Custom, Excise & Service Tax Tribunal
Cosmo Films Ltd vs Vadodara-Ii on 3 June, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO.3
EXCISE Appeal No. 12419 of 2014
(Arising out of OIO-VAD-EXCUS-002-COM-102-13-14 dated 21.03.2014 passed
by Commissioner of Central Excise, Customs and Service Tax- Vadodara)
Cosmo Films Ltd. ...Appellant
Vemardi Road,
Village: Navijithardi, Near Inox Off.
N.H. 08, Taluka Karjan,
Vadodara-Gujarat
VERSUS
C.C.E. & S.T. - Vadodara-ii ...Respondent
1st Floor, Room No.101, New Central Excise Building, Vadodara, Gujarat-390023
(i) Excise Appeal No. 12420/2014 (Cosmo Films Ltd);
(ii) Excise Appeal No. 12421/2014 (Cosmo Films Ltd);
(iii) Excise Appeal No. 11845/2015 (Cosmo Films Ltd);
(iv) Excise Appeal No. 11846/2015 (Cosmo Films Ltd);
(v) Excise Appeal No. 11847/2015 (Cosmo Films Ltd);
(vi) Excise Appeal No. 11848/2015 (Cosmo Films Ltd);
(vii) Excise Appeal No. 11849/2015 (Cosmo Films Ltd);
(viii) Excise Appeal No. 11850/2015 (Cosmo Films Ltd);
(ix) Excise Appeal No. 11851/2015 (Cosmo Films Ltd);
(x) Excise Appeal No. 11852/2015 (Cosmo Films Ltd);
(xi) Excise Appeal No. 12134/2016 (Cosmo Films Ltd);
(xii) Excise Appeal No. 12135/2016 (Cosmo Films Ltd);
(xiii) Excise Appeal No. 12136/2016 (Cosmo Films Ltd);
(Arising out of OIO-VAD-EXCUS-002-COM-101-13-14 dated 21.03.2014 passed by Commissioner of Central Excise, Customs and Service Tax- Vadodara) (Arising out of OIO-VAD-EXCUS-002-COM-100-13-14 dated 21.03.2014 passed by Commissioner of Central Excise, Customs and Service Tax- Vadodara) (Arising out of OIA-SUR-EXCUS-VDR/APP/10/2015-16 dated 20.08.2015 passed by Commissioner of Central Excise, Customs and Service Tax- Vadodara-II) (Arising out of OIA-SUR-EXCUS-VDR/APP/09/2015-16 dated 20.08.2015 passed by Commissioner of Central Excise, Customs and Service Tax- Vadodara-II) (Arising out of OIA-SUR-EXCUS-VDR/APP/07/2015-16 dated 20.08.2015 passed by Commissioner of Central Excise, Customs and Service Tax- Vadodara-II) (Arising out of OIA-SUR-EXCUS-VDR/APP/08/2015-16 dated 20.08.2015 passed by Commissioner of Central Excise, Customs and Service Tax- Vadodara-II) (Arising out of OIA-VAD-EXCUS-002-APP-244-245-246-2016-17 dated 26.07.2016 passed by Commissioner of Central Excise and Service Tax- Vadodara-I (Appeals) APPEARANCE:
Shri Ambarish Pandey, Advocate appeared for the Appellant Shri R.R. Kurup, Superintendent (Authorized Representative) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. RAJU
2|Page E/12419-12421/2014 E/11845-11852/2015 E/12134-12136/2016-DB Final Order No._____11109-11122_/2024 DATE OF HEARING: 15.05.2024 DATE OF DECISION: 03.06.2024 RAMESH NAIR The brief facts of the case are that the appellant are engaged in the manufacture of BOPP Films, during the process, waste and scrap of plastic is generated which is reprocessed in the factory to manufacture PP Granules. Certain quantity of waste/ scrap is cleared from the factory on payment of central excise duty at appropriate rate. The PP granules manufactured through reprocessing waste/ scrap are used in the factory for manufacture of BOPP films and some quantity of PP granules to independent buyers. The case of the department is that the waste/ scrap captively consumed in the manufacture of PP Granules, the valuation was not properly done as the same should have been done in accordance with CAS-4 standards prepared by Institute of Cost and Works Accountants of India (ICWAI). It was also observed that as per Rule 8 of Central Excise (Determination of Price of Excisable Goods), 2000 when the goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of such other articles, the value shall be 110% of the cost of production or manufacture of such goods. Thus, the valuation of such scrap is wrongly adopted by the Appellant and it is in accordance with the Provision of Section 4 of Central Excise Act, 1944. Accordingly, the periodical show cause notices were issued. Those show cause notices have been adjudicated wherein the difference of duty demand was confirmed. Being aggrieved by the orders-in-original, the appellant filed appeal before the Commissioner (Appeals) which were rejected, hence the present appeals.
