Gujarat High Court
Commissioner vs Prem on 2 February, 2012
Author: Akil Kureshi
Bench: Akil Kureshi
Gujarat High Court Case Information System
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TAXAP/2435/2009 16/ 16 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 2435 of 2009
With
TAX
APPEAL No. 446 of 2011
=========================================================
COMMISSIONER
OF CENTRAL EXCISE AHMEDABAD - II - Appellant(s)
Versus
PREM
FABRICATORS - Opponent(s)
=========================================================
Appearance
:
MR
DARSHAN M PARIKH
for
Appellant
MR HARDIK P MODH for
Opponent
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE AKIL KURESHI
and
HONOURABLE
Ms JUSTICE SONIA GOKANI 2nd February 2012
ORAL
ORDER (Per
: HONOURABLE MR.JUSTICE AKIL KURESHI) Tax Appeal No. 2435 of 2009 has been filed by the Department against one Prem Fabricators. Whereas, Tax Appeal No. 446 of 2011 is filed by Messrs. Prem Fabricators. Both appeals arise out of common judgment of the Central Excise & Service Tax Appellate Tribunal, West Zone Bench {"CESTAT" for short} dated 3rd September 2009. Briefly stated, the facts are as follow :-
Messrs.
Prem Fabricators is engaged in the work of fabricating steel structures. It received two work-orders from the Central Warehousing Corporation {"Corporation" for short} both dated 18th October 2006. These work orders were valued at Rs. 4.61 Crores [rounded off] and Rs. 4.04 Crores [rounded off]. First of the two contracts was for supply of fabricated pre-engineered steel structures for the ware-house as per the approved drawings of the Corporation. The second work order similarly was for supplying at site steel work in built up square and rectangular closed hollow sections, and other related structures required by the Warehouse Corporation. Such structures were to be supplied at the Corporation's site at Mundra.
The manufacturer cleared goods from its factory site situated at Kathwada without payment of duty under A.R.E 1 invoices, claiming that by virtue of Exemption Notification No. 58/03-CE, it carries no liability to pay duty. After such clearances in the month of December 2006 to February 2007 totalling valued at Rs. 5,50,28,186/= from its factory to the Central Ware Housing Corporation, Mundra, the Department issued a show cause notice dated 20th December 2007 why Central Excise duty of Rs. 89,80,600/= be not recovered under Section 11A (1) of the Central Excise Act, 1944 {"Act" for short} with interest under Section 11AB of the Act, and further why penalty should not be imposed under Section 11AC of the Act read with Rule 25 of the Central Excise Rules, 2002.
The manufacturer responded to the show cause notice raising several defenses. Though initially, stand of the manufacturer was that by virtue of Exemption Notification No. 58/03-CE no excise duty was payable, in reply to the show cause notice, main stand adopted was that the entire fabrication work was executed at the site of the Central Warehousing Corporation and that therefore, by virtue of Notification No. 3 of 2005 dated 24th February 2005, the goods would attract "nil"
rate of duty.
The Commissioner of Central Excise, however, by his order-in-original dated 26th March 2008 repelled the opposition of the manufacturer and passed the following order :-
"2. In view of the above discussion and findings in foregoing paras, I pass the following order:
ORDER
(i) I confirm and demand the Central Excise duty of Rs. 89,80,600 {Rupees Eighty nine lakhs eighty thousand six hundred only) under proviso to Section 11A (1) of the Central Excise Act, 1944.
(ii) I order that the duty as confirmed at (i) above shall be recovered along with interest at appropriate rate under Section 11AB of Central Excise Act, 1944.
(iii) I impose a penalty of Rs. 89,80,600/= {rupees Eighty nine lakhs eighty thousand six hundred only) on M/s. Prem Fabricators, Ahmedabad under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules 2002.
(iv) However, as penalty under Section 11AC of the Central Excise Act, 1944 been imposed, I refrain from imposing a separate penalty on them under Rule 25 of the Central Excise Rules, 2002."
In his order-in-original, the Commissioner noted that the manufacturer did not fulfill two essential conditions of Notification No. 58/03-CE and that therefore, was not entitled to any exemption under the said notification. The Commissioner also held that the manufacturer was not entitled for any exemption under Notification No. 3 of 2005. The Commissioner noted that the exemption is available on all goods fabricated at site of work for use in construction work at such site. In the present case, the factory of the manufacturer was situated at Kathwada where the goods were manufactured and the site where the godown was being constructed was situated at Mundra Port in Kutch, which was at a distance of 400 kilometers away from the factory site. He, therefore, held that the manufacturer cannot claim benefit of exemption under notification no. 3 of 2005.
