Customs, Excise and Gold Tribunal - Delhi
Maruti Udyog Ltd. vs Cce on 21 May, 2007
Equivalent citations: 2007(121)ECC165, 2007ECR165(TRI.-DELHI), 2007(217)ELT233(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. The appellant is a leading manufacturer of cars in India. For use in the said manufacture, it receives a wide variety of components and materials from a large number of suppliers. It is entitled to, and avails of modvat credit on the said inputs.
2. Periodic stock taking of inputs is carried out by the appellant as a part of management control. These stock verifications bring out both shortages and excesses. Stock verifications for the financial years 1996-97 to 1999-2000 showed certain shortages. Credit attributable to the inputs found short was about Rs. 17 lakhs. The appellant debited the said credit in its Modvat account. Though there were excesses also, no claim for additional credit was made in regard to those excesses.
3. A show cause notice dated 28th June 2001 was issued, alleging that the delay in returning the credit on inputs found short attracted penalty under Section 11AC of the Central Excise Act 1944. It was also alleged that the appellant was liable to pay interest under Section 11AB. These allegations were confirmed in adjudication and the appellant filed an appeal before Commissioner (Appeals).
4. Appellant's contentions were as under:
No suppression or mis-statement with an intent to evade payment of duty The appellants submit that the non-payment of duty was on account of two reasons namely (i) incorrect accountal of the in house parts transferred to spare parts division leading to discrepancy and (ii) difference in book balance as compared to the physical stock. The appellant submits that consequent to the transfer of the modvat cell to the finance division in January 1999, the appellants undertook a physical stock verification as compared to the RG 23A Part I. On verification discrepancies were noticed and a detailed verification was undertaken by the appellants to reconcile the discrepancies. The departmental officers also joined in the verification/reconciliation undertaken by the appellants, to arrive at the exact discrepancy. During such verification it was also noticed that there existed some mismatch on the in house parts transferred to the spare parts division. Also at year end difference existed between RG-1 stock and physical stock in case of inhouse parts. On finding the discrepancy the appellants paid an amount of Rs. 5,78,737 in October 2000. After reconciling the actual discrepancy even though excesses were noticed the appellants paid the duty of Rs. 10,74,274 on 5.6.2001 and duly intimated the departmental authorities. The duty was paid voluntarily before the issue of notice. Thus there is no suppression, mis-statement with an intent to evade payment of duty. The order of the Additional Commissioner holding that the appellants had suppressed and mis-stated the facts with an intent to evade payment of duty is therefore liable to be set aside.
In any case no overdrawal of the PLA or modvat account The appellants further submit that though the duty pertaining to the period from 1996-97 to 1999-00 was paid on noticing the discrepancy during the course of investigation, there is no overdrawal of the PLA or the modvat account. The appellants submit that the balance at credit during the entire period was well above the duty paid voluntarily. The fact there is no allegation in the notice or the order clearly shows that the appellants had not benefited by the non-payment of duty. The appellants furnish a statement (Annexure-5) showing the balance of credit lying in the modvat account and PLA during the relevant period.
Penalty and interest not imposable when duty paid before the issue of Show Cause Notice The Additional Commissioner by the impugned order has imposed an amount of Rs. 16,53,012 as penalty under Section 11AC. The appellants submit that the penalty under Section 11AC can be imposed only when the duty has been determined as payable under Sub-section (2) of Section 11A. The relevant portion of Section 11AC is as under:
Penalty for short-levy or non-levy of duty in certain cases Where any duty of excise has not been levied or paid or has been short - levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person liable to pay duty as determined under Sub-section (2) of Section 11A, shall also be liable to pay a penalty equal to duty so determined.
