Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Lumax Samlip Industries Ltd on 25 March, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.E/306/2005, E/CO/9/2005
[Arising out of Order-in-Appeal No.3/2005 (M-IV) dt. 22.1.2005 dated passed by the Commissioner of Central Excise (Appeals), Chennai]
Commissioner of Central Excise,
Chennai-IV
Appellant
Versus
Lumax Samlip Industries Ltd. Respondent
Appearance:
Shri M. Rammohan Rao, DC (AR) For the Appellant Shri C. Saravanan, Advocate For the Respondent CORAM:
Honble Shri R. Periasami, Technical Member Date of hearing : 21.11.2014 Date of pronouncement : 25.03.2015 FINAL ORDER No.40340/2015 This is an appeal filed by Revenue against Order-in-Appeal No.3/2005 (M-IV) dt. 22.1.2005 passed by Commissioner (Appeals), Chennai.
2. The brief facts of the case are that M/s.Lumax Samlip Industries Ltd., (LSIL, for short), the respondent herein are the manufacturers of "Head Lamp Assembly" and Motor vehicle parts falling under Chapter Heading 8512 and 8708 and registered with Central Excise and availed modvat credit on the inputs and capital goods used in the manufacture of excisable goods. The respondent had availed modvat credit of Rs.24,79,790/- on the capital goods "Injection Moulding Machine BA-4500/1900 BK". (Sl. No.2 & 3 in RG-23 Pt-II dt. 30.6.99). During the investigation by Headquarters (Preventive), it was noticed that the respondent also claimed depreciation under Section 32 of the Income Tax Act, 1961, therefore in terms of sub-rule (8) of Rule 57R of Central Excise Rules, they are not eligible to avail the capital goods credit. Show cause notice dt. 28.5.2004 was issued to the respondent for recovery of ineligible modvat credit under Rule 57U (2) read with Section 11A along with interest and penalties under Rule 57U read with Section 11AC and Rule 173Q of Central Excise Rules. The adjudicating authority vide OIO No.15/2004 dt. 28.9.2004 ordered recovery of credit Rs.24,79,790/- and also held that they are eligible to avail the said modvat credit after 30.5.2004, i.e from the date of OIA of CIT (A) for acceptance of their application for withdrawal of depreciation by the Income Tax department. He also demanded under interest under Rule 57 (4) read with Section 11AB and imposed equivalent penalty under Rule 57U (6) read with Section 11AC and also imposed penalty of Rs.5000/- under Rule 173Q.
3. Aggrieved by the said order, respondent preferred appeal and the Commissioner (Appeals) vide impugned order dt. 22.1.2005 set aside the OIO dt. 28.9.2004 and restored the credit w.e.f. 30.6.1999 i.e from the date of availing credit and set aside both interest and both the penalties. The said OIA was reviewed by the Department and the Revenue filed appeal before Tribunal.
4. The Division Bench of the Tribunal vide Final order No.1702/2009 dt. 12.11.2009 has rejected the department's appeal. The Revenue filed ROM application and the Division Bench of the Tribunal vide MISC Order dt. 11.11.2003 allowed the ROM application and the final order dt. 12.11.09 was recalled. Para-5 of the said order is reproduced as under :-
"5. After considering the submissions of both sides, we find that at the time of passing of the final order dt. 12-11-2009 application for rectification of mistake/revising the return filed by assessee was not accepted by the income tax authorities and therefore the order was passed by the Tribunal in a wrong premise. It is an error on the face of record and therefore, it is necessary to rectify the mistake on final order passed by the Tribunal. Accordingly, we recall the final order dt. 12.11.2009 for hearing to rectify the mistake therein."