The manufacturer approached the Tribunal against the order of the Commissioner. Tribunal concurred with the view of the Commissioner that the manufacturer did not fulfill two of the essential conditions of Notification no. 58 of 2003. Tribunal rejected the contention of the manufacturer that the activity did not amount to "manufacture" and that therefore, no excise duty was leviable at all. The Tribunal also considered the manufacturer's contention with respect to Notification No. 3/2005. After examining the material on record at a considerable length, the Tribunal came to the conclusion that the manufacturer had not fabricated the structures at site of the Corporation. Thus, on all counts, the Tribunal held in favour of the Department. However, while upholding the duty demand, in the concluding portion of its order, the Tribunal expressed an opinion that the manufacturer had a bona fide belief that it was eligible for exemption and therefore cleared the goods under Notification No. 58 of 2003. In that view of the matter, Tribunal was of the opinion that there was no justification for imposing penalty under Section 11AC of the Central Excise Act, 1944. The Tribunal also provided that the claim for CENVAT credit should be considered by the Commissioner. The Tribunal, therefore, directed that the manufacturer be given such credit admissible; subject to production of necessary documents.
This order of the Tribunal has given rise to the present two Appeals. Appeal of the Department is directed against the Tribunal's order waiving the penalty under Section 11AC of the Act as also the Tribunal's direction to give benefit of CENVAT credit to the manufacturer. In its appeal, the Department has formulated the following questions for our consideration, which we adopt as substantial questions of law for deciding the Department's Appeal.
[A] "Whether the CESTAT was right in waiving the penalty imposed under Section 11AC of the Central Excise Act, 1944 contrary to the judgment of Hon'ble Supreme Court in cases of Union of India v. Dharmendra Textile Processors, reported in 2008 (231) ELT 3 and Union of India v. Rajasthan Spinning & Weaving Mills, reported in 2009 (238) ELT 3 (SC) ?"
[B] "Whether in law the CESTAT was entitled to come to a different conclusion regarding imposition of penalty, having accepted the finding regarding the willful mis-statement by the assessee with intent to evade payment of duty ?"
[C] "Whether CESTAT was right in permitting CENVAT credit to the assessee?"
On 27th October 2010, Division Bench of this Court had issued notice for final disposal, pursuant to which, learned counsel Shri Modh appeared for the manufacturer and opposed the appeal of the Department.
Against the same judgment of the Tribunal, the manufacturer also has approached us in Tax Appeal No. 446 of 2011. Such appeal is directed against the Tribunal's order confirming the duty demand against the manufacturer. In its Appeal, the manufacturer has formulated the following questions for our consideration.
[A] "Whether the Tribunal was correct in denying the benefit of Notification No. 03/2005-CE dated 24th February 2005 to the Appellant ?"
[B] "Whether the Tribunal was correct in discarding the certificate issued by the Central Warehousing Corporation certifying that goods in dispute were manufactured at site ?"
[C] "Whether Central excise duty can be demanded on structure consist of column, portal, canopy, trusses, etc., which is embedded to earth and becomes part of immovable property ?"
On behalf of the Department, learned advocate Shri Darshan Parikh vehemently contended that the Tribunal committed grave error in dropping the penalty demand, as also directing to give benefit of CENVAT credit to the manufacturer. He submitted that the Tribunal had upheld the Department's stand that the manufacturer was required to pay excise duty and was not entitled to exemption notifications. The Tribunal, therefore, committed an error in not confirming the penalty imposed by the Commissioner on the ground that the manufacturer had a bona fide belief that it was covered by the notification of exemption.
On the other hand, learned advocate Shri Modh appearing for the manufacturer submitted that the Tribunal correctly deleted the penalty demand. The manufacturer believed that the Warehousing Corporation was a SEZ Unit since it was located in the SEZ area. A.R.E.1 invoices were immediately cancelled when it was realized that exemption notification no. 58 of 2003 was not available. Counsel further submitted that the Tribunal committed a grave error in not appreciating the facts properly while holding that the manufacturer did not carry out fabrication work at the site of the Corporation.
With respect to Department's appeal in connection with penalty, counsel submitted that the Commissioner committed an error in confirming the penalty. There was no mala fide intention on the part of the manufacturer in not paying the duty. Counsel relied on the decision of the Apex Court in case of Union of India v. Rajasthan Spinning & Weaving Mills, reported in [(2009) 238 ELT 3 (SC)], wherein, the Apex Court held and observed as under :-
"18. One cannot fail to notice that both the proviso to sub-section 1 of Section 11A and Section AC use the same expressions : "...by reasons of fraud, collusion or any wilful misstatement 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...".
In other words, the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A (1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A (2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A (2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessee it was also submitted that Section 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A (2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC."
