Custom, Excise & Service Tax Tribunal
Mirc Electronics vs Cce Thane I on 20 January, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPEAL NO. E/1351, 1352 and 1353/07 Mum
Arising out of Order-in-Original No. 05/MS-02/2007/Thane-I dated 14.8.2007 passed by the Commissioner of Central Excise, Thane I.
For approval and signature:
Shri. M.V. Ravindran, Member (Judicial)
Shri. P.K.Jain, 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 : No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Yes
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
MIRC Electronics
Shri Manish K. Desai
Shri Janarthanam Ramesh
:
Appellant
Versus
CCE Thane I
Respondent
Appearance Shri M.H. Patil, Advocate for appellant Shri Rakesh Goyal, Addl. Commissioner (A.R.) For Respondent CORAM:
Shri. M.V. Ravindran, Member (Judicial) Shri. P.K.Jain, Member (Technical) Date of Hearing : 24.12.2014 Date of Decision :20.01.2015 ORDER NO.
Per : M.V. Ravindran All these appeals are disposed of by a common order as they are raising the same question of law and arise out of same set of facts.
2. The relevant facts that arise for consideration are that during the visit of the premises of the main appellant M/s. MIRC Electronics it was noticed by the officers that appellant was importing various items like colour picture tubes, components and accessories and sending the same to the co-makers for manufacture of colour Television sets. While clearing the inputs from their factory premises, the assessee was doing so by raising an invoice on which they indicated reversal of Central Excise duty/CVD. It was noticed by the officers that the appellant having availed CENVAT Credit of Special Additional Duty (SAD) did not reverse the same while removing the components to their co-makers. The amount of SAD involved in this case was reversed by the appellant before the issuance of show-cause notice as also during the pendency of the matter. Show-cause notice was issued to the appellant for appropriation of the amounts paid by them and also for demand of interest and imposition of penalties. Adjudicating authority after following due process of law came to the conclusion that the main appellant as well as other appellants needs to be imposed with penalties and interest also needs to be demanded.
3. Learned Counsel after taking us through show-cause notice, order-in-original and the records would submit that the issue is due to dis-functioning of the computers software wherein the SAD duty was visualized and no provisions were made in system to catch this data and was not considered when the SAP programme were made. It is his submission that this non-indication of payment of SAD was detected by them on 30th May 2006. The said issue was taken up with their office; kept in touch with the software programmers who had installed the said programme in the appellants factory. He would submit that they had already noticed the issue the lacunae and has started paying duty by TR-6 challan. He would submit that there was no intention to evade duty as the appellant had paid duty of CVD which was accepted and is undisputed. The submission of the learned Counsel is that an identical issue on the same set of facts was decided by this Bench in the case of LG Electronics Pvt. Ltd. v. CCE Pune III 2010 (255) ELT 135 (Tri. Mumbai). It is his submission that the said order was carried in appeal of the Revenue to the Honble High Court and the same was dismissed as reported at 2014 (308) ELT A118 (Bom.). He would also draw our attention to the decision of this Tribunal in the case of Cosmo Films Ltd. v. CCE 2010 (251) ELT 130 (Tri. Mum) which was also considering the same issue but in respect of some other importers. He would submit that even this judgement of the Tribunal was carried in appeal by the Revenue and the same was dismissed by the Honble High Court on 28.07.2011. He produced the copies of the said judgement. It is also his submission that the entire exercise of the Revenue of demanding duty of SAD from the appellant would be revenue neutral as the appellants co-makers avail CENVAT Credit and discharged duty liability on the colour TV based upon the MRP of the main appellant i.e. MIRC Electronics. He would submit that matter of fact the amount in dispute in these appeals, the co-makers of the appellant had already availed CENVAT Credit paid by the appellant on supplementary invoices.
4. Learned Departmental Representative while drawing our attention to the very same e-mail correspondance between the Senior personnel of the main appellant would submit that when the main appellant was aware of the problem, they should have informed the department or approached the department for clarification. He would also submit that the appellants were aware of the problem hence there is suppression of fact with intention to evade duty. He would also submit that out of total demand, question of revenue neutrality would not arise atleast in respect of one of Rs.14,63,111/- which was in respect of inputs cleared to branches/service centers and there is no question of availment of CENVAT Credit by the said branches/Service Centers.
