Karnataka High Court
M/S Karnataka Soaps And Detergents Ltd vs Commissioner Of Central Excise on 26 February, 2010
Bench: K.L.Manjunath, Aravind Kumar
IN THE HIGH COURT OF KARNATAKA. BANGALORE DATED THIS THE 26'?" DAY ore' FEBRUARY, PRESENT %"'" TI-IE HON'BLE MR. JUSTICE K.L.MANJU§:'TAT3%IV' -T ' AND THE I-ION'BLE MR. JUSTICE CEA No.11/2006VC/w 2.3)'*2b05» _~_ "- = x L CEA NO. I 1[2006 BETWEEN : M / s. Karnataka S0aps--aVm'(f1 Sandalwood Oi].vDiVisi0I1*,~». ' - '_ AV Mysore--5'/"'0 Appellant [By Srjf and Sri; sr:ahar;41;..%%<Advs,A)"M ~ AND: Commissioner Of C3€I.1t~ra] Excise, % s1 8: Vinay Marga, ":2 S_idd.art~J:1a N " A .. Respondent 4 fi-I_3y S1fi, Rdghéwfehdra B. Anaji for Sri. N. R. Bhaskar, Adv.) :»-5.231%' 2005 R\ g,/' paid, vide CIR6 Challan dated 19.12.2003, should not be appropriated under the provisions of Section IIAA/MAB of the Central Excise Act, 1944; 'V (C) Penalty should not be irnposeci »-on f V' under the provisions of Section'--.A1 "izhe Central Excise Act, 1944; ancl V i i (d) Penalty should not_ be imposed"-~_,on itheni under Rule 25/25' me {,'eri'irf§alp:"Excise Rules 2002. 5. On g,fi'iV,'?e¢i1:.,by' the assessee, Order in Original 11/2004, whereunder the demandyvyifoifl Excise duty in a sum of Rs. 2,52,45,2(58i/K?" devmeindeid in show cause notice Came to itiieiiiiriterest amount of Rs. 51,37,513/W, which. éirnouriVt's.vde"r:ia?nded in show cause notice Came to be However,' tléedipenalty proceedings came to be dropped ' W QI:C1t31'zd8.;t€(31 30/ 1 1/ .'2004{Annexure-M). G%"" 11 Central Excise Bangalore issued a show cause notice dtd. 03/12 / 2004 to the assessee proposing to disallow and recover the Cenvat credit of Rs.2,52,27,0'74/-- avai1ed..Vo-nlgthe basis of the supplementary invoices issued . unit on the ground that it was irregul_arly__ availed 0" 7 [1)[b) of Cenvat Credit Rules 2002 :'(;4'xn1:j1e;<:t1fe~ePa}i. show cause notice reads as it A 0 d it (1') the cenvat credit_.... to Rs. 2,52,27',O74/~---._ (Rsupeesg Crores Fifty Two Lakhs"'Tl'wentyf';*.S;eueer: Tlhogusand and Seventy Fourj_only} vwrongly tejvailed by them on.:'the Off-s_upp'iernentary invoices" {as 'V detailed the'--~V'annexure} --KSD.lj,;..__ "Mysore, along with interest 'i:.le;2iabie«.. thereon should not be demsanded j3%tom"'the-m uhoief the provisions of Ruled of"200._2"R_uIes; read with Section 11 A/I1. AB. of__.Centra1 Excise Act, 194%. it . 0 . ED " p3éf;al'tyé_ not be imposed on them ' gu::1oie'rkR'ule I3 of the 2002 Rules read with 'Sec'tio11.'}ll.Ev"AC of the said Act. On Vlreceiving the reply to the show cause notice, to be adjudicated and the demand made in the @{/0,- 12 show cause notice was confirmed and the Cenvat credit availed by assessee was ordered to be recovered arnodntjng to Rs. 2,52,27,074/- together with interest by its 25/02/2005 (AI1neXure--C). 9. The Tribunal on considering accepted the argument of the asisesseeh in' the' demand made by the Cen'trai'V: Excise, Bangalore and set aside No. dated. 25/02/2005 pass§ed'L]o_y V:VCentra1 Excise. Bangalore. Order in Original of the Excise, Mysore dated 10/ 12/200-48' CEA. by the assessee assailing the order gpaspsedu in Appeal No. E/ 248/ 2005 [1~";ina1'ord'e'r 35522005) fiiaiéd 01/06/2005 and CEA 23/2005 is tReriex§fnéVv'vassai1ing the order of CESTAT passed in 1\§-o.E_/2?;//A2005 (Final Order No.856/2005 dated ' ' " fir" 10. it is seen from the order sheet of CEA. 23/2005 dated. 24/03/2006 that it was ordered. to be posted __along with CEA. 11/2006. On 08/08/2006 both the CEA 23/ 2005 and CEA. 11/2006 were submitted by the appellant assessee l-I'r'I' kl appeal had been filed against the order of CESTAT. As per the oraetijsheethlhixx. it 6 is seen that both the r'iPPea1sl""haifeV/b.een hladxriiytted on .13 07/11/2006. 11. The quest£s3:1S1._,)f the appeals are as follows-- CEA 23gg_(>_qr_,_e;tVw"v " 1. W3'".ether'u"tl1e' lwas right in coming Vtofiavccartclusion,that prohibition under Rule 6 _ rUtt{7b,'slt;'now Rule 9 {1} (22) of the CENVAT ' 'Cred_£t"R_f'tsles_ will not be applicable to the . ;fa(:ts.of tant case? 2. at Bangalore ./sitpplementary Mysore Unit, by concluding that Rule 7 {I} Whetheru the Tribunal was right in upholcling the CENVAT Credit taken by the Unit, based on the invoice raised by the 14 (b) is not applicable, especially in the view of the fact that if prohibition under Rule 7 (1) {b} is not applicable then the provisions of the Rule itself ceases to be applicable? 3. Whether the Tribunal was right in passingvylll g the impugned order by relying on decisio_ns._ ' which are under challenge ..be_fore_7 thefj. ' Hon'ble Supreme Court? CEA. No. 11/2006 : 1. Whether the Tribunal in it to a conclusion that theyyr-appellant would have had the intention to evVacl_e,p'ayment of duty when the entire d.uiy' p_aia'2by--,the appellant was avaikible. to the appellants lh€TTLS€lU€S*,G«S. C'enva_ts credit' "at: their Bangazorgubyfagrory? ' 2. Whether""th"e ;'1;':'ribunal_l'was__vrigl1t in coming to the con¢lusii)¢n that the non revision of they u--a'iue'"fof ' .sancialwood oil stock aansferred' to" ..Bangyalor"e was a serious lapse indicating therejis intention to evade payment.' of duty when the Tribunal itself corrie to'-'a____c_o;1clusion that looking in V the ltotalisiy of the circumstances, there was ' "no revenue' loss to the exchequer especially . '«.l'whe.nT-«.,Vthevfieniire quantity of finished W products has been cleared under Section "-4A on -the basis of Maximum Retail Price which would have taken into account the A. , manufacturing cost of the sandalwood oil'? ex 3.5 3. I/Vhether the Tribunal, in the above facts and circumstances, was right in upholding the order of the lower authority invoking the longer period of limitation under .