5. The above contentions did not find favour with the adjudicating authority. That authority held against the appellant with the following observations:
To begin with it is brought on record that M/s MUL has paid the duty amount as demanded in the SCN. What is required to be seen whether there was an intention to evade payment of duty and whether penalty can be imposed and interest can be demanded or not. In para 9 of the SCN it has been made clear that M/s MUL was conducting physical stock taking at the end of each financial year to fulfill the requirement of the Companies Act. M/s MUL was aware of the fact that (IN HOUSE parts) there were shortages. The opening balance of next year were shifted to physical inventories every year without discharging the duty liability on the shortages noticed. These shortages were of Rs. 17,32,375.28 on 31.3.97, Rs. 9,68,280.51 on 31.3.98, Rs. 16,94,042.63 on 31.3.99 and Rs. 18,15,240.45 on 31.3.00. These facts were never reported to the Central Excise Authorities. M/s MUL is now taking the plea that they have voluntarily paid duty before the issuance of SCN. Then contention is not acceptable as the shortages were known to them every year and their bonafide could be accepted if they had paid the duty on their own every year when the shortages were detected. There was a clear cut intention to evade payment of duty by not reporting the shortages to the department. Every year they have been noticing shortages without taking any corrective measures. In the SRP Scheme it is the duty of the assessee to pay the duty on its own. I would have accepted their claim as bonafide if the shortages were of small nature. Here the shortages are of value of Rs. 1,08,00,565/-. These shortages have occurred over a period of five years without any action on their part to discharge the duty liability. Thus there was suppression of fact about not declaring the shortage with intention to evade payment of duty and extended period of 5 years is also applicable as shortages were for 5 years. There is clear case of mis-declaration and mens-rea is established.
6. An appeal was filed against the aforesaid order and that was rejected with the following observations by Commissioner (Appeals).
Against imposition of penalty and demand of interest, the appellant has relied upon various decisions of the Appellate Tribunal as mentioned in the Grounds of Appeal and also at the time of personal hearing. In all these cases, it has been held by the Hon'ble Tribunal that interest under Section 11AB and penalty under Section 11AC are not justified when entire duty amount demanded had been paid before issue of show cause notice. On going through the facts of these cases cited by the appellant, it is observed that while deciding these appeals, the Hon'ble Tribunal has not considered the judgement of the Hon'ble Supreme Court of India in the case of Z.B. Nagarkar v. UOI where it was clearly held that if an assessee has contravened any of the provisions of the rules with an intent to evade payment of duty, liability to pay penalty is mandatory. It appears that this decision of the Hon'ble Supreme Court was never brought to the notice of the Tribunal by either of the parties in any of these cases. The decision of the Hon'ble Supreme Court in the case of Z.B. Nagarkar cited above has been followed by the Tribunal in a recent case of Elephanta Gases Ltd. v. CCE Pune-I . It has been held in this case by the Tribunal by relying upon the Hon'ble Supreme Court judgement that the appellant's contention regarding non-imposition of penalty when duty was deposited before issue of show cause notice cannot be accepted. In view of the same, the ratio of various cases cited by the appellant against imposition of penalty and demand of interest would not apply to the appeal filed before me. In the appeal filed before me, it has been clearly held in the impugned order that the appellant was conducting physical stock taking at the end of each financial year to fulfill the requirement of the Companies Act. Thus, the appellant was aware of the fact that in some In House parts, there was shortages. The stock of In House parts which was forwarded to the next year was not the stock as per records but was the physical stock in hand at the end of each financial year. These facts were never reported to the departmental authorities. The duty liability was never discharged on the shortages observed by the appellant from year to year until the same were discovered during the course of investigation by the departmental authorities. These facts were not controverted by the appellant at any stage of the appeal proceedings. Respectfully following the decision of the Hon'ble Supreme Court in Z.B. Nagarkar case cited supra and that of the Tribunal in the case of Elephanta Gases Ltd. cited supra, I hold that the penalty has been rightly imposed on the appellant under Section 11AC of the Central Excise Act, 1944. Similarly, the demand of interest under Section 11AB has also been correctly made. The same is, therefore, upheld.
