Custom, Excise & Service Tax Tribunal
M/S. Eid Parry India Ltd vs Cce & St, Ltu, Chennai on 14 November, 2017
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
E/40324/2013 E/396/2010
(Arising out of Order in Appeal No. 65/2012 dated 30.10.2012 and Order-in-Original No. LTUC/101/2010 (C) dated 30.03.2010 passed by the Commissioner of Central Excise & Service Tax, LTU, Chennai).
M/s. EID Parry India Ltd. Appellant
Vs.
CCE & ST, LTU, Chennai Respondent
Appearance Shri S. Muthu Venkataraman, Advocate, for the Appellant Shri B. Balamurugan, AC (AR) for the Respondent.
CORAM :
Honble Smt. Sulekha Beevi C.S., Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) Date of Hearing/Decision: 14.11.2017 FINAL ORDER No. 42934-42935/2017 Per: B. Ravichandran Both these appeals are on the same dispute and are accordingly taken up together.
2. The brief facts of the case are that the appellants are having licenced 100% EOU approved by the Development Commissioner, Ministry of Commerce. As per the permission granted by the Development Commissioner on 02.05.2005, the appellants are engaged in the manufacture of Neemazal formulation, Neem oil and Neem cake in their EOU Unit. The appellants procured Neem seeds and using the job worker to remove the husk of such seeds and thereafter by liquid extraction obtained Azadirachtin. They obtained the said product which is further used in obtaining Neemazal technical/formulation by evaporation and concentration. Extracted Neem kernel arising as a resultant product is sent to a job worker as per the contractual agreement for further processing. The job worker undertakes further activity by mixing the kernel extract with neem husk in specified ratio, using expeller neem oil and neem cake are obtained. Both these products (neem cake and neem oil) are packed and sold by the appellant from the premises of the job worker. The job worker is paid job charges as per rate contract in terms of the agreement.
3. The dispute in the present appeals is with reference to duty liability on neem cake and neem oil obtained from extracted kernel in the premises of the job worker. The said items have been cleared by the appellant from the premises of job worker as a non-excisable product. The Revenue after conducting enquiry held a view that the appellants failed to discharge their obligation in terms of LOP granted to them and failed to pay applicable duty on the neem oil and neem cake cleared to domestic market. Accordingly, proceedings were initiated against the appellant, which resulted in the confirmation of duty demands in two proceedings for different periods. Penalties were also imposed on the appellants in terms of Section 11 AC of the CEA, 44 and Rule 25 of CER, 02.
4. The Ld. Counsel appearing for the appellants contested the findings of the lower authorities and argued on the following lines:-
i) The extraction of neem oil and neem cake from neem kernel happened in the premises of the job worker and, if at all, the job worker should be held liable under the Central Excise law for any duty. The appellants duly discharged their obligation for Neemazal formulation/technical and they have cleared kernel extract to the job worker on which no duty liability can be fastened.
ii) The present proceedings holding the appellants as liable to duty in terms of obligation on EOU for neem oil and neem cake is without justification as they are not involving in manufacture of the said products.
iii) The duty demand has been made by wrong application of Foreign Trade Policy. Neem oil and neem cake are mentioned as byproducts in the SCN and also by lower authorities in their adjudication. By products are covered by different conditionalities for clearance to DTA. There is no need to have export of similar or identical goods as the same is required only for their main product which is Neemazal. On this count quantification of duty is not correct.
iv) The demand in the first proceedings was by invoking extended period. The appellants did not suppress any facts or misrepresent to the Department. They had a bonafide belief regarding the process undertaken by them and fulfillment of obligation in terms of LOP. Since the process of extraction of oil and cake from neem kernel has been undertaken by the job worker, they bonafidely interpreted the legal provision regarding non-liability to the duty in the present case. The whole case is based on the verification of their records which were duly checked by the officers. On this count also there can be no case for extended period as well as penalties.