5. In rejoinder the learned Counsel would submit that the entire issue is of whether the appellant has suppressed any material fact with intention to evade duty. He would draw our attention to the confirmed demands on which he submits that as per Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944, penalties are imposed under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. His submission is that the provisions of Rule 14 of Cenvat Credit Rules, 2004 are not attracted in this case. He would submit that it is the ratio of the judgement of the Tribunal in the case of LG Electronics Pvt. Ltd. (supra).
6. Considered the submissions made at length by both the sides and perused the records.
7. The issue involved in this case whether the main appellant needs to be saddled with duty liability of an amount which is equivalent to the amount of CENVAT Credit availed by them on SAD on the components and parts imported and subsequently cleared to their co-makers for manufacture of colour T.V.
8. Undisputed facts are that the appellants are availing CENVAT Credit of CVD/Central Excise duty and SAD paid by them when they import the parts, components and accessories for manufacturing of Colour T.V. It is also undisputed that when the appellant cleared these parts, components and accessories to their co-makers they debited proportionate amount of CVD/Central Excise duty attributable to such parts, components and accessories. It is also undisputed that during the material period i.e. March 2005 to December 2006, appellant had not reversed SAD at the time of removal of the parts, components and accessories, but subsequently discharged the duty liability along with the interest.
9. We find that the show-cause notice invokes the provisions of Rule 14 of Cenvat Credit Rules, 2004 read with first proviso to Section 11A of Central Excise Act, 1944 for invoking the extended period for demanding the amount which is equivalent to an amount of SAD on the parts and components cleared to the co-makers. It is noted from the records the appellants were aware of the computer software glitch which did not indicate the reversal of SAD paid on the parts, components and accessories when they were cleared from the factory premises to their co-makers. The argument put forth by the learned Counsel is that there was no intention to evade duty merits acceptance as appellant has discharged CVD/Central Excise duty on the parts, components and accessories cleared to the co-makers; non-reversal of SAD in our view cannot be with intention to evade duty on such components, in the facts and circumstances of this case, as the appellant had discharged the appropriate duty liability of CVD/Central Excise duty; the argument put forth by the learned A.R. that when the appellants were aware of the software problem in May 2006 they should have approached the department, will not carry the case any further, as it is on record that main appellant was trying to resolve the glitch of the computer software programme. In these facts, it cannot be held that there was suppression of facts within intention to evade non-payment of SAD.
9.1. We find that the reliance placed on the case of LG Electronics Pvt. Ltd. (supra) is correct. On reading of the entire case as reported we find that the facts are identical to the facts and issue in hand. It is noted that in the case of LG Electronics Pvt. Ltd. (supra) the demand was raised under the same proviso i.e. Rule 14 of Cenvat Credit Rules, 2004 read with the provisions of Section 11A(I) of the Central Excise Act, 1944 invoking extended period by alleging suppression of facts with intention to evade duty. It would be correct on our part to reproduce the entire judgement of the Tribunal which is as under:-
The appellants M/s. L.G. Electronics Pvt. Ltd. are engaged in the manufacture of colour television sets (CTVs). They import various electronic components for the purpose. On import of these inputs, the appellants pay duties of Customs including CVD and SAD leviable under Sec. 3 of the Customs Tariff Act, 1975. These inputs are removed to job workers/ancillary units by reversing CVD and SAD paid at the time of import and availed by the assessee in their CENVAT account. During the period March 2006 to September, 2006, the appellants short reversed SAD of Rs. 2,12,40,288/- on clearances of the imported inputs to ancillary units for manufacture of PCBs. The authorities had tentatively concluded that the assessee had knowingly short paid such SAD on components. After due process of law, the Commissioner demanded an amount of Rs. 2,12,40,288/- alongwith applicable interest invoking provisions of Rule 14 of the Cenvat Credit Rules, 2004 (CCR) read with Section 11A(1) of the Central Excise Act (the Act). An amount of Rs. 5,20,632/- was confirmed towards the interest leviable under Section 11AB of the Act. Equal amount of penalty as the amount of duty demanded was imposed on the appellants under Rule 15(2) of the CCR read with Sec. 11AC of the Act.
