Custom, Excise & Service Tax Tribunal
Commissioner Of Customs, Central ... vs M/S Radiant Cables Pvt. Ltd on 1 February, 2018
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Division Bench Court I Appeal No. E/715/2008 (Arising out of Order-in-Original No. 01/2008 CE dated 18.03.2008 passed by Commissioner of Customs, Central Excise & Service Tax, Hyderabad-II Commissionerate) Commissioner of Customs, Central Excise & Service Tax, Hyderabad-II ..Appellant(s) Vs. M/s Radiant Cables Pvt. Ltd., ..Respondent(s)
Appearance Shri N.V. Subrahmanya, (AR) for the Appellant.
Shri G. Prahlad, Advocate for the Respondent.
Coram:
Honble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL) Honble Mr. MADHU MOHAN DAMODHAR, MEMBER (TECHNICAL) Date of Hearing: 01/02/2018 Date of Decision: 01/02/2018 FINAL ORDER No. A/30196/2018 [Order per: M.V. Ravindran] This appeal is filed by the Revenue against Order-in-Original No. 01/2008 CE dated 18.03.2008.
2. Heard both sides and perused the records.
3. On perusal of records, it transpires that the issue is regarding the demand of an amount equivalent to 8% or 10% of the value of the exempted goods cleared by the appellant having taken CENVAT credit on common inputs and input services.
4. We find no merits in the case of Revenue as the Adjudicating Authority in Paragraph No. 21,22,23 and 26 of the impugned order, has recorded a factual position as to the demand of 8% or 10% of the value of the goods which we reproduce:
21. As regards reversal of credit of Rs. 92,761/-, it is seen that the Assessee have availed CENVAT credit on the inputs used in the manufacture of exempted goods till December 2002 and they were paying 8% amount at the time of clearance of exempt goods. It is only from January 2003, that they have started maintaining separate accounts for inputs used in exempted and dutiable finished products and for the period earlier to January 2003 i.e., upto December, 2002, the Assessee has paid an amount of 8% of the value of exempted goods. During the curse of investigation taken up by the department, it was found that the Assessee has not made payment of 8% on the value of exempted goods cleared to HAL vide Invoice No. 343 dated 28.11.2002. In terms of Rule 6 of CENVAT Rules, 2002 the assessee are required to pay 8% of the value of exempted goods if no separate accounts are maintained for common inputs used in the manufacture of exempted and dutiable finished products. Immediately, on being aware, the assessee have voluntarily paid an amount of Rs. 92,761/- is debited in R.G. 23 Part II vide entry No. 326 dated 19.01.2006 and interest of Rs. 38,200/- vide TR 6 challan No. 010 dated 25.01.2006 prior to issue of notice.
22. As regards proportionate reversal of CENVAT credit of Rs. 1,02,938/-, it is seen that the assessee have imported duty free inputs under Notification No. 39/96-Cus, dated 23.07.96 required for execution of contracts issued by Defence Machinery Design Establishment (DMDE). Apart from supplies made to DMDE, the assessee have also cleared finished goods to DRDL, Mazgon Docks, Garden Reach Ship Builders Ltd., without payment of duty in terms of Notification No. 64/95 CE dated 16.03.95. The details of imports and consumption of inputs vis-`-vis the clearances of finished products are available in Annexure 2 of the notice. The excess quantities of inputs consumed as against the duty free imports were from out of the duty paid inputs on which CENVAT was availed by the assessee. On reconciliation of their records, the assessee has suo motu debited the credit attributable to this excess quantity of inputs. This amount of Rs. 1,02,938/- was reversed in RG 23 Part II entry no. 328 dated 27.01.2006, and intimated the same to the Department vide their letter dated 27.01.2006, and the interest amount of Rs. 18,072/- was paid vide Challan No. 11 dated 31.01.2006. The reversal of credit along with interest is upheld.