Having thus heard learned counsel for the parties and having perused the orders on record, we may record at the outset that counsel for the manufacturer did not dispute that the activity carried out by the client did amount to manufacturing activity. To that extent, though lengthy debate appeared to have taken place before the Tribunal, we need not enter into this controversy.
First, coming to the manufacturer's appeal and the contentions raised therein, the central issue hotly argued before us was that the manufacturer was entitled to exemption under Notification No. 3 of 2005. The applicability of the said notification require that goods should have been fabricated at site of work for use in construction work at such site. In the present case, as already noted, the Commissioner held that the goods were fabricated at the factory site of the manufacturer situated at Kathwada and were shifted thereafter at the site of the Corporation, situated at Mundra, which is about 400 kms. away. Additionally, Tribunal also examined this aspect at length. Tribunal noted various conditions of the work-orders issued by the Corporation in favour of the manufacturer, as also other materials and circumstances. The Tribunal discussed this issue and came to the following conclusion :
"10. When we see the work order issued to the appellant by CWC, in the first work order, it was mentioned that order was of supplying and stacking of re-engineered steel system for warehouse in super structure including roof sheeting, wall cladding and canopy. While releasing the order, it has been stated in the second paragraph "You are requested to start the supply immediately and ensure completion of supply as per programme mentioned in terms and conditions of schedule of quantity which is enclosed herewith." Further, the Schedule of Quantities also shows the quantity as 18,750 sq.mtrs. and the description starts with the words "Supplying of fabricated pre-engineered steel structures" which also proceeds and says that it includes supply of columns, steel rafters, ties, bracing, purlins, sag rods, nuts and bolts, washers, etc. Further, in the Terms & Conditions, the CWC has clearly mentioned that rate shall be quoted by the contractor for supplying at site and is inclusive of all necessary applicable taxes. Further, it is also stated that no water and electricity will be supplied by the department to the contractor/supplier.
11. The second work order, issued on the same date 18.10.2006, which is made for supply of trusses. In this order also, the appellants have been requested to start the supply immediately and ensure completion of supply as per programme mentioned in Terms & Conditions. In this case also, the description of the items of works starts with the words "Supplying at site, steel work in built up square and rectangular closed hollow sections structures". In this case also, in Terms & Conditions, it has been stated that all materials will be received at site as per specifications and in sound condition.
12. When we look at the work orders and ARE-1 and invoices, they are in harmony with each other. Nowhere, the work order or contract speaks of fabrication at site. The order is for supply and not for fabrication at site. The certificate issued by the CWC is also carefully worded and certificate says clearly that the appellants have completed the work as per the work order. It has to be noted that both the work orders include several items whereas certificate covers only two items. Therefore, the certificate issued by CWC is not of any help to the appellant in the face of document and records which are clearly against their claim."
From the above, it can be seen that the Tribunal, after taking into account the evidence produced by the manufacturer on record, came to the conclusion that the fabrication did not take place at the site of the Corporation at Mundra. We do not find any perversity in such finding, giving rise to any question of law. The Tribunal had then confirmed the findings of the Commissioner. Such concurrent findings of the Commissioner and the Tribunal are based on evidence on record. We had also perused the work orders given by the Warehousing Corporation in favour of the manufacturer. Fabrication at the site of the Corporation was never envisaged. Entire claim of the manufacturer is based on Exemption notification 3/2005. One of the essential conditions was that the fabrication should take place at the site for construction work. This essential condition was not satisfied. The appeal of the manufacturer, therefore, must fail.
Coming to the Appeal of the Department, as already noted, the Commissioner as well as Tribunal concurrently found that the manufacturer had cleared the goods without payment of duty under the guise that it was exempt by virtue of Notification No. 58/03-CE. However, upon Department issuing the show cause notice, the manufacturer adopted a different stand that such defence was taken under bona fide belief that the Central Warehousing Corporation was a SEZ unit and in any case, the manufacturer was covered by Exemption Notification no. 3/05.
The Commissioner came to the conclusion that the manufacturer did not fulfill two essential conditions of the Notification No. 58 of 2003. Such conditions were as follow :-
{1} that the goods are supplied against the bill of export duty assessed by the Customs authorities in SEZ or against a domestic procurement certificate issued to SEZ unit by the Customs authorities in SEZ;
{2} that the proof of export, duly certified by the Deputy Commissioner of Customs, or the Assistant Commissioner of Customs in SEZ to the officer-in-charge of the Central Excise Range concerned within a period of one month from the date of removal of such goods from the place of manufacture or production.