« Section 11A{1) of the Central Excise Act l V 1944 when the law on this issue has been" settled by numerous decisions of Supreme Court? l V 4. Whether the Tribunal was . the impugned order by ignoring the law settled on this issue by var'io.us decisions ' of the Hon'ble Supreme Court?' " 12. We have heard S:?niyadas:',"iIearned counsel appearing for the assesses-"ands learned counsel appearing..Qn5:loehalfSril ijI'~llRl.:l"Blhaskar {standing counsel] for thietVre'iteiii::I€;3 --. jj ' 11 [2006 13. As rigiitiy by the learned counsel for the RevenueV_»"andlA' as obseryed by us in preceding paragraph No';-1LO,;lthisg is filed only against finding in para 9 of raises only question for our .._f_eonsiderationt':. in this appeal Viz., regarding invoking of period of Limitation i.e., question No.3 formulated in a/ '16 CEA No. 1 1/ 2006 and accordingly substantial question of law No.3 formulated herein above is considered and answered by us. It is contended by Sri. Shivdas, learned counsel for Assessee that assessee is a State Government Undertalring, whose accounts are audited by . including a statutory audit by the Accountant' " contended that there was no intention "'o.f:l duty and it was contended that"a_ssessee'- construction method of valuation:'traininghthesandalwood oil and the method of the journal vouchers was adopteid vonly_"for'accoun!:ing purpose and book adjustmentlvleach the accounts was kept open for perusal .Otficers" department and the audit parties not ob's«e_rV_ed any deficiency or suppression at o_f_the internal audit wing noticed there has igbeen df facts relating to actual cost of production final p1'old;ucts and that they have not evaded duty ':~.'_:i11téntion'a};.1y. It is further contended by Sri. Shivadas that ex' 24 passed in Appeal No.E/277/2005 (Find order No.856/2005, dated 01.06.2005) whereunder CESTAT has ciisrnissed the appeal filed by the revenue. He would submit that duty has been paid by the assessee and duty factory of the same manufacturer would"b'e4ava.ilable'V:as to another unit of same rnanufacturerl'_vvhich_gcanno't:_ denied to the assessee. He would"'ves:ubmit. is paid at Mysore Unit on. was transferred to Bangalore available as CENVAT credit to Unit. He would elaborate his that when Rule 7(l)(b) itself is 'the prohibition stipulated thereunder applicable and particularly when therelbar supplementary invoice. On these grouindishe sAuppofts_the order of the Tribunal and prays for filed by the Revenue and prays that _l-quesytion oilavv be answered in favour of the assessee and .V ': ._'agAai~r?.'1st revenue. 28 reason of fraud, collusion or any Lviyul rnis~ 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, by such person or_jh'is " agent, the provisions of this sub-section H have effect, {as Q') for the words (one year},« ~ words 'jive years" were substiiu:te"d."~. A Explanation. ~»~ Where the serviceaof notiee''Ls : it stayed by an order of a Court,..__ the period ofvsuc-h_, stay shall be excluded "i.n"'V-.,conzpu.tirig. the aforesaid period of {one yea.r_}__"or jive ye'a.rs,_ the case may be. * _ ' " " (1 {A} When any duty of excise jjnoii. been levied or paid or hasibeenfshorteleviedl"or short paid or erroric=0u'sly ==.refurided,'* ..by.__..fieason of fraud, collusion 5jo:_r:_ any wyilfizl [misstatement or suppression offacts, .or--fij;ont:fcivention of any of the provisions" this" Act" orwthe rules made thereunder"eujith 7ini'en't...,'to evade payment of duty, by 'agent, to whom a notice isserved _ur:.der"t.h'e4 proviso to subsection {1} by thé"Cen.VtraZ_ Officer, may pay duty in full. or in part may be accepted by him, and the fljiterest payable thereon under section 1 IAB A" '-.and..penalty,_equal"to twenty--five percent. Of the .duty_ s.',pec§f1;ed__ in the notice or the duty so .acc_epted»-..'by person within thirty days of the recei'pt".of the notice.) (2) {cefitrciz Excise Officer} shall, after xi,j'~.__V"considering the representation, if any, made by _ ' the person on whom notice is served under sub- _ 'section (1), determine the amount of duty of @/ 32 exported out of India or on excisable materials used in the manufacture of goods which are exported out of India; {it} "relevant date" means,--- (a) in the case of excisablev-g'ood«s on wh._ich_ V duty of excise has not been levied or paid or has been short--levied or sh__or't_~paz'd . 2 (A) where under thetrules rruzder-ur'.1der this Act a periodical A returni showing particularsjé of ._ A the duty paid on-. iesccisable goods removed during the' periodjV~to_'..which the-said return: relates, bejiled by :yI'a-nartufacturery or." 'a. prod ucer or it licer:.see' _of.,a warehouse, as the case niay'"=be."the date on which ____ _. A s_ ucl*i:;,F.e?turi L. so-filed; (B) wtnereyli periodical return as " Vafo.resaid""is.jiled, the last date on L€?_uCh.?" return is to be filed at under the said rules; {Cfin other case, the date on the duty is to be paid under A Act or the rules made ' ' X1' thereunder; ibjlign a case where duty of excise is "provisionally assessed under this Act or the rules made thereunder, the date of E LA.) L11 shortrlevy by reason of fraud, collusion or any willful misstatement or suppressiorrof facts or contravention of any proVisions._"'of the Act or of the Customs Act. ~ rules made thereunder with intent.A).:t:0y Veyiade " payment of duty. FINDINGS CEA.II[2006 20. The issue viz., the sutistantial of law raised in CEA. 11/2006 "~-fi;<.sf~isince the issue regarding invoking the longer.i.period~~._Qf.l'1irni.iation has been raised in the reads as under; 'A'"fWhetherft!de'-.i'r£bunal in the above faots eirca*.fii1s'fances, was right in A' order of the lower _' 1-a;uthoritiy~«.i_nvoking the longer period of , 11-A11) of the Central 1944, when the law on this E. has been settled on the numerous ' 2 » it 'decisions of the Supreme Court?" 