Custom, Excise & Service Tax Tribunal
Subhash Project & Marketing Ltd vs Cce, Delhi-Iv on 30 November, 2017
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SCO 147-148, SECTOR 17-C, CHANDIGARH 160 017
COURT No. I
APPEAL Nos. E/169-171/2007
[Arising out of OIO No. 15/KKJ/Adjn./2006-07 dated 31.10.2006 passed by the Commissioner of Central Excise, Commissionerate-Delhi-IV, Faridabad.]
Date of hearing/decision: 16.08.2017
For approval and signature:
Honble Mr. Ashok Jindal, Member (Judicial)
Honble Mr. Devender Singh, Member (Technical)
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Subhash Project & Marketing Ltd.
Sh. Sushil Kumar Sethi, Director.
Subhash Pipes Ltd.
:
Appellant(s) VS CCE, Delhi-IV.
:
Respondent(s) ======================================================= Appearance:
Sh. A.K. Prasad, Advocate for the Appellant(s) Sh. Harvinder Singh, AR for the Respondent(s) CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. Devender Singh, Member (Technical) FINAL ORDER NO.62102-62104/2017 Per : Ashok Jindal The appellants are in appeal against the impugned order wherein differential amount of reversal has been demanded on the ground that the appellant has cleared the goods to related persons which were exempt, therefore, reversal of amount of 8% attributable to exempted goods.
2. The brief facts of the case are that M/s Subhash Pipes Ltd. (in short M/s SPL) is manufacturer of pipes who is clearing the pipes to independent buyers as well as M/s Subhash Project & Marketing Ltd. (in short M/s SPML) without payment of duty as M/s SPML having contract to supply these pipes to UP Jal Nigam for project of supply of water and availing exemption under Notification No. 06/2002. The appellant is reversing Cenvat Credit attributable to goods cleared to M/s SPML. M/s SPL cleared these goods to M/s SPML without payment of duty for the pipes used for UP Jal Nigam. To that effect essential certificate has been obtained from the competent authority. M/s SPL is also clearing the Bearing/Wearing Plates to M/s SPML without payment of duty on the premise that without these Bearing/Wearing Plates the pipe cannot be laid down, therefore, Bearing/Wearing Plates is the integral part of the pipe and to that effect also they have obtained necessary certificate under Notification No. 06/2002 from the competent authority. During the period 2001-2002 to 2003-2004, an investigation was conducted in the premises of M/s SPL. On the basis of investigation, the show cause notice was issued to all the appellants on the ground that as M/s SPL is clearing goods to M/s SPML who is related persons, therefore, goods are to be valued as per Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2002. It was also alleged in the show cause notice that reversal of Cenvat Credit attributable to the exempted goods is not sufficient and M/s SPL is required to pay 8% of the value of the exempted goods cleared by them. It was also alleged in the show cause notice that Bearing/Wearing Plates which has been cleared by M/s SPL without payment of duty is not covered under Notification No. 06/2002 for availment of the exemption for clearing of the said goods without payment of duty. Therefore, SPL is required to pay duty on these Bearing/Wearing Plates by invoking extended period of limitation as show cause notice has been issued on 04.01.2006, therefore, differential duty has been demanded along with interest and penalty on the appellants were also proposed. The matter was adjudicated and it was held that M/s SPL and M/s SPML are related persons, therefore, valuation is required to be done as per Rule 9 read with Rule 8 of the Valuation Rules, consequentially, differential duty was demanded. The reversal of Cenvat Credit on goods attributable to exempted goods were also denied and it was directed to the appellants to pay 8% of the value of the exempted goods. The exemption for clearance of Bearing/Wearing Plate was also denied on the ground that the same is not covered under Notification No. 06/2002, therefore, differential duty was demanded along with interest and penalty on all the appellants was also imposed. Aggrieved from the said order, appellants are before us.
3. The Ld. Counsel for the appellants submits that the impugned order is not sustainable on the following grounds.
A. M/s SPL and M/s SPML are not related person.
B. The reversal of Cenvat Credit attributable to exempted goods is sufficient in terms of Section 72 of the Finance Act, 2010 wherein it has been provided that proportionate of reversal of Cenvat Credit attributable to exempted goods is the sufficient w.e.f. retrospectively.