2. Shri Ambarish Pandey, learned counsel appearing on behalf of the appellant, at the outset, submits that the issue is no longer res-integra as in the appellant's own case for the previous period this Tribunal has passed the order dated 03.12.2019 whereby the appeal was allowed. He further relied upon the following judgments:
Cosmo Filtms Ltd. 2007 (209) ELT 185 (T) Handy Wires Pvt. Ltd. 2015 (329) ELT 169 (T)
3|Page E/12419-12421/2014 E/11845-11852/2015 E/12134-12136/2016-DB Max Speciality Ltd. 2021 (375) ELT 420 (T) CCE vs Max India Ltd. 2008 (231) ELT 159 (T) Commissioner vs Max India Ltd. 2016 (337) ELT A139 (SC) CCE vs Scan Synthetics Ltd. 2008-TIOL-34-SC-CX
3. Shri R.R. Kurup, learned Superintendent (Authorised Representative) appearing for the revenue reiterates the findings of the impugned order.
4. We have carefully considered the submissions made by both the sides and perused the records. We find that limited issue to be decided in the present case is the valuation method in respect of waste/ scrap generated during the process of manufacture of final product and part of it is consumed within the factory and partly sold outside the factory. The case of the department is that the valuation should be as per Rule 8 i.e. Cost Construction Method in respect of the captively consumed goods.
This Tribunal considering the very same issue in the appellant's own case for the previous period, held that as per the Ispat Industries Judgment for the purpose of captive consumption, the value of transaction made through the outside buyer should be taken as assessable value, the said decision vide Final Order No. A/12329/2019 dated 03.02.2019 is reproduced below:
"7. We have carefully considered the submissions made by both the sides and perused the record. We find that the issue to be decided is that what should be the valuation of the waste and scrap used captively for Manufacture of exempted reprocessed granules. Whether the valuation should be done in terms of Rule 8 of Central Excise Valuation Rules that is on Cost Construction Method or on the comparable value of waste and scrap sold to independent customer on Principle to Principle basis. We find that the Adjudicating Authority held that the valuation of captively consumed waste and scrap should be on the basis of Cost Construction method mainly for the reason that the waste and scrap sold to independent customer is different from the Waste and Scrap consumed captively. Therefore, the Learned Adjudicating Authority did not accept that the sale price of waste and scrap charged to independent customer should be applied in the case of captive consumption.
8. The Learned Counsel vehemently argued that the nature of the scrap whether it is different for captive consumption and for independent sale was not the subject matter of the Show Cause Notice and therefore, the said issue should not have been taken in the Adjudication Order.
9. We find that in the Show Cause Notice the fact was narrated which is reproduced below.......
"In the present case, the assessee uses waste/scrap generated at intermediate stage for captive consumption in the manufacture of PP granules which are exempted from payment of duty under Notification No. 6/2002-CE dated 01.03.2002 or 4/2006-CE dated01.03.2006. It appears that the exemption under notification number 67/95-CE,
4|Page E/12419-12421/2014 E/11845-11852/2015 E/12134-12136/2016-DB therefore, is not available to such quantity of waste/scrap captively consumed. The assessee are, therefore, paying duty at applicable rates on such waste/scrap. However, the value of such captively consumed waste/scrap is worked out by them at the price at which such goods are sold by them to independent buyers. Whereas it appears that in the case of captive consumption, the valuation of the goods captively consumed is required to be done in accordance with and as per CAS-4 standard, prepared by the Institute of Cost and Works Accountants of India (ICWAI)."
10. From the plain reading of the above facts narrated in the Show Cause Notice it is accepted that the waste and scrap consumed captively and sold to independent buyers are one and the same. There is no allegation in the Show Cause Notice that the waste and scrap cleared for captive consumption and the one sold to the independent buyers are different.
11. We also find that no investigation was carried out to establish that the waste and scrap sold and captively consumed are different in nature. We also observe that the waste and scrap as generated in the course of manufacture of BOPP film. Therefore, there cannot be different category of waste in one process of Manufacture of BOPP film. The entire Show Cause Notice was issued only on the basis of Rule 8 of Valuation Rules and CBEC Circular dated 30.6.2000, however this dispute has been resolved by the Larger Bench of this tribunal in the case of Ispat Industries Ltd.(supra) according to which even though goods were not sold and used captively, the valuation of such goods shall be on the basis of the Sale Price of such goods sold to the independent buyers. Therefore, after delivering the judgment of Larger Bench the dispute came to the rest. The Adjudicating Authority relied upon the invoices issued for captive consumption and for sale of the goods and the comparative chart was prepared which is reproduced on Page No.13 & 14 of the impugned order. The same is scanned below.
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E/12134-12136/2016-DB
12. On going through the above chart we find that there is no specific character of the waste and scrap mentioned in the description, either in case of captive consumption or in the case of waste and scrap sold to independent customer. Therefore, merely on the description which does not give the actual character of the scrap, it cannot be said that the scrap sold to independent customer is different from waste and scrap captively consumed. Therefore, the conclusion of the Adjudicating Authority that both types of clearances are of different waste and scrap is not tenable. We find that the appellant has correctly valued the goods in conformation to the Larger Bench judgment in the case of Ispat Industries Ltd. The relevant order is reproduced below.