40 25. During the year 2000~Ol the Assessee--1\/Iysore unit had undertaken to pay duty on sandalwood oil as andlylvhpen removed from their factory by adopting the _ determination on the basis of cost production " = Central Excise Evaluation Rules, 2000.,' Tlie:A4sses.s'ee}'iJ[yso:fe unit during the course of audit'andVitinye-stigation..._by..'3 the department obtained the cost «.g;ertificates in accordance with the boards., 13/ 02/ 2003 bearing No. 692/8// of production of sandalwood to 2003~O4 [upto November 'lealculated and determined the amountiiof the said revised cost sheet amounting to and the said short levy has Subsequent to the payment, the assevssee" lementa invoices indicatin the 'id_ifferential duty. In terms of sec. 11AA and of Central Excise Act, 1944 interest on the amount determined at Rs. 2,52,45,268/~ in an amount 4 .1. of Rs. 51,37,513/- was demanded which 3.150 came to be remitted by the assessee. The Board Circular dated I3--2~«2003 reads as under: Circular No. 692/O8/2OO3:CXV.. in 13th Febritanjy, 2uoo3»' F. No. 6/29/2002-cX.'I. _ _ Government ofindia Ministry of Finance and Company Affair-s_ 0' " Department of Reve'nue _ " 0 0 I Sut;y'ect:~ Valuation' _ "~-.._'*capt_ively consumed. ; ' . I am d-irected.';'.to"s.aythat introduction of Central Valuiafionli'(Determination of Priee_ of E3-.:{:isable__ lgoodsj. Rules, 2000, uJ.e.f.A"1§7.2C'00,-_'it_ was clarified by the Board L'videiCiJ_"vCLil€IIT\_NO. 354 /81 /2000wTRU dated' '30}~06A2000_ "(para 21; that for valuingl . goods 0' '«,u)hich are captively . consurned,' the General principles of costinq 'iaiizould be ddopted for applying Rule 8. The ' _ Board interacted with the Institute of . -. . Costa 'Works Accountant of India {ICWAD jor.de.i>eloping costing standards for costing of captively consumed goods. 'V._y{2) 0 Institute of Cost & Works Accountants .. of "India [ICWAI] has since developed the _ '(Cost Accounting Standards, CAS 2, 3 and 0' "4, on capacity determination, overheads & I3) (4) (5) {6} (71 ' y '-- ' V 'Vv_ClCI§iF1Q'uql€dged. 42 cost of production for captive consumption, respectively, which were released by the Chairman, CBED on 23.1.2003. It is, therefore, clarified that cost of". production of captively consumeciff-,f--._ goods will henceforth be done striet'Iy«. _ in accordance with CAS-4. Copt'es.__of ' l - CAS-4 may be obtained from the-" Chapter of ICWAI. {Emphasis supplied . Boards Circular No. 253/92/ 96éCX"'ddted 30.10.96, may be deer_r_;_edv..toVV_vbe modgfiedfi accordingly so 'far it frelates if to deterniination of costh } p'raa;.m:on for captively consutT1ed'gocéis.f ' This notice of the . Suitablel may be issued for the benejit.Vof--they_ 'Hindiiiue-rsion follow. of these instructions may be the Q a.bove_ cifc1;i:1ar the Revenue has clarified its earlier . syycirctsiyar dated"30«10--1996 which reads as under: Circular No. 258/ 92/ 96-CX 43 Dated. 30/ 10/96 F. No. 6/28/94-CX.1 Government of India Ministry of Finance Department of Revenue _ Central Board of Excise and Customs, New"- Delhi _ " Subject: Assessable Value in the 1'_"ca;se'~of' A Goods captiuely consumed Addition of Profit , V' ' I am directed to refer"to'-~.instr'ticfion3': contained in Boards letter Nose of/54../so-cX.1 dated 6.12.80, Circular F.' 6/2.2/8.5-cX.1 dated 1 1 .3. 86 and IssueV'fA7VVof_Sect:'on '3.?B"order No. 24/ 1 4/93. fdotedj 31 ; 93f}.reg'aJ':dir1g the method to h followed _.for" determining assessable voilae» goods"~~capttz§elg' consumed. The Board _tn:i_its order rooted 33.12.93 issued under ,seeti.on. has. clat"'*"te*d that for the purpose of "a::=Vsessmefn't.,__ of j goods captively consumed.' value s'houEd"'be" arrived at by adding previous' 2;./ear's*~.g'ros.S 'profit, Q" any, of the assessee per th'etr"au'.dited balance sheets. 'evSu.bse'q::iently, a doubt has been raised as "to 'é')_hI'Ch:fp.r0fit'w2;bhether "Gross Profit" (Le. profit before depreciation & taxation) or "Profit before tax"---or other profit has to be taken into r__consiaera.tion for determination of assessable .,val:J.__e of the goods captively consumed. Another ._ has also been raised whether the present _ method of determining profit margin as a W" 44 percentage with reference to sales turnover and loading the profit margin of the preceding year to the cost of production of the present year to arrive at the assessable value are to be" continued. 3. The matter has been further examined consultation with the Cost Accounts Branch.ifqf i Department of Expenditure. Boardwhas observed V that the method of calculation provided 'under Rule 6(b) (ii) of the Central excts_e"'(_Valuat-ion} = Rules, 1975 is to ascertain the equivalent of the normal price,'"Therejbre;'-uihile determining the cost of prod_uction,»of captively? consumed goods during the curjren't._ year, all elements which are ""-oltherwise "'i--n"cludible in Section 4(1) (a) price have _tc'fbe: in the Cost 0fProductiOn,- V. I .. It is herebgq clarifieclti t_h'at'for calculation of value of-«Vithe~Vi_goods_ cap-tive'tg...c.onsun1ed under rule 6 (b) _ ll(iiJ_--. the, follo«Lving_* steps are to be followed:-" s (i) cost of production of the goods " to be determined so as to .__include- ---- inter alia, the cost of _ _rnaterial, labour cost and " fovgerheads including ...,_adrriinist1"ative cost, advertising gt' siexpenses, depreciation, interest 'etc. ('iiV)°1- Profit before tax has to be taken from audited balance sheet of the previous year and the profit margin has to be calculated as a um' 45 percentage of cost of production in the previous year as per the formula prescribed by the Cost Accounts Branch of Department of Expenditure (copy enclosed}. {iii} The profit margin of the previous" year as arrived at step {iij percentage of cost c;j"'p'rodui:tion ' has to be loaded to=__the..scfos'ti_ofl V l production of the irnpugnedlgoods " derived at {I} above for the current year to arrive at'-.the, assessable val/lifile of captivety__ -.cons'um,evd ll? goods. C.A. certificate and :los~s"'ajnd'_'_. profit statement should be scrutinised "»carefulli}, in the light of these"'g_u.1'dei=ines--~~andA."shoul(}l not be accepted b_lindly5or--;'autorna.,ticailg(.V . 