7. Aggrieved by the above order, the appellant filed an appeal before this Tribunal. The Tribunal allowed the appeal with the following observations:
4. We find that the only issue in this appeal is whether the penalty under Section 11AC and interest under Section 11AB of Central Excise Act can be demanded in a case where duty has been paid prior to issuance of show-cause notice. We find that the Larger Bench of the Tribunal in the case of Machino Montell (I) Ltd. (supra) after considering the decision of the Tribunal in Rashtriya Ispat Nigam Ltd. v. CCE which the appeal filed by the Revenue was dismissed by Hon'ble Supreme Court and the decision of this Tribunal in Karnataka High Court in the case of CCE, Mangalore v. Shree Krishna Pipe Industries where the particular matter on this issue is answered in favour of the assessee by the Hon'ble High Court. In view of the above decision of the Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Ltd. , we respectfully followed the ratio of the law laid down in the Larger Bench of the Tribunal in the case of Machino Montell (I) Ltd. (supra). The appellant had deposited whole of the duty prior to issuance of show-cause notice, therefore, the imposition of penalty and interest is not sustainable and is set aside. The appeal is allowed as indicated above.
8. Revenue filed an appeal before the Hon'ble High Court of Punjab & Haryana against the above order of the Tribunal the Hon'ble High Court was pleased to remand the matter to the Tribunal, under the following order of remand:
In view of judgment rendered, today, in C.E.A. No. 13 of 2005 (Commissioner of Central Excise, Delhi-III v. Machino Montell (I) Ltd. and Anr.), we allow this appeal and set aside the order passed by the Tribunal to the extent the penalty and interest levied on the assessee had been set-aside because the duty was deposited before issue of show cause notice and remand the case back to the Tribunal for fresh decision on merits and in accordance with law.
9. The appeal is required to be decided in the light of the ruling of the Hon'ble High Court on the scope of penalty under Section 11AC of the Central Excise Act. Observation of the Hon'ble High Court may be read:
7. A perusal of the above provision, shows that the said provision incorporates liability to pay penalty in the situations mentioned therein. Once a case is covered by the situation mentioned in the Section, mere deposit prior to issuance of show cause notice under Section 11A of the Act will not necessarily negate the situation mentioned in the said Section.
10. The submission of the learned Counsel for the assessee is that the shortages and excesses noticed during stock taking are not the result of any mis-declaration misstatement or fraud. The submission of the learned Counsel is that the appellant's explanation before the adjudicating authority was a bonafide statement of the factual situation. He would also point out that such discrepancies had been occurring from year to year and the issue came up before this Tribunal in the appellant's own case and the Tribunal held (Maruti Udyog Limited v. CCE, Delhi - III , as under:
6. We have perused the records and considered the submissions made by both sides. The recovery of Modvat credit has been ordered under the impugned order on the basis that the appellant has failed to fully account for the inputs (Rule 57-I). This rule allows recovery of the credits incorrectly or improperly taken. In the present case, there is no allegation that original credit taken was incorrect or improper. The allegation is that, in view of the shortages noticed, the appellant has failed in showing that the inputs on which credit had been taken had been properly disposed of in terms of the Rules. Broadly speaking, the disposals allowed under the Rules are, use in the manufacture of final products, and clearance of inputs after reversal of the credit. In the present case, the demand is on account of the fact that there are some shortages which are not reconciled. The appellant's submission is that full reconciliation is not possible and that is no ground to hold that goods have been improperly disposed of. The appellants have explained that they have a detailed and reliable system of accounting of inputs and that all aspects including pilferage are taken care of it. It has been pointed out that wherever the inputs have been disposed of other than in the manufacture of final products, including pilferages detected, the appellants have reversed Modvat credit. It is also their contention that the shortages in stock detected during physical verification is no positive evidence that the inputs found so short were disposed of in any manner other than in the manufacture of final products.
These submissions of the appellant merit acceptance. The very presence of unaccounted excess inputs worth more than Rs. 17 crores establishes that there are errors in the accounts/physical verification.
