Custom, Excise & Service Tax Tribunal
M/S. G. Plast Pvt. Ltd. Unit I vs Cce, Coimbatore on 2 April, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal No. E/747 & 748/2006
(Arising out of Order-in-Appeal No.59 & 60/2009-CE dated 7.7.2006 passed by the Commissioner of Central Excise (Appeals), Coimbatore)
For approval and signature:
Honble Shri P.K. Das, Judicial Member
1. Whether Press Reporters may be allowed to see 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 CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether the Members wish to see the fair copy of the Order?
4. Whether Order is to be circulated to the Departmental authorities?
M/s. G. Plast Pvt. Ltd. Unit I
M/s. G. Plast Pvt. Ltd. Unit II Appellants
Vs.
CCE, Coimbatore Respondent
Appearance Shri M. Saravanan, Chartered Accountant for the Appellants Shri P. Arul, Superintendent (AR) for the Respondent CORAM Honble Shri P.K. Das, Judicial Member Date of Hearing: 02.04.2014 Date of Decision: 02.04.2014 Final Order No.40411 & 40412/2014 Both the appeals are arising out of a common order and therefore both are taken up together for disposal.
2. The relevant facts of the case, in brief, are that M/s. G. Plast (P) Ltd. have two units, namely Unit I and Unit II. Both the units are engaged in the manufacture of Aluminium components classifiable under Chapter 76 of the CETA, 1985. They were availing CENVAT credit benefit under the CENVAT Credit Rules, 2002 on inputs and capital goods. Unit I availed CENVAT credit on capital goods and cleared as such under the cover of challans to their Unit II. On 25.3.2003, the Central Excise officer during their visit found that Unit I removed the capital goods as such to Unit II without reversal of the credit. The said officers seized the capital goods lying in Unit II. Subsequently, Unit I applied for provisional release of the seized capital goods, which were seized on 25.3.2003. The seized goods were provisionally released. A show-cause notice dated 12.8.2003 was issued by the Additional Commissioner of Central Excise proposing to confiscate the seized capital goods under Rule 13 of the CENVAT Credit Rules, 2002. It was also proposed recovery of an amount of Rs.15,46,579/- being the credit involved on the seized goods along with interest and penalty. Unit II was also directed to show cause as to why penalty should not be imposed upon them under the provisions of Rule 26 of the Central Excise Rules, 2002 inasmuch as they had abetted Unit I in clearing the CENVAT availed capital goods under challans meant for sending capital goods for repair, re-conditioning and testing with an intention to evade payment of duty. The original authority confiscated the seized goods which was released provisionally and imposed a fine of Rs. One lakh under Rule 13 of the CENVAT Credit Rules, 2002. He has also confirmed the demand of credit of Rs.15,46,579/- being the ineligible credit taken by Unit I and appropriated the amount already paid by them. He has also demanded interest under Section 11AB of the Central Excise Act, 1944 and imposed penalty of Rs.10,000/- each on Unit I and Unit II under Rule 13 of the CENVAT Credit Rules, 2002 and Rule 26 of the Central Excise Rules, 2002 respectively. Commissioner (Appeals) upheld the adjudication order.
3. The learned consultant on behalf of the appellants submit that after provisional release of the goods, Unit I paid the entire amount of duty of Rs.15,38,898/- under the cover of various invoices before issue of show-cause notice during the period 12.4.2003 to 15.5.2003. Unit II also availed the credit on the basis of the invoices issued by Unit I. He submits that as per Rule 4(5)(a) of the said Rules, there is no requirement of reversal of the credit for removal of capital goods as such to a job worker for further process. However, Unit I already paid the duty which was availed by Unit II and therefore he is not contesting the demand of duty. He undertakes not to claim refund of the duty amount as already paid. He has restricted his appeal mainly on the demand of interest and imposition of fine and penalties. The submissions of the learned consultant are precisely as under:-
(a) Rule 4(5)(a) of the Rules, 2002 allowed to remove the capital goods as such to a job worker for further processing, testing, repair and re-conditioning or any other purpose. Boards Circular No. 637/28/2002-CX dated 8.5.2002 clarified that in terms of Rule 4(5), capital goods may be sent to a job workers premises for production of goods.