5. Heard both sides.
6. The Ld. A.R for the Revenue reiterated the grounds of appeal and findings of the original adjudication order. He submits that the Commissioner (Appeals) has erred in restoring the credit from the date of taking credit and setting aside penalty and interest. As per Rule 57R (8), credit on capital goods shall not be allowed in respect of that part of the value of capital goods of which the manufacturer claimed depreciation or as Revenue expenditure under Income Tax Act. In this case, the respondents have filed declaration before the Department as per Rule 57T (2) dt. 27.5.99 and declared that no depreciation claimed under Section 32 of Income Tax whereas they have deliberately availed credit as well as claimed depreciation. Only after the investigation by the department on 5.3.2002, the respondent has filed revised IT return on 27.3.2002. He further submits that revised return was rejected by the Income Tax Authority and on appeal the Commissioner of Income Tax (Appeals) allowed their appeal only on 31.5.2004. But for the Department, their deliberate intention to avail both credit and depreciation could not have come to notice. The respondents enjoyed the credit and therefore there is clear suppression of facts and also liable for penalty and the adjudicating authority has rightly imposed penalty.
7. The A.R further submits that in the subsequent developments, the Income Tax department reviewed the Commissioner, IT (Appeals) order dt. 31.5.2004 and filed appeal before Income Tax Appellate Tribunal. ITAT had allowed Revenue's appeal vide order dt. 20.10.2006 and set aside the said order of Commissioner, IT (Appeals). Respondents filed writ appeal against the above ITAT's order and the Hon'ble Delhi High Court had dismissed the appeal. The respondent again preferred S.L.P before the Apex Court against the Delhi High Court's order and the Hon'ble Supreme Court has dismissed the SLP on 6.8.2012. He submits that dismissal of respondent's application attained finality and depreciation availed under Income Tax Act stands confirmed. Therefore, the respondents are not eligible for modvat credit on the capital goods and also liable for interest and penalty and he relied on the following case laws:-
1) Gujarat Alkalies & Chemicals Ltd. Vs CCE Vadodara-I 2010 (262) ELT 753 (Tri.- Ahmd.)
2) CCE Chennai-IV Vs Sundaram Fasteners Ltd.
2014 (304) ELT 7 (Mad.)
3) CCE & CC Aurangabad Vs Bageshwari Sahakari Sakhar Karkhana Ltd.
2008 (222) ELT 204 (Bom.)
4) Union of India Vs Ind-Swift Laboratories Ltd.
2011 (265) ELT 3 (SC)
8. Ld. Advocate for the respondent reiterated the findings of the impugned order and submits that Commissioner (Appeals) has rightly allowed their appeal and submits that their manufacturing unit is located at Sriperumbudur at Chennai and their Head office is located at Delhi. Due to communication gap between the manufacturing unit and their head office they were not aware of the depreciation claimed as the Income Tax return was filed from their Headoffice, Delhi. He further submits that they have filed appeal before Commissioner (Appeals) only against the interest and penalty. Revenue has not filed any appeal against the adjudication order against allowing credit from 31.5.2004. There is no suppression or misdeclaration with intention to evade tax. He further submits that the unit was under loss and not utilized the depreciation. They filed application under Section 154 of Income Tax Act for withdrawing the depreciation which was initially rejected by the assessing officer. However, Commissioner of Income Tax (Appeals) has allowed their appeal. Therefore, they are eligible for availing capital goods credit by virtue of the CIT(A) order. He further submits that if at all there is a case, it is for the IT department who should have denied the depreciation. The case law relied by Revenue has not attained finality. He relied on the following case laws :-
1) Terna Shetkari Sahakari Sakhar Karkhana Ltd. Vs CCE Aurangabad 2001 (138) ELT 1225 (Tri.-Mum.)
2) Chandrapur Magnet Wires (P) Ltd. Vs CCE Nagpur 1996 (81) ELT 3 (SC)
3) Alcobex Metals Ltd. Vs CCE Jaipur-II 2003 (161) ELT 350 (Tri.-Del.)
4) K.V. Mills Vs CCE Coimbatore 2002 (149) ELT 796 (Tri.-Chennai)
5) CCE Jaipur Vs Raghuvar (India) Ltd.
2000 (118) ELT 311 (SC)
6) CCE Pune Vs Dai Ichi Karkaria Ltd.
