Custom, Excise & Service Tax Tribunal
Lg Electronics Pvt.Ltd vs Commissioner Of Central Excise, ... on 11 March, 2010
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.1
APPEAL NO.E/969/08-Mum
(Arising out of Order-in- Original No.17/CEX/2008 dtd.3.6.2008 passed by the Commissioner of Central Excise, Pune.III )
For approval and signature:
Honble Mr P.G.Chacko, Member(Judicial)
Honble Mr. P.Karthikeyan, Member(Technical)
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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?
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LG Electronics Pvt.Ltd.
:
Appellant
VS
Commissioner of Central Excise, Pune.III
Respondent
Appearance
Shri R.Nambirajan, advocate for Appellant
Shri H.L.Hangshing, Jt.CDR for the Respondent
CORAM:
Mr.P.G.Chacko, Member(Judicial)
Mr. P.Karthikeyan, Member(Technical)
Date of hearing:11/03/2010
Date of decision: 11/03/2010
ORDER NO.
Per : P.Karthikeyan
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. vs. UOI [2009(240) ELT 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. vs. CCE, Bihar [ 2005(183)ELT 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 vs Somaiya Organico Chem 2007(213) ELT 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 Lawkin vs CCE 2007 (218) ELT 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. vs State of Orissa [ 1978 (2) ELT J (159) (SC), 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 Sec.11AB of the Act. He submits that the penalty imposed under Rule 15(2) of CCR read with Sec.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 Sec.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 credit 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 input 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.
(Pronounced in court) P.Karthikeyan Member(Technical) P.G.Chacko Member(Judicial) pv 9