Customs, Excise and Gold Tribunal - Mumbai
Ispat Metallics Industries Ltd. And ... vs Commissioner Of Central Excise on 11 October, 2005
Equivalent citations: 2006(194)ELT417(TRI-MUMBAI)
ORDER S.S. Sekhon, Member (T)
1. By this common order, three appeals are disposed off. Appeal no. E/1093/05-Mum has been filed by Ispat Industries Limited (IIL) against order of the Commissioner confirming demand for duty of Rs.10,94,59,315/- under Section 11A(1), imposing a penalty of equal amount under Section 11AC and a further penalty of Rs.2,00,00,000/- under rule 25 of the Central Excise Rules, 2001 read with rule 173Q of Central Excise Rules, 1944, besides ordering recovery of interest under Section 11AB. Appeal no. E/1642/05/Mum has been filed by Ispat Metallics India Limited (IMIL) against confirmation of demand of Rs.2,72,36,100/-, imposition of penalty of equivalent amount, besides recovery of interest under section 11AB. Appeal no. E/1509/05/Mum has been filed by IIL against imposition of penalty of Rs.50,00,000/- under rule 25 read with rule 173Q of erstwhile Central Excise Rules, 1944, this penalty has been imposed by the Commissioner in the order demanding duty from IMIL. Since the issue in dispute in all the three cases is common, the same is being disposed off by this common order. The issue being common, we will deal with the facts in appeal no. E/1093/05-Mum filed by IIL which are as under :
IIL is engaged in the manufacture of HR coils, Sheets, Plates, etc. which are cleared on payment of appropriate duty of excise. In the manufacture of such goods, it avails credit on inputs such as iron ore pellets etc. Adjacent to its plant, another group company namely IMIL also has its factory, wherein pig iron and molten metal are manufactured. The principal raw material for both the companies (IIL & IMIL) is iron ore pellets. Accordingly, in order to achieve economics of scales, both the companies follow a joint procurement policy in terms of which IIL placed orders on the suppliers for the quantities required by both the companies.
The said amounts were received from one supplier viz. KIOCL Mandovi Pellets and Essar Steel Limited on barges which were unloaded at IIL's jetty at Dharamtar port. This were carried to the IIL factory where they were stored separately bargewise so as to enable identification of the origin of each lot. Credit was availed by IIL of the duty paid on entire quantity procured. As and when required by IMIL, their share of such pellets were transferred through a conveyor from IIL's plant to IMIL premises under cover of invoice and on reversing an amount equal to the Cenvat credit availed on such inputs, so transferred. In addition to such invoices, IIL was also raising debit notes on IMIL for recovering on pro-rata basis the actual expenditure incurred by it in relation to procuring such iron ore pellets, such as bank commission, interest, carriage inward etc. This division on pro-rata basis was as per the joint procurement policy agreed upon.
IIL was issued with a show cause notice dated 29.9.2003 alleging that iron ore pellets was sold by IIL to IMIL and that amounts recovered by IIL in the form of debit notes towards bank charges, interest, carriage inward, etc. were includable in the assessable value of such inputs cleared as such. The notice alleged that reversal of Cenvat credit equal to the amount paid to the supplier, which was being followed by IIL was not in compliance with law.
2. After hearing the appellant and considering the material, the Commissioner upheld the notice on the following grounds:
that the decision of the Larger Bench of the Tribunal in the case of CCE v. American Auto Services - 1996(81)ELT 71(T-LB) and in the case of CCE v. Asia Brown Boveri Ltd - 2000(128)ELT 288(T-LB) did not further the appellants case as at the relevant time the rule 57F(1)(ii), used to provide that when inputs are cleared as such, duty equal to the amount of credit availed was required to be reversed, however rule 57AB of the Central Excise Rules, 1944 and rule 3(4) of Cenvat Credit Rules 2002 which were rules in vogue in the relevant period, clearly provided that where inputs in respect of which credit has been availed, are cleared as such, the assessee is under statutory obligation to pay central excise duty in respect of inputs, as if such inputs have been manufactured in the factory and duty liability has to be re-determined afresh by resorting to the provisions of Section 4 of the Central Excise Act, 1944.