(b) Commissioner (Appeals) erroneously proceeded on the basis that Rule 4(5)(b) allowed removal of jigs, fixtures, moulds and dies to a job worker for the production of goods on his behalf and therefore any other capital goods would not eligible to remove from the factory as such for the production of goods. The difference between rule 4(5)(a) and Rule 4(5)(b) is that there is no time limit prescribed in clause (b) of Rule 4(5) whereas there is a time limit of 180 days in clause (a) of Rule 4(5). Relied upon the decision of the Tribunal in the case of Sree Ganesar Textile Mills Ltd. Vs. CCE 2006-TIOL-276-CESTAT-BANG.
(c) It is a case of inter-unit transfer for use in the manufacture of same final product and therefore confiscation of goods and penalties are not sustainable. He relied upon the decision of the Tribunal in the case of Pooja Forge Ltd. Vs. CCE 2006 (196) ELT 18 upheld by the Honble Punjab and Haryana High Court as reported in 2008 (229) ELT 46 (P&H).
(d) At any event, Unit I paid the duty and Unit II availed the CENVAT credit and it is a clear case of revenue neutrality and relied upon the decision of the Tribunal in the case of Zenith Machine Tools Pvt. Ltd. Vs. CCE 2010 (255) ELT 83.
(e) Regarding confiscation of the goods, Rule 13 of Rules, 2002 would apply on taking CENVAT credit in respect of input or capital goods wrongly or without taking reasonable steps. In the present case, there is no dispute that Unit I had taken credit correctly. So, confiscation and penalty are not sustainable.
(f) Unit II is only a recipient of the capital goods and has no involvement and therefore penalty is not sustainable.
4. On the other hand, the learned AR for Revenue reiterates the findings of the Commissioner (Appeals). He submits that there is no discussion in the impugned orders that Unit I paid the duty at the time of provisional release of the goods. There is nothing mentioned in the impugned order that after provisional release of the machineries, Unit I received back the goods in their premises and paid the duty under the invoices and again cleared to Unit II. Commissioner (Appeals) rightly observed that the words any other process under Rule 4(5)(a) would be read in the context of for further processing, testing, repair or re-conditioning. Thus, the words any other process in the said Rule would not be applied in removal of the capital goods as such for production of the goods. He relied upon the decision of the Honble Supreme Court in the case of CCE Vs. Shital International 2010 (259) ELT 165 (SC) and the decision of the Tribunal in the case of Markfed HDPE Sacks Plant Vs. CCE 2011 (271) ELT 396 wherein it has been held that the words any other process has to be read ejusdem generis and could not include utilization of credit. It is submitted that Unit I removed the capital goods as such and therefore they are liable to reverse the entire credit. In the present case, they removed the capital goods without reversal of credit and therefore credit was wrongly retained by them, which amounts to wrong availment of credit and Rule 13 of the Rules 2002 would apply. Rule 13 would also apply for contravention of any of the provisions. Unit I delayed for reversal of credit and interest provision would rightly invoked.
5. After hearing both sides and on perusal of the records, I find that Unit I availed CENVAT credit on the capital goods, namely various machines, which they have sent to their Unit II for the purpose of production of the goods. It is contended by the learned consultant that Unit II is a job worker, who returns the goods to Unit I after job work. The learned counsel submitted that they have cleared the goods under Rule 4(5)(a) of Rules, 2002. The relevant portion of Rule 4(5) is reproduced below:-
4(5)(a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or any other purpose and it is established from the records, challans or memos or any other document produced by the assessee taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer can take the CENVAT credit again when the inputs or capital goods are received back in his factory.
(b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to a job worker for the production of goods on his behalf and according to his specifications.
6. Commissioner (Appeals) observed that Rule 4(5)(a) should be read with Rule 4(5)(b). The outcome is that, for the purpose of production of the goods, the goods other than jigs, fixtures, dyes and moulds can be sent without payment of duty to a job worker. Rule 4(5)(a) would apply in respect of removal of capital goods as such for same process. In the present case, Unit I removed the capital goods for production of the goods at Unit II and the benefit of Rule 4(5)(a) cannot be applicable.
