Custom, Excise & Service Tax Tribunal
M/S Mahindra & Mahindra Ltd vs Commissioner Of Central Excise, ... on 22 June, 2012
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/675, 1060, 1182 & 1190/09-Mum (Arising out of Orders-in-Original No. 54-55/05-06/V/2009/COMMR/PD dated 13.03.2009, No. 186/02/V/2009/COMMR/KS dated 17.7.2009, No. 192/03/V/2009 /COMMR/KS dated 11.8.2009 and No. 194/04/V/2009/COMMR/KS dated 13.8.2009 passed by the Commissioner of Central Excise, Mumbai-V). For approval and signature: Honble Shri S.S. Kang, Vice-President Honble Shri Sahab Singh, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s Mahindra & Mahindra Ltd. Appellant Vs. Commissioner of Central Excise, Mumbai-V Respondent Appearance: Shri V. Sridharan, Sr. Advocate for Appellant Shri K.M. Mondal, Spl. Consultant for Respondent CORAM: SHRI S.S. KANG, VICE-PRESIDENT SHRI SAHAB SINGH, MEMBER (TECHNICAL) Date of Hearing: 04.06.2012 Date of Decision: .2012 ORDER NO. Per: Sahab Singh
These are four appeals No. E/675, 1060, 1182 & 1190/09-Mum arising out of Orders-in-Original No. 54-55/05-06/V/2009/COMMR/PD dated 13.03.2009, No. 186/02/V/2009/COMMR/KS dated 17.7.2009, No. 192/03/V/2009/COMMR/KS dated 11.8.2009 and No. 194/04/V/ 2009/COMMR/KS dated 13.8.2009. All these appeals involve more or less common issue except for some variation in Appeal No. E/675, 1182 & 1190/09 and hence these are being taken up together for the purpose of disposal.
2. By the impugned orders, the Commissioner of Central Excise, Mumbai-V has confirmed various amounts of duty demands including education cess and secondary and higher secondary education cess along with interest as applicable thereon under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A and Section 11AB of Central Excise Act, 1944. The details of duty demands confirmed by the impugned orders are shown below in tabular form: -
Sr. No. Appeal No. Period of dispute Amount (Rs) 1 E/675/09-Mum 01.02.2007 to 30.06.2007 (A) 4,55,99,931/-
(B)10,52,45,486/-
01.07.2007 to 31.12.2007 (C) 8,28,20,311/-
(D) 6,63,10,952/-
2E/1060/09-Mum February, 2007 to June, 2007 10358014/-
3E/1182/09-Mum Nov. 2007 to March 2008 (A) 82,34,084 (B) 9,36,861/-
4E/1190/09-Mum January, 2008 to March, 2008 (A) 7,12,75,282/-
(B) 3,81,83,890/-
2.1 In respect of Appeals No. E/675, 1060 & 1190/09-Mum, in the impugned orders, the Commissioner has also imposed equal amount of penalties under Rule 15(2) of Cenvat Credit Rules, 2004. In respect of Appeal No. E/1182/09-Mum, the Commissioner has imposed a penalty of Rs.2000/- under Rule 15(3) of the Cenvat Credit Rules, 2004.
3. The brief facts of the case are that the appellant assessee is engaged in the manufacture of finished excisable goods namely Tractors falling under Heading 8701, IC engines and transmission assembly falling under Chapter Heading 8408 and 8483 and parts thereof falling under Chapter Heading 8409, 8708 and 8483 of First Schedule to the Central Excise Tariff Act, 1985.
3.1 The assessee clears the tractors from its factory either for home consumption or for export out of India under Bond/Letter of Undertaking in Form UT-1. The tractors are exempted from payment of duty vide Sr. No. 40 of the Notification No. 6/2006-CE dated 1.3.2006.
3.2 The assessee also clears IC engines and transmission assembly and parts of tractor for captive consumption for manufacture of tractors and also clears the same for home consumption and for export. These finished excisable goods are called by the assessee as aggregates. The aggregates are fully exempted from payment of excise duty when they are captively used in the factory of production for manufacture of tractors vide Sr. No. 92 of Notification No. 6/2006-CE dated 1.3.2006.
3.3 During the relevant period, the assessee was working under the following manner: -
(a) They were availing credit of duty paid on all inputs used in the manufacture of aggregates i.e. IC engines, transmission assembly and sheet metal components.
(b) They were paying Central Excise duty on aggregates cleared from the factory either for sale or for captive consumption at their outlying factories. However, they were not paying Central Excise duty on aggregates captively consumed within the factory by claiming exemption vide Sr. No. 92 of Notification No. 6/2006 dated 1.3.2006.