1999 (112) ELT 353 (SC)
7) Kushal Fertilisers (P) LTD. Vs CCE Meerut 2009 (238) ELT 21 (SC)
9. Ld. A.R in rejoinder submits that advocate claiming as no suppression of facts is not acceptable as they have filed T1 and T2 declaration before the Department by declaring that they have not availed depreciation under Income Tax Act which is on record. Therefore, there is clear suppression of facts. He also submits that case laws relied by respondent's advocate in the case of Dai Ichi Karkaria Ltd. (supra) is not applicable. He submits that only in the order-in-appeal, Commissioner of Central Excise has crystallized the depreciation issue. Therefore, he pleaded for setting aside the impugned order.
10. I have carefully considered the submissions and also perused the documents, the written synopsis, and list of dates and events submitted by the respondents and the case laws. Revenue filed appeal seeking to set aside the impugned order dt. 22.1.2005 of the lower appellate authority wherein the Commissioner (Appeals) has set aside the entire adjudication order dt. 28.9.2004. The issue to be decided in the Revenue appeal is whether the impugned order passed by Commissioner (Appeals) is legal or proper in setting aside the interest and penalty and restoring the credit w.e.f. 30.6.99. The main issue in this case relates to disallowing Modvat credit availed on the capital goods wherein the respondents have also claimed depreciation under Section 32 of Income Tax Act. The period involved in this case relates to June'99. The Commissioner (Appeals) has set aside the entire order only on the ground that respondents have succeeded their appeal before Commissioner of Income Tax (Appeals). The relevant paragraph of the impugned order is reproduced as under :-
"4.2 It is also seen from the records that the lower authority has restored the credit only with effect from 30.5.2004 taking into consideration the fact that the depreciation claimed under the Income Tax Act is reversed. In this regard, I concur with the claim of the appellant that reversal of depreciation dates back to the date of availment of the same. Original return claiming depreciation was filed with Income Tax Department for the year 1998-99 and revised return reversing the depreciation claimed was filed subsequently for the same financial year only. Hence, any alterations, amendments, additions, deletions made in the revised returns and approved by the department dates back to the applicable financial year for which the returns were filed and status quo ante restored vis a vis the original returns.
I also find that the Commissioner of Income Tax (Appeals), vide her Order dated 31.5.2004 has interalia held that the intimations submitted under Section 154 of the Act by the Appellant on 28.03.2002 was based on the wrong computations of depreciation to that extent ordered the assessing Officer to "rectify" the intimation under section 143 (1) of the Act for Assessment year 1999-2000.
The aforesaid Order of CIT (Appeals), apart from restoring the status of the credit availment / depreciation claim to the stage before the Income tax returns had been filed by the assessee, will also have the consequential effect of requiring the Appellant to obviously discharge a higher Income tax liability for the Assessment year 1999-2000 than they would have if the plea for withdrawal of their depreciation claim had not been allowed. Viewed in this context, it is evident that, if in addition to this increased Income Tax liability, if the corresponding credit is denied abinitio, it would result in a double jeopardy of sorts for the Appellants."
In this circumstances, I have no hesitation in holding that the Appellant is entitled to avail of the impugned Modvat credit from the date of taking the credit i. e 30.06.99"
As evident from the above order, the lower appellate authority has not only set aside the interest and 11AC penalty but also set aside adjudication order allowing credit from 30.5.2004 and held that respondents are entitled to the modvat credit from the date of taking credit w.e.f 30.6.99.
11. The relevant provisions for availing modvat credit on capital goods during 1999 are governed by the Rules 57Q to 57U of then Central Excise Rules, 1944. Rule 57Q specifies applicability and Rule 57R provides where credit of duty not to be allowed or denied in certain circumstances. The Sub Rule (8) of Rule 57R which is relevant for the present appeal is reproduced as under :-
"(8) No credit of the specified duty paid on the capital goods shall be allowed, if the manufacturer, claims depreciation under section 32 of the Income-tax Act, 1961 (43 of 1961), or as revenue expenditure under any other provisions of the said Income-tax Act, in respect of that part of the value of capital goods which represents the amount of specified duty on such capital goods."