C. The Bearing/Wearing Plates are integral part of pipes and to that effect they have obtained certificate from the competent authority for clearance for the same without payment of duty.
D. In alternate, Rule 9 read with Rule 8 is not applicable to the facts of this case.
E. The extended period of limitation is not invokable.
4. To support his submission he drew our attention to the impugned order Paragraph 5.2.4 and 5.2.5. It is his submissions that the observations made by the Adjudicating Authority is factually not correct moreover, the reasons for holding that M/s SPL and M/s SPML are having mutual of interest is not correct in view of the various judicial pronouncements. To support this contention, he relied upon the decision of Union of India & Others Vs. Atic Industries Ltd. - 1984 (17) ELT 323 (SC). He further submitted that if it is taken that M/s SPL and M/s SPML are related person in that case also the valuation has not done in proper prospective by invoking Rule 9 Read with Rule 8 of the Valuation Rules. As Rule 9 deals with clearances made exclusively through the related persons whereas the fact is that M/s SPL is clearing their goods to related person as well as independent buyers. Therefore, on the said ground duty of demand is not sustainable.
5. He further submitted that the issue of reversal of Cenvat Credit attributable to exempted final goods has been settled by the Section 72 of the Finance Act, 2010 wherein it has been provided that proportionate reversal of Cenvat Credit is sufficient with retrospective effect and it is fact on record that M/s SPL is reversing the Cenvat Credit attributable to exempted goods therefore, demand @ 8% of the exempted goods is not sustainable. He also submitted that as the goods are exempted and the Cenvat Credit attributable to exempted goods has already been reversed, therefore, the issue of under valuation does not arise.
6. He also submits that M/s SPL is clearing the Bearing/Wearing Plate for lying of the pipe to be used by Up Jal Nigam for supply of water and the same is exempted under Notification No. 06/2002 as the appellants were under belief that without these Bearing/Wearing Plate, pipe cannot be laid down, therefore, the Bearing/Wearing Plate is the part of the pipe, therefore, they have cleared these Bearing/Wearing Plate without payment of duty after obtaining the necessary certificate under Notification No. 06/2002 from the competent authority for clearances of these Bearing/Wearing Plate without payment of duty. To support this contention, he relied on the decision of CCE, Indore Vs. Kanoria Sugar & General Mfg. Co. Ltd. - 2017 (345) ELT 564 (Tri. Del.) In fact in that case, the Commissioner himself has granted the exemption.
7. He further submitted that as M/s SPL was under bona-fide belief that they are not related with M/s SPML and the Bearing/Wearing Plates are exempted from the duty as per the certificate issued by the competent authority, therefore, extended period of limitation is not invokable. It is his submission that as these goods were exempted from the payment of duty and they were reversing the Cenvat Credit attributable to these exempted goods. In that circumstances, the appellants have not to gain anything on the aspect of valuation of said goods. Therefore, the malafides cannot be alleged.
8. On the other hand Ld. AR opposed the contention of the Ld. Counsel for the appellants and submits that the adjudicating authority in the impugned order has examined the issue of related persons and in the show cause notice itself it has been clarified that the M/s SPL and M/s SPML are related persons having mutuality of interest. He also submits that the two directors of M/s SPML are the directors in M/s SPL and controlling the business of M/s SPL, therefore, both are the related person. He also took the support of the decision of Hon'ble Apex Court in the case of Calcutta Chromotype Ltd. Vs. Collector of C. Ex., Calcutta -1998 (99) ELT 202 (SC). He further submits that as both are the group companies and using the same logo, therefore, they are related person. He submits that Rule 9 is applicable to the facts of this case. He submits that at the time of adjudication, the Finance Act, 2010 was not came into force, therefore, the adjudicating authority has rightly demanded the amount of 8% on clearance of the exempted goods. He also submits that the appellants were knowing that the Bearing/Wearing Plate is not pipe and deliberately misclassified that the same as pipe, therefore, M/s SPL is required to pay duty on these Bearing/Wearing Plate. He also submits that as M/s SPL is deliberately misclassified the Bearing/Wearing Plate and also not brought the fact in the knowledge of the Department, therefore, extended period of limitation is rightly invoked.