"5. We have considered the rival submissions and are of the view that the assessee is correct in contending that provisions of Rule 8 would apply only in a case where its entire production of a particular commodity is captively consumed. This is evident on a plain reading of Rule 8 of the valuation rules, which reads as under
"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 ten per cent of the cost of production or manufacture of such goods" (emphasis supplied).
If the intention was not to restrict the applicability of Rule 8 to cases where the entire production was being captively consumed, the Rule would have simply stated "where excisable goods are consumed by an assessee himself or on his behalf in the manufacture of other articles"
instead of preceding the above expression with the words "where the excisable goods are not sold". This view is also supported by the judgment of the jurisdictional High Court in the case of Indian Drug Manufacturers Association v. Union of India, wherein the Court held that Rule 8 applies in a situation where goods are not sold but are cleared 'exclusively' to be used in consumption or for manufacture of other articles. We also agree with the contention of the assessee that Rule 8 will apply only in two situations, (a) where the goods are consumed by him in the same factory (captive consumption) or (b) where such goods are transferred to another factory for consumption in the manufacture of other articles on behalf of the assessee. In this case, it is not the case of the revenue that the goods were transferred to other units for manufacture of other articles on
6|Page E/12419-12421/2014 E/11845-11852/2015 E/12134-12136/2016-DB behalf of the assessee/appellant, i.e. the Dolvi Unit. We agree with the assessee's contention that the expression 'assessee', wherever it appears in the Central Excise Rules, applies to a particular factory, which is why different units belonging to one company are separately registered and separately assessed to duty. Since the assessee in the present case is the Dolvi plant and it is not the revenue's case that the other three units of the company to whom HR coils were transferred were undertaking further manufacturing operations on behalf of the Dolvi Unit, the provisions of Rule 8 will not apply. We, therefore, hold that Rule 8 is inapplicable in the instant case.
6. We also note that in the present case the application of Rule 4 is being disputed by the Revenue not on the ground that the said rule is inapplicable to the present case but on the ground that a more specific provision in Rule 8 is available to enable determination of the assessable value. As discussed above, the provisions of Rule 8, in our view, are not applicable to the present case and therefore the value determined by the assessee under Rule 4 deserves acceptance.
7. We also agree with the submission of the assessee that even if both the rules, i.e. Rule 4 and Rule 8, were applicable, it would only be logical to read and apply the various rules in the Central Excise Valuation Rules in a sequential manner. Though the Central Excise Valuation Rules, 2000 do not specifically prescribe such sequential application of various rules, the same, in our view, is the only reasonable way to read these rules. Any other interpretation would only lead to confusion and chaos. Since the applicability of Rule 4 is not really in dispute, there was no need to look further and regardless of the applicability or otherwise of Rule 8, the assessable value should have been determined in terms of Rule 4 of the Valuation Rules.
8. The conclusion that we are drawing in the present case would lead to determination of a value which, in our view, will not only be reasonable but also consistent with the provisions of Section 4 of the Central Excise Act. We would, at this stage, draw support from the judgment of the Supreme Court in the assessee's own case, as reported in 2006 (202) E.L.T. 561, wherein the Court applied "The Gunapradhan Principle" in interpreting the Customs Valuation Rules. We have kept in mind the following observations of the Court in coming to our above conclusion:
"26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act.
27..................
36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is 'primary' whereas the conditions in Rule 9 (2) are the 'accessories'. The 'accessory' must, therefore, serve the 'primary'."
9. In view of what we have observed above, we answer the reference in the following terms :
(a) the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers;
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(b) the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.
10. The papers are now returned to the referral Bench for passing orders on the appeal."
13. From the above decision of the Larger Bench of this tribunal, the same is clearly applicable in the facts of the present case. Therefore, on merit itself the demand is not sustainable. We also examined the aspect of limitation, we find that the fact of sale of waste and scrap and captive consumption for further manufacture of reprocessed granules and use thereof in the manufacture of BOPP films was in the knowledge of the department as the appellant was otherwise discharging the duty and the issue is of neat question of law that what should be the valuation in case of captive consumption. Subsequently, since the issue was contentious on the dispute of valuation in case of captive consumption the same was resolved by the Larger Bench of this tribunal in the case of Ispat Industries Ltd (supra). Therefore, it cannot be said that the appellant had any intention to evade payment of Excise Duty. Accordingly, the extended period of demand was also not invocable. Therefore, demand for the extended period is not maintainable on the ground of time barred also.
14. As per our above discussion, the impugned order is set aside, appeal is allowed."
5. In view of the above decision in the appellant's own case, the issue is no longer res-integra. Accordingly, the impugned orders are set aside. Appeals are allowed.
(Pronounced in the open court on 03.06.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Neha