(c) They were not availing credit of duty paid on exclusive inputs used in the manufacture of tractors cleared for home consumption and they were paying 10% of the sale price of the tractors cleared for home consumption in terms of Rule 6(3) of the Cenvat Credit Rules, 2004.
(d) However, they were availing credit of duty paid on exclusive inputs used in the manufacture of tractors cleared for export under Bond/UT-1 in terms of Rule 6(6)(v) of the Cenvat Credit Rules, 2004.
(e) They were availing credit of Service Tax paid on input services as listed out under Rule 6(5) of the Cenvat Credit Rules, 2004 which have direct nexus with the tractors exported under UT-1.
3.4 The department objected to aforesaid procedures adopted by the assessee. It was alleged by the department that the aforesaid procedure was not proper and was in contravention of provisions of Rule 6(1) read with Explanation III of the Rule 6(3) and Rule 6(3)(b) of the Cenvat Credit Rules, 2004. Hence, the proceedings were initiated by issue of various show-cause notices demanding various amounts of Cenvat credits along with interest and proposing imposition of penalties on the assessee under the relevant provisions of Cenvat Credit Rules, 2004 read with relevant provisions of Central Excise Act, 1944. Upon adjudication of the show-cause notices, the Commissioner has confirmed the demand of CENVAT Credits along with interest and imposed various amounts of penalties on the assessee in the impugned orders as already mentioned above. Hence, these appeals have been filed by the appellant assessee.
4. We have heard both sides at length.
5. Appearing for the appellant assessee, Shri V. Sridharan, learned Sr. Counsel submitted that during the relevant period, the assessee took credit of duty paid on the entire quantity of inputs received and used in the manufacture of dutiable parts cleared outside and tractors, which according to the department are exempted. Accordingly, whenever the tractors were cleared for home consumption, the appellant was paying the amount equal to 10% of sale price of the tractors in terms of Rule 6(3)(b) of Cenvat Credit Rules. However, appellant did not pay 10% of sale price of the tractors exported in view of the Rule 6(6)(v) of the Cenvat Credit Rules, 2004.
5.1 Learned senior Counsel further submitted that during the relevant period, the appellant followed the following procedure: -
a) Availed credit on all inputs used in the manufacture of aggregates, namely - IC engines, transmission assembly and parts thereof.
b) Paid duty on all aggregates either used within factory or cleared from the factory.
c) Did not avail credit of duty paid on aggregates and exclusive inputs used in the manufacture of tractors cleared for home consumption.
d) Did not pay amount equal to 10% of the sale price of exempted tractors cleared for home consumption.
e) Took credit of duty paid on aggregates and exclusive inputs used in the manufacture of tractors cleared for export under UT-1.
f) Took credit of service tax paid on input services as listed in Rule 6(5) and which have direct nexus with the tractors exported under bond.
5.2 In Appeal No. E/1182/09-Mum, an amount of Rs. 9,36,861/-, being credit of service tax paid on advertisement services used for manufacture of tractors cleared for home consumption by paying Nil basic excise duty has not been utilized and lying frozen in Book of Account.
5.3 He further submitted that exemption granted on the parts of tractors vide Sr. No. 92 of Notification No. 6/2006 is subject to the condition that the said tractors parts are captively consumed in the manufacture of tractors. Therefore, the bar provided under Section 5A(1A) of Central Excise Act is not applicable to the parts of the tractors. Therefore, on the parts of tractors manufactured and captively consumed in the manufacture of tractors, duty can be paid by taking credit on the inputs used in manufacture of the same.
5.4 He submitted that the appellant has taken credit on inputs and input services used in the manufacture of dutiable as well as exempted final products. If the exempted goods are exported out of India, the provisions of Rule 6(6)(v) of Cenvat Credit Rules are applicable and therefore, the bar provided under Rule 6(1) and condition provided under Rule 6(3)(b) of Cenvat Credit Rules are not attracted. Hence, in terms of Rule 6(6)(v) of the Cenvat Credit Rules, the appellant is entitled to avail CENVAT Credit in respect of inputs and input services used in the manufacture of tractors exported under Bond/UT-1. He submitted that the exempted tractors can be exported under Bond and the issue is squarely covered by the judgment of the Hon'ble High Court of Bombay in the case of Repro India Ltd. Vs. UOI reported in 2009 (235) ELT 614 (Bom) wherein it has been held that exempted goods can be exported under Bond in terms of Rule 19 of the Central Excise Rules, 2002. It has also been held that in terms of Rule 6(6)(v) of the Cenvat Credit Rules, the provisions of Rule 6(1) and Rule 6(3) are not applicable in respect of excisable goods cleared without payment of duty for export under Bond. He also submitted this judgment has been accepted by the department and the judgment has been followed by the various High Courts and Tribunals.
