Custom, Excise & Service Tax Tribunal
M/S. Fertilisers & Chemicals ... vs Commissioner Of Customs & Central ... on 29 February, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/634 & 635/2006 - DB [Arising out of Order-in-Appeal No. No.165/2006 CE dated 10.3.2006 and No.249/2006 CE dated 28.4.2006 passed by the Commissioner of Central Excise & Customs (Appeals), Cochin.] For approval and signature: HON'BLE SHRI M.V.RAVINDRAN, JUDICIAL MEMBER HON'BLE SHRI ASHOK K. ARYA, TECHNICAL MEMBER 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes M/s. FERTILISERS & CHEMICALS TRAVANCORE LTD. COCHIN DIVISION, AMBALAMEDU. Appellant(s) Versus Commissioner of Customs & Central Excise (Appeals) CR Building, I.S. Press Road, Cochin 682 018. Respondent(s)
Appearance:
Mr. Sandeep Gopalakrishnan, Advocate M/s. Menon & Pai Post Box No.1911, I.S. Press Road, Ernakularm, Cochin 682 018.
For the Appellant Mr. N. Jagadish, Superintendent (AR) For the Respondent Date of Hearing: 18/01/2016 Date of Decision: 29/02/2016 CORAM:
HON'BLE SHRI M.V.RAVINDRAN, JUDICIAL MEMBER HON'BLE SHRI ASHOK K. ARYA, TECHNICAL MEMBER Final Order No. 20294-20295/ 2016 Per : ASHOK K. ARYA These two appeals have been filed by the appellants viz., M/s. Fertilizers & Chemicals Travancaore Ltd. (FACT). The appellants in their submissions have given some abridged data details of the dispute between the Revenue and the appellants, which is given in following table:
Table: Abridged Details of the Disputes Appeal No. E/634/2006 Appeal No. E/635/2006 Order-in-Appeal No.165/2006 CE dated 10.3.2006 No.249/2006 CE dated 28.4.2006 Order-in-Original No.6/2005 CE dated 21.2.2005 No.7/2005 CE dated 21.2.2005 Show-cause Notice & Date No.115/2004 dated 15.9.2004 No.19/2003 dated 21.1.2004 Period of dispute 01.4.2001 to 31.3.2003 1.4.1.4.1999 to 31.3.2003 Tax demanded in Order-in-Appeal Rs.3,52,838/-
Rs.8,13,651/-
(as computed by Department after issue of Order-in-Appeal) Extended period invoked Yes Yes Extended period Upto 31.12.2003 Upto 31.8.2003 Notional shortage of Sulphuric acid due to weighment difference Nil 208.406 MTs.
Notional shortage of Phosphoric acid due to weighment difference 153.827 MTs.
351.062 MTs.
2. The appellants represented by learned advocate Mr. Sandeep Gopalakrishnan inter alia submits as follows:
(i) They are one of the Government of India Public Sector Undertaking mainly engaged in the manufacture of fertilizers.
(ii) Fertilizers manufactured were not dutiable during the period of dispute.
(iii) They procured sulphuric acid and phosphoric acid from M/s. Sterlite Industries (SIIL), Tuticorin (distance is 340 Kms). These inputs are procured at zero rate of duty by availing the benefit of Chapter X Procedure of the erstwhile Central Excise Rules, 1944 and Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.
(iv) Department raised the demand of duty on notional shortage exclusively basing the demand on the credit notes issued by Sterlite Industries. The alleged shortage is worked out by comparing the quantity for which payment is given and which was shown on accompanying invoice.
(v) Difference is because of two main factors (a) Concentration loss (quantity difference) which has been accepted by the first appellate authority. (b) notional weighment difference due to calibration error in the weighing scales of the parties.
(vi) The dispute here in these appeals pertains to duty demanded on notional weighment difference alone.
2.1 The appellants further submit as follows:
(a) Alleged shortage is not actual shortage but it is a notional shortage because of weighment difference.