4. egféiier 4 circular) instructions as mentioned éabovefstandl' to this extent. Sd/- ~ (s.c. Bhatia} E____(U.nder Sec..retary to the Govt. of India} Annexure fclaifilcation has been sought whether gross pfrofitor gross profit before tax has to be ,_ if <._taken'~ 'into consideration for determination of as.sessable--value under Rule 6(b) {ii} of Central _ "7_e.».ccise Rules, 1975. It is clarified that for the purpose of assessable value, profit before tax 46 should be considered. "Profit before" is, invariably, a distinct item appearing in the Profit & Loss Account of companies. Profit before tax is arrived at after providing for interest and depreciation. Therefore, cost of production of the captively consumed goods will also include;'~.l;"-«4_'l'- applicable interest, depreciation etc. 2. As regard the methodology of determinlirig ' 'A percentage of profit with referencemto' sale-'of "t'h7e . previous year and applying it is-"to the cost production of the present year {ivhich presen'tly' in vogue}, the existing jriethodology yniayvh' 1 continue. 3. It is clarified that profit...before_, taxi' shouldii be related to the net_-sales" {total sales minus Excise Duty). Further, ; pr*'v_fi;t 'L penfenioge so computed should be adjusted ; for its.Vapplication on the cost of production Vof:th,e're-levarit year as under:- I 1'} net Excise Duty} . ._ -=Rs.100 (ii) {Profit before" tax @ 20% on sales in previous year. ..... .. v ~. . . =29/" iiiil" =.Th.erefore,--_ cost of production [Sales- P"Qfi:t!_ * " m80/- 4 {iv} profit before tax as percentage of cost of production ----"= 20/80 x 100 or 25% s 417 Thus profit before tax which is 20% on sale = 25% on cost of production. In the same way for any other percentage on net sales, the corresponding percentage on cost can be worked out on the above steps. " ' Sd/"'..'-:_:" r- {A.K. Gau_tam,l_ 1:». p ' Joint Director '_(CAos_t,l _ V' ~ . 26. Though Sri. Shivadas,_ for the assessee would agree tha't:T'while. adoptihtlglithe cost construction method of v'aluati_on',_" :a.s.sjessee had" adopted lesser cost of production and on the lower assessable value in" a.q,__muc=h asrther xralueof the sandalwood oil fixed for subsequent period which' was unintentional and by oversight till from Superintendent and the rnetho-d-of valuation of oil was Worked out forhllndiorr Australian variety only for the purpose balance 'he would also vehemently submit that Vouchers were prepared at Mysore Unit showing the it 44:'-'differ'er1e_e'. Values between the value adopted for payment of a«/ 48 duty on sandalwood oil and the actual Value sent to Bangalore unit and this procedure was adopted only for accounting purposes and book adjustment each year andrall these records having been kept open for perusal of of department and audit parties and hence, held to be suppression of facts relatingépto production of final products and»i"t-hey haste intentionally. 27. Sec. 4(1) (a) of the Act prescribes I that assessable shall ..,_..tTrfansaction value pertaining to each"..proV_':'ded goods are sold at the time of place' of rerrio{?al" and assessee are not related and 'price sole consideration for such sale. This situationvllldoésg not, arise in the instant case. In respect of other" the goods are not sold the VVTr_assessabl.e value' 'shall be determined as per Valuation Rules, ascontemplated u/Sec. 4(1) (b). In the instant case it £o'un'd'thAat sandalwood oil is transferred to Bangalore unit, a» 49 where it is used for manufacture of soaps. Thus, there is no sale of goods and thus Sec. 4(1) {b} is applicable to the facts of the present case together with Valuation Rules, assessee has removed excisable goods on stock tra:;'Isfer~b:asi_s for capitive consumption and the appropriate would be Rule 8 of Valuation Rules 2090. the value shall be 115% of cost of V or manufacture of goods. The issued by the Board makes it even if identical or comparable goods h-aye sold by the same assessee;Vth:ey:.as'sessableVlixfaluefl capitively consumed goods shall the cost of manufacture of goods. l l' A the assessee first adopted assessablevaléuelatf:Rs. 6,589/~ per kg. during the year 2000» for of sandal wood oil to their Bangalore While thvefactual rate was much more. Though assessee by way of sale of sandalwood oil to third parties 50 at a much higher rate they had not increased cost of production of Sandalwood oil so cleared to Bangalore'.:.:lJn_it, despite the cost of production having gone up _ was aware and the fact of increase '* brought to the notice of department it AfoV:jh'a\7*e.:f Though cost of procurement of sairdalvrood 2001-02 itself which in effect cost of production of sandalwood "if '4th,l§"..:'pfvassessee did not adopt the method i.e_i,* actual' for clearance to Bangalore the value of Sar1da1wood_,oil.,, Value for sale to 'independent7buye1s Rule 6 of Central Excise Rules prescribes-..the assess the duty payable on ariy. goodwshlbefore its removal from the factory of man«.u'fact'u»re'.v...Rule' of the Valuation Rules would be. 'ii?'