7. The appellants have a huge and complex accounting problem. It is beyond manual tally. The appellants have put in place sophisticated computer based accounting systems to ensure accuracy and efficiency. The evidence on record does not indicate any diversion of inputs in contravention of rules relating to utilization of inputs. The demand is merely based on the shortages detected during physical tallying, that too without taking into account the excesses noticed. Since there is no evidence, that the excesses are not the result of clandestine receipt of inputs, the same view is required to be taken in regard to shortages also, that the shortages are not the result of any clandestine or unauthorized utilization of the inputs. The shortages thrown up also do not account for much. The appellants' Management as well as its auditor have accepted the differences between the physical stocks and the procurement as normal and something to be put up with. It is a very small (0.24%) fraction of the inputs received. It is well settled that Tax Authorities also should go by the normal commercial and professional practice. If the shortages are within the tolerance limits fixed by an efficient Management and certified to as within the norms by qualified accounting professionals, it would be unreasonable and unfair for Tax authorities to take a different view. In these circumstances, we are of the view that there is no evidence to sustain a finding that this is a case of irregular or incorrect taking or utilization of credit. In such a situation, no demand can be raised under Rule 57-I. The demand is accordingly, set aside and appeal is allowed with consequential relief to the appellant. Amounts already deposited by the appellant, on account of this dispute, shall be returned to it.
11. The learned Counsel would emphasis that the above findings of the Tribunal are the correct and reasonable finding in the facts and circumstances of the case and finding to the contrary in the orders of the lower authorities are merely the result of revenue bias and are not sustainable on the objective facts of the case. It is also being pointed out that the same view was taken by the Tribunal for a different period in the appellant's case under final order No. 431/06-CH dated 15th May 2006.
12. As against above contentions on behalf of the appellant assessee, the learned SDR would point out that the failure of the appellant to report shortages to the revenue authorities can only be construed as an effort to suppress correct facts. He would also contend that, after having made delayed payment, it is not open to the appellant to take a different stand with regard to penalty and interest. He would also point out that taking different stand with regard to duty demand on the one hand and the penalty on the other, is not an option available to the Tribunal either. In this context, he would refer the order of the Tribunal in the case of CCE, Faridabad v. Ilpea Paramount Pvt. Ltd. 2007 (79) RLT 116 (CESTAT-Del.). Question referred under the above order is the following:
4. The question whether any different view can be taken in the context of penalty under Section 11AC in cases where the extended period is invoked under the proviso to Section 11A (1) arises for consideration in these proceedings. Having regard to the importance of the issue involved, particularly in the context of the remand order made, the matter requires to be heard by a larger bench, in our opinion. The appeal papers, therefore, may be placed before the President for appropriate orders.
13. The learned SDR also would point out that revenue has not accepted the earlier decisions of the Tribunal in the appellant's case and appeals filed before the Hon'ble Supreme Court are pending.
14. The issue for consideration is whether the non-return of the credit relatable to inputs found short during the relevant years was the result of fraud, suppression of facts etc. as covered by Section 1AC and Section 11AB. As already noted, the finding of the original authority is that there was "mis-declaration and mens-rea". The finding of the Commissioner is also that the appellant did not disclose the facts to Excise Authorities despite being aware of the shortage.
15. The same issue was dealt with by this Tribunal in its earlier decision of 2004. We have already reproduced the relevant portion of that judgement. The finding was that certain shortages and excesses are normal and all authorities have to put up with such shortages and excesses. Based on that finding, the Tribunal set aside duty demand as well as penalties. The factual context is the same in the present appeal also, only the period of demand is different. We find no reason to disagree with our earlier view.
16. In view of what is stated above, we hold that interest and penalty under Sections 11AB and 11AC of the Central Excise Act are not attracted to the present case. Accordingly, they are set aside and the appeal is allowed to that extent.
(Dictated and pronounced in the open Court)