(b) The admitted fact that goods received at FACT were verified for the seal to be intact clearly established that quantity sent from the company had been duly received by FACT without any pilferage or embezzlement.
(c) The commercial agreement entered into between the parties are only an internal arrangement between the parties for determination and settlement of the price of the goods dispatched and therefore no reliance can be placed on the same to allege short receipt of the goods.
(d) Department has to establish physical loss of goods for maintaining the demand; they cannot simply rely on the commercial workings between the parties to sustain the demands since the onus is on the Department to establish the physical loss of the goods.
(e) Department should know that calibration and weighment of two different scales cannot be same; there is bound to be some differences which cannot be basis for the demand.
(f) Standard of Weights and Measures (Packaged Commodities) Rules, 1977 admit the existence of error in weighment scales. Schedule 2, which is referred in Rule 2(i) mentions that where goods are weighed more than 15000 gms, the maximum limit of error is 1% of the quantity declared. This shows that the Parliament has recognized the existence of the occurrence of error in the weighment.
(g) Without prejudice to the contention that loss arrived based on commercial transactions is illusionary and irrational, it is stated that Rule 196 of the old Central Excise Rules, 1944 provide for admitting goods lost or destroyed by natural causes or by unavoidable accidents, subject to the satisfaction of the proper officer. The following case laws are relied on in this regard.
i. 1996 (86) ELT 6 (All.) UP State Cement Corporation Ltd. vs. Union, approved by Supreme Court in 1999 (112) E.L.T. A44 (SC). The High Court held that shortage (loss) of clinker during transit of cement clinker (transported to Churk plant located at a distance of 128 kms) is to be regarded as due to natural cause; hence demand under Rule 196 of Central Excise Rules, 1944 was not sustainable.
ii. 2000 (126) E.L.T. 1072 (Tri.) National Organic Chemicals Indus Ltd. vs. CC (Import), approved by Supreme Court in 2002 (142) E.L.T. A 280 (SC). The Tribunal held that importer/actual user cannot be called upon to pay duty on the quantity of difference of about 1% between quantity of raw naphtha as per discharge certificate from the ship and the quantity as per the consumption certificate issued by Central Excise; the substance being volatile carried for distance of about 50 kms and there being no allegation of any unauthorized diversion.
(h) Shortage is due to weighment (no actual loss); there is no allegation of unauthorized diversion. Demand under Rule 196 cannot be sustained as goods otherwise have not been diverted or lost.
(i) Supplying company having not received any extra consideration for supply of impugned goods, the money received by them have to be treated as the price for the quantity received i.e., transaction value, therefore there is no question of demanding differential duty based on any notional value.
(j) Appellant was under bona fide belief that the receipt of goods with the seal intact had to be acknowledged in full and was accordingly given in D3 declaration and other documents. They being a public sector undertaking there is absolutely no scope for them to indulge in duty evasion. The extended period of limitation cannot therefore be invoked against them.
(k) Department except for narrating that the declarations and other documents reflected the quantity dispatched did not bring out any conscious or deliberate intention on their part and in view of large number of rulings on this point, Section 11A(1) cannot be invoked against them.
(l) The first appellate authority gave a finding that appellant has no intention to evade duty. Consequently, the appellate authority set aside the penalty under Section 11AC of Central Excise Act. The expression used in both Sections 11AC and 11A(1) are similar viz. 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. That is to say, the ingredients required for imposing penalty under 11AC and invoking extended period of limitation under Section 11A(1) are same. The finding of the appellate authority that the said ingredients are absent while dropping the penalty under Section 11AC, takes in that the Section 11A(1) also cannot be worked for extending the normal period of demand. This is especially so as the Department has accepted the findings of the appellate Commissioner and has chosen not to file an appeal against the said order. Hence, the demand in the extended period of limitation is liable to be dropped. They rely on following judgments:
i. Union of India vs. Rajasthan Spinning & Weaving Mills: 2009 (238) E.L.T. 3 (SC) ii. Saswad Mali Sugar Factory Ltd. vs. CCE, Pune: 2013-TIOL-898-HC-MUM-ST iii. M/s. Smart Finance vs. Jaipur: 2014-TIOL-1555-CESTAT-DEL.