12. The above sub-rule provides that no credit shall be allowed, if the manufacturer claims depreciation under Section 32 of the IT Act. Rule 57T stipulates procedure to be followed by the manufacturer who is intending to take credit of the duty paid on the capital goods under rule 57Q. Under this Rule an assessee shall file declarations before receipt of the capital goods before the Assistant Commissioner of Central Excise having jurisdiction over his factory. One of the declarations under Rule 57T stipulates that they shall not claim depreciation under Section 32 of the Income Tax Act.
13. With the background of the above rules and on perusal of records, I find that in the instant case, the respondent had filed T1 declaration on 26.11.98 under Rule 57T of Central Excise Rules intimating the Department that they intend to avail credit of the duty paid on capital goods. They have filed T2 declaration on 27.5.99 before A.C Division and declared that they shall not claim depreciation under Section 32 of the Income Tax Act. Whereas in their Income Tax return filed before the Income Tax authorities on 31.12.99 they duly claimed depreciation on the value of capital goods credit. I find that the said return was duly accepted by the Income Tax department and to that effect an intimation was also issued by the Income Tax Department on 24.7.2000. Therefore, it is admitted fact that during the relevant period, respondents on the one side availed credit of duty paid on the capital goods and also claimed depreciation under Section 32 of the Income Tax Act.
14. It is an admitted fact that only on 26.3.2002 i.e. after the case was detected by the department, they decided to file an application before Income tax authorities under Section 154 of the IT Act. I find that the said declaration filed under Section 154 of the IT Act was initially dismissed by the Asst. Commissioner of Income Tax vide order dt. 9.1.2004, it is relevant to reproduce the findings of the above I.T original order as under :-
"The assessee's contentions have been considered and are being rejected in view of the following :-
(i) The error was pointed out by the officers of Headquarters Preventive Unit of the office of the Commissioner of Central Excise, Chennai-II on 5.3.2002 thereby negating the assessee's claim that it had filed the 154 petition voluntarily on detecting this error. Further, in its petition the assessee had claimed that necessary rectification entry was duly passed in the books of accounts of the company in the year ending 31.3.2000. If this was the case, then why did the assessee not file the petition u/s 154 till 28.3.2003?. This itself creates a doubt about the bonafide intention of the assessee.
(ii) The rectification petition was filed only after the offence case was registered against the assessee company by the office of the Commissioner of Central Excise, Chennai-II. By getting its wrong claim rectified, the assessee company wishes to circumvent the provisions of law. This cannot be allowed even though the assessee's claim is in accordance with the provisions of Explanation 9 of Section 43 (1) of the Income Tax Act.
In light of the above, the rectification petition u/s 154 of the Income Tax Act, 1961 is hereby rejected."
15. The Income Tax Authority in the above order has clearly brought out the reasons for rejecting their application and held that the application was filed only after offence case was registered by Central Excise authorities only to circumvent the provisions law they resorted this method. No doubt that the respondents succeeded in their appeal before CIT (A), but the fact remains established from the above that respondents suppressed the facts before the department on availing simultaneous benefit. The respondent's plea of communication lapse is beyond acceptable. The CIT (A) order referred above has been taken into consideration by the adjudicating authority in his order and while confirming the demand of recovery of Modvat credit wrongly taken and utilized from 30.6.1999 in contravention of Rule 57R (8) of Central Excise Rules rightly demanded the interest and imposed penalty under Section 11AC. In conformity with CIT (A) order above, the adjudicating authority held that they are eligible for such modvat credit w.e.f. 31.5.2004. He had clearly brought in his order in detail, the misdeclaration and willful suppression of facts for confirming the demand and imposition of penalty under Section 11AC.