*--..applicable"is disputed. The assessable value had to for the purpose of payment of duty on the fl~basisj"_o.f:p_yalue of Sandaiwood oil. It was found by the r 5] Assessing Officer that sandalwood oil being produced from the natural product of sandalwood and given its limited availability due to restrictions imposed by the State_'4for-.lsal'eV. there is bound to be increase in the price from i'toVlf'year..:' V' and even otherwise any commercial 2 costlier by specified margin from year tolyearz. . if 29. It is to be noticed by uslllfriojrn by the Officers of the respfonde.n.tg§_ that the assessable value adopted for of duty by the assessee was a:ccord'ance._lVtfitlvthe provisions of Sec. 4 (1) '30. It to that manufacturers of Central under self removal and self- the assessee. The assessee is of manufacture and clearance of goods to 'pay the d"uty~-..'on*s'uch self declaration. Though assessee was of the fact of adopting the cost construction < 52 method of valuation of the goods for the period March 2001 to August 2003 has accepted its lapses and without any whisper have paid the differential duty aieng with interest. f T * 31. The concept of transaction value came into effect from 01/07/2002 when"co«rresppQndi:ragly' 4(1) {bl came into effect, which facilitate the manufacturers to yalue, which was in the form of. "lffhough. assessee has accepted and in the year 2000~O1 no explanation' is la'svt.ol:lwhy the assessee did not no'tice:llof"ftlzevldepartment about the change in oil for the subsequent period and been cast on the assessee has by assigning any Valid reason. in 'tlie:.l"sta'tement made by the Company officials '*--....1;»efore tlielllnvestiilgating Authority as recorded u /sec. 14 of the E}cci.se Act, particularly that of Sri. i\/I.K. Deputy General Manager, Mysore Unit, it is 53 admitted that, after submitting a cost sheet on 18 / 08/2000 there was revision in the value nor the assessee disclosed the increase in the value to the department nor the duty was paid. However, when it was detected the same came to be paid. These sta.terriei1ts'-,ha'»'erernairiedt uncontraverted. 32. Yet another factor n.oti"ce_d' that " 0' assessee raised journal vouchers-«~~at-.Mysoret'unit/for the difference in stock transfer Jprice_7and_*pri,ce--. element/new valuation as was e\{id:e1i.t from v_orichers":which fact is not disputed. :n31\V('IVys;cii1=e__Lini_-t and Bangalore unit were aware about" difference in values, the assessee d:i'd not to" the notice of the department and ifif("J1._1nd by the authorities that the assessee had As"ubs_crib'ed_~t_o declaration in the returns filed at revguiar irite1v'a.1sv."'"' In this regard the proposition of law laid by their i.ordship's in the case of Madras Chem Ltd. V. a,/ 54 CCE Madras, reported in 1999[108) ELT 61 1 (SC) is required to be extracted which reads as under; "The proposition of law as laid down is not . g in dispute. We find in the present case . aforesaid, a clear finding was recorded that the' » ' petitioner was aware and was obliged to file_--RG "' 1': V 1 Register, gate passes and also of clearance"s...in' the RESPONDENT 12 returns by; disclos_ing'''thfef ' _ V particulars which was not done: in _the, pre's'e,1 case. The finding recorded "=ign1_'_this g " especially in the background that A this was A l ' case of self removal procedure"-in which there obligation cast on the assessee._io_mak'e. proper; and correct declaration ..'entries in"-th..e production regiSt;eii"' RC: 1%, '"'F'urthe--r 'finding was that it was 'ra.ot__bg.. -inadpettence.'-«'V'1here could be no other infereiinr;-e if _not bi; inaduertence, then dc-liberate, not....in the realm of inaction of the".ossessee"butwith the objective of a aainfwhich in'o'th.er ,wo_rcls would be conscious withholdéno of the wggibrfitation. . . . " it supplied) learned counsel appearing for the assessee would .oor_iter;d"'_t,balt;'the decision rendered by their Lordship's AMCO""'Bat'teriels, Mahindras and Mahindra and Narmada Pfiannaceuticals Ltd. referred to supra is fairiy -
nlllllalpiplicability of Sec. 4(1) (b) of the Act and also the 56 assessing the same by adopting by the Valuation Rules, 2000, by adopting the cost construction method and the.-price of the product sold would be the determining knowingly fully about this, it did not chose department by giving the cost escalation in the price of Sanda1wood'»_oii'.V_zlt ».the judgments are inapplicable to the of the
(c) Continental Foz1i1d_ati_ott ":4 incorreclt statement cannot be equated willful misstatement for inooking"exjtendedi'V_pes'2bd of limitation.
In para been held as follows» "When. revenue l""---.invJokes the extended period of ltimitatio_nA~-u/sec. 11A, the burden is cafifiupon it "to_pVrove suppression of fact. An sitaterrierfiiicannot be equated with a . ,wi_llful mi.~;'.~str,1terr1ent. The latter implies making __of 11:1 in_cofrecL'j statement with the knowledge 'tha-tthe stateigttent was not correct." As observed'. us herein above in the instant case the .1 assletsseee--being under as removal procedure was aware about as»/r 57 Valuation Rules. It having adopted the cost Construction method and being fully aware of the determination of th_e.__cost analysis did not chose to sell the same for a higher:
other customers and in respect of stock trarasfergralisedg' he journal Vouchers as found in the amounted to suppression and willful the said judgment is also inapplicable toot the present case.
{(1) Bhar;at'13leetfonies_'c¢ise the said case the if approved by the departrT1erit._a;%_1d=_suhseqtteritiy' revenue took up the,lv:;tand"'tha'tiithe 'opprouaiof the list was for the part of _'was not found in favour 'of " the re'v.er1.u'e_ on the ground that there was no 'w_ilZ_ful rri»is--i:i,ec_l"c1r¢i'tion.
35." is not applicable to the facts of the ca'*e .the instant case the assessee being aware u about of price ought to have filed the price V7?i_c1assificat'ior15_list and as such it was accepted in the .1 recorded u/sec. 14 of the Central Excise Act, aw 59 the said judgment is also not applicable to the facts of the case. In View of the above discussion, we are...voftithe considered opinion that the extended period .
invoked in the instant case is squarely applicable' faVcts ii"
of the present case. Hence, questioIi_"i}i'o.3._ herein above in CEA No.11 alerts for consideration the said appeal) Ais.u:i:n_ he answered in the affirmative i.e., in favour aofathe against the Assessee.