3. The learned AR, Shri N. Jagadish appearing for the Revenue reiterated the findings given in the Order-in-Appeal passed by Commissioner (Appeals) saying that the appellants are accountable for the transit loss and are liable to pay duty on the same.
i. The learned AR for the Revenue has also mentioned that in case of Appeal No.634, the loss of 153.827 MTs accounted towards the difference in weighments at two weighbridges is to the extent of 0.71% of the total quantity procured by the appellants. He submitted that Clause (4) of the specimen purchase order mentioned in Commissioner (A)s order reveal that appellants could recover the shortage in excess of 0.5% but the appellants did not do so. The appellants thus did not account for the difference and as per Rule 6 of Central Excise (RGCRDMEG) Rules, 2001, they are liable to pay the duty on the same.
ii. In case of Appeal No.635/2006, Revenue has further argued that FACT procured sulphuric acid from Sterlite Industries, Tuticorin without payment of duty under Chapter X Procedure of erstwhile Central Excise Rules, 1944 and under provisions of Rule 6 of Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. After receipt of these goods, FACT ascertained the net weight of each consignment and based on this settled their bill with SIIL on a weekly basis. On receipt of subject inputs, appellants viz., FACT regularly filed D-3 intimations, monthly, quarterly returns with the jurisdictional Central Excise Range Officers. The appellants also maintained required registers under Rule 194(1) of erstwhile Central Excise Rules, 1944 in RG-16 and subsequently under Rule 5 of Central Excise (Removal of Goods at Concessional Rate of Duty for the Manufacture of Excisable Goods) Rules, 2001. In none of these records appellants have recorded any shortage of the subject inputs. The appellants argument that there was difference because of weighbridge errors is not acceptable as they have not shown any such weighment differences in Central Excise records.
iii. Regarding shortage due to concentration (quality), appellants argue that this is not a physical shortage but a commercial shortage. Since tankers carrying subject inputs on arrival at FACT are inspected to ensure that sealing is not tampered and only on such certification, tankers are allowed for unloading, there is no scope for change in the concentration and commercial shortage. Further FACT submitted that the quantum sent by SIIL should be considered to have been received by them in full. The learned AR submits that FACT has failed to explain why they did not account for and paid for the entire quantity of subject inputs despatched and instead they maintained a separate account for payment with SIIL.
iv. With reference to condonation of loss by Proper Officer under Rule 196 of the erstwhile Central Excise Rules, 1944, neither there was any intimation regarding loss of goods nor it was stated in the periodic returns filed with the Department. Regarding the appellants argument that the appellants did not deliberately suppress any material information from the Department nor concealed any records or willfully misstated any fact with a view to evade payment of duty, the learned AR for the Revenue argues that if there was no intention to evade payment of duty, the appellants should have shown actual receipt of the subject inputs in Central Excise Returns/Registers and would not have maintained parallel account.
4. In case of both these appeals, the facts on record and the submissions of both the sides have been carefully considered.
4.1 These two appeals numbering No. 634 and 635/2006 have been preferred against the Commissioner (A)s Orders-in-Appeal No.165/2006 dated 10.3.2006 and 249/2006 dated 29.3.2006 respectively.
4.2 In case of appeal No.634/2006 vide Order-in-Original No.6/2005 dated 21.2.2005, Addl. Commissioner confirmed the demand of Rs.8,59,103/- along with interest and imposed equivalent penalty under Section 11AC of the Central Excise Act, 1944 on the appellants. Against this order, the appellants had filed appeal before Commissioner (A). In the Order-in-Appeal No.165/2006 dated 10.3.2006, Commissioner (A) held that appellants were liable to pay the duty of Rs.3,52,838/- on 153.827 MTs of phosphoric acid along with interest but the penalty imposed by Order-in-Original was set aside by the Commissioner (A). The Department fixed the duty liability of Rs.3,52,838/- for said 153.827 MTs of phosphoric acid held liable to duty by Commissioner (Appeals).