7. The Tribunal in the case of Sree Ganesar Textile Mills Ltd. (supra), while dealing with the removal of capital goods to the job worker Under Rule 57AC(5)(a) for the purpose of production of goods by the job worker and to be returned within 180 days, observed as under:-
The Commissioner (A) has noted that the goods should be removed only for testing, repair or reconditioning or for any other purpose. He has understood the word any other purpose to mean that it should be only for the purpose of testing, repair or reconditioning oblivious of the fact that the earlier phrase clearly indicates that the inputs or capital goods can be removed as such or after being partially processed to the job worker for further processing. The phrase further processing has to be understood only in the context of manufacture as appearing in Section 2(f) of the Act. Any process which is carried on for completing the process of manufacture also comes within the ambit of Rule 57 AC(5)(a). The restrictive meaning given by the Commissioner on reading of the said Rule is not in terms with the Boards Circular No. 637/28/2002-CX dated 08.05.2002 which clearly spells out that the inputs or Capital Goods can be removed to the job workers premises for carrying on the process of manufacture. In the context of the Circular and the interpretation given by this Bench now, the order of the Commissioner(Appeals) is not legal and proper. The same is set aside by allowing the appeal with consequential relief, if any.
8. It is seen that in terms of Rule 4(5) capital goods may be sent to a job workers premises for production of goods. In view of the statutory provisions contained in CENVAT Credit Rules, 2002, CENVAT is admissible only when inputs and capital goods which are used by the manufacturer within the factory premises except when inputs or capital goods are used/sent for job work outside factory. The Honble Supreme Court in the case of Vikram Cement Vs. CCE 2006 (197) ELT 145 (SC) with reference to eligibility of MODVAT / CENVAT credit on inputs and capital goods used in mines, mainly explosives, lubricating oils etc., held that if the mines are captive mines so that they constitute one integrated unit together with the concerned unit cement factory, MODVAT/CENVAT credit on capital goods will be available to the assessee. On the other hand, if the mines are not captive mines but they supply to various other cement companies of different assessees, MODVAT/CENVAT credit on capital goods used in such mines will not be available to the concerned assessees under the appropriate MODVAT/CENVAT credit.
9. The Tribunal in the case of Pooja Forge Ltd. (supra) observed that capital goods were moved only between the appellants own unit and that too for use in the manufacture of same final products. It does not involve any disposal or alienation of capital goods, which would warrant return/denial of MODVAT credit. There is no justification for denying the CENVAT credit. Imposition of penalty ere also unjustified and the impugned orders were set aside. The said decision was upheld by the Honble Punjab & Haryana High Court.
10. After discussing the above decisions, I find that it is a case of inter-unit transfer of capital goods. It is also noted that both the units are manufacturing same final product. The learned counsel contended that Unit I sent the machines to Unit II for use in the production of the goods which was returned back to Unit I. The Honble Supreme Court in the case of Shital International (supra) observed the expression any other process would be examined in the context of the preceding expression. The Honble Supreme Court in the case of Vikram Cement (supra), particularly in the context of eligibility of MODVAt credit on capital goods used in the mines allowed the credit on the captive mines subject to they constitute one integral unit together with the concerned cement factory. In my considered view, in the present case, the capital goods was sent as such to other unit for production of the goods and therefore the denial of credit is not justified. This view is also supported by the decision of the Tribunal in the case of Pooja Forge Ltd. (supra) as upheld by the Honble Punjab & Haryana High Court. In any event, Unit I already reversed the credit which was appropriated by the adjudicating authority. The learned consultant contended that Unit II also availed the CENVAT credit.
11. In view of the above discussion, as the learned consultant undertakes not to claim refund, the demand of duty is upheld. I do not find any reason for confiscation and imposition of penalty and demand of interest. Accordingly, the imposition of fine, penalty and interest are set aside. Appeal No. E/747/2006 is disposed of in the above terms and Appeal No. E/748/2006 is allowed.
(Dictated and pronounced in open court) (P.K. Das) Judicial Member Rex 9