Customs, Excise and Gold Tribunal - Mumbai
Nirlon Limited, Kunal Sagar And Ashok ... vs Commissioner Of Central Excise on 1 October, 2004
ORDER Moheb Ali M., Member (T)
1. These appeals arose out of the order of the Commissioner of Central Excise Mumbai V. In the impugned order the Commissioner confirmed Central Excise duty amounting to Rs. 5,31,59,960/- (BED), Rs. 77,03,618/- (AED TT), Rs. 79,555/- (AEDST), totaling to Rs. 6,09,43,133/-, imposed an equal amount of penalty under Section 11AC read with Rule 173Q (1) of CE Rule, 1944, ordered recovery of interest under Section 11AB, appropriated an amount of Rs. 5,08,449/- paid by the company, imposed a penalty of Rs. 1 lakh under Rule 209A on the Executive Vice Chairman of the Company and imposed a penalty of Rs. 25,000/- under the same Rule on the Manager Marketing of the Company.
2. Briefly the facts are that the company manufactures, amongst others, tyre cord yarn and tyre cord fabric falling under Chapter 54 and 59 of Central Excise Tariff Act, at their Goregaon Factory. The said goods are sold at the factory gate and also removed for captive consumption to the appellant's Tarapur factory. At Tarapur factory the goods are utilized in further manufacture of final products. On 1st March 1994 and 28th March 1994 the appellant filed the price lists in Proforma Part I under Section 4 of the Central Excise Act, 1944. In the price lists the appellant declared the whole sale price of the TCY and applied the same price for the said goods removed for captive consumption in the appellants' Tarapur factory. On 1st March 1998 the appellant filed a price declaration in respect of TCY being manufactured and removed for captive consumption. This price declaration was filed in terms of Section 4(2) read with Rule 6(b) (i) of the Central Excise Valuation Rules 1975. On the price declaration the appellant had also made a remark to the effect that the said TCY was sold at the same rate to wholesale buyers at their factory gate and accordingly adopted the same price for goods cleared for captive consumption. Later the appellant in his letter dt: 21.2.2000 informed the Superintendent of Central Excise that there is a difference, in quality and grade of the yarn sold to the customers at the Goregaon factory and the one that is captively consumed at Tarapur. In the light of this correspondence further investigation is conducted and several statements of the employees of the company were recorded. Consequent on this investigation a show cause notice was issued on 3.3.2001 asking the appellant to show cause why the assessable value of TCY cleared for captive consumption should not be arrived at by adopting cost construction method in terms' of Rule 6(b) (ii) of the Valuation Rules, as against valuation claimed by the appellant under Rule 6(b) (i), why a notional profit of 10% of cost of manufacture should not be added while arriving at assessable value, why the differential duty thus calculated as mentioned supra should not be demanded for the period February 1996 to June 2000 under proviso to Section 11A(1) of the Central Excise Act and why penalty should not be imposed etc.
3. The commissioner in his findings set out four issues to be decided by him. (i) Whether the show cause notice issued on 3.3.2001 covering the period February 1996 to June 2000 invoking proviso to Section 11A (1) is legally tenable. (ii) Whether the value should be determined, under Rule 6 (b) (ii) rejecting the value adopted by the appellant under Rule 6(b) (i), (iii) Whether notional profit of 10% can be added to the cost of raw material and manufacturing cost and (iv) Whether penalty under Rule 209 A can be imposed on the noticee's.