4.3 In case of appeal No.635/2006, in the Order-in-Original No.07/2005 dated 21.2.2005 Additional Commissioner confirmed the demand of Rs.42,57,590/- along with interest and also imposed equivalent penalty under Section 11AC of Central Excise Act, 1944 and further imposed penalty of Rs.4 lakhs under Rule 25 of Central Excise Rules, 2002. Against this Order-in-Original, M/s. FACT filed appeal before Commissioner (A), who vide his Order-in-Appeal No.249/2006 dated 29.3.2006 held that the appellants were liable to pay duty on 351.062 MTs. of Phosphoric Acid and 208.406 MTs. of Sulphuric Acid saying that the same was not utilized for specified industrial purpose of manufacture of fertilizer and the interest was also held as payable by M/s. FACT. Here the Commissioner (A) set aside the penalties imposed under Section 11AC of Central Excise Act and Rule 25 of Central Excise Rules, 2002 by the Order-in-Original dated 21.2.2005.
5. In both these cases, it is found that the Revenue issued show-cause notices invoking the Proviso to Section 11A(1) of Central Excise Act as existed then. In other words, the allegation was that the duty was not paid by M/s. FACT by reason of suppression of facts and in contravention of the Rules with intent to evade payment of duty as the show-cause notice No. 115/2004 dated 15.9.2004 and 19/2003 dated 21.1.2004 clearly indicate so (which were issued along with Annexures and for imposing penalty invoking provisions of Section 11AC of Central Excise Act, 1944).
5.1 It is to be noted that the proceedings were initiated by issual of two show-cause notices where the period involved was more than one year alleging suppression of facts with intent to evade payment of duty. It is to be noted that the Commissioner (Appeals) in both his orders has dropped the penalties which were invoked under Section 11AC of Central Excise Act, 1944 which is mandatory penalty wherever willful misstatement or suppression of facts with intent to evade payment of duty is alleged, though Commissioner (Appeals) in case of certain quantities of the material i.e., in case of appeal No.634/20060, for 153.827 MTs. of phosphoric acid and in case of appeal No.635/2006, for 208.406 MTs of sulphuric acid and 351.062 MTs. of phosphoric acid held that these quantities were not used for manufacture of fertilizer and duty on the same, therefore, was confirmed as recoverabale.
6. The appellants mainly argue that in their case, it was not an actual shortage but notional shortage because of weighment difference and they say that seals of their tankers were always verified as intact saying further that, therefore, quantity sent from the supplier SIIL was received without any loss and that the Department did not show any physical loss of the goods. On the other hand, Revenue contends that the appellants regularly filed D-3 intimations and other returns which were duly submitted to Central Excise Officers where they never mentioned any notional shortage of the goods. But when the appellants commercial accounts were audited, it was noticed that their commercial accounts indicated a different picture indicating that they had been receiving less quantity of the goods (as pointed out by the Department) on which there has been statements also from the company persons, and the appellants have been making payments for less quantity of goods i.e., after taking into account of said notional shortage of goods to the supplier viz., M/s. Sterlite Industries (SIIL). Thus, the appellants have been paying to the suppliers for the less quantity of the goods, the receipt of which were shown in their Commercial accounts.
6.1 The argument by the appellants that commercial accounts and agreement were their internal arrangement between the supplier and the appellants and that was for determination and settlement of the price of the goods despatched and no reliance could be placed on the same for alleged short receipt of the goods, is not an acceptable argument and does not have any force; no prudent person would agree that a commercial enterprise is required to have two sets of records, one for submission to Revenue/Central Excise authorities and another for their commercial transactions, where the quantities shown are different for one set of the transaction, and the argument of the enterprise that these sets of records are for different purposes and should be accepted as such cannot be legally justified on any count. The appellants argument that Central Excise Department cannot rely on their commercial transaction documents, which they used for making payments to their suppliers, does not have any force as the said documents cannot be ignored by anyone and more so by an official of Revenue Department.