9. Heard both the sides and considering the submissions in details.
10. On going through the arguments in advanced by both the sides the following issues have been emerged:-
1 Whether M/s SPL and M/s SPML are related person or not?
2 In alternate, if it is held that they are related person whether the provision of Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2000 are applicable in the facts of this case or not?
3 Whether in terms of Finance Act, 2010 the reversal of proportionate Cenvat Credit attributable to exempted goods is sufficient or not?
4 Whether M/s SPL is required to pay duty on Bearing/Wearing Plate or not?
5 Whether the extended period of limitation is invokable to the facts of this case or not?
11. Issue No. 1 & 2.
To allege that M/s SPL and M/s SPML are related person, the adjudicating authority has observed as under:-
5.2.4. In the instant case, the allegations of relationship between M/s SPML and M/s SPL were based on the following grounds:-
> Two of directors of M/s SPML are in M/s SPL.
> M/s SPML hold about 5% of shares in M/s SPL.
> Ledger A/c of M/s SPML shows some entries pertain to third party payments on A/c of repayment of funds transferred to M/s SPL to carry out business.
> Balance sheet of M/s SPML for the year 2001-2002 have shown M/s SPL as subsidiary company, Sh. Sushil Kumar Sethi and Sh. Rishab Sethi both Directors in M/s SPL, under the category of Key Management personnel and relatives of key Management personnel respectively.
> More than 90% of shares of M/s SPL are held by the companies and persons related to M/s SMPL or relatives of its key management personnel.
> Certificate dt. 12.06.1997 issued by Sh. Sushil Sethi as MD of M/s SPML showing M/s SPL as group Companies.
5.2.5. Now the vital question arising for consideration is whether M/s SPL and M/s SPML had any direct or indirect interest in the business of each other. It is evident from the facts of the case that out of the eight Directors of M/s SPML, Sh. Sushil Kumar Sethi and Sh. Deepak Sethi are Directors in both the companies; the third director of the noticee company, Sh. Rishabh Sethi in the son of the first director, namely Sh. Sushil Kumar Sethi; Shares of M/s SPL are held by the companies or persons related to M/s SPML and its key management personnel. M/s SPL had supplied Pre-stressed Concrete Pipes to M/s SPML against their contract with UP Jal Nigam at Ghaziabad for supply, laying and commissioning of pipe line. M/s SPL was paid against running bills by M/s SPML. Further M/s SPL recovered some of the payments from M/s SPML on account of travelling expenses, site expenses by debiting to M/s SPML. Similarly there were entries in the books of M/s SPML for payments to third party on account of repayment of funds transferred to M/s SPL to carry on its business; that the assessee company is one of the group companies of M/s SPML. All these facts together will lead to only one conclusion that there is mutuality of interest between the two units and as held by the Supreme Court in Calcutta Chromotype Ltd. 1998 (99) ELT 202 (SC) the corporate veil can be lifted. The person behind manufacturer and buyer are same and the financial flow back is also there in the form of payments to third party on account of repayment of funds to assessee. In fact a perusal of list of share holders of the assessee and its directors vis-`-vis the schedules forming part of the Balance Sheet and Profit & Loss Account of SPML makes it clear that the seller and buyer are very closely related. It does not require a financial or a legal wizard to come to that conclusion. We find that if two of the directors of M/s SPL are in M/s SMPL that cannot be the ground to hold that both are related person. We further found that during the course of investigation, M/s SPL and M/s SPML has clearly explained certain funds transfer entries in their accounts and the same has not been form the part of the show cause notice, therefore, the said ground cannot be alleged that they are related person. The adjudicating authority has relied on the balance sheet of M/s SPML for the year 2001-2002 to show that M/s SPL is a subsidiary company which is factually incorrect as the extract of the said balance sheet are extracted below:-
As per the schedule forming the part of balance sheet shows that M/s SPL is not a subsidiary company of M/s SPML, therefore, the adjudicating authority has relied on incorrect facts to say that M/s SPL and M/s SPML are related person. Further the adjudicating authority has relied on the certificate dt. 12.06.1997 issued by Sh. Sunil Kumar Sethi as MD of M/s SPML showing that M/s SPL as a Group of Company. Merely being a group company cannot be the ground to allege that M/s SPL and M/s SPML are related person as although they are group company but there should be a test of mutuality of interest in the activities by each other in their respective firms then by then only it can be said that they are related person. From the above allegations, it is not coming out that M/s SPL and M/s SPML are related person, therefore we hold that M/s SPL and M/s SPML are not related person in the absence of basis of mutuality of interest.