4. On the first issue the Commissioner holds that the appellant filed price declarations on 1.3.94 and 28.3.94 in Proforma I declaring therein wholesale price of the product and adopted the same price for the captively consumed goods. The appellant did not file any further price declaration till 1.4.98 even though the assessable value varied during the period 94-98. Its only on 1.4.98 another price declaration was filed under Rule 173C read with Rule 6(b) (i) for effecting clearances of TCY for captive consumption. This declaration had a remark "the goods are sold at the same rate to the wholesale buyers". However the statements of Manager Finance, DGM Production, Quality Control-In-charge and Manager Marketing of the Company revealed that the goods sold at the factory gate are different in standard from the one cleared for captive consumption to Tarapur. Under Rule 6(b) (i) only the value of the comparable goods produced or manufactured by the asssessee or by any other assessee can be taken as the assessable value for captively consumed goods. He held that the appellant deliberately mis-declared that the goods cleared at the factory gate and the ones cleared for captive consumption are either same or comparable. The appellant suppressed the real value of captively consumed goods. He relied upon the statements of the various persons as mentioned above to come to this conclusion. He held that the appellant was well aware of the fact that the goods cleared to Tarapur differ in technical specification. The same goods are never sold at the factory gate and this material fact was suppressed from the department with an intention to evade duty. Hence show cause notice invoking proviso to Section 11A (1) is rightly issued. He discarded the appellants' contention as regards to availability of modvat credit of duty paid at Goregaon unit to Tarapur unit by holding that huge difference in the value between the product sold at the gate and the one cleared for captive consumption is a strong circumstance in support of the allegation that there was an intention to evade duty. In any case the evasion undeniably resulted in a financial gain for the assessee during the period.
5. On the second issue as to whether the value should be determined under Rule 6(b) (ii), he held that Rule 6(b) (ii) comes into play when the price of comparable goods produced or manufactured by the aeessess or by any other asseesee is not available. It has been brought out by the Department and also agreed to by the appellants employees that the goods cleared at the factory gate are different from the goods cleared for captive consumption. The appellant attempted to adopt the value of the goods cleared at the factory gate for the ones cleared for captive consumption by not disclosing that these two goods are different. The department succeeded in establishing that the goods produced in the factory at Goregaon and cleared there from are different from the ones cleared for captive consumption. He therefore held that value can be arrived at for the captively consumed goods under Rule 6(b) (ii).
6. On the third issue of inclusion of profit element to the cost of production he held that under Rule 6(b) (ii) profits if any which the assessee would have normally earned on the sale of such goods should be added. He rejected the appellants' contention that since the company is making losses 10% notional profit can not be added following the ratio of the Tribunal's decision in the case of Raymond Ltd. v. CCE [2001 (129) ELT 327 (Tri-LB)], He observed that the company did not have a separate balance sheet for Goregaon unit. He therefore went by the statements of the Director of the company published in the balance sheet for the year 1998-99, 99-2000 and 2001 where the company declared that the improvement in profit margin in so far as Tyre Cord was concerned was eroded. These statements indicated that the Tire Cord unit was making profit. The Commissioner also observed that 10% margin is a reasonable rate of return as per industry norms.
7. On the fourth issue he observed that penalty is imposable under Rule 209A as there was complicity on the part of Executive Vice Chairman and the Marketing Manager.
8. Hear both sides.
9. The Ld. Advocate Shri Rohan Shall assailed the order on several counts. It was argued that the Department was in error in determining the price of the goods under Rule 6(b) (ii) without exhausting the possibilities of determining the value under Rule 6(b) (i) if the goods sold at the factory gate cannot be compared with the ones cleared for captive consumption suitable adjustment could have been made to determine the value of captively consumed goods. The Commissioner proceeded on the assumption that the value can be determined only under Rule 6(b) (ii) without exhausting the various ways of determining the value thereof under Rule 6(b) (i)., The Second argument is that even if the value had to be determined under Rule 6(b) (ii) addition of 10% Notional profit to the cost of production of the impugned goods is erroneous in view of the fact the company was making losses. It is also argued that the Commissioner did not give any finding on the contention that there cannot be any allegation of suppression when the duty paid at Goregaon unit was available at Tarapur Unit as MODVAT credit. He stressed that when there was revenue neutrality the charge of suppression cannot be sustained. It was contended that the Commissioner was in error invoking the provisions of Section 11AC when that section itself had come into force only with effect from 20th September 1996 when the allegation in the show cause notice was that the appellant suppressed material facts in February 1996. He also contended that penalties on the employees are not sustainable particularly so on the Executive Vice Chairman who is not involved in day to day affairs of the Company.