6. Appearing for the Revenue, Shri K.M. Mondal, learned Special Consultant submitted that the tractors are exempted vide Sr. No. 40 of Notification No. 6/2006 dated 1.3.2006. Hence, the tractors are exempted goods within the meaning of Rule 2(d) of the Cenvat Credit Rules, 2004. He also referred to the Tribunals decision in the appellants own case reported in 2007 (211) ELT 481 (T) in this regard. In his submission, exempted goods cannot be exported under Bond, hence the appellant are required to reverse the credit of duty/ Service Tax paid on inputs/input services used in the manufacture of tractors exported under Bond or to pay 10% of the sale price of the exempted tractors cleared for export, as the case may be.
6.1 Shri Mondal also submitted that the tractor parts are unconditionally exempted vide Sr. No. 92 of Notification No. 6/2006 dated 1.3.2006 when the same are used in the manufacture of tractors within the factory. Drawing our attention to Section 5A(1A) of the Central Excise Act, 1944, he submitted that as per provisions of Section 5A(1A) the assessee should not have paid the duty on aggregates i.e. IC engines, transmission assembly, sheet metal components etc. used captively in the manufacture of exempted tractors cleared for export under Bond/UT-1 and should not have availed CENVAT Credit of the said duty. In his submission, this is a clear violation of the provisions of Section 5A(1A) of the Central Excise Act. He also submitted that CENVAT Credit wrongly availed on account of mis-interpretation of Notification and the provisions of Section 5A(1A) of the Central Excise Act comes to Rs.8,28,20,311/- as shown in Appeal No. E/675/09-Mum and Rs.7,12,75,282/- as shown in Appeal No. E/1190/09-Mum, totaling of Rs.15,40,95,593/-. In his submission, no fault can be found with impugned orders confirming these two demands of duty.
6.2 However, Shri Mondal fairly stated that in so far as the remaining duty demands (except the demand of Rs.9,36,861/- in Appeal No. 1182/09-Mum) are concerned, the judgment of Hon'ble Bombay High Court in Repro India case (supra) appears to be applicable.
6.3 Citing the judgment of Hon'ble Apex Court in the case of Punjab Tractors Ltd. Vs. Commissioner of Central Excise, Chandigarh reported in 2005 (181) ELT 380 (SC), Shri Mondal submitted even the Hon'ble Supreme Court has found that the process followed by the appellant if allowed, would be revenue neutral, even in that case, the appellant would be liable to penalty for violation of Rules.
6.4 With regard to amount of credit of Rs.9,36,861/- taken on advertisement services used in the manufacture of exempted tractors cleared within the India, the appellant must reverse the credit.
7. We have carefully considered the submissions made by both sides including the written submissions made by the learned senior Counsel on behalf of the appellant.
8. We find that in the case of Repro India Ltd. (supra), the Hon'ble Bombay High Court has held that exempted goods can be exported under Bond/UT-1 in terms of Rule 19 of the Central Excise Rules, 2002. It has also been held that in terms of Rule 6(6)(v) of the Cenvat Credit Rules, 2004, the provisions of Rule 6(1) and 6(3) are not applicable in respect of excisable goods cleared without payment of duty for export under Bond. In view of this, the orders of Commissioner confirming the duty demand of CENVAT Credit except for Rs.8,28,20,311/- in Appeal No. E/675/09-Mum and Rs.7,12,75,282/- in Appeal No. E/1190/09-Mum and Rs.9,36,861/- in Appeal No. E/1182/09-Mum cannot be sustained. Accordingly, we set aside the demands of duty of Rs.4,55,99,931/-, Rs.10,52,45,486/-, Rs.6,63,10,952/- in Appeal No. E/675/09-Mum, Rs.1,03,58,014/- in Appeal No. E/1060/09-Mum, Rs.3,81,83,890/- in Appeal No. E/1190/09-Mum, and Rs.82,34,084/- in Appeal No. E/1182/09-Mum. Consequently, we also set aside the penalty imposed equal to the amount of duty. We also set aside the order for recovery of interest on the dues.