RE: CEA 23 01+' "
37. The that tribunal was in error in holdingé' Rule 7(I)(b]wi11 not be applieableéito theiiéiiaetsdoif theiwcase. Per contra Sri. Shivdas ",i'(vmV1a:' contend that department / revenue cannot.deprivei'"_t.he:a'ssessee of taking Cenvat Credit of the V".---additionaI'dut}}'paid. When admittedly there is no sale and it _v§Vas"'eniyViia stock transfer and hence assessee would not be
--'.hy""--eiteiusion clause under Rule 7(l)[b). In order to fix/, 60 consider this rival contention Rule 7{1){b) is required to be extracted. It reads as under:
"Rule 7. Documents and Accounts-(1) Cenvat Credit shall be taken manufacturer on the basis of 1 following documents name}y:-- « C] xxxxx
d) A supplementarydnvoice,V: issuedfbyyy manufacturer or inipoitgf of or capital goods: in jithre proyision of Central Excise' his factory or from:iii_s depot frorntile premises of the jagent said manufacturer bor any other premises from Where' are sold by or on behalf of the if saidmanufacturer or importer, in case ifadditionalfl ttttt amount of excise duties or _ duty of customs leviabie under 3 of the Customs Tariff Act, has been except where the additional amount of . "duty become recoverabie from the manufacturer or importer of inputs or fix', 62 or any willful misstatement or suppression of facts etc. Further, the prohibition to avail credit on ._ supplementary invoices will operate only in case of sale. In other words the receiver input should have purchased the goods manufacturer who had to pay»wt1'_1<e .4?"
amount of duty after detection of 'A facts fraud, etc., on his part. fl'hei'efore,"l7vghen there is simply a stock traitsfer the' l under Rule 7(1) [bl Willilot be"'aflP1icable. if 'In-iotller words, when there are'-tvvolupriiits and if goods are stock..transferr:ed. iitopra unit 13 and even if the duty" becomes recoverable of fraud, suppresslilont unit 8 can take credit. 'case"~1aws"=re'ii_ed on by the learned advocate 'are _squareiy:ljapplicable. We are in agreernent the above contentions of the it 'iriacppeiiai-ext that Rtt1e'7'm{b) of CENVAT credit rules "--_.avaihnent of CENVAT credit at for the simple reason that the
-- transaction between the two factories is not one of }sale__. It 'should also be borne in mind that both if i"th;e_ ffsfactories belong to the Government of 63 Karnataka. Although the irregularity committed in Mysore resulted in Revenue loss to the Mysore_..__ Commissionerate, looking into the totality of circumstances, there was no revenue loss exchequer at all. This fact has been recorded l both the Adjudicating authoritiesftlllWhatever is paid at Mysore on Sandalwood.Voil,'l taken as CENVAT credit at Bangalore. VTh:e' on the finished products narneily..,_Vptoillet is discharged under Section e't14"}eTbasis Since the value of Vacvtlcount the escalated cost of the cannot be any short§*..:paL{zEt:1fl;e11tl:«o1'€ thetoilet soaps at Bangalore. "Got§ernrnent did not suffer it it
38. for'i'the_.lreVenue has contended that Tribunal had relieddupon Athedludgrnent of Nagpur Tribunal in tlcie'easet-loll'Ballarpur'lnciustries Ltd, Vs. CCE Nagapur which has' by Hon'ble Supreme Court in CCE, industries Ltd., reported in 2007(215] [S'C]_tl:'and contends the finding of Tribunal is to be flay"
reversed.
64 In Bailapur Industries ease the Horrble Supreme Court held as follows:
"Applying the above tests to the facts of the present case, We hold that the Department;'_"Was'~v.,,.: not entitled to invoke the extended p.e_1fi"od limitation vide the first show e21Lise"<notipce.;«déi'ted: I 21-5-1999. However, the seeonti«oarid"
cause notices dated 30~9'~:_1'999 tor' the April, 1999 to June, 1999 and"'1:E5~11--i'999tfor the period July, 1999 to prespectiyiely are within time. Thetefofeoii-xyeti' only the first sh0W:"c__aus:e" cream 1999. However, asidpei impugned judgments 3I§:fi'rii$iineli' which has held that Rule STZCC of"'t1ie:'1944:"'Ru1es is not appiicabie to this cased esVi.there""w:esi. no "sale". In cases wheije, the iiumainufacturer does not comply with the----e11ai1 debit the presumptive Veqt1al:*t_o*eight per cent of the value of the at the time of clearance from 9 ' ~ w _ 'astock "ti'_9.nsfers also. the'-«...facv'toryy' Agate. This rule would apply to axe"
65
In the said judgment it has been held in paragraphs 15 and 16 by their Lordships to the following effect:
"15. Under Section 4[1)[a} normal price was the__.__ basis of the assessable Value. It was the price which goods were ordinarily sold by the assessee~..l__: to the buyer in the course of wholesale l't3fad(§';. l Under Section 4(1)(b} it was provided «that:V.lilt'ithe: price was not ascertainable for;"1.thte_'treason"
such goods were not sold or for anyzother the nearest equivalent had determined in terms of the 975.
Therefore, Rule 57 CC has_'tol'be" Context of Section 4(l}_o'f the lit at the relevant "equated "Value" to the "norrnal turn referred to goods being ordiriarilysold, :the course of wholesale trade, min other normal price, which in turn VZlrevferredlitdtgyoods being ordinarily sold in the trade at the time of removal, constituted'. the basis of the assessable value. Rule ..5l7CC(I} proceeds on the basis that the it lig.,n1an_ufacturer has taken credit of the specified _' 'duty on "common inputs" Which needs to be aw 66 reversed at eight per cent [i.e. the manufacturer needs to debit an amount equal to eight per cent of the price of the exempted final product charged"? for the sale of such goods. This amount presumptive sum calculated at eight per the price charged. The rate of eight perc_e~nt,. . measure to calculate the p1j.esu_rnpVti've'1' Further, reading Rule 57cc(1) weeigeie 5V?,cie(e)'l one finds that entire ruleVlis_4"'~lo_paseAd on price" and "recovery of therefore, in our view,A..the "'p_ri;c'e.pcharged at the time of sale" must be cent of the value _oft_he Our interpretation" ._ _su"pport_ed by the Instruiétions Board of Excise and Custonis: the Circular No.B~» 42/1/96-"T4RlU,v geee ei2?i'_sO9--199e. This is where Section 4 and'=the Valuation Rules, 1975 come into .h.°-plVay.é:' 3-In the lightwof the above discussion, the g_l_adjludicatii:igtauthority was required to adjudicate upon; appl'ijea'E§ility of Rule 6{b){I) and Rule 6(b){ii). Hov{7"eve--rp, it has been held by the adjudicating Vlpp"'authorit3"7 that Rule 6(b)(I) is not applicable, hence, .in._0ur View the only issue which remains to be @/ 67 decided is whether all the requisite elements of costing iike wages, profits etc. have been taken into account by the assessee herein as requiredp""----_ under Rule 6{b){ii).