10. The Ld. Jt CDR Shri N.K Gupta argued that the department was right in invoking the longer period of limitation while demanding the differential duty. The appellant did suppress the fact that the goods sold at the factory gate are different from the ones sent to Tarapur Unit for captive consumption. The appellants made a statement while filing the price declaration that a wholesale price exists at the factory gate for the goods cleared for captive consumption even when they were aware that the goods cleared to Trarapur are different. In regard to addition of 10% as notional profit he argued that issue is now well covered by the Larger Bench decision in the case of Raymonds Ltd. cited supra and the Commissioner rightly relied on it. In regard to revenue neutrality he argued that in a case of suppression and mis-declaration it is for the appellant to establish that there was revenue neutrality. It was further contended that the appellant was in error when he argued that the Commissioner did not deal with this issue in his order. In fact he dealt with this contention clearly on page 10 of his order. The Commissioner clearly stated that the assessee gained financially during the period by mis-declaring in the P.Ds that the goods are sold at the same rate to the wholesale buyers. The Ld. Jt. CDR also supported the Commissioner decision to impose penalties under Rule 209A.
11. We first address ourselves to the issue of applicability of Rule 6(b) (ii) of the Valuation Rules in respect of the goods captively consumed. The appellants' contention that the Commissioner erred in determining the value under 6(b) (ii) of the Central Excise Valuation Rules for the goods captively consumed has to be examined in the light of events that took place during the disputed period February 1996 to June 2000. The appellants filed price lists for the goods manufactured at Goregoan unit on 1.3.94 and 28.3.94 under Rule 173C of Central Excise Rules in Proforma I. These price lists indicated that a wholesale price of the goods in question existed at the factory gate and therefore the price at which the goods are sold is determinable under Section 4 (1) (a) of Central Excise Act. The unit was manufacturing different types of tyre cord yarn and tyre cord fabrics. The unit cleared a certain variety of yarn to its Tarapur Unit. This yarn was different in both specification and standard from the one cleared to other wholesale buyers. The unit adopted the same price for both types of yarn for the purpose of assessment to duty. This position continued till March 1998. During this period i.e. 1994 to March 1998 the appellants did not file any price declaration even though he was required to do so under the amended Rule 173C w.e.f. 1.4.94 whenever there was a change in the assessable value. The appellants however filed the price declaration on 1.3.98, this time declaring that the value of goods cleared to their Tarapur unit has to be determined under Section 4 (1) (b) read with Rule 6(b) (i) of Valuation Rules 1975. Rule 6(b) (i) stipulates that when goods are captively consumed the value of such goods shall be based 'on the value of the comparable goods produced or manufactured by the assessee or any other assessee'. While filing this declaration the appellants claimed that the value of the comparable goods was available at the factory gate as they were manufacturing and selling the same goods to other wholesale buyers. This declaration was factually incorrect as the investigations revealed. The appellants concealed that what is consumed captively is a different type of yarn from the one sold to other wholesale buyers. With effect from 1.4.2000, however the appellants re-determined the value of the captively consumed goods on the basis of cost construction method as provided under Rule 6 (b) (ii) of the Central Excise Valuation Rules and paid the differential duty that arose during the period 1.4.2000 to 30.6.2000. The appellants plea that the Commissioner erred in determining the value under Rule 6(b) (ii) without exhausting the method provided in Rule 6(b) (i) has to be examined in the light of the above facts. We observe that the appellants themselves determined the value for the goods consumed in their Tarapur unit under Rule 6 (b) (ii) w.e.f. 1.4.2000. This action on the part of the appellants suggest that they themselves agreed that the value of the goods in question cannot be determined under Rule 6(b) (i). The appellants therefore cannot find fault with the Commissioner for determining the value under Rule 6 (b) (ii) for the same goods. We hold that the Commissioner was right in holding that the value of the impugned goods is determinable under Rule 6(b) (ii) of the Valuation Rules.