That the transaction between the IIL & IMIL was one of sale as was evident from appellants own letter no. IIL/IMIL/EX/CERA/2K2/B dated 14.8.2003, wherein the appellant informed the Assistant Commissioner of Central Excise, Raigad that the transaction between the appellant and IMIL was sale of inputs as well as from the statement of Shri Mukund J.Chaporkar, Dy.Manager Commercial, and consequently the assessable value in respect of the same was not determinable in terms of Board Circular no. 643/34/2002 dated 1.7.02 and the decision of the Tribunal in the case of Vikas Laminators v. CCE, , was not applicable.
That since the goods were to be re-assessed to duty in terms of Rule 57AB/Rule 3(4) the assessable value in terms of section 4(1)(a) i.e the transaction value and that such value includes not only the price paid at the time of clearances but any consideration or additional consideration paid by the buyer at a later stage since it is not in dispute that the appellants had recovered additional consideration towards certain expenses incurred by them by raising appropriate Debit note on IMIL, the same were includable in the assessable duty had been correctly computed in the notice by including the same additional consideration.
That rule 57AB of the erstwhile Central Excise rules, 1944/Rule 3(4) of the Cenvat Credit Rules 2001 - 2002 provided in unequivocal terms that where inputs on which credit has been availed, are cleared as such, the same is required to be treated as goods having been manufactured in the said factory Appellants contention that there is no machinery provision for recovering the said amount was not sustainable, inasmuch as, the Cenvat Scheme, i.e rule 57AB/rule 3(4) itself provided a mechanism for recovery of the said amount and that no separate machinery mechanism was required to recover the said amount.
That the rule 57AB/rule 3(4) provided a deeming fiction equating the amount payable on clearances of such goods, as duty of excise, and consequently the credit availed on inputs, which were sold as such for higher price than the purchase price, were required to be re-assessed and the act authorized and empowered recovery of duty under section 11A in respect of such goods.
Appellants submits that the demand by limitation is not acceptable inasmuch as appellant suppressed receipt of additional consideration from the department. Appellants contention that the amount paid by them was under bonafide belief is not supported by any evidence or plausible explanation.
After hearing both sides and considering the issue it is found :-
a) demand under section 11A(1) in respect of inputs cleared, as such, i.e without manufacturing is not sustainable inasmuch as the transfer of Iron Ore pellets by IIL to IMIL was not a sale of goods but was transfer of the raw materials jointly procured under the joint procurement policy followed by the 2 group companies, as is abundantly clear from the triparte agreement produced before us between Mandovi Pellets Limited, IIL & IMIL. This procurement policy as well as Debit note/Invoice raised by IIL are for recovery of actual cost of iron ore pellets irrespective of the prevailing market price of the inputs & this correctness of these particular amount as per the debit note/invoices has not been disputed by Revenue. In our view, since IIL was only acting as agent for and on behalf of the IMIL, the transaction between the two was not that of a 'sale' and the principle of transfer by an agent to the principle of material procured on the principal's behalf would apply. Transaction between IIL and IMIL is that of transfer, the finding of the respondent that the same involves sales is not maintainable. The transaction value for inputs cleared in such cases, the value thereof has to be determined as provided vide Circular no. 643/34/2002 dated 1.7.2002 wherein para 14 clarified as under
14. Howwill valuation be Where inputs or capital goods, on which done when inputs or credit has been taken, are removed as such capital goods, on which on sale, there should be no problem in CENVAT credit has been ascertaining the transaction value by taken, are removed as application of Sec. 4(1)(a) or the such from the factory, Valuation Rules. [provided tariff values under the erstwhile sub- have not been fixed for the inputs or they rule (1C) of Rule 57AB are not assessed under Section 4A on the of the Central Excise basis of MRP].