16. Whereas I find that the Commissioner (Appeals) in the impugned order has not brought out any valid reasons against findings of OIO and set aside both interest and penalty under Section 11AC and other penalties by referring to CIT (A)'s above order and by citing Tribunal decision. The deliberate misdeclaration and willful suppression of facts by the respondents was established by the adjudicating authority. The undisputed fact that, but for the Departmental officers detecting the case on 5.3.2002 it would not have come to notice and this fact was completely ignored by the LAA. Therefore, I hold that there is merit, in the revenue appeal and the impugned order waiving interest and penalty under Section 11AC and restoring the Modvat credit to the respondent w.e.f. 30.6.99 is liable to be set aside and the adjudication order dt. 28.9.2004 demanding the credit, confirming interest and imposing penalty under Section 11AC is liable to be restored.
17. In addition to the above findings discussed in the preceding paragraphs, I find that the documents available in the appeal file and submissions made by both revenue and respondents reveals the subsequent proceedings against the said Commissioner Income Tax (Appeals) order dt.31.5.2004. There are appellate Tribunal decisions and higher Judicial orders pronounced after the impugned order passed by LAA and during the pendency of this present revenue appeal and this leads to the fact that the said CIT (A) order had not attained finality. As held by the Hon.Apex Court in several decisions that the Tribunal is the final fact-finding forum, and in the interest of justice this Tribunal cannot ignore these facts and is duty bound to examine them while deciding the appeal. Under these peculiar circumstances, I proceed to discuss the following facts.
18. As stated above, I find that the Income Tax Department has not accepted the CIT (A) order dt. 31.5.2004 (relied by LAA) and filed appeal before Income Tax Appellate Tribunal (ITA), Delhi. The Hon.ITAT vide order dt.20.10.2006 has allowed the revenue appeal and set aside the said CIT (A) order. It is seen that the respondent has filed an appeal under Section 260A of the Income Tax Act, 1961 before the Hon'ble High Court of Delhi against the above ITAT's order. The Hon'ble High Court of Delhi dismissed their appeal vide order in ITA No.771/2007 dt. 29.10.2010. The respondent again preferred SLP before the Hon'ble Supreme Court against the Hon'ble High Court's order. The Hon'ble Supreme Court vide order dt.6.8.2012 in SLP (C) No.9659/2011 dismissed their S.L.P. Therefore, by virtue of Supreme Court's order dt. 6.8.2012 their rectification application under Section 154 stands dismissed and claiming depreciation under Section 32 of IT Act had attained finality. Though the Commissioner of Central Excise (Appeals) had relied on CIT (A)'s order dt.31.5.2004 during the relevant time, considering the subsequent ITAT decision and the judicial proceedings before Hon'ble Delhi High Court and Hon'ble Supreme Court, it is settled law that respondent's claim depreciation under Section 32 of the Income Tax Act stands vindicated after the apex court judgment.
19. It is pertinent to state that this fact was also recorded in Division Bench of this Tribunal's MISC Order No.460/2009 dt. 19.8.2009 while allowing the early hearing application filed by the respondents. The said MISC order is reproduced as under :-
"The application for early hearing of the above appeal is allowed and the appeal is fixed for final hearing on 12.11.2009 as the depreciation on imported capital goods initially availed by the assessees and subsequently reversed has been disallowed by the Income Tax Appellate Tribunal against which the assessees have filed an appeal before the Hon'ble Delhi High Court and the case is listed for hearing before the High Court in January 2010."
This clearly shows that the respondents themselves brought on record before this Tribunal that the respondents had filed appeal before the Delhi High Court.
