Custom, Excise & Service Tax Tribunal
2. The Commissioner Of Central Excise ... vs The Commissioner Of Central Excise ... on 10 December, 2010
THE CUSTOMS EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, SOUTH ZONAL BENCH, WTC BUILDING, FKCCI COMPLX, K.G. ROAD, BANGALORE Date of hearing: 10.12.2010 Date of decision: Central Excise Appeals No: E/838/2008, E/836/2008 (Arising out of Order-in-original No 1/2008 dated 30.5.2008 passed by the Commissioner of Central Excise Bangalore) For approval and signature Honble Mr M.V. Ravindran, Member (Judicial) Honble Mr P. Karthikeyan, Member (Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules 1982? No 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules 1982 for publication in any authoritative report or not? No 3. Whether Their Lordships wish to see the fair copy of the Order Seen 4. Whether Order is to be circulated to the Departmental authorities Yes 1. M/s Motorola (India) Pvt Ltd., 2. The Commissioner of Central Excise Bangalore Appellants Vs 1. The Commissioner of Central Excise Bangalore 2. M/s Motorola (India) Pvt Ltd., Respondents
Present for the Assessee : Shri K.S. Ramesh & Shri Jai Kumar, Advocates Present for the Revenue : Ms Sudha Koka, SDR Coram: Honble Mr M.V. Ravindran, Member (Judicial) Honble Mr P. Karthikeyan, Member (Technical) ORDER No______________________DATED PER SHRI M.V. RAVINDRAN These two appeals are filed against order-in-original No 1/2008 dated 30.5.2008. Appeal No E/836/08 is filed by the revenue while Appeal No E/838/08 is filed by the assessee. Since the appeals are filed against the very same impugned order they are being disposed off by a common order.
2. Relevant facts that arise for consideration are as follows:
The assessee is engaged in the manufacture of Repeaters and had taken registration during Jan.2001 and was filing periodical returns since Feb.2001 onwards. In the periodical returns filed up to May, 2002 they had declared the manufacture clearance of Repeaters and paid appropriate duty on the same. However during the period from June, 2002 to May 2006 they had declared NIL production and NIL clearance and not paid any duty. Again from June, 2006 onwards the assessee started declaring production and clearance of Repeaters in the periodical returns paid appropriate duty. In the month of Dec. 2006, the assessee had paid Rs. 1,02,67,096/- Central Excise Duty; Rs.57,348/- Edn. cess along with an interest of Rs 38,49,927/- towards the duty liability on the Repeaters manufactured and cleared during the period June,2002 to March, 2006 (production and clearance Nil during the months April 2006 & May 2006) and claimed in their letter dated 22.12.2006, that they had confusion and conflicting views about the process undertaken by them as to amounting to manufacture or not and hence did not declare in their periodical returns filed during the relevant period and also accepted they had suppressed the relevant facts from the Department. The amount of duty stated above was paid by the assessee after availing the cum duty benefit. The Show cause notice was issued demanding duty with interest on the full value of clearance under Sections 11A and interest under 11AB and proposed levy of penalty under Section 11 AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002.
2.1 The said show cause notice was contested by the appellants before the adjudicating authority mainly on the ground that they had a bonafide belief that the process undertaken by them did not amount to manufacture and hence declared nil production and clearance in their periodical returns after obtaining an opinion dated 4.6.2002 from one of the consultant. It was also stated before the adjudicating authority that subsequently another opinion was obtained, which opined that the activity will amount to manufacture and hence they stated declaring the production and clearance of the Repeaters in the returns and paid appropriate duty and that since they have paid duty along with interest before the issuance of show cause notice, there is no reason to record that there was evasion of duty. The adjudicating authority did not agree with the contentions of the appellant and confirmed the demand and imposed penalties under Section 11 AC of the Act to the tune of 25% of the duty confirmed and also demanded interest.
