Custom, Excise & Service Tax Tribunal
M/S Dr. Writer S Food Products Pvt. Ltd. ... vs Commissioner Of Central Excise, ... on 10 April, 2015
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. IV APPEAL NO. E/149 & 973/06 (Arising out of Order-in-Appeal No. P-II/BKS/403/2005 dated 24.11.2005 passed by the Commissioner of Central Excise (Appeals) Pune-II.) For approval and signature: Honble Shri Anil Choudhary, Member (Judicial) =====================================================
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 Dr. Writers Food Products Pvt. Ltd. (E/973/06)
Commissioner of Central Excise, Pune-II (E/149/06)
: Appellant
Versus
Commissioner of Central Excise, Pune-II
M/s Dr. Writers Food Products Pvt. Ltd.
: Respondent
Appearance
Shri S.L. Hasija, Supdt. (A.R.)
: For Appellant
Shri M.P. Baxi, Advocate
: For Respondent
CORAM:
HONBLE SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL)
Date of Hearing : 10.04.2015 Date of Decision: 10.04.2015
ORDER NO.......................................................
Per: Anil Choudhary:
The Revenue and the assessee are both in appeal against the Order-in-Appeal No. P-II/BKS/403/2005 dated 24.11.2005 passed by the Commissioner of Central Excise (Appeals) Pune-II.
2. The brief facts are that the appellant-assessee is engaged in the manufacture of excisable goods viz. chocolates falling under chapter number 18 of the Central Excise Tariff Act, 1985. In the visit to the factory of the appellant-assessee by the Revenue officers on 16th and 17th of October, 2003 they noted that the assessee is drawing samples, without payment of Central Excise duty for in-house testing of quality of the goods manufactured and without following any procedure under the Central Excise law, on hourly basis, daily for all the 3 shifts. The statement of the Supervisor of Quality Assurance Department was recorded and also statement of Assistant Warehousing Manager, wherein it was accepted that they were drawing the samples of the products (chocolates) daily, shift wise, and the samples were for tests namely quality control, infestation, microbial, and for tasting. The samples for quality control and infestation are preserved for the period of one year and 3 months respectively and afterwards disposed off by way of burning. That the assessee had not paid duty on such samples. With reference to para 3.2.2 of Chapter 11 of CBEC Excise manual of supplementary instructions, it appeared that the assessee has failed to pay the duty and comply with the provisions as stated in the manual. The statement of various Officers was recorded wherein it is accepted that they were under the impression that since the goods are not leaving the premises, the duty need not be paid on such samples, used for in-house testing and that they were unable to adopt the practice based on the cost certificate, CAS 4 guidelines therefore the duty calculation for the period January, 2004 to December, 2004 has been done on MRP based assessment. It was alleged that the samples drawn and cleared to the In-house quality control laboratory by the appellants are covered by the category of samples under para 3.2.1 of Chapter 11 (samples) of the Excise manual of supplementary instructions, and in view of the Supreme Court decision in the case of ITC Limited the procedure given under paragraph 3.2.2 is applicable to the said samples and the said samples are liable to be cleared on payment of Central Excise duty only, as the same are not exempted by any Notification and tariff rate is not nil. It was also alleged that the appellant contravened the provisions of (i) Rule 10 of Central Excise Rules, 2001/2002 read with the erstwhile Rule 53 and Rule 226 of the erstwhile Central Excise Rules, 1944 read with section 38A of Central Excise Act, 1944 in as much as they have failed to maintain proper accounts in respect of the samples cleared for in-house testing, in a legible manner, indicating the particulars regarding destruction of goods produced or manufactured, opening balance, quantity produced or manufactured, inventory of goods, quantity involved for testing, assessable value, the amount of duty payable and particulars regarding amount of duty actually paid which