12. In alternate, the Ld. Counsel for the appellants has argued that if it is held that M/s SPL and M/s SPML are related person then the provisions of Rule 9 read with Rule 8 of the Valuation Rules are not applicable to the facts of this case.
13. We have gone through the Valuation Rules and the relevant Rules are extracted here below:-
Rule 8. 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 one hundred and fifteen per cent of the cost of production or manufacture of such goods.
Rule 9. When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of the goods shall be removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail;
Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture or articles, the value shall be detemined in the manner specified in rule 8. On going through the said provisions, we find that the goods are required to be sold by M/s SPL through M/s SPML the related person. It is fact on record in the show cause notice that Sh. D.C. Mandal stated that they are taking Cenvat Credit of duty paid on all the dutiable raw materials in RG-23A Pt-II and make debit therefrom of the amount of credit attributable to the inputs used in the exempted final product on the actual consumption basis; that they do not maintain separate inventory for exempted as well as dutiable final products and as the assessee was maintaining consolidated accounts in respect of the inputs used for the manufacture of dutiable as well as exempted pipes i.e. by availing credit of duty paid on inputs going into the manufacture of both categories of pipes, the assessee was required to reverse Cenvat Credit equivalent to 8% of the value of the exempted goods as per the provisions of Rule 6 (3) (b) of Cenvat Credit Rules, 2002. But the assessee did not reverse the same correctly.
14. The reversal of Cenvat Credit shown in the ER-1 returns is neither at the rate of 8% of the sale value of exempted pipes nor on actual basis, as all the inputs consumed in the manufacture of exempted goods were not taken into consideration while calculating the actual reversal. Moreover, the reversal on actual basis at the time of clearance is not permissible under the Rules. Thus, the assessee has short reversed the Cenvat Credit amounting to Rs. 3,20,429/- as per the details given in Annexure B to this show cause notice by mis-declaring the facts as well as the value of the goods as stated in the foregoing paragraphs. The list of Cenvatable inputs used in the manufacture of PSC pipe is enclosed as (RUD-4).
15. It is fact on record that M/s SPL is clearing these pipes to M/s SPML as well as to independent buyers if that is the case than provisions of Rule 9 read with Rule 8 are not applicable to the facts of this case. The argument advanced by the Ld. AR that Rule 9 is applicable to the facts of this case is misplaced. Therefore, relying on the provisions of Rule 9 read with Rule 8 of the Valuation Rules 2000, we hold that the demand is not sustainable against the appellants.
16. Issue No. 3As per the Section 72 of Finance Act, 2010 which provides that if the Cenvat Credit attributable to exempted goods has been reversed, the same is sufficient and it is fact on record that the M/s SPL had reversed the Cenvat Credit attributable to the Pipes/Plate Plate exempted then they are not required to pay 8% of the value of the exempted goods. Therefore, on that account, the demand is not sustainable.
17. Issue No. 4.
The Ld. Counsel for the appellants has brought on record that the certificate issued by the competent authority for supply of Bearing/Wearing Plate without payment of duty under Notification No. 06/2002 and the same has not been disputed by the Revenue and it is the contention of the Ld. Counsel for the appellants that without Bearing/Wearing Plate pipe cannot be laid down, therefore, Bearing/Wearing Plate is a integral part of the pipe. To support this contention he relied on the decision of CCE, Indore Vs. Kanoria Sugar & General Mfg. Co. Ltd. (supra).