23. Next comes the contentious issue of denial of CENVAT Credit in respect of inputs used in R&D section by the assessee. At this stage, it would be pertinent to understand as to what is this R&D consumption. The assessee has submitted that many a time they receive orders for supply of specific custom made cable and customer also supply a sample of cable to be manufactured. The manufacture of the cable is by trial and error by doing reverse engineering and process goes on until the desired product is obtained. The materials used in various trial stages of production eventually turn into waste and scrap or into intermediate products for the final products and the scraped material is cleared on payment of appropriate duty. The inputs consumed in the various trial stages is said to have been used in R&D. Having appreciated the factual position, I now go to the statutory provisions. Rule 3 of CENVAT Credit Rules, 2002 inter alia provides that a manufacturer of final products shall be allowed to take credit of the duties (specified therein) paid on any inputs received by him for used in, or in relation to the manufacture of final products. It is the case of the Department that the inputs used in the R&D cannot be considered as used in or in relation to manufacture of final products as they have been said to be used for testing purpose only and will become scrap after usage in R&D and at no point of time used the same in the production of finished goods. The dispute is settled if one were to decide whether usage of inputs in R&D can be brought within the ambit of usage in or in relation to manufacture of final products. The usage of words in relation to the manufacture after the words in is with the intention of widening the scope of usage of inputs. By the usage of these words, it is the intention of the legislature to broaden the scope of expression the usage of inputs whether the usage is direct or indirect. In this regard I recall the decision of the Honble Apex Court in the case of Doypack Systems Pvt. Ltd., Vs. Union of India [1988 (36) ELT 201 (S.C.)] wherein the Court interpreted the term in relation to. To quote the words of Supreme Court:
The expressions pertaining to, in relation to and arising out of, used in the deeming provision, are used in the expansive sense, as per decisions of courts, meanings found in standard dictionaries, and the principles of broad and liberal interpretation in consonance with Article 39(b) and (c) of the Constitution. (para 46) Again, in the same judgment:
The expression in relation to (so also pertaining to), is a very broad expression which pre-supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context, see State Wakf Board Vs. Abdul Aziz (A.I.R. 1968 Madras 79, 81 paragraphs 8 and 10, following and approving Nitai Charan Bagchi Vs. Suresh Chandra Paul (66 C.W.N. 767), Shyam Lal Vs. M. Shayamlal (A.I.R. 1993 All. 649) and 76 Corpus Juris Secundum 621. Assuming that the investments in shares and in lands do not form part of the undertakings but are different subject matters, even then these would be brought within the purview of the vesting by reason of the above expressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term relate is also defined as meaning to bring into association or connection with. It has been clearly mentioned that relating to has been held to be equivalent to or synonymous with as to concerning with and pertaining to. The expression pertaining to is an expression of expansion and not of contraction. (para 48).
25. In this view of the matter, I am of the firm opinion that so far as inputs used in trial stages of production, the same are to be as used in relation to the manufacture of finished goods and the denial of CENVAT credit is not proper and legal. Reliance is also placed on the following case laws:
i) 1982 (10) ELT 421 (CBEC & C)
ii) 1994 (74) ELT 381 (Tribunal)
iii) 1995 (75) ELT 188 (Tribunal)
iv) 1990 (50) ELT 314 (Tribunal)
26. The next issue for decision relates to payment of amount at 8% or 10% of Rs. 29,88,867/- on the finished goods of value Rs. 3,34,32,236/- as per Annexure 1 of the notice. The main grounds for arriving at the allegation by the Department are that even in the case of maintenance of separate records for common inputs for exempted as well as dutiable finished products, it appears that the quantities of inputs accounted in the separately maintained registers are far below the quantities consumed in the respective clearances, the figures mentioned in the separate registers include not only the quantities of inputs procured directly but also manufactured in the factory of the assessee by using common inputs (para 7& 8 of the Notice). However, I find that the statistical analysis of the Department in arriving at the demand was effectively countered by the assessee in their submissions. It was countered that the clearance value of Rs. 3.34 crores mentioned is not correct as it includes Rs. 0.74 crores towards goods returned for re-inspection. Invoice No. 587 dated 27.03.2003 was erroneously mentioned as Rs. 3,42,809/- as against Rs. 34,290/-. Also the consumption of inputs was mentioned at Rs. 1.47 crores whereas it should be Rs. 1.66 crores. Moreover, the opening stock of work-in-process as certified by the Range Superintendent has not taken into account in the SCN. Again, the assessee has not availed any CENVAT in respect of items like MTO, Inks, Silver salts etc. As they are local purchases. I also find that the show cause notice, the consumption of SPC Wire, NPC Wire, Nickel, Silver of 2126.765 Kgs has been compared with the consumption of Copper of 4586.40 Kg to arrive at a conclusion that consumption of material in the accounts separately maintained is far below the actual consumption. Clearly, such a conclusion is erroneous, to say the least. In this view of the effective rebuttal, the allegation in the SCN for demand of Rs. 29,88,867/-, is not sustainable. Held accordingly.
5. It can be seen from the above reproduced findings, the Adjudicating Authority has diligently gone through the entire case records and held in favour of respondent with which we concur. We find no reason to interfere in such a reasoned order given by the Adjudicating Authority as Revenue has not contradicted the findings effectively and hold that the impugned order is correct and legal and does not require any interference.
6. The appeal stands rejected.
(Order dictated & pronounced in open court)
MADHU MOHAN DAMODHAR M.V. RAVINDRAN
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
Lakshmi.
Appeal No. E/715/2008
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