babcock under Rule 4(5)(a) and returns the same to
the principal manufacturer M/s. Babcock, is liable for payment of duty when
Notification No. 214/86-C.E. is not available on the manufactured goods at the said job
workers (Thermax) end."
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He submits that unlike in the case of Thermax Babcock & Wilcox
Limited, in the present case, the principal manufacturers are paying
excise duty on their finished goods (transmission towers); facts are
clearly distinguishable; hence, the aforesaid judgment of Larger Bench
has no application to the present case.The Hon'ble Supreme Court and
CESTAT held that if the alternate procedure would have been followed,
the job worker was not required to pay duty on the intermediate goods
where the principal manufacturer is using the intermediate goods for
the manufacture of finished goods which are cleared on payment of
duty.
7. Heard both sides and perused the records of the case. The main
issue contested by the appellants in all these impugned orders is the
contention of the department that the value of the scrap retained and
sold by the appellants should be included in the assessable value of the
goods manufactured and cleared by the appellants on job work basis.
The main contentions of the appellants are that assessable value was
worked out on the principle of cost accounting and there was no need to
include the cost of scrap; they have considered the assessable value in
the case of orders for conversion including 10% profit in addition to the
job charges; 10% of profit added by the appellants was more than the
value of the scrap and therefore, no case is made towards addition of
the value of the same; no duty was payable as the principal
manufacturers had always an option to avail the procedure under rule
4(5)(a); the issue is revenue neutral; audit teams have visited the
appellants premises from time to time and hence, extended period
cannot be invoked and penalties cannot be levied. The appellants
mainly rely upon the judgment of Supreme Court in the case of
International Auto (supra) and CESTAT judgment in the case of PR
Rolling Mills. Whereas the department mainly relies on the judgment of
Supreme Court in the case of General Engineering (supra) and that of
Tribunal in the case of Thermax Babcock and Wilcox Ltd. (supra).
7.1 It will be beneficial to see as to how the learned adjudicating
authority has dealt with the submissions of the appellants. As regards
the submission of the appellants regarding following of the standard
accounting procedures, we find that learned Commissioner, vide
impugned order dated 13.5.2009, refers to articles from cost
accounting-a managerial emphasis by Charles T Horngren, George
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Foster and Srikanth Datar, which envisage that unlike spoilage and
rework, there is no cost attached to this scrap and hence, no normal or
abnormal scrap; all scrap sales whatever the amount are credited to
specific job. Scrap sales reduces the materials' cost of the job and that
whenscrap is sold, the simplest accounting is to regard scrap sales as
separate line item of other revenues. Learned Commissioner also refers
to principles and practice of cost accounting by N.K. Prasad and A.K.
Prasad which shows that the production process may generate scrap or
waste. Realised or realisable value of scrap or waste shall be credited to
the cost of production. We find that this principle has been adopted by
the apex court and this Tribunal to come to a conclusion that the
amounts realised by sale of scrap go to affect the job charges for the
purposes of assessment of goods cleared by the appellant job worker.
The sale proceeds realised by the sale of scrap do constitute an
additional consideration in the hands of the job worker appellant and
therefore, requires to be included in the cost of goods cleared on
payment of duty and therefore, the learned Commissioner comes to a
conclusion that as per Rule 10A(iii) read with Rule 6 of Central Excise
Valuation (Determination of price of excisable goods) Rules, 2000, the
retention of sale proceeds of waste and scrap so generated during
themanufacture on job work basis, from the period 1.4.2007, would
tantamount to additional consideration flowing indirectly from the buyer
to the noticee and hence, the said amount of additional consideration
was required to be added in the assessable value for determination of
central excise duty. Learned Commissioner (A) vide impugned order
dated 30/11/2012 also holds that the appellant is showing the sale
proceeds of the scrap as part of the renumeration / profit in the books
of account; further the buyers of goods (or the principal manufacturers)
had agreed to received from the job worker finished goods only to the
extentof 90% of the raw materials supplied; the contracts between
them stipulate that rest of the quantity in the form of scrap would be
retained by the job worker; clearly the sale value of the scrap at the
hands of the job worker was an additional consideration.
7.2 At this juncture it would be beneficial to refer to the decision of
the apex court in case of General Engineering works, we find that
Hon'ble Apex Court has held as under:
"6. The burden of proving that the price is so depressed would be on the Revenue. But one of the methods
of proving it would be through the contract between the parties itself. In this case the contract is on record.
The contract provides as follows : -
"The prices quoted are based on the free supply of Rails by you at our works, Bharatpur, Western Railway,
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Rajasthan. The tonnage for Rails will be 5% more than the net requirement of Rails required for different items of
Switches, 5% being the manufacturing wastage."