were deficiently accounted for in RG1/Daily Stock Account Register. (2) Rule 5 of CENVAT Credit Rules, 2002 read with erstwhile Rule 9, 52A and Rule 173F of the erstwhile Central Excise Rules, 1944 read with Section 38A of Central Excise Act, 1944 in as much as they have failed to pay the Central Excise duty on the said samples cleared without payment of duty and further the assessee failed to pay the duty on the said samples cleared by them and accordingly show-cause notice dated 25.04.2005 for the period April, 2000 and December, 2004 was issued alleging therein that the assessee is clearing the finished goods for quality control tests but no proper procedure was followed nor records maintained properly. Though they have maintained the registers in the quality assurance department, they did not have the quantitative details of receipts and disposal of the same. It only shows manufacturing line from which they are drawn. It is further alleged that in respect of clearances of samples for testing, there is no specific special exemption from payment of Central Excise duty or from observing the formalities for maintenance of accounts under the Central Excise law for the samples drawn and cleared to the In-house quality control laboratory for testing purposes. Moreover as per the instruction in supplementary manual the provisions of (1) samples drawn for in-house laboratory for testing quality and adherence to product specifications; (2) samples drawn for preservation for the investigation of complaints; (3) samples drawn for test at other concerns and independent testing agencies; (4) for samples required to be sent to Government Test Centres including the chemical examiner for test. So far as quantification of the duty in dispute is concerned for the samples cleared for in house testing purposes, the goods cleared as sample by the assessee have nor been cleared for sale outside the factory premises and not amounting to sale and therefore the violation of the same is to be seen as per Section 4 of Central Excise Act read with Rule 8 of Central Excise Valuation Rules 1975 and 2000 respectively as applicable and accordingly the assessee was required to show-cause as to why Central Excise duty amounting to Rs. 3,94,671.4/- plus education cess totalling to Rs. 3,98,523.63/- should not be recovered under the provisions of Section 11A of the Act read with Rule 4 Central Excise Rules, 2002 and Rule 9 of Central Excise Rule, 1944 and interest amounting to Rs. 1,99,521.8/- already deposited vide CENVAT account and Profit and Loss Account be not adjusted against the amounts confirmed and further why not penalty be imposed and interest demanded. The appellant contested the show-cause notice. No written reply was filed, but oral hearing was availed. The same was adjudicated vide order dated 1.3.2005. The adjudicating authority held that the assessee has not followed the procedure prescribed under the Central Excise manual of supplementary instructions and/or make invoice under Rule 11 of Central Excise Rules and make entries for the goods (samples) in the daily stock account. Appropriate duty is required to be paid by an assessee on these samples before removal for test purposes unless otherwise exempted by exemption Notification. As the assessee has not followed the procedure and it is admitted that the appropriate duty on the samples have not been paid and further, although the assessee has paid the duty on such samples after pointing out by the Department, amounting to Rs. 3,98,583.42/-, and accordingly it was held that the charges levelled against the assessee are proved conclusively. As regards penalty and interest it had been contended by the assessee by relying on the ruling in the case of Commissioner of Central Excise, Delhi Vs. Machino Montel India Ltd. 2004 (168) ELT 466 where it is held that no interest and penalty is payable as there is no wilful breach of law and/or contumacious conduct. As extended period was involved, therefore rejecting the submissions of the assessee he imposed penalty of Rs. 3,90,584/- under Section 11AC of the Act along with demand for interest. Being aggrieved the appellant-assessee preferred appeal before the Commissioner (Appeals).