6.2 Thus, it is on record that the appellants did not show actual receipt of the subject inputs in Central Excise records and registers but maintained separate accounts which were different from the entries put in Central Excise records and registers. Appellants have argued regarding the weighment difference but again the said weighment differences were not put on record before the Revenue authorities.
7. Consequently the main arguments against the appellants are that they have two sets of documents; in one set they were showing full receipt of the goods i.e., D-3 declarations and other records submitted to Central Excise authorities and another set, which they call commercial transaction documents, where they were showing less receipt of the goods because of notional shortage and they had paid to their suppliers for the quantity shown as less received goods only. Appellants argue that this notional shortage was mainly on account of variations and concentration and due to variation in weighment or weighing scale differences at the point of supply and at the point of discharge. The Commissioner (A) in his Orders-in-Appeal (which are the impugned orders here) have given benefit to the appellants for variation in concentration thereby holding that appellants were liable for payment of duty in case of appeal No.634/2006 for 153.826 MTs of phosphoric acid and for appeal No.635/2006 for the duty demand of 208.406 MTs of sulphuric acid and 351.06 MTs of phosphoric acid which were held as short accounted and not used for manufacture of fertilizer.
7.1 From both the impugned orders passed by the Commissioner (A), we find that in both the cases mandatory penalty for the cases where there was allegation of willful misstatement or suppression of facts with intent to evade payment of duty imposed under Section 11AC were set aside. In other words, ingredients or elements holding the appellants liable for willful default in payment of duty with the intention to evade, to cover their case under the provisions of willful misstatement or suppression of facts with intent to evade payment of duty, which are part of proviso to Section 11A(1) of Central Excise Act as well as under the provisions of Section 11AC of Central Excise Act, have not been found to be existing on record by the Commissioner (Appeals). Though under both the appeals, the duty has been demanded for the period beyond one year, in case of appeal No.634/2006 for the period 1.4.2001 to 31.3.2003 and in appeal No.635/2006 for the period of 1.4.1999 to 31.3.2003 invoking the extended period i.e., the period beyond one year. In these cases, show-cause notices were issued on 15.9.2004 (appeal No.634/2006) and 21.1.2004 (appeal No.635/2006). When the ingredients of willful misstatement or suppression of facts with intent to evade payment of duty were not found available by the Commissioner (A), in both the cases, he set aside the penalties under Section 11AC, which otherwise is mandatory penalty, whenever there is a case of willful misstatement or suppression of facts with intent to evade payment of duty.
7.1.1 It is not clear that how the Commissioner (A) has sustained the demand for the entire period which is beyond one year, when the penalty under Section 11AC of Central Excise Act has been set aside. Here CESTAT Delhis decision in the case of M/s. Smart Finance vs. Commissioner of Central Excise, Jaipur: 2014-TIOL-1555-CESTAT-DEL is relevant though this decision is on service tax, the provisions in respect of service tax in the Finance Act, are similar to the provisions given in the Central Excise Act, 1944. In case of Service Tax, wherever there are mala fides involved i.e., wherever there is deliberate evasion of duty by the act of willful misstatement or suppression of facts with intent to evade payment of service tax there is mandatory penalty under Section 78 of Finance Act, 1994 as is the case in the case of Central Excise under the provisions of Section 11AC of the then Central Excise Act, 1994. CESTAT Delhi in this case held that if an assessee was found under bona fide misconception of liability to tax and primary authority dropped the penalty under Section 77, then the finding would equally cover the case in favour of the assessee both in respect of imposition of penalty under Section 78 (which is mandatory penalty) as well as for initiation of proceedings by invoking extended period of limitation. In this regard, Paras 6 and 7 of the said decision is quoted below:
6. In the facts and circumstances, since the primary authority had clearly recorded the finding that the appellant was under bona fide misconception as to the liability to tax and had dropped penalty under Section 77 for that reason, that finding equally covers the case in favour of the assessee both with regard to imposition of penalty under Section 78 as well initiation of proceedings by invoking the extended period of limitation. Revenue has not preferred any appeal against the order of the primary authority against dropping of penalty under Section 77 of the Act.