3. Learned counsel submits that Motorola are engaged in the business of supplying trunking and two way communication radios to Governmental and non Governmental customers and that their product called as Repeaters. they have given a detailed write up of their product viz. Repeaters; that two way communication radios imported by them are classified under chapter heading 8525 2011 of the Customs Tariff Act, which is also commonly known as Walkie-Talkie; that the interface kit used by them in the assembly of Repeaters are imported by them and classified under Chapter Sub-heading 85299090; that the GSM radio (walkie-talkie set) is a two way communication equipment whereby the users in a closed group shall communicate between them on a designated frequency; that there are two modes in a GSM radio, namely RX-which is a reception mode and TX-which is a transmission mode; that the GSM radio comprises of a push-to-talk (PTT) switch which toggles between the RX and TX modes; that the radio is so designed that if the PTT pressed, it switches to a particular mode, either to RX or TX mode, and on the release mode it switches alternatively to the other mode, either to TX or RX mode, and these repeaters are useful when two persons are communicating. The assessee also stated that when there are more than two users talkie radio becomes either difficult or practically impossible to use, and in this situation, of multi-user environment, the Repeaters come into play; that the Repeater is a metallic housing, wherein wherein, two GSM radios are placed inside and are connected through an interface kit; that the two radios are placed inside the housing are kept in alternate mode i.e., one radio in RX mode and the other one in TX mode; that the metallic housing is connected to other accessories such as power supply and a duplexer, where the power supply supplies power to the unit and the duplexer which is connected to the antenna through a feed line assists the Repeater to operate in full duplex mode; and that the Repeater is useful in a closed user environment where more than two users are involved. Accordingly the assessee stated that the process undertaken by them in the manufacture of repeaters is mere assembly of various imported and locally procured items: The assessees further submitted that initially they felt that their activities would amount to manufacture and thereby have registered themselves with the department and started paying duty during the period Feb 2001 to May, 2002 and thereafter based on certain opinion taken from consultants, they decided that their activity does not amount to manufacture and have not paid excise duty on the said repeaters during the period June, 2002 to May, 2006 and not indicated the details of manufacture/clearance in their monthly returns; that on obtaining further legal opinion another counsel who advised that the activity amounts to manufacture, they started paying duty of excise from June, 2006; that for the clearances effected during June 2002 to May, 2006 they have voluntarily discharged the duty liability of Rs.1,02,67,096/- along with interest of Rs.38,49,927/- and that the duty was calculated on cum-duty-basis.
3.1. The assessees have further submitted that notwithstanding the fact that they have volunteered to pay the duty liability, they are constrained to contest the duty liability itself since the demand is legally not sustainable being hit by time bar and that the Government cannot retain the amount paid by them without the authority of law. They have relied on the decisions quoted hereunder:
a) IPCL Vs. CCE (2005 (185) ELT 44 (Tribunal)
b) Punjab Bone Mills Vs. CCE 2001 (135) ELT 1377 (Tribunal)
c) CCE Vs. Surya Jothi Safety Products (India) Pvt. Ltd. 2000 (122) ELT 467 (Tribunal) 3.2 The assessees have further contended that they have not at all suppressed any information from the department with a view to evade payment of Central Excise duty. that when they started indicating NIL production and clearance in their monthly returns filed with department the department could have verified the same and advised them that the department cannot presume that we have stopped our activities It is settled position of law that mere contravention of the provisions of law is not sufficient and intention to evade must also be proved to invoke extended period in the Show Cause Notice; that they placed reliance on the decision of the Honble Supreme Court in the cases of TNHB Vs. CCE 1994 (74) ELT 9 SC, Padmini Products Vs. CCE 1989(43) ELT 195 SC and CCE Vs. Chembar Drugs & Linements 1989 (40) ELT 276 SC that from the above it may be observed that the demand proposed in the Show Cause Notice is not sustainable in law and the duty/interest amounts paid by them be refunded to them. He also submitted that the appellants are eligible to avail cenvat credit on the duty paid on the inputs used for the manufacture of the repeaters as has been decided by the following decisions :-
1) Dhananiwala Textiles (P) Ltd., (2006 (199) ELT 850)
2) Aurobindo Pharma Ltd., (2008 (223) ELT 196)
3) German Remedies ltd., (2004 (177) ELT 639)
4) Varalakshmi Plastics (2003 (158) ELT 611) He would submit that the decision of the Honble High court of Punjab and Haryana in the case of CCE Rohtak Vs JR Fabrics (2009 (238) ELT 209 P&H) will cover the issue in favor of the assessee in as much as that the amount of duty already paid before the issuance of show cause notice; the penalty imposable will be only 25% of the duty payable.
4. Learned SDR on the other hand would contest the claims of the appellant before us. It is her submission that the appellant herein were discharging the duty on the Repeaters prior to June 2002. It is her submission that having obtained an opinion from some consultant on 4.6.2002 they should have approached the department to verify whether the said opinion could be correct or otherwise. It is her submission that having not done so, they did not show manufacture and clearances of the said Repeaters in the monthly returns. It is her submission that the monthly returns which were filed before the department also did not indicate the goods which are not manufactured but are cleared from the factory premises. She would submit that the demand of duty cannot be hit by limitation as the assessee themselves have come forward and paid the duty vide their letter dated 22nd December 2006. It is her submission that the confirmation of demand of duty is correct. She would submit that the claim of the appellant regarding the eligibility to modvat cannot be entertained at this stage as the said claim was not made before the adjudicating authority.
4.1 As regards the Departments Appeal in E/836/08 it is her submission that the said appeal has been filed by the revenue against the impugned order only for the reason that in the impugned order, the adjudicating authority has imposed only 25% of the penalty on the amount of duty confirmed. It is her submission that this provision cannot be invoked by the adjudicating authority. It is her submission that the adjudicating authority should have imposed equivalent amount of penalty of the duty confirmed by him. She would rely upon the decision of the Honble Supreme court in the case of UOI Vs Dharmendra Textile Processors (2008 (231) ELT 3 SC).
5. On this proposition, in rejoinder, learned counsel would submit that the departments appeal is against the law as has been settled by the Honble High Court of Punjab and Haryana in the case of JR Fabrics (supra). It is his submission that the appellants were under the bonafide belief that they need not declare the non-manufactured goods i.e. Repeaters, as they were given an opinion, by a Consultant.
6. We have considered the submissions made at length by both sides and perused the records. The issue involved in this case is regarding whether the duty liability on the appellant for the period during June 2002 to May 2006 is hit by limitation. On perusal of the records, we find that it is undisputed that appellants were discharging the duty liability on the said products, Repeaters till May 2002. From June 2002 on their own they have stopped discharging the duty liability after obtaining an opinion from one of the consultant. We are Unable to agree with this contention of the learned counsel that they were following the opinion given by the consultant. If an assessee is discharging duty liability on a product and seeks to discontinue the same on an opinion given by the consultant, it was for the assessee to approach the department and seek clarification on the issue. After seeking clarification, any action could have been taken by the assessee. In this case, we find that the appellant/assessee has suo moto decided not to discharge duty liability and not followed the law which is required to be followed by him as a central excise registered unit. In view of this, we hold that the duty liability fastened upon them by the adjudicating authority is correct and that portion of the order does not require any interference. Consequently, the interest liability which has been fastened upon them is also liable to be upheld and we do so.
7. As regards penalty we find that the main contention of the appellant is that having discharged duty liability before the issuance of show cause notice on their own, they sould get the benefit of provisions of Section 11A(2)(B)) of the CE Act 1944. We find that the section 11A2(B) discusses about the discharge of duty liability by the assessee on his own. The said provisions of Section 11A2(B) are further qualified by an explanation, which indicates that the provisions would not apply to a situation where there was suppression of facts and mis-statement or collusion with intention to evade payment of duty. As we have already noted that it was for the assessee to inform the department about the opinion they have received as regards the goods i.e. Repeaters, being not to be considered as manufactured products, having not declared the manufacture and clearance of the goods in the monthly returns, it can be held that the appellant have not stated the facts correctly to the department. Having come to such a conclusion, that the provisions of 11A(2)(B) will not be applicable in the case before us, we hold that penalty is liable to be imposed on appellant. We find strong force in the contentions raised by the learned counsel, that the learned adjudicating authority has correctly followed the provisions of Section 11AC for imposing penalty of 25 % of the amount of duty which has been confirmed by him. Our this view is fortified by the decision of the Honble High Court of Punjab and Haryana in the case of JR Fabrics (supra). In that case revenue filed an appeal under Section 35 G challenging the order of the Tribunal and raised the following question of law before their Lordship.
Whether CESTAT is correct in allowing the benefit of penalty upto 25% of the duty amount in the case when the penalty so determined was not paid by the party within the period of thirty days which is the pre requirement to avail such benefit as per the second proviso to Section 11 AC? While disposing the appeal filed by the revenue their Lordships settled the law which we respectfully reproduce:
6. After hearing learned counsel for the parties and perusing the record with their able assistance we find that in order to answer the question raised by the revenue it would be first necessary to read Section 11AC of the Act which is as under :
11AC. Penalty for short-levy or non-levy etc., in certain cases : Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement 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, the persons who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined :
[Provided that where such duty as determined under sub-section (2) of section 11A, and the interest payable thereon under section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section be twenty five per cent of the duty so determined :
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :
Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty, as reduced or increased, as the case may be shall be taken into account :
Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeal), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased the interest payable thereon and twenty-five per cent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect.
Explanation :- For the removal of doubts, it is hereby declared that -
(1) the provisions of this section shall also apply to cases in which the order determining the duty under sub-section (2) of section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;
(2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.
7. A perusal of Section 11AC of the Act shows that an amount equal to the amount of duty as determined by the Central Excise Officer under Section 11A(2) of the Act is required to be paid by the assessee where any duty of excise has not been (a) levied or paid or (b) has been short paid or (c) erroneously refunded by the reason of fraud collusion or any wilful mis-statement or suppression of facts or (d) contravention of any of the provisions of this Act or the Rules made thereunder with intent to evade payment of duty. The aforesaid principal clause has four provisos. The first two provisos postulate a concessional rate of penalty in case the amount of duty as determined under sub-section 11A(2) of the Act and the interest payable thereon under Section 11AB of the Act stand paid within thirty dates from the date of communication of the order of the officer determining such duty. In such a case the amount of penalty has been stipulated to be 25% of the duty so determined.
8. The second proviso further imposes an obligation that the benefits contemplated by first proviso are to be available if the amount of penalty so determined has also been paid within a period of thirty days. In other words, if the duty as determined under Section 11A(2) of the Act by the Central Excise Officer is paid within thirty days then penalty equal to the amount of duty is not required to be paid and the amount contemplated in lieu of the penalty is 25% of the total amount of excise duty determined the officer concerned.
9. It would further be necessary to notice that 3rd proviso takes care of a situation where duty determined to be payable is reduced or increased by the Commissioner (Appeals), Appellate Tribunal or by this Court then duty as reduced or increased is required to be taken into account. The provision takes care of fluctuation in the assessment of duty at the appellate stage. However, in the present case there is no increase or decrease in the assessment of duty of excise. The alteration has been ordered by the Tribunal in the order of the Commissioner (Appeals) by reducing the amount of penalty to 25% of the total amount of duty of excise assessed by the Assessing Authority. Therefore, we are of the view that the appeal filed by the Revenue is liable to be rejected.
10. It is appropriate to notice that the period in question is 28-7-2001 to 28-2-2002 and there is no dispute that the proviso added by Act No. X of 2000 is made applicable w.e.f. 12-5-2000 would apply which provides that an amount equal to 25% of the amount of duty of excise would be liable to be paid as penalty if the amount of duty of excise is paid within thirty days from the date of communication of the order by the Central Excise Officer.
11. When we examine the facts of the present case in the light of the aforesaid provision, it becomes evident that the total amount of duty amounting to Rs. 6,300/- was paid on 15-2-2003 and amount of Rs. 5,04,695/- was paid on 18-2-2003. Accordingly a total amount of excise duty of Rs. 5,10,995/- stood paid by 18-2-2003 whereas adjudicatory order in original was issued on 30-4-2004. It is further appropriate to mention that the dealer-respondent had also deposited interest of Rs. 1,11,373/- on 27-10-2003 which has been appropriated by the order in original passed on 30-4-2004 (A.1).
12. The order in original also imposes penalty of Rs. 5,10,995/- which is equal to the amount of duty of excise assessed by the Adjudicating Authority. It is thus evident that acting on 2nd proviso the amount of penalty to the extent of 25% could not have been deposited and order was passed by the Adjudicating Authority in derogation of the express provision made by the 2nd proviso and there was no opportunity for the dealer-respondent to deposit 25% of the amount. Accordingly he challenged the order in appeal where again the demand of penalty equivalent to duty of excise was maintained (although some relief was given regarding personal penalty imposed on Shri Satish Kumar, Managing Director). It was thereafter that an appeal was filed and the Tribunal reduced the penalty to 25% of the total amount of duty of excise as assessed by the concerned officer. The Tribunal had primarily placed reliance on a judgment of the Delhi High Court in the case of Malbro Appliances (Private) Ltd. (supra).
13. The conclusion reached by the Tribunal is correct. However, it seems that the reasoning followed by the Tribunal is not in accordance with the law. The amount of 25% imposed as penalty is not because any discretion is vested in the Court or the Tribunal but because of 1st and 2nd provisos incorporated by the Parliament (by Act No. X of 2000) w.e.f. 12-5-2000. Therefore, the Tribunal should not have committed the same error that merely because the amount of duty has been deposited before the issuance of show cause notice that imposition of penalty becomes illegal or lenient view was required to be taken.
14. The view taken by the Delhi High Court in Malbro Appliances Private Ltd.s case (supra) was also examined in detail by a Division Bench of the same Court in the case of K.P. Pouches (P) Ltd v. Union of India - 2008 (228) E.L.T. 31. After reading Section 11AC of the Act, the Division Bench came to the conclusion that according to the proviso only 25% of the duty of excise was payable. The facts of the present case are akin to the facts of the Division Bench judgment in K.P. Pouches (P) Ltd. case (supra). It has been held by the Division Bench that when the statutory authorities are acting illegally and contrary to the 1st proviso to Section 11AC of the Act and therefore the assessee cannot be faulted to challenge the order passed by the Assistant Commissioner which fault was also repeated by the Commissioner (Appeals). The situation is the same in the present case. We, therefore, respectfully agreeing with the view taken by the Division Bench in K.P. Pouches (P) Ltd.s case (supra) hold that the conclusion reached by the Tribunal that the dealer-respondent was liable to pay penalty to the extent of 25% of the amount of duty of excise determined by the officer concerned.
15. The argument of the Revenue that the judgment in Dharamendra Textile Processors case (supra) would apply and penalty equal to the amount of duty of excise assessed by the Assessing Authority is to be paid. We are afraid that such an argument would not be available because judgment in Dharamendra Textile. Processors case (supra) dealt with Section 11AC of the Act and has concluded the mandatory nature of the penalty contemplated by the proviso. In para 26, reference has been made to the Union Budget of 1996-97, when Section 11AC of the Act was introduced. It was then clarified that there was no scope for any discretion and the levy of penalty is of mandatory character, Honble the Supreme Court further placed reliance on the Notes on Clauses concluding that similar indication has been given therein. It appears that provisos 1st and 2nd which were added in the year 2000 were not the subject matter of consideration before their Lordships in Dharamendra Textile Processors case (supra). Therefore, we find no substance in the contention raised on behalf of the revenue especially in the face of express provision made by the four provisos in the year 2000.
16. For the reasons afore-mentioned this appeal fails and the same is dismissed. The dealer-respondent shall deposit the penalty equivalent to 25% of the duty of excise determined by the excise officer within 30 days from the date of receipt of a copy of this order. A copy of this order shall be given to the counsel for the dealer-respondent, after due attestation, under the signature of the bench Secretary at the earliest. In view of this we uphold the impugned order to the extent it imposed a penalty of 25 % of the duty amount confirmed by the adjudicating authority. In view of this decision, the appeal filed by the revenue against the said order of the adjudicating authority for imposition of equivalent amount of penalty is liable to be rejected and we do so. Before parting with the case, we would like to give our finding as to the claim of the appellant for the eligibility to the cenvat credit on the inputs used in the manufacture of Repeaters during the relevant period. We find strong force in the contentions raised by the learned counsel that series of decisions of the Tribunal, clearly laid down a law that when the assessee has not discharged the duty liability but is subsequently required to do so, he can claim the benefit of cenvat credit of the duty paid on the inputs utilized in the manufacture of these goods during the relevant period, subject to the satisfaction of the authorities as regards the duty paid character of inputs, on receipt and consumption of the same in the factory premises. For this limited purpose we remand this matter back to the adjudicating authority to reconsider this aspect and grant them modvat credit if any, provided the appellants are able to justify their claim by producing the relevant records to his satisfaction.
10. Accordingly appeal filed by the revenue is rejected and appeal filed by the assessee is disposed off as indicated herein above.
(pronounced in the open court on )
(P