Rules, 1944, or under Rule 3(4) of the Cenvat There may be cases where the inputs or Credit Rules, 2001 or capital goods are removed as such to a 2002? sister unit of the assessee or to another factory of the same company and where no sale is involved. It may be noticed that sub-rule (1C) of Rule 57AB of the erstwhile Central Excise Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules, 2001 (now 2002), talk of determination of value for "such goods" and not the "said goods". Thus, if the assessee partly sells the inputs to independent buyers and partly transfers to its sister units, the transaction value of "such goods" would be available in the form of the transaction value of inputs sold to an unrelated buyer (if the sale price to the unrelated buyer varies over a period of time, the value nearest to the time of removal should be adopted).
Problems will, however, arise where the assessee does not sell the inputs/capital goods to any independent buyer and the only removal of such input/capital goods, outside the factory, is in the nature of transfer to a sister unit. In such a case proviso to Rule 9 will apply and provisions of Rule 8 of the valuation rules would have to be invoked. However, this would require determination of the `cost of production or manufacture', which would not be possible since the said inputs/capital goods have been received by the assessee from outside and have not been produced or manufactured in his factory. Recourse will, therefore, have to be taken to the residuary Rule 11 of the valuation rules and the value determined using reasonable means consistent with the principles and general provisions of the valuation rules and sub-
section (1) of Sec. 4 of the Act. In that case it would be reasonable to adopt the value shown in the invoice on the basis of which CENVAT credit was taken by the assessee in the first place. In respect of capital goods adequate depreciation may be given as per the rates fixed in letter F. No. 495/16/93-Cus.-VI, dated 26-5-93, issued on the Customs side.
Boards instructions cannot be deviated from and no reasons are found by the adjudicator to do so.
b) the Commissioner has rejected the appellants contentions on joint procurement policy only on basis of a letter dated 14.8.03, which was not even a relied upon document. This letter though makes a reference about a 'sale', also clarifies that Iron Ore Pellets had been transferred from IIL to IMIL. This would indicate that reliance on this letter dated 14.8.03 by the Commissioner to arrive at a conclusion that 'sale' had taken place between these two parties cannot be upheld. The reading of this letter, which is not a relied upon document, in any case, does not induce us to conclude that the transactions between IIL & IMIL and vice versa is that of a sale as understood in commerce.
c) There is force in the submission that the transaction between IIL & IMIL can be regarded as that between partners, if not that of a principal and agent wherein the partners have a right to obtain the share of net assets especially on the said Venture or procurement. The transfer by one partner of a former's share of partnership assets cannot be held to be sale and this position in law is well settled by the Justice Bhagwati of the Gujrat High Court in CIT v. Miohanbhai Pamabhai - 120 ITR 49; following the same in this aspect in terms of joint procurement policy, the sharing of procurement cost cannot be regarded as sale. It only represents transfer of costs etc of partner in the Jt. Venture of the partnership firm of IIL & IMIL.
d) The additional costs incurred after clearance of the Iron Ore Pellets, from the premises of the pellet manufacture of, the seller in Goa cannot be added to the value to determine Excise duty, as excise duty is on manufacture i.e all costs incurred up to the time and place of manufacture of the iron pellets, in this case, Post removal expenses cannot be brought in under the levy of the section 3(1). The Constitutional decision in the case of Bombay Tyre International, provides that. As costs upto factory gate that go into value upto the deny of removal in our view, such post removal expenses can never be added to determine value for duty recovery especially so under deemed fiction of law. Even rule 57AB of the erstwhile Central Excise Rules 1944/rule 3(4) of Cenvat Credit Rules, 2001, which reads as follows:
"when inputs or capital goods, on which cenvat credit has been taken, are removed as such from the factory, the manufacturer of final products, shall pay the amount equal to duty of excise which is leviable on such goods, at the rate applicable to such goods on the date of such removal and on the value determined for such goods under Section 4 or Section 4A of the Act, as the case may be, and such removal shall be made under cover of invoice referred in Rule 7"
(emphasis supplied).