3. Before the Commissioner (Appeals) it was contended that the adjudicating authority had failed to appreciate that the types of samples drawn were quality control samples, infestation samples and control samples drawn before completion of packing and used for testing of quality and that the goods were destroyed during the course of quality testing. It cannot be equated with consumption of samples after completion of manufacturing. Therefore the goods are not excisable. It was further urged that infestation samples and control samples were drawn after packing of the manufactured goods so that the samples could be identified for checking genuineness of complaint from the customer/Food and Drugs Adulteration administration. On the packing, batch number, manufacturing date/month and other relevant details were mentioned which was helpful in identification of sample in case of complaints. It was further urged that the three types of samples were not removed outside the factory but sent to Central Quality Control Laboratory situated within the factory premises and such samples got destroyed during the course of microbial testing and can not be marketed. Infestation samples are destroyed after 3 months by way of burning. There was no allegation in the show-cause notice about clearance of these type of samples to the market and no evidence has been adduced by department regarding clearance of infestation samples to the market. Therefore, not Excise duty is demandable on the goods which were destroyed and not sold in the market. It was further urged that as regards control samples, the shelf life was one year and control samples were preserved for the period of one year. Therefore, the same could not be marketed after completion of shelf life, which is barred by FDA Rules. The samples are destroyed by way of burning, as there is no clearance, no duty is demandable. It was further urged that the adjudicating authority have failed to properly interpret para-3.3 of Chapter 11 of CBECs Excise Manual of Supplementary Instructions, under which no duty is payable if samples are preserved in the factory for a certain period for investigation of complaints, if any. The intended procedure as per paragraph 3.2.2 of the said Manual was not applicable to the facts of the assessee's case. It was further urged that the adjudicating authority had erred in relying on the ruling of the Honble Apex Court in the case of ITC Ltd. Vs. CCE (supra) and had the failed to comprehend that the samples of the appellants are not marketable. The decision in ITC case had no application to the instant case because of the dis-similarity of circumstances of the two cases. That is, in the instant case the record of drawl of sample and destruction was maintained by the appellant's lab. Further it was urged that in Rule 10 of Central Excise Rules, 2002, there is no form prescribed for keeping the record/registers and therefore, private records maintained by the appellant in the quality assurance department, have to be treated as maintenance of records regarding samples. The allegation of non-maintenance of records is rendered untenable under the related Excise Rules. Further as regards penalty it was urged that the same is not imposable as disputed duty was paid with interest prior to be date of issue of show-cause notice.
4. The learned Commissioner (Appeals), observing that the appellant have paid the entire duty amount before the issue of show-cause notice and relying on the ruling in the case of Machino Montell (supra) held that no penalty and interest is chargeable. Accordingly allowing the appeal in part the differential duty was sustained and the demand of interest and penalty was set aside. Being aggrieved with the said order the appellant-assessee preferred appeal before this Tribunal against the confirmation of duty while the Revenue is in appeal challenging the dropping of penalty by the Commissioner (Appeals).
5. The Counsel for the appellant Mr. MP Baxi took me through the show-cause notice and points out from para 4 of the notice, wherein it is recorded that the assessee had maintained registers for such samples. It is further recorded in the notice based on the statement of the supervisor quality assurance department that samples are drawn for testing the various parameters like infestation, quality control, etc. There is a specific procedure for drawing of samples and the particular quantities of samples are drawn as control samples and for various investigations. The samples drawn were in finished form and were retained for different periods from the date of drawl and disposed off by way of destruction. As regards the infestation samples these are also drawn from the manufacturing line and after testing these are preserved for a period of three months. After the period these are disposed of by way of destruction. It is further urged that from the perusal of the show-cause notice it is evident that the whole demand has been calculated on the basis of the record of samples drawn and maintained by the assessee. It is further urged that only for the absence of a column mentioning the date of destruction of the sample, no adverse inference can be drawn without there being any finding as to clearance and/or sale of the samples or any of the products of the assessee. The matter was earlier heard in part and the assessee were directed to produce the records as maintained. In response thereto the learned Counsel has produced registers relating to the relevant period. From perusal of the registers it appears that proper data and records were maintained of the samples drawn for testing of infestation, control, microbial testing, etc. bearing the signature of the proper officer of the appellant-assessee. Accordingly the appellant prays that the impugned order be set aside in the interest of Justice.
6. The learned A.R. for the Revenue relies on the Order-in-Original and further states that the impugned order is correct so far the levy of duty is concerned and further states that the dropping of penalty is bad in law and the same ought to be paid restored.
7. Having considered the rival contentions, I find that that is no finding of any misstatement and/or contumacious conduct and/or suppression of the records by the appellant-assessee. Further, I find that proper records have been maintained of the drawal of samples in the usual course of business. Only for the sake of absence of the record for date of destruction of the sample, without there being any finding as to clearance or sale of any sample products by the assessee, no adverse inference can be drawn based on presumptions and assumptions. In this view of the matter, I set aside the impugned order. The appeal of the appellant-assessee is allowed and the appeal of the Revenue is dismissed. The appellant-assessee will be entitled to consequential benefit(s) in accordance with law.
(Pronounced in open Court) (Anil Choudhary) Member (Judicial) Sp 10