12. In so far as addition of 10% of the cost of production of the yarn captively consumed, as profit we observe that the Commissioner has adopted this percentage as profit on the basis of the Director's reports in the balance sheets, which say that the Tyre Cord division has done exceedingly well during the relevant period. We observe that no separate balance sheet is prepared by the company for the unit at Goregaon. In a situation of this sort the Commissioner was right in adopting 10% profit for the tyre cord division of the company. He followed the Larger Bench decision in the case of Raymonds Ltd. v. Commissioner of Central Excise Aurangabad cited supra while rejecting the appellants plea that overall profit or loss of the company should be taken into consideration while determining the margin of profit if any. The issue is well covered in the above cited decision. The only way the appellants could have contested this addition (10%) is by demonstrating that the margin of profit is less than 10% and therefore such a percentage cannot be added to the cost. We find that the appellant at no stage demonstrated a figure less than 10% to rebut the department's contention. We therefore agree with the contention of the Commissioner the 10% profit should be added while computing the cost of production of the captively consumed yarn. In regard to addition of profit to cost of production when value is arrived at under Rule 6(b) (ii) we observe that the Hon'ble Supreme Court in the case of Malhar Siddeswara Spinning Mills Ltd. v. CCE Coimbatore held that profit is addable
13. While computing the cost of production under Rule 6(b) (ii) the Commissioner has also included advertising expenses, depreciation interest etc. on the plea that the Board's Circular No. 258/94-96/CX-1 dt. 30.6.96 authorised into do so. During the course of arguments the Ld. Advocate did not stress on this aspect nor did he demonstrate as to how the cost would workout if the advertising expenses, depreciation, interest etc. or not added to the cost. In the absence of any plea in this regard, we are not in a position to make any observation on this issue.
14. In so far as invocation of larger period of limitation under Section 11A(1) proviso, we observe that the department has established suppression on the part of the appellants. The appellants have clearly stated in their price declaration filed prior to 1.4.1998 that a wholesale price exists for the goods captively consumed whereas they were aware that no such wholesale price existed at the factory gate for similar goods. The evidence brought out by the department clearly establishes that the goods sold at the factory gate were different from the ones cleared for captive consumption. We reject the appellants contention that the goods sold at factory gate and those that are captively consumed fall under the same tariff heading and therefore are the same. In a commodity like yarn so many factors distinguish one type of yarn from another. The fact that all yarn falls under the same Tariff heading is hardly an argument to say that they are same. The statements of various persons also indicated they are not. From 1.4.98, while filing the price declarations the appellants clearly indicated that they are adopting value under Rule 6(b) (i) because "the goods are sold at the same rate to the wholesale buyers". This averment is clearly a misstatement we have noted that there is ample evidence to show that the goods sold to the wholesale buyers at the factory gate are different. In that event, the appellant could not have adopted the price at which the goods were sold to the wholesale buyers while determining the value under Rule 6(b) (i).
15. The appellants plea that larger period of limitation can not be invoked when revenue neutral situation exists has been answered by the Commissioner albeit in a sweeping manner.
16. It is true that normally what is paid by way of Central Excise Duty at Goregaon factory will be available as modvat credit to the unit at Tarapur. In the present case the appellant pays BED plus a percentage of this as AED on the goods cleared for captive consumption. We are not aware of the duty structure on the goods manufactured at Tarapur and whether are not the said goods (inputs) are cleared as such at Tarapur after taking modvat credit. The plea of revenue neutrality would not be available in all situations. It depends on facts and circumstances of each case.
17. In the case of Amco Batteries Ltd. v. CCE Banglore [2003 (153) ELT 7 S.C.] the Hon'ble Supreme Court dealt with the concept of suppression with an intent to evade duty where MODVAT credit is available to the unit. The Supreme Court observed thus "in the present case also, there is no material on record from which it could be inferred or established that duty of excise was not levied or paid by reason of any fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or the Rules made there under with intent to evade payment of duty. It was a bona fide belief on the part of the appellant that scrap and waste, which was recovered while manufacturing batteries was exempt from levy of excise duty. Further appellant was entitled to get benefit of modvat scheme, therefore, there was no justifiable reason for the appellant to suppress any fact". It is clear from the above passage that if an assessee acts under a bona fide belief that duty is not payable suppression with an intent to evade duty cannot be invoked and more so when the benefit of modvat scheme was available to him. Clearly the ratio laid down in this case does not apply to a situation where suppression Per se is evident and is established from the facts of a given case. The concept of revenue neutrality is not novel to a manufacturer where the goods are modvatable. Thus the Goregaon factory is aware that whatever duty is discharged while clearing the goods to Tarapur unit the latter will be in a position to take such duty as modvat credit. Despite that if an unit chooses to suppress certain facts and thereby short pays duty, the consequences of such action would befall him. It is emphasized that in the appellant's case the department has established suppression of facts, whereas in the Amco Batteries case the assessee failed to discharge proper duty on the bona fide belief that the goods were not dutiable. The Supreme Court was not dealing with a case where suppression was prima facie evident.