So far as this finding of the Commissioner is concerned, there is no dispute raised even by the manufacturer. Tribunal also came to a clear finding that the manufacturer did not fulfill these two conditions. Question, therefore, arises is whether the manufacturer can be said to be under bona fide belief that it was covered under Notification No. 58/03-CE and was therefore not required to pay any excise duty.
To our mind, no such case emerges. The Commissioner had in terms come to the conclusion that the manufacturer had cleared the goods without payment of duty with clear intention to evade the excise duty. The Tribunal, without elaborating on this issue, granted benefit of doubt holding that the manufacturer had a bona fide belief that it was eligible for exemption under Notification No. 58/03-CE.
To our mind, the Tribunal missed two vital aspects of the matter in coming to such a conclusion. Firstly, the Tribunal gave no specific reasons why it formed the opinion that the manufacturer had bona fide belief of being covered by Notification No. 58/03. The manufacturer did put forth a theory of such a bona fide belief on the ground that the Central Warehousing Corporation's site was located within SEZ area and that therefore, it believed that it is a SEZ unit. However, Notification No. 58/03-CE require further details to claim benefits therefrom. Firstly, the manufacturer had to ensure that the goods were being supplied against the bill of export duly assessed by the Customs authorities by SEZ or against the domestic procurement, certified by the SEZ unit by the customs authorities. The manufacturer also had to ensure that the proof of export, duly certified by the Deputy Commissioner or Assistant Commissioner of Customs in SEZ was submitted to the officer incharge of the Central Excise Range concerned within a month from the date of removal of the goods.
Both these conditions require certain overt acts on the part of the manufacturer. The manufacturer not having taken these steps; not having supplied the documents, cannot be said to have been carrying any bona fide belief that it was protected under Notification No. 58 of 2003. Even if the manufacturer was covered under such notification, it was required to produce proof of export, duly certified by the prescribed authority and submit the same to the officer incharge of the Central Excise Range concerned and do this within a month of clearance of the goods. Admittedly, the manufacturer did not fulfill this requirement. In view of these virtually undisputed facts, we find it difficult to endorse the Tribunal's view that the manufacturer was under bona fide belief that under Notification No. 58/03-CE, it carried no liability to pay excise duty.
In that view of the matter, we are inclined to reverse the Tribunal's order to that extent. The Commissioner came to a clear conclusion that there was removal of goods with intention to evade excise duty.
Having come to such a conclusion, we cannot lose sight of the fact that neither the Commissioner nor the Tribunal, while confirming the duty demand alongwith interest and penaly, gave any opportunity to the manufacturer to pay duty with interest within the stipulated time on which the manufacturer would avail of the option of 25% of the penalty. In that view of the matter, we grant such an opportunity to the manufacturer in this order. In other words, if the manufacturer pays entire duty with interest within 30 days from the date of receipt of this order and also deposits within the same time 25% of the penalty, the penalty shall stand reduced to 25% of that imposed by the Commissioner. At this stage, counsel for the manufacturer submitted that large amount of CENVAT credit would be available to the manufacturer for payment of such duty. Though, we would not like to link the issue of availability of CENVAT credit for payment of such duty, we are of the opinion that if there is any CENVAT credit admittedly available to the manufacturer, benefit thereof cannot be denied for such purpose. In peculiar facts of this case, therefore, the manufacturer shall indicate to the Commissioner concerned the total amount of CENVAT credit available for payment of duty in question alongwith necessary documents in support thereof within a week from today. Upon receipt of such communication, the Commissioner, on prima facie consideration of such material, is of the opinion that such amount or any part thereof of CENVAT credit is available for payment of the duty in question, he would communicate the same to the manufacturer within ten days thereafter. The amount so admitted by the Department under CENVAT credit could be availed by the manufacturer for payment of duty, as directed above, and the remaining amount shall be paid within the time permitted. It is clarified that this arrangement does not preclude the manufacturer from later on disputing the Department's stand with respect to availability of part or full of the CENVAT credit.
Coming now to the question of direction for granting CENVAT credit, we find no exception to the Tribunal's view. All that the Tribunal has provided is that the CENVAT credit be granted subject to production of necessary documents. Surely, if the Department holds that the manufacturer is required to pay duty at a certain rate, it cannot in the same breath contend that the manufacturer would not be entitled to avail CENVAT credit on the inputs used in manufacturing such goods. To that extent, we are perfectly in agreement with the Tribunal particularly when availment of CENVAT credit is linked to the manufacturer producing necessary documents before the Commissioner.
In the result, we answer the question no. 2 in Department's appeal in favour of the Department. In view of such answer, it is not necessary to answer Question no. 1. We answer Question No.3 in favour of the manufacturer and against the Department and dispose of the Tax Appeals accordingly.
{Akil Kureshi, J.} {Ms. Sonia Gokani, J.} Prakash* Top