20. Therefore, taking into account above facts and circumstances of this case, it is evident that respondents have filed T1 and T2 declaration before the Central Excise authorities and declared that they shall not claim any depreciation under Section 32 of the Act, whereas the Hon.Apex Court in their order dt. 6.8.2012 settled the issue of claim of depreciation in respect of that part of the value of capital goods representing specified duty on the said capital goods under Section 32 of the Income Tax Act, 1961. Therefore the respondents have no legal grounds to enjoy both Modvat credit on capital goods under Central Excise Act and depreciation under Income Tax Act. Accordingly, they are not eligible to avail capital goods credit in terms of Rule 57R (8) of Central Excise Rules. The Hon'ble High Court of Bombay in the case of CCE & CC Aurangabad Vs Bageshwari Sahakari Sakhar Karkhana Ltd. (supra) on the identical issue wherein the assessee claimed depreciation as well as availed credit has held that penalty under Section 11AC is imposable. The relevant paragraphs of the said judgement is reproduced as under :-
"4. One peculiar circumstance in this? appeal needs to be recorded. The show cause notice did allege the assessee of suppression of facts and wilful misstatement. It is alleged that the declaration filed by the assessee under Rule 57T of the Central Excise Rules, 1944 was to the effect that it will not claim any depreciation under Section 32 of the Income-tax Act, 1961. In fact, such depreciation was claimed. The assessee had claimed such a benefit and tried to defend the same by saying human error or accounting error. We are afraid, having filed a declaration, it was not open for the respondent-assessee to say that it was a human error or accounting error that depreciation as determined was one under Section 32 of the Income-tax Act, 1961. The declaration in such circumstances must be said to be a misstatement aimed at evasion of the duty and penalty was, therefore, imposable. Unfortunately, none of the three adjudicating authorities so far have discussed this angle and hence, in order to ascertain that requirement of Section 11AC is fulfilled, we have considered certain facts in the matter.
5. In the circumstances, the appeal is? allowed. We hold that the respondent-assessee is liable to penalty equivalent to evaded duty i.e. Rs. 1,79,400/-, unless they have already paid the interest under Section 11AB of the Central Excise Act, 1944 within thirty days from the date of the order passed by the Deputy Commissioner, Central Excise and Customs, Nanded (dated 15-4-2004) in which case they will be liable to pay 25 per cent of the penalty."
The above Hon'ble Bombay High Court's order is squarely applicable to the present case. The Division Bench of the Tribunal in the case of Gujarat Alkalies & Chemicals Ltd. Vs CCE Vadodara-I (supra), in an identical issue of capital goods credit, has also upheld the demand where the assessee has availed depreciation and also upheld the Section 11AC penalty.
21. It is pertinent to place on record that CIT (A)'s order dt. 31.5.2004 was set aside by ITAT on 20.10.2006 and the Hon'ble Delhi High Court also dismissed their appeal on 29.10.2010 and the SLP was dismissed by the apex court on 6.8.2012. The respondents were fully aware of the fact that they have lost their case before Income Tax Department and any law abiding company ought to have respectfully accepted and paid the demand but the respondents deliberately chose to remain silent and failed to do so.
22. Therefore, by respectfully following the Hon'ble Bombay High Court's order and the Tribunal's Division Bench decision, I have no hesitation in holding that the impugned order of the lower appellate authority is liable to be set aside and the respondents are not entitled to avail of the impugned Modvat credit on the capital goods and liable for recovery of Rs.24,79,790/- as capital goods credit from the date of taking the credit i.e. 30.06.1999. The respondents are also liable for recovery of interest on the said amount under Section 57U (8) read with Section 11AB of the Central Excise Act and liable for penalty under Section 11AC as per the original adjudication order.
23. In view of the foregoing observations, the impugned order is set aside and the OIO is restored in the following terms :-
(i) The respondents are not entitled to avail of impugned modvat credit of Rs.24,79,790/-(Rupees Twenty four lakhs seventy nine thousand seven hundred and ninety only) and the demand is upheld from the date of taking the credit i.e. 30.06.1999.
(ii) Demand of interest under Rule 57U (8) read with Section 11AB of the Central Excise Act, 1944 is upheld.
(iii) Equivalent penalty imposed under Rule 57U(6) read with Section 11AC by adjudication authority is upheld.
(iv) Penalty of Rs.5000/- imposed under Rule 173Q is upheld.
The appeal filed by Revenue is disposed of in the above terms. The cross objection filed by respondent gets disposed of.
(Pronounced in open court on 25.3.2015) (R. PERIASAMI) TECHNICAL MEMBER gs 12