Customs, Excise and Gold Tribunal - Bangalore
Dr. Reddy'S Labs. Ltd. (Unit-I) vs Commr. Of Cus. And C. Ex. on 8 November, 2006
ORDER T.K. Jayaraman, Member (T)
1. The applicants are required to pre-deposit duty amount of Rs. 47,29,466/- and penalty of Rs. 26,41,089/- besides interest amount of Rs. 26,41,089/-. The appellants availed Cenvat credit on the inputs used in the manufacture of Bulk Drugs. A portion of the bulk drugs, which are exempted, are captively consumed for the manufacture of Formulations which are also cleared without payment of duty, as they are exempted. The remaining portion of the bulk drugs are cleared on payment of duty. Since common inputs have been used for the manufacture of dutiable as well as exempted products, Revenue has demanded 8%/10% on the value of the Formulations, which have been cleared. However, the appellants had paid an amount equal to 8%/10% of the value of the bulk drugs captively consumed for the Formulations. This is the dispute. The appellants have relied on the following decisions of the Tribunal.
(i) A.P. Paper Mills Ltd. v. CCE, Visakhapatnam
(ii) Merind Ltd. v. CCE, Mumbai .
2. The learned Advocate Shri B. Seshagiri Rao urged that the lower authorities have not discussed the above mentioned case-laws relied on by the appellant. He stated that the contention of the department that the amount of 8%/10% is to be paid on the value of the exempted Formulations cleared from the factory, is not correct. It was also submitted that there is no mala fide intention on their part to suppress any information from the Department and to make short payment. Even though the Show Cause Notice has not proposed to demand any duty, the learned Additional Commissioner confirmed the duty. Thus, the order is beyond the scope of the Show Cause Notice. Relying on Board's clarification dated 27-9-1996, he said that the amount of 8%/10% is not duty and the imposition of penalty under Section 11AC is not sustainable. In this regard, he relied on the following decisions:
(i) Switz Foods Pvt. Ltd. v. CCE, Kolkata-V 2006 (76) RLT 736 (CESTAT - Kol.)
(ii) CCE, Ludhiana v. Sangrur Agro Ltd. 2006 (202) E.L.T. 835 (Tri.-Del.)
3. The learned JDR, Shri Anil Kumar, reiterated the impugned order and requested the Bench that as the Revenue has a very strong case on merits, the appellants should be put to terms.
4. We have gone through the records of the case carefully. This case involves the interpretation of Rule 6 of Cenvat Credit Rules, 2002. The relevant portion of Rule 6 is reproduced below:
Rule 6. Obligation of manufacturer of dutiable and exempted goods. -
(1) The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in Sub-rule (2):
Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12B of the Central Excise Rules, 2002 on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. (2)...
(3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:
(a) if the exempted goods are....
(b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to eight per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
What is contemplated in the above rule is payment of an amount equal to 8%/10% of the total price of the exempted final product charged by the manufacturer/or the sale of such goods at the time of their clearance from the factor}/. The appellants do not sell the bulk drugs captively consumed. They are only transferred from one Division of their factory to another Division and the final product which emerges is the Formulation which is also exempted. These formulations are sold. Hence, Revenue's contention is that the amount of 8%/10% should be calculated only on the value of the Formulations, which are cleared and not on the Bulk Drugs. Prima facie, Revenue has a strong case. The case-laws cited by the appellants are not directly relevant. Therefore, at this stage, we feel that the appellants should be put to terms. It is seen that they had already paid an amount of Rs. 20,88,379/-. The total demand comes to Rs. 79,23,265/- including penalty and interest. We direct the appellant to pre-deposit a sum of Rs. 20,00,000/- (Rupees twenty lakhs only) within a period of three months. On such deposits, the balance of duty, penalty and interest stands waived and recovery stayed till the disposal of the appeal. Failure to comply will entail dismissal of the appeal. Call on to report compliance on 16th February, 2007.
(Pronounced in open Court on 8-11-2006)