£6. In the case of Union of India and Bombay Tyre International Ltd., VAIR-19874:} it this Court had drawn a distinc:tiori'if_"betviiee'n nature of lew and the .ir1easure,/xyardsticiréi on which the tax (duty) is detennii<ied.f'
39. In the said caVs'e_z:"the._ came up for consideration was 1'€g£iI"C1=.T,:(:J' Valuatdiondpioiftdhe goods itself whereas in the_ the.__i-issueidflis with regard to entitlement on _- the additional duty paid. The revenue éatteniptingteaypress into service prohibition envisaged ;in ru1e.V'f'{1}[b') to contend that assessee would not CENVAT Credit only on the basis that paid, because of detection made by depa'rtInen'L".; of suppression by assessee and said .1 -iaddiitioiialaz duty paid cannot be taken for purposes of 68 extending CENVAT credit. It is to be seen that CENVAT Credit in the instant case is granted under Rule 3 of CENVAT Credit Rules 8: it reads as under:
Rule 3. CENVAT Credit :-
(1) A manufacturer or producer products shall be a11owed._to t;£ke" _ [hereinafter referred tel' as:-'~tb}e "CENVA'i"f_,___ credit) of --
(i) The duty of excise specified First' to the Tariff Act, 1eviaEIoe~ it M
(ii) The duty of excise_...g;15.'?£:iIi6Ci~_ in itiie" Second Schedule Ieviable under the Act;
(iii) The add'iti:on2tl"'- 4' 'excise leviable under section 3 of the Additional Duties of Excise (Textile «..ar1d._;fi'e2;ti1e.g§rtic'Ie's}"Act, 1978 (40 of 1978);
(iv) duty of excise levialbe under section 3.of?_.tiie Additional Duties of Excise [Goods of Spe.cia«;1 Importance) Act, 1957 [58 of 1957);
&/.t (V1) 69 The National Calamity Contingent duty leviable under section 138 of the Finance Act 2001 [14 of 2001), as amended by section 169 of the Finance,r*i. Act, 2003 [32 of 2003) which was amendeAd.__"by:'3;. 3 section 3 of the Finance Act, 2004 (13 of 20G.4:"j; The Education Cess on excisahleii under clause 81 read with Cilnhss-131 xiile"
Finance 8111 {No.2}, 2004, 'iizhich bye \:rirtue'.:v'of;_'t1*1ei declaration made in the saidiivinance under the Provisional Collection of'Ta2§es. 1931 of 1931}, has the force of it [Vii] The edditioneiitijety leviaipiei ui1t1ef'sec.tion 3 of the Customs _ to the duty of excise1i;specifiedV _unde:i:c1.auses (i), (ii), (iii), {iv}, (V) and (vi) above; 'and: "
{viii} The AV.additi'on_a1i.Vdut'3_r excise ievialbe under
- ,.V_seC'tioI1___1 of thevvEi:1ance Act, 2003 (32 of 2003). on any inputs or capitai goods 'éV"_'rece.i&}ed in the factory on or after the "met day of March, 2002, including the said duties paid on any inputs used in 70 the manufacture of intermediate products, by a job~worker availing the benefit of exemption specified in thee"-_ notification of the Government of in the Ministry of Finance (Departinent of Revenue), No.2m/sefcentreiegeiee; e dated the 253* March; pubiishegi vide number G.S_.R. 53;? {E}, the if 25th March, 1986,- _en_d receivedhbzyufthew manufacturer for iinereiation to, the manufactu-re of.i'iinf&i13roduCts, on or after the e1ey'%%ef'VMea%eid;',~i2002. ti<ie:l'i"eir_i»oi/ta} of doubts it - » that if manufacturer of the flier shall be allowed "'C_ENVVA7E'.'4Vxlcretiit of additional duty ' " leiriabie funyder section 3 of the Customs 'I'ariff goods failing under heading of the First Schedule to the V '('3us'toms Tariff Act.
it {2} Notwithstanding anything contained in sub«~rule (1), the &/ 71 manufacturer or producer or final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in processjdldl or inputs contained in the products lying in stockfon"the datelf on which any goods "to exempted goodsl 'atop exempted goods goods become excilsable. _ [(3) The CENVAT creclit'lirlay::}:}e':utilized for Paytner1t._of'ffl ll Vt 2 [a] any of§j::e::oise_o11Vl..an:3l or
(b) CENVAT credit taken on ifiptitls if fire removed as such or aftelr 1;;e:;1go processed; or (C) '£111, <':1I1l'lO'1J\}:'V1l)ElCll eciual to the CENVAT credit A:'téker"1..Q'n caplitall goods if such capital goods u.ai1*e'ramoved as such; or (fink Van' under sub rule (2) of ruie 16 of Excise Rules, 2002.] aw 72 Provided that while paying duty, the CENVAT credit shall be utilized only to,..__ the extent such credit is available on the last day of the month for payrne:it"«'o,ff duty relating to the month.
Provided further that the ,_ of the duty paid on the.__inp_uts in" it the rnanufacture--.,_jofy final cleared after availi_n,€,f'»,oi"».the hexernptifon under the ilunfoers 32/V99--
Central Excise, 1999 [G.s.<a, , 5os;E;,,aa9ii'ii,,,%,,,1,3,;.et,,,iy, 19991 Enid" '-.E2>tfcise., "dated the 3th i:999:' ~{,o.s.ii.i'o"5o9(E), dated am 'Jury, " "be utilized only for V"'pay'1nei}.t"4'*.of on final products cleared' after availing of the exemption tinder said notification numbers Excise, dated 8th July, and 33/99»~Central Excise, dated the am July, 1999.