2.?In the appeal filed before us and during the hearing, it is submitted that the assessee was using a software for computation of duty liability to be discharged at the time of removal of components for making PCBs and that this software had been programmed when the components in question did not attract SAD. With effect from 1-3-06 the exemption from SAD to the components in question was withdrawn; the assessee, however, failed to suitably update the software in time. In these circumstances, during the material period, the appellants happened to remove the components without paying SAD at the rate of 4% adv. paid on import and availed as credit. On the department pointing out the mistake in September 2006, the assessee made good the short payment. The show-cause notice basic to the proceedings was issued in December, 2007. The appellants submitted that the credit of SAD relatable to electronic components removed during the material period was never utilized and they always had credit in excess of Rs. 2.12 crores in their CENVAT account during the material period. This showed that the appellants did not have the intention to avail CENVAT credit wrongly. Therefore, the demand of interest and imposition of penalty were not justified. In support of the claim that in the facts of the case, interest was not leviable, the appellants relied on the judgment of the Punjab & Haryana High Court in the case of Ind-Swift Laboratories Ltd. v. UOI [2009 (240) E.L.T. 328 (P & H)]. In the said judgment, the Honble High Court had held that when the credit availed remained an entry in the CENVAT account of the assessee and was not used, the Revenue had no case to demand interest. As regards the penalty imposed, it is submitted that it was open to the assessee to follow the procedure prescribed in Rule 4(5)(a) of the CCR which provided for removing the inputs without payment of duty to a job worker and get intermediate product manufactured using such inputs. The appellants also relied on the judgment of the Apex Court in the case of International Auto Ltd. v. CCE, Bihar [2005 (183) E.L.T. 239 (S.C.)] wherein the appellant, a job worker, had not correctly computed the assessable value of the job worked goods and had short paid duty on clearances of such goods to principal manufacturer. The Apex Court held that the job worker was not liable to pay the duty short paid since the duty liability on the final product was discharged and since credit of duty paid on intermediate products could be availed for the same. In that case, the principal manufacturer and the job worker had not followed the procedure prescribed for removal of inputs to job worker and receive back the impugned goods manufactured by the job worker without payment of duty. It is submitted that the appellants had no reason to resort to evasion of payment of SAD, as it was open to it to remove inputs as such without payment of duty and to get the PCBs manufactured by job workers. It was a case of inadvertent omission and the penalty imposed on them was not sustainable.
2.1?The impugned demand was a revenue-neutral exercise since the principal manufacturer was entitled to take credit of the duty paid on the intermediate products. Therefore, short payment of duty on inputs at the time of their removal to job worker and the job worker not paying the full duty due was of no consequence. The appellants relied on the decision of the Tribunal in the case of CCE v Somaiya Organo Chem. - 2007 (213) E.L.T. 130 (Tri.-Mum.) wherein the Tribunal had rejected an appeal of the department contesting an order of the Commissioner (A) holding that movement of minimal inputs to job worker without reversing credit for mixing it with ethyl alcohol to prepare denatured alcohol, eventually cleared by the appellants, was covered by the Rule 57F(3). The Tribunal had rejected the appeal filed by the revenue on the ground of revenue-neutrality. This was also the ratio of Lawkim v. CCE - 2007 (218) E.L.T. 142 (T).
3.?The appellants had short paid the duty involved by inadvertence; no penalty could be imposed in the absence of deliberate defiance of law. They relied on the judgment of the apex court in the case of Hindustan Steel Ltd. v State of Orissa [1978 (2) E.L.T. (J159) (S.C.)], among several case laws cited in support.
3.1?We also heard the ld. D.R. who submits that undisputedly, the appellants had removed credit availed inputs without reversing an amount equal to the credit availed. They were removed under Rule 3(5) of CCR. The demand of credit was made under Rule 14 read with Sec. 11A and the interest in terms of Section 11AB of the Act. He submits that the penalty imposed under Rule 15(2) of CCR read with Section 11AC of the Act was in accordance with law. He submits that the impugned order deserves to be sustained.
4.?We have carefully perused the case records and considered the rival submissions. We find that in the instant case, the appellants imported electronic components required for the manufacture of PCBs for manufacture of C.T.Vs. On import of such components, the assessee had taken the credit of CVD and SAD paid, in their CENVAT account. During the material period they removed such inputs for getting the PCBs manufactured for further manufacture of C.T.Vs. We find that the appellants had short reversed the impugned credit and the same remained in their CENVAT account. They reversed the same before issue of the show-cause notice. Had the amount been correctly reversed, the job worker could have taken credit of it to pay duty on PCBs; the duty paid on PCBs was available to appellants as credit. Therefore, we find that the appellants had not short reversed the impugned credit with an intention to evade payment of appropriate duty on CTVs. Therefore, demand of duty invoking larger period would be barred by limitation. In such a case demand of interest and penalty would not be sustainable. The case laws cited by the assessee have decided similar disputes in favour of the assessee. The assessee had not utilized the credit short reversed; it did not incur liability to pay interest.