7 In the facts and circumstances adverted to above, the impugned order of learned appellate Commissioner is unsustainable and is quashed. Appeal is allowed with no order as the costs. 7.2 Further from the facts on record and the findings given by Commissioner (Appeals), the Revenue has failed to prove the mala fides of the appellants to state that they had willfully suppressed the facts with intent to evade payment of duty of Central Excise. It is also a point that the appellants are a Public Sector (Government of India) Enterprise; and whose employees normally would not deliberately and willfully like to contravene the laws with the intention to evade the payment of good revenue as there cannot be any personal profit motive for them unless otherwise proved on record by the Revenue authorities, which they have failed to do. Rather the employees of PSU very well know that if there has been any contravention of laws/rules, knowingly or unknowingly, they would be liable to vigilance/penal action. It is reiterated that the facts and investigations have not clearly and convincingly indicated any such mala fide involvement of the appellants and their employees.
7.3 The appellants have quoted the decisions of Honble Supreme Court in the case of UP State Cement Corporation Ltd. vs. Union (supra), and in the case of National Organic Chemicals Indus Ltd. vs. CC (Import) (supra). We find that the items involved in these decisions are cement clinker and raw naphtha, whereas here items are sulphuric acid and phosphoric acid. We find that for the difference in quantity on account of concentration variation, already Commissioner (Appeals) has given the relief to the appellants in both appeal cases. The appellants cannot have any substance and support for further relief citing above two decisions, where the present facts do not match with the facts of the said two cases.
7.4 From the discussions above and the findings given by Commissioner (A) in his impugned orders No.165/2006 dated 10.3.2006 and No.249/2006 dated 29.3.2006 willful misstatement or suppression of facts with intent to evade payment of duty is not established on the part of the appellants. The special facts of the case that a Government of India Enterprise a Public Sector Undertaking (and its employees) are part of the proceedings and that willful misstatement of facts with intent to evade duty have not been found proved, have been noted in Para 7.3 above. Consequently, the demand of duty in both the appeals beyond the period of one year from the date of show-cause notice cannot survive. Revenue , thus has to recalculate the duty liability in respect of only one year period for which the demand has been found lawful as willful misstatement or suppression of facts with intent to evade payment of duty on the part of the appellants have not been found to be existing.
7.4.1 The original adjudicating authority is directed to recalculate the duty liability in respect of the said shortages of phosphoric acid (351.062 MTs.) and sulphuric acid (208.406 MTs) for appeal No.635/2006 and phosphoric acid (153.827 MTs.) for appeal No.634/2006 arrived at by the impugned Orders-in-Original. The demand of duty along with interest at appropriate rate for this said shortage, which is accountable for the period of only preceding one year prior to the date of show-cause notice is hereby sustained under the provisions of Section 11A(1) of Central Excise Act, 1944 read with Rule 6 of Central Excise (RGCRDMEG) Rules, 2011 and Section 11AB of the then Central Excise Act, 1944. In this regard, the appellants are directed to give all the documents if required by the original adjudicating authority and original adjudicating authority will also give the appellants sufficient opportunity by way of personal hearing to produce the data and documents, if any. This process of revision and recovery of demand has to be completed within three months of receipt of this order.
8. Appeal decided in above terms.
(Order pronounced in open court on 29/02/2016.) ASHOK K. ARYA TECHNICAL MEMBER M.V.RAVINDRAN JUDICIAL MEMBER rv 2