Does not provide for reassessment of value of inputs cleared as such. The rules only provides for re-determination of rate applicable to such goods on the date of removal of inputs as such. When, the rules do not contemplate re-determination of a value for such goods under section 4 or section 4A of the Central Excise Act, 1944. The attempt to add the post clearances expenses should be thwested on merits as well as cancelled. The value under section 4 which the rule contemplates cannot be a value other than that determined by a manufacturer at the time of clearances of is finished products, i.e, value determined and accepted by e.g Mandovi Pellets Pvt. Ltd., the manufacturer of iron ore pellets, at the time of clearances of iron ore pellets from its factory. There is no dispute that the rate of duty on iron ore pellets at the relevant time remained constant, therefore the amount paid by the appellant at the time of clearance of inputs as such, which is equal to the cenvat credit availed by them, would represent the correct amounts to be reversed in terms of the aforesaid rules and nothing further is required to be reversed.
e) We find force in the submission that what is required to be reversed, as an amount in terms of rule 57AB of the erstwhile Central Excise Rules 1944 or Cenvat Credit Rules 2001, cannot be a levy under section 3 of the Central Excise Act, 1944 nor is it a modvat/cenvat credit. Consequently, the provisions of section 11A(1) of the Central Excise Act, 1944 cannot be invoked to recover the said amount. The Rule 57AB and Rules 3(4) of the Cenvat Credit Rules provide as under :
"(4)When inputs or capital goods, on which cenvat credit has been taken, are removed as such from the factory, the manufacturer of final products, shall pay the amount equal to duty of excise which is leviable on such goods, at the rate applicable to such goods on the date of such removal and on the value determined for such goods under Section 4 or Section 4A of the Act, as the case may be, and such removal shall be made under cover of invoice referred in Rule 7".
Since what is required in terms of these rules, is only an amount equivalent to duty of excise leviable at the rate applicable on the value determined in terms of section 4 or section 4A of the Central Excise Act, 194. Therefore, in absence of any authority specifically prescribed for recovery of such amounts, the present recovery orders cannot be upheld. Following the ratio of the decision of the Hon'ble Madras High Court in the case of Eternit Everest v. Union of India 1997(89)ELT 29(Mad) and Tribunal in the case of Jindal Vijaynagar Steel Ltd. v. CCE, , Wheel and Axle Plant v. CCE, .
e)We also find that the appellants have a good case on limitation to set aside the demands as there could not be an intention to avail payment of duty as both units were paying duty through PLA & were under Modvat chain. The question as to whether reversal of credit at the time of clearance of inputs as such, is sufficient compliance with the legal provisions, has been settled by two decisions of the Larger Bench of the Honb'le Tribunal in the case of American Auto Ltd. v. CCE and subsequently in the case of ABB v. CCE. The said decisions of the Larger Bench has in fact been followed for the period in dispute in the case of Eicher Tractors Ltd. v. CCE, 2004(175) 277 (T). Appellant thus submits that the view adopted by them is the same as that of the Larger Bench of the Hon'ble Tribunal. Assuming for the sake of argument, even if a contrary view is taken today, in such a circumstance, the larger period of limitation cannot be sustained as has been held by the Hon'ble Supreme Court in the case of Mentha and Allied Products Ltd. v. CCE, 2004(167)ELT 494 and in the case of Jay Prakash Industries v. CCE, 2003(146)ELT 481(SC). We find no reason to disagree with this submission & hold the bar of limitation in favour of the appellants.
When duty demands cannot be confirmed, based on findings on merits of no sale taking place and on applications of the Board instruction on Valuation, when no sales on taking place, in law as also the amounts cannot be recovered due to lack of machinery provision and the same are barred by limitation, we do not find any reason to confirm liabilities of interest and penalty. We cannot upheld the duty demands and the penalties along with interest at in the impugned orders. In view of our findings, orders are set aside and all appeals allowed.