4.1?From the impugned order, we find that the demand of credit to the tune of Rs. 2,12,40,288/- has been confirmed under Rule 14 of CCR; penalty has been imposed under Rule 15(2) of CCR read with Section 11AC of the Act. Rules 14 and 15 of CCR are reproduced hereunder :
Rule 14 - Recovery of CENVAT credit wrongly taken or erroneously refunded. - Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output, service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.
Rule 15. Confiscation and penalty. - (1) If any person, takes CENVAT credit in respect of input or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said input or capital goods has been paid as indicated in the document accompanying the input or capital goods specified in rule 9, or contravenes any of the provisions of these rules in respect of any input or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or ten thousand rupees, whichever is greater.
(2). In a case, where the CENVAT credit in respect of input or capital goods has been taken or utilized wrongly on account of fraud, wilful misstatement, collusion or suppression of facts, or contravention of any of the provisions of the Excise Act or the rules made thereunder with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act. 4.2?We find that the appellants had not taken or utilized cenvat credits wrongly to attract the provisions of Rules 14 or 15 of CCR invoked by the Commissioner. The appellants had not paid the SAD component of the credit availed on import of components at the time of their removal for manufacture of PCBs. We find that the show cause notice had invoked wrong provisions to recover the short paid SAD. The impugned order confirmed the proposal to demand irregular Cenvat credit taken by the assessee. The amount involved is not irregular credit nor so utilized. We find that the demand of duty of Rs. 2,12,40,288/- and penalty imposed are not in accordance with law, since the same has been ordered invoking inapplicable provisions. We vacate the demand of so called irregular Cenvat credit availed by the assessee. Consequently, demand of interest also stands vacated.
5.?The Commissioner has imposed penalty on the appellants invoking Rule 15(2) of the CCR. These provisions apply to a case where an assessee takes cenvat credit in respect of inputs or capital goods wrongly and such inputs or capital goods become liable to confiscation and the person who takes such CENVAT credit incurs liability to penalty. Rule 15(2) of CCR invoked in the proceedings is applicable only in a case where irregular credit is taken or utilized by an assessee in respect of inputs or capital goods wrongly on account of fraud, willful mis-satement, collusion or suppression of facts, or contravention of any of the provisions of the Excise Act or the rules made thereunder with intention to evade payment of duty. We do not find that these provisions are applicable in this case. The impugned order does not find that any inputs or capital goods had been rendered liable to confiscation by the assessee on account of its taking cenvat credit wrongly on account of fraud, willful mis-statement etc. The liability involved in this case relates to credit of SAD which the assessee had not reversed on clearances of inputs violating provisions of Rule 3(5) of CCR during the material period. In the circumstances, we find that the provisions invoked for imposing penalty are also not legally correct. We therefore, vacate the penalty imposed on the appellants. In the result the appeal filed by M/s. L.G. Electronics Pvt. Ltd. is allowed. Revenue aggrieved by the said order of the Tribunal preferred Central Excise Appeal No. 108/2012 before the Honble High Court. The Honble High Court has upheld the findings of the Tribunal and dismissed the appeal filed by the Revenue. The ratio as has been laid down in the case of LG Electronics Pvt. Ltd. (supra) has been upheld by the jurisdiction High Court is binding on this bench in an identical issue. It is already stated that the issue involved in the case of LG Electronics Pvt. Ltd. (supra) being identical to the case in hand, following the judgement of jurisdiction high court it has to be held that the impugned order is unsustainable.
9.2. In yet another case of Cosmo Films Ltd (supra), the same issue of non-discharge of 4% of CVD was in dispute. The assessee in that case has pleaded that the mistake was bonafide and credit was available to the sister unit hence the issue is of revenue neutral situation. The Tribunal accepting the bonafide plea as also revenue neutral situation, set aside the penalties imposed on the appellant therein. In the case in hand, are of issue argued is regarding the revenue neutral situation which we find has strong force. Since there is revenue neutral situation, there cannot be any intention to evade duty and most specifically when the appellant has discharged CVD/Central Excise duty on parts, components and accessories on clearance.
10. In view of the judicial pronouncements and foregoing the impugned order is unsustainable and is liable to be set aside. The impugned order is set aside and the appeals are allowed.
(Pronounced in Court on ) (P.K.Jain) Member (Technical) (M.V. Ravindran) Member (Judicial) nsk ??
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