9. In so far as the demands of Rs.8,28,20,311/- in Appeal No. E/675/09-Mum and Rs.7,12,75,282/- in Appeal No. E/1190/09-Mum are concerned, we find that these demands of CENVAT Credit have been raised on the ground of wrong availment of CENVAT Credit on aggregates (i.e. IC engines, transmission assembly and sheet metal components etc.) used captively in the manufacture of exempted tractors cleared for export. We find that parts of tractors are unconditionally exempted vide Sr. No. 92 of Notification No. 6/2006-CE dated 1.3.2006 when captively used in the manufacture of tractors within the factory. It is needless to say that this Notification has been issued by the Central Government in exercise of its power under Section 5A of the Central Excise Act, 1944. By virtue of Section 5A, Central Government may, in public interest, exempt either absolutely or subject to any condition (to be fulfilled before or after removal) as may be specified in the Notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon. Sub-section 1A of Section 5A provides as follows:-
(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.
10. The Notification No. 6/2006 grants the exemption to parts of tractors when used in the manufacture of tractors within the factory vide Sr. No. 92 of the Notification. There is no condition attached to this. The Notification does not have any ambiguity. On a plain reading of Notification, we are of the considered view that parts of tractors are absolutely exempted from the payment of duty of excise. Therefore, the appellant assessee was not entitled to pay any duty of excise on parts of tractors used captively in the manufacture of tractors cleared for export and then to avail CENVAT Credit of such duty. The contention of the appellant that exemption granted to parts of tractors is subject to the condition that the same are captively consumed in the manufacture of tractors is misconceived and the same is to be rejected. Consequently, the demand of CENVAT Credit of Rs.8,28,20,311/- in Appeal No. E/675/09-Mum and Rs.7,12,75,282/- in Appeal No. E/1190/09-Mum confirmed by the Commissioner are required to be upheld and accordingly, we do so.
11. The learned Sr. Counsel sought to take support from the judgment of Hon'ble Apex Court in the case of Commissioner of Central Excise Vs. Malwa Industries reported in 2009 (235) ELT 214 (SC). We have perused the judgment which deals with the Notification No. 4/2006-CE dated 1.3.2006 (Sr. No. 67) granting exemption from the duty of excise to the finishing agents, dye carriers etc. used in the same factory for the manufacture of textiles and textile articles. Dispute in the cited case was with regard to levy of CVD on imported goods in terms of Notification No. 4/2006 at Sr. No. 67 of which finishing agent, dye carriers etc. are exempted if used in the same factory for manufacture of textile articles. The Hon'ble Apex Court held in para 14 of the judgment as under: -
14.?The expression same factory, therefore, in our opinion, would mean the factory where the goods are actually manufactured. It only means that the imported goods are required to be used in the factory belonging to the importer where the manufacturing activity takes place. There is nothing in Section 3 of the Act and in particular the explanation appended to Sub-section (1) thereof mandating actual production or manufacture in the said factory itself. There cannot be any doubt whatsoever that if excise duty is not leviable on manufacture of goods, the question of the importer paying any additional duty for import of like goods would not arise. We, therefore, find that facts of cited case are clearly distinguishable from the case before us.
12. Since we have upheld the demand of duty of Rs.8,28,20,311/- in Appeal No. E/675/09-Mum and Rs.7,12,75,282/- in Appeal No. E/1190/09-Mum, we also uphold the Commissioners order for recovery of interest on these demands confirmed by the Commissioner and upheld by us. We find that these demands were raised invoking normal period of limitation. We find that ingredients of Section 11AC are not present in this case and, therefore, penalty equal to duty imposed by the Commissioner needs reduction. Accordingly, we reduce the penalties to Rs.1.25 crores and Rs.1 crore in respect of Appeal No. E/675/09 and E/1190/09 respectively.
13. With respect to the amount of duty of Rs.9,36,861/- in Appeal No. E/1182/09, learned Sr. Counsel fairly states that the appellant has taken the CENVAT Credit of advertisement services used in relation to manufacture of tractors cleared within the country. However, the said credit has not been utilized and lying frozen. His submission is that this credit may be reversed but no interest should be charged and no penalty should be imposed. We have considered this submission. We find that the assessee is not entitled to take CENVAT Credit on advertisement services used in relation to manufacture of tractors cleared within the country. Therefore, the CENVAT Credit taken is to be reversed. So far as the interest is concerned, in terms of Rule 14 of the Cenvat Credit Rules, 2004, interest is payable from the date of taking wrong credit as held by the Hon'ble Supreme Court in the case of Union of India Vs. Indo Swift Ltd. reported in 2011-TIOL-21-SC-CX. Consequently, we also confirm the order for recovery of interest. However, the penalty of Rs.2000/- imposed on the assessee by the Commissioner is set aside.
14. In view of our foregoing findings, Appeal No. E/675, 1190 & 1182/09-Mum are partly allowed and Appeal No. E/1060/09-Mum is allowed in toto.
(Pronounced in Court on.)
(S.S. Kang) (Sahab Singh)
Vice-President Member (Technical)
Sinha
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