18. The larger bench of Tribunal in Jay Yuhsin Ltd. v. CCE New Delhi [2000 (119) ELT 718] held that it has to be shown that the revenue neutral situation comes about in relation to the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessee's manufactured goods. In the present case there are two assesses albeit belonging to the same group. For the purposes of Central Excise law the Goregoan unit is different from the one at Tarapur. It is the Goregoan unit who pays the duty the credit of which is taken by Tarapur unit. When two units are involved, according to the Bench, the plea of revenue neutrality is not available. We are not aware as to what financial considerations the Goregoan unit had in mind when it chose to deliberately under state the value of the goods manufactured and cleared by it to the Tarapur unit nor are we expected to go into such calculations. Revenue neutrality is a concept known to both the units. The allegation of evasion does not get mitigated by the fact that one unit is entitled to take modvat credit of duty paid by the other. The Larger Bench in the above cited case has also held that once an assessee has chosen to pay duty he has to take all the consequences of payment of duty. In the case before us the assessee chose to pay duty in preference to availment of benefit of Notification No. 217/86 CE and if any short payment occurs he has to take the consequences of short levy/non- levy.
19. In the case of Tamilnadu Housuing Board v. CCE Madras [1994 (74) ELT 9] the Supreme Court held that extended period is invokable only when suppression, fraud etc. with an intent to evade payment of duty is established The Hon'ble Court also held that the initial burden to prove that both these ingredients exist is on the department. In the present case the assessee was aware that the goods cleared at the factory gate were different from the ones cleared to Tarapur unit. Yet the appellant chose to declare that they were one and the same and adopted the same price for both the goods. The evidence collected by the Department established that the persons in charge were aware of the difference. It is not the case of the appellant that they were under a bona fide belief that what they declared to the department was the correct position in law. The two tests laid down by the Supreme Court are satisfied in this case. We may also add that a part of the period i.e. February 2000 to June 2000 is covered under normal period of limitation.
20. Rule 57E of the Central Excise Rules, as then existed lays down under Sub-rule 3 that if any additional amount of duty became recoverable from the manufacturer of inputs on account of any short levy or non levy by reason of suppression of facts with an intent to evade payment of duty such incremental duty paid would not be available as modvat credit to the user of the said goods. This could be interpreted to mean that the legislature contemplates that suppression with an intent to evade duty is possible even when goods are modvatable. None of the decisions of the Tribunal or Courts suggests that suppression and consequent invocation of larger period of limitation is bad in law when modvatable goods are involved. In conclusion we observe that the appellants plea that suppression cannot be invoked in their case because of revenue neutrality is not tenable.
21. We now come to the penalties imposed under Section 11AC and interest demanded under Section 11AB both these sections have come into the statute books w.e.f. September 1996. The disputed period is February 1996 to June 2000. Therefore Section 11AC and 11AB cannot be invoked for the period February 1996 to September 1996. The Commissioner's order in this regard cannot be sustained.
22. We have considered the pleas made before us in regard to the penalties imposed on the Executive Vice Chairman and the Manager Marketing. The Executive Vice Chairman cannot be held responsible for the day-to-day affairs of the company unless it has been established that he had a direct role in under stating the value of the goods. No such evidence has been brought out. In regard to the penalty on the Manager Marketing we observe that penalty is sustainable as he was aware that the goods sold at the factory gate were different from the ones supplied to Tarapur unit.
23. In the light of the forgoing we pass the following order
(a) Determination of value of the impugned goods under Rule 6(b) (ii) of the Central Excise Valuation Rules is upheld.
(b) Addition of 10% of profit to the cost of production of the impugned goods is upheld.
(c) Invocation of extended period of limitation under Section 11 (A) (1) proviso is upheld.
(d) Penalty under Section 11AC is reduced to Rs. 1 crore.
(e) Interest under Section 11AB be calculated in the light of our observations made supra.
(f) Penalty on the Executive Vice Chairman under Rule 209A is set aside.
(g) Penalty on the Manager Marketing under Rule 209A is upheld.
23. Thus the appeals are partly allowed and are decided on the above terms.