M. 73 {Provided also that the CENVAT credit of the duty paid on the inputs used in the manufacture of final products cleared after availing of the exemption under thevt. notifications» No.39/2oo1--centtdi.v Excise, dated the 31st July, 2001 {oi',:s;R; 565(E), dated the 31st Ju1y,..tv.2Q.01v1;jv No.56/2002--Centra1 Efkcise,' undated tdptttte. it 14th November, 2002 ',{G;s".R. '764(E;1,"
dated the 14"'-9 ._V:"'~N_oveir;beif._V No.57/2OO2--Centra_l: ' 14th November dated the 14th Novenibderi,i'V'2dt}:()2.}.é_:d'notification of the Ministry "of: ' ' {bepartrnvent of Revenue) _ Excise, dated the 'ei2_5meJune,'p [G.S.R. 513(3), dated i th.e"25'ih"'Jut1e, 20031, and No.71 /2003- Centralévlifiicyise, dated the 9th September, {G.S.R. 7170:), dated the 9th 'V A "September, 2003], Shall respectively be utilized only for payment of duty on final products, in $5 74 respect of which exemption under the said notifications No.39/2001~Central Excise, Central Excise, datedpppthe ,_ : }*_2003,+ *0, , T 2003, and Central Excise, dated the Septern'oer,n 2003, is availed [(4) When inputs good.s/on which CENV'Af;El_,creci_itV :been taken, ' are re,r_noved,...a:s_ V-such, f1'*o1n'*~tftie' factory, the " 1i1'a,1§1'ufeict1J:r'er of products to the credit "avai1edffi.n of such inputs or hapital' such removal shall be al .. Notwithstanding made 'under the cover of an invoice feferredyflto in rule 7.] any thing .'c:o_ntairaed in these rules,- u a . - ~ - . . . . . . . . . . . . . .-
. . - y . o o - - - - a u o o u » u . ..
dated the 313* July, 200l._,""--,p No.56/2002--Central Excise, dated.p..thte'-,"j--._'"~. mm November, 2002, No.57/p2--002'#.v:',:"' ' M, {5} The amount paid under sub--rule [4] shall be eligible as CENVAT credit as if it was a duty paid by the person removed such goods under sub«rule;V..[£i),f 5 [6] Notwithstanding sub--rule [1], -- _ _ p _
(a) CENVAT credit ii'1l__respect'- of capital goods produced" 101' manufactured, --
[(1) by a hundred»-.per ".E§rport;ioriented undert;aking--_ . .1'. . . assessable any other rule or notification provide for ._"~lg'ra'I1t_ of partial or full exemption on .f-..co1idVition of nonwavailability of credit of 'éitity paid on any input or capital goods, 'the provisions of such other rule or notification shall prevail over the provisions of these rules.
We.
76
40. We are of the considered opinion that Rule 7 is illustrative in nature and it cannot place any fetters on Rule
3. The additional duty has been paid under remassessment or on being detected by the department and such dutyVpa'id._Vis available as Credit under Rule 3 of CENVAT _ the assessee 8: it cannot be allowed tombe "= Rule 7[1)[b). Thus, principles entlyncigateid Industries would be inapplicable't_o"--the The Commissioner While passing the.._fC).rder "'Q1figi,nal has accepted that there has no revenue to the Government. In paragr_aph:_"l5V' Original dated 25»«2~2oo5 itis -helddasf-foi1o{>vs:§'-~_, ~ M "HoWever;».g:l in the defence plea tha'C;'"'ih_ere".' no loss of revenue to the A. si1ice""'WhateVer duty paid by their admissible as cenvat credit, but for .dlis'eVnssed in the earlier paragraph. It is also V-releyant to note that there is no allegation any 'suppression of any facts, made against the 77 assessee and the credit taken on the supplementary invoices is clearly indicated by the assessee in their monthly returns. Since they"--,p credit taken on the said supplementary invoicfleslis' held to be not admissible, I observe that itself is sufficient punishment to the '- notwithstanding the fact that tifieydpare liable to pay appropriate pVinteres__tl".on tl'ie'.p's'ai'dlV cenvat credit so wrongly talieinlfl Hence, we are of the opinion' lalvififorinulated will have to be answered in faxfoiirllof and agaisnt I'€V€I11,1€ .
41. Aecordinggly qnestion's of law as formulated in appeals No.ll/ 2006 are answered as Vfollowszpgf ' l' . it » ., l 'V . : t ..... ..' ......................
l s-l/l7hetltefV"'-thed"I'rii.;unal was right A_[}'irmative.' Tribunal in pc'oming--'i."to"a' conclusion that was right in coming to prohibition_ 'under Rule 7 (1) (b) a conclusion that L (now Rule' 9 {1} (b) of the prohibition under Rule "Credit Rules will not 7 (1) (19) would not be 78 be applicable to the facts of the instant case?
applicable in the facts of the case.
Whether the Tribunal was right in upholding the CENVAT Credit taken by the Bangalore Unit, based on the supplementary invoice raised by the Mysore Unit, by concluding that Rule 7 {1} [b] is not applicable, especially in the view of the fact that if prohibition under Rule 7 1 {1} (b) is not applicable then the provisions of the Rule itself ceases to be applicable? ' "
Affirmative.
Prohibition under Rule 7(1}(b) of CEMZAT Credit Rules .. ' , _r[Ot applicable to«~~.th_e of the case.{:'-- r Whether the Tribunal was right", in passing the impugned orae'r--i by relying on decision-sfwhichp are under challenge before the _ V _§[gt_:ts"o]°those cases. Does "not ' 'arise. The ffaicts of the-' case on 'hand _ are ClICS"fi.i_I iguishable to the Hon'ble SuPrerrL6"C.l)url?'* . CEA. No. 11 5 -
Whether the Tn}:-unal,°'--l.yAiri---- the above facts" and.lVc'i:ciinLs_tances, was right in upholdirigthe order of the lower' authority invoking V. A the 'longer V period. ,._Ql°. limitation "under "'S'ectio_n 11A(1] of the C,entralv.__E'xcise .._Act 1944 when C'tljgle.C'_law-. -"issue has been settled by~fnu'rrzerous decisions Affirmative.
Tribunal, in the facts of the case was right in upholding the order of the lower authority invoking the longer period of limitation under Section 1IA(1) of the Central Excise Act 1944.
_ of the Suprerne Court?
ex 'I9
42. in View of the above both the appeais are dismissed answering the questiions of law as herein."- above.
sd/;%