........................................................................................................................................
................................................................
"The total requirement of Rails for different items would be forwarded to you within ten days of receipt of your formal order. Manufacturing wastage of 5% has been considered and therefore this wastage will not be separately accounted for and shall not be returned. Any surplus materials received from you against the contract, will be returned to you and dispatched to the destination as advised by you, F.O.R. Our word."
7. Thus, the contract clearly indicates that the price (conversion charges) have been worked out on the basis that 5% wastage would be available to the Appellants. This indicates that the price has been affected by the sale of scrap. In this view, we are in agreement with the view of the Tribunal that in computing the value of points and crossings the value of scrap sold has to be taken into account.
8. Reliance was placed upon the case of Hindustan Engineering & Industries Limited v. CCE, Calcutta-I reported in 2002 (144) E.L.T. 418 (Tri. - Kolkata). In this case CEGAT has held that the value of scrap is not to be included in working out the value of points and crossings. CEGAT has so held on the basis that in working out the value of points and crossings, the entire value of the raw material supplied was taken into consideration and also that excise was being paid on the scrap which had been sold. CEGAT has so opined even though an earlier decision of CEGAT in the case of Jay Engineering Works Limited v. Commissioner of C. Ex. Hyderabad reported in 1997 (93) E.L.T. 492 (Tribunal) had been brought to its attention. In our view, CEGAT has gone completely wrong in Hindustan Engineering & Industries Limited's case (supra). It must be remembered that the element of raw material is a separate element from the element of conversion charges. The value of the entire raw material used has to be taken into consideration. The element of profit/conversion charges has to be added to the element of value of raw material used. The element of job work charges being separate element from the value of raw material, If it is shown that the job work charges/conversion changes get reduced then the value of scrap has got to be included in the value of the conversion charges. Similarly, even if excise is paid on scrap it would have no bearing on the working out of the value of the points and crossings. What is left is scrap/waste. It is known and is being sold as such. In such a case the value is determined on the price realized. Further, as per the Judgment of this Court in the case of Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd. reported in (2002) 3 SCC 547, the value of the scrap will be worked out on cum-duty basis. Thus no question arises, at this stage, of considering value of raw material in this scrap/waste and there is no double calculation of value of raw material. As a second commodity has come into existence, the excise paid on the second commodity has no relevance in working out the value of the first commodity, i.e. points and crossings. The decision in Hindustan Engineering & Industries Limited's case (supra) will therefore stand overruled.
7.3 Tribunal in the case of Ankur Packaging Limited: 2015 (320) ELT 482 (Tri.-Mum.) held that :
"5. The respondent paid the Excise duty on the realized value against sale of the scrap retained by them, which was generated during the course of processing of job work goods. It is undisputed fact that for the purpose of job work the respondent has received free of cost raw material from the principal. After processing finished goods, it was returned to the principal. However, the scrap generated during the course of manufacture in the job work basis has been retained by the respondent. The said scrap was sold in the market by the respondent and realized value. For the purpose of job work, the respondent is paid particular job work charges by the principal. We agree that as per the principle laid down by the Hon'ble High Court in Ujjagar Prints and various other judgments, the valuation of job work goods should be done by taking the cost of raw material plus job charges. However, in any valuation, if there is any extra consideration flowing to the manufacturer, the same should be added in the assessable value of the goods. In the present case the respondent is getting job work charges plus realized value against sale of scrap. Therefore both the elements should be added in the cost of raw material and total sum of cost of raw material plus job charges plus realized value of scrap sale, shall be the correct assessable value. As regard the contention of the ld. Counsel for the respondent that value of the scrap is reduced for arriving at the cost of the product in terms of costing principle. We are of the view that method of costing according to the CAS4 will apply only when the goods is sold by the owner of the goods whereas in the present case the goods is not owned by the job worker but it is owned by the principal. For this reason, realized value of the scrap is additional consideration flowing to the job worker towards the overall job work activity. Therefore the contention of the ld. Counsel will not be of any help to the respondent. In the case of CCE, Nagpur v. Lloyds Industries Limited (supra) the Hon'ble High Court has held as under :
"4. This clearly indicates that the value of Conversion Charges is affected by the fact that the Respondents retain the scrap and sell it.
5. The Tribunal has, in the impugned judgment, noted that conversion costs may get depressed. Yet the Tribunal then erroneously assumes that if such a value is included, it would have to be deducted from the cost of raw material. The Tribunal erroneously holds that if that is not done such a charge would be included twice over.
6. As has been set out in greater detail in the judgment delivered today in M/s. General Engineering Works case the cost of the raw material is one element. Whatever is the quantity of raw material used, its value will have to be taken into account. Conversion charges is a second element. If by retaining scrap/waste the conversion charges get reduced, then the value of the scrap/waste will have to be added to the conversion charges. By so doing there is no inclusion of same charge twice over as erroneously held by the Tribunal.
7. Accordingly, on the principles laid down in General Engineering Works case, we set aside the impugned judgment and allow the Appeal. The Order of the adjudicating authority dated 7th October, 2002 gets restored. There shall be no order as to costs."
6. From the above judgment, it is clear that if the scrap is retained by the job worker and sale of the same will affect the conversion charges towards job work, the same should be included in the assessable value of the job work goods. We agree with the submission made by ld. AR that though the ld. Commissioner (Appeals) heavily relied on judgment of [2007 (211) E.L.T. 73 (Tri.-Mum.)] (sic) Mahindra Ugine Steel Co. Ltd. but subsequently said Tribunal judgment was set aside and matter was remanded back to the Tribunal. The impugned order of the ld. Commissioner, based on the judgment which does not exist presently, cannot be sustained. From the facts, our observation is that against overall activity of job work, the respondent job 12 worker is getting the consideration in two forms, one job work charges and second realized value of scrap sale. In other words total sum of both these element will form the total consideration received by the respondent towards job work. Therefore the sale value of scrap is includible in the assessable value of job work goods. Therefore, differential Excise duty and interest thereupon paid by the respondent is correct and legal and the question of refund of said amount does not arise. In view of the above discussion and considering legal position we are of the considered view that order of the ld. Commissioner (Appeals) is not sustainable and same is set aside. The appeal of the Revenue is allowed.
In view of the above, the clear exposition of the legal provisions relating to the need for including the sale proceeds of scrap in the assessable value at the hands of the job worker-appellant, it is evident that the appellants are required to include the value of the scrap sold in the assessable value of the goods they have manufactured and cleared on job work basis. It is the contention of the appellants that Supreme Court in the case of International Auto (supra) has reversed their own decision in the case of General Engineering and that CESTAT followed the same in P.R. Rolling Mills case. However, we find that the ratio of the decision of the Tribunal in the case of P.R. Rolling Mills Pvt. Ltd. would not be applicable as the issue before the Tribunal in that case was the includability of value of scrap in the assessable value of the bars/sections cleared by job worker since intermediate product not liable to duty. To that extent, we find that the case of P.R. Rolling Mills would not come to rescue of the appellants for the twin reason that procedure under Rule 4(5)(a) of CENVAT Credit Rules, 2004 is not followed in the impugned case and that the dutiability of intermediate product is not in question. We find that Larger Bench of the Tribunal in the case of Thermax Babcock & Wilcox Limited have categorically held that:
"Perusal of the above sub-rules reveal that Rule 4(5)(a) is concerned only with permitting removal of inputs to the job worker by the principal manufacturer who has availed Cenvat credit on such inputs. Pertinently, Rule 4 of the Cenvat Credit Rules is concerned with the conditions under which a manufacturer is allowed to avail Cenvat credit. Rule 4(5)(a), not cast any liability of duty upon the principal manufacturer who has sent the inputs for job work other than the condition that in case of non- receipt of goods within the stipulated period he shall be liable to reverse the Cenvat credit availed on such inputs. The rule is confined to the scope of Cenvat credit but has no relation with manufacture, manufacturer and payment of duty on the manufactured goods."
In view of the above, we find that the alternate plea of the appellants that the principal manufacturers could have availed the procedure under Rule 4(5)(a) of CENVAT Credit Rules, 2004 is not relevant to the present case on the facts. Any procedure under any statute requires to be followed and only then the benefits that accrue consequentially would be available. When the principal manufacturers of the appellant-job worker have not followed the procedure, any plea on the same would be only hypothetical. Moreover, as held by the Tribunal in the case of Thermax Babcock & Wilcox Limited has clarified that the applicability or otherwise of the said Rule has no bearing on the valuation of the goods cleared by the job worker.The issue before this Bench is to see whether the appellants were required to include the value of the scrap in the assessable value of the 13 goods cleared by them after manufacture on job work basis on behalf of their principal manufacturers. To that extent, we find that the impugned orders do not suffer from any infirmity as far as the valuation is concerned. We find that in terms of Rule 6 of Central Excise Valuation Rules, 2000, Where the excisable goods are sold in the circumstances specified in Clause (a) of subsection (1) of Section 4 of the Central Excise Act, except the circumstances where the price is not sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyers to the assessee. In view of the same, we have no hesitation, to conclude that the impugned orders have arrived at the assessable value correctly and that the sale proceedings of the scrap are required to be included in the assessable of the goods cleared by the appellant-job worker. The appellants have also taken the plea that whatever duty they would have paid, the principal manufacturers or the other buyers would have availed CENVAT credit and therefore to that extent theissue is revenue neutral. We find that this submission is far fetched and cannot be considered in a case where the payment of duty is by someone and availment of credit would be by somebody else. Such an averment would defeat the very scheme of CENVAT Credit and therefore, cannot be accepted. The case laws relied upon by the appellants in this regard is also of no avail as the facts of different cases are distinguishable.