18. We have gone through the said decision and in the said case this Tribunal has observed as under;-
7.?We have noted that the First Appellate Authority has examined the scope and implication of the decision of the Honble Supreme Court as well as the subsequent clarification issued by the Board. The relevant portion of the findings are as below :-
The product pipes and coupling of the appellant are covered under the Headings 6811.83 -- -- tubes, pipes and tube or pipe fitting. The Heading 6811.83 covers both pipes and fittings/couplings there is no separate classification of pipe fitting, as stated in the circular for asbestos cement pipes. The circular is not applicable in the case of appellant. Its applicability is limited to those pipes, in respect of which the findings are classified in a separate heading. In terms of above clarification also the case of appellant is squarely covered by the above decision and thus exemption is available to the couplings.
Further, the clarification issued by the board is neither an Act nor rule framed under the law and thus cannot take away the benefit provided in the public interest by the Government.
I further observed that appellant, as per condition of the notification, has produced the certificate from the prescribed authority and genuineness of certificate has not been challenged by the Department. Department cannot go behind the certificates and hold that the same is not acceptable. It has been held in so many cases by the CESTAT that production of the certificate must be treated as proof of the fact that the conditions enabling them to obtain the benefit under the exemption have been fulfilled.
I find that the appellant for the purpose of the exemption was producing certificates to the department from the prescribed authority and all the facts were in the knowledge of the department therefore there is no suppression.
8.?We find that in the present appeal the Revenue has simply relied on the Boards clarification mentioned above and reiterated that only the pipes and nothing else will be allowed exemption. We find such construction of the entry in the notification will be too literal and against the intended scope therein. In the present case, the essentiality certificate has been produced from the competent authority and the impugned goods were cleared for the intended purposes. There is no separate billing or clearance document for the couplings.
9.?Considering the overall scope of exemption and the reasonings followed by the impugned order, we find no ground to interfere with the findings of the lower authority. Accordingly, we reject the appeal filed by the Revenue. As without Bearing/Wearing Plate pipe cannot be laid down and the same is in the case of pipe fittings. Without pipe fittings also pipe cannot be laid down. Therefore, following the ratio of decision of CCE, Indore Vs. Kanoria Sugar & General Mfg. Co. Ltd. (supra), we hold that M/s SPL is entitle for exemption under Notification No. 06/2002 for clearance of Bearing/Wearing Plate.
19. Issue No. 5The Ld. Counsel for the appellants argued that in the facts and circumstances of the case the extended period of limitation is not invokable. We find that it is fact on record that through ER-1 Returns that the appellant is reversing the Cenvat Credit attributable to clearances made for exempted goods. This facts is on record and if M/s SPL has reversal the Cenvat Credit attributable to exempted goods and is manufacturing the pipes which are dutiable. In that circumstances, the duty cast on the Revenue to ascertained the facts which are the exempted goods were cleared by M/s SPL as soon as the said facts come in the knowledge of the Revenue that they are clearing exempted goods which has not been done by the Revenue.
20. Further, we find that there is no concept in the Central Excise Act/Rules to declare in advance that M/s SPL and M/s SPML are related person, therefore, it cannot be attributable that appellant has suppressed the fact that they are related person (i.e. M/s SPL is related to M/s SPML). Further M/s SPL is clearing Bearing/Wearing Plate under the premise that these are the integral part of the pipe as without the Bearing/Wearing Plate pipe cannot be laid down and also obtained the necessary certificate from the competent authority for clearance of the Bearing/Wearing Plate without payment of duty. As the necessary certificate obtained by M/s SPL in that circumstances, it cannot be alleged that M/s SPL is having malafide intention to misclassify the Bearing/Wearing Plate as pipes. In that circumstances, we hold that extended period of limitation is not invokable.
20. In view of the above analysis, we hold that demand against the appellants are not sustainable, consequentially, the penalties imposed on the appellants are not sustainable.
21. In result, the impugned order is set aside and the appeals filed by the appellants are allowed with consequential relief (if any).
(Dictated and pronounced in the open court) Devender Singh Member (Technical) Ashok Jindal Member (Judicial) NS 15 Appeal Nos. E/169-171/2007- CHD