5. The Ld. AR contested the appeals on all counts. He submitted on the following lines:-
i) The LOP granted by the Development Commissioner is very clear and categorical. There are four products mentioned in the LOP dated 02.05.2005. Some are considered as prime and others are considered as byproducts. This is a matter of practice and understanding. This does not take away the obligation of the appellant for due accounting in discharge of duty, if any, on such products.
ii) The appellants extracted neem kernel after the liquid extraction process and sent the same to the job worker for further process on rate contract basis. The neem oil and neem cake emerging in job workers premises are products owned and disposed of by the appellants only. At no point of time job worker has any title on the goods.
iii) The appellants are bound by the conditions of LOP and Foreign Trade Policy. Neem oil and neem cake cannot be considered as a waste or scrap. These valuable products are sold in the domestic market without payment of duty. Any clearance by EOU are covered by the conditions of Foreign Trade Policy and any clearance to DTA is bound by the rates as prescribed under the Notification No. 23/2003-CE dated 31.03.2003. The present products are not having any concession under the said notification.
iv) The appellants are fully aware of the products and process and managed their activities in such a manner which resulted in improper clearance of two of the products emerging in the overall manufacturing process. No intimation has been given to the Department regarding the arrangement of the job worker or method of clearance of two of the products mentioned in the LOP. As such, he justified the demand of duty and penalties.
6. We have heard both sides and perused the appeal records.
7.1 The point of dispute is the liability of the appellants to pay duty on neem oil and neem cake which are the by products emerging in the process of using neem seeds and after extractions of Neemazal /technical/formulation in the process. The facts of the case and the process involved and the role of the job worker are not in dispute. First to be considered is the claim of the appellants regarding the job worker being the manufacturer. In the facts of the present case we note that the appellants have discharged neem kernel for further processing and extraction of neem oil and neem cake which they have sold to their customers from the premises of the job worker. This manufacturing arrangement is clearly predetermined in terms of the contract. The appellants responsibility for due disposal of all the products emerging in the course of manufacture and are identified and permitted by the LOP granted for duty free manufacture, is not in dispute. The appellants arrangement of having a job worker for the part of the process will not take away their responsibility as mandated by the LOP as well as Foreign Trade Policy. The categorization of neem oil or neem cake is not directly relevant to the dispute as these products are not waste or scrap. These are recognized as products for manufacture by the EOU in the LOP.
7.2 As per the conditions of the Foreign Trade Policy if the EOU is engaging the job worker, the resultant products are to be brought to the EOU for further disposal. In the present case, the same has not been done. Apparently, the appellants have used the facility of job worker to extract two of the products for which permission is granted to them as EOU. However, for these two products, the due process and conditionalities of EOU have not been adhered to. This is a clear violation of LOP conditions and Foreign Trade Policy.
7.3 Regarding the duty liability of the appellants, we have examined the impugned order and submissions of both the parties. Clearly the product is manufactured within the scope of LOP and the appellants have been put to liability of account for it. The products manufactured by EOU by themselves or with the help of the job worker are to be disposed of in terms of the policy. In the present case, the disposal of two of their products is not in terms of the policy. Hence, the rate and the quantification of duty liability have to be arrived at in terms of the policy and applicable notification. In the present case, the Revenue held that the appellants are not eligible for any of the concession stipulated under the notification No. 23/2003. We note that the appellant contested the finding only on the ground that these two are byproducts and have no obligation to have similar products exported. We are not in agreement with the said proposition. These products are recognized for manufacture in the LOP. By demarcation of byproducts, the obligation cast on the appellants cannot be waived. These are not scrap or waste. Admittedly, these valuable products have been cleared to domestic market in violation of Foreign Trade Policy. In these backgrounds, we are in agreement with the findings of the lower authorities that the appellants are liable to duty as confirmed in terms of Section 3 (1) of CEA, 44.
7.4 The appellants contested the demand for longer period and penalties. Admittedly, the appellants were granted permission by the Ministry of Commerce. They are bound by the Foreign Trade Policy. They have not intimated the Revenue that part of the process for which permission is granted to them as EOU is out sourced and got done by a job worker. Though the same itself is a violation, further clearance of manufactured goods from the premises of the job worker, without due discharge of duty is a further serious offence. The question that all the facts are taken from the records of the appellants by itself will not take away the sustainability of the demands for longer period. We find no reason to interfere with the findings of the lower authorities regarding confirmation of duty on longer period and penalties as imposed.
8. In view of the above discussion and analysis, we find no merit in these appeals and accordingly, the same are dismissed.
(Order dictated and pronounced in the Open Court )
(B. RAVICHANDRAN) (SULEKHA BEEVI C.S.)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
BB
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