7.4 We find that appellants have submitted that the quantification of duty by the Department was erroneous to the extent that the impugned orders and the show-cause notices presume that the difference for which allowance is given by the principal manufacturers is available to the appellant as a scrap. The impugned orders fail to take into account burning losses during the process of rolling and in their case the actual scrap available is only 4.25% as against the assumption of the department that the entire 10% of the allowance given by the principal manufacturer is available for sale in the hands of the appellant-job workers. The appellant submits that the actual details were available in the Form-IV register maintained by them; demand confirmed, if any, cannot related to the quantity representing the burning loss. We find that the argument of the appellant is acceptable. As per the valuation provisions under Central Excise and the ratio of the judgments as discussed above stipulate that the value of scrap sold has to be taken 14 into account as the same represents additional consideration flowing into thehands of thejob worker from theprincipal manufacturer. Neither the Rules nor the judicial pronouncements mention about a notional value of any scrap retained by the appellants and about the includability of burning losses. Essential element that requires to be considered as additional consideration and thus, includable in the assessable value is the value / sale proceeds of scrap. Burning losses, if any, cannot be considered by any stretch of imagination as additional consideration in the hands of appellants, though it may constitute an amount of wastage or loss for the principal manufacturer. Therefore, we are of the considered opinion that the inclusion of additional consideration should be restricted to the actual scrap generated and sold by the appellants. For the computation of the same, the issue needs to go back to the Commissioner, who shall recalculate the demand including only the value of actual scrap generated and sold by the appellants.
7.5 Coming to the issue of limitation, the appellant submit that major part of the demands is time barred as extended period cannot be invoked since CERA/EA 2000 were taking place regularly; there were conflicting decisions by CESTAT on the issue. We find that the learned Commissioner while acknowledging the fact that CERA Audit have given intimation of visits vide letters dated 18.7.2002, 13.5.2004, 20.4.2005, no audit para was raised. Learned Commissioner acknowledges that appellants were informed vide letter dated 11.2.2006 that they have not paid service tax on inward freight and vide letter dated 18.7.2008 that the appellants did not pay interest on differential duty. The learned Commissioner concludes that none of the documents indicate that the department was having knowledge about the landed cost arrived by the appellants and only on investigation, it was revealed that the appellants are not including the value of scrap in the assessable value. We find that learned Commissioner's argument on this point are not acceptable. When regular audit is conducted and the department fails to go through the accounts of the appellants with due diligence, the appellants cannot be faulted for the same. It cannot also be alleged that the appellants have suppressed any information with intent to evade payment of duty. Understandably, there were different opinions expressed in the judgments delivered during the relevant time, therefore, we find the contention of the appellant about existence of a bona fide belief that they are not required to include the value of the scrap in the assessable 15 value is acceptable.It is not the case of the department that the appellants have not been filing returns periodically. Moreover, we find that show-cause notice dated 2.12.2008 and show-cause notice dated 11.2.2010, both invoke extended period. It is not understood as to how it was open to the Revenue to issue consecutive show-cause notices invoking extended period, more so, when the invocation in the very first period itself is not on solid grounds. In view of the facts and circumstances, we do not find that Revenue has not made any case for invocation of extended period. We hold that demands need to be restricted to normal periods only. As intent to evade payment of duty is not established, imposition of penalties is also not justified, they are liable to be set aside.
8. In the result, inview of the above discussion, we allow all the 13 appeals partially holding that :
(i) Revenue's contention that the value of scrap, retained by
the appellants in respect of products manufactured and
cleared by them on job work basis, as alleged in the various
impugned show-cause notices, requires to be included in
the assessable value in terms of Central Excise Valuation
Rules, 2000. Quantification of scrap shall be on actual basis
taking into account the burning losses, if any, as claimed by
the appellants.
(ii) Demands shall be restricted to the normal period only as
may be applicable during the relevant period of respective
appeal.
(iii) Penalties imposed are set aside.
(Pronounced in open court on 22.02.2022)
(S.K. Mohanty)
Member (Judicial)
(P. Anjani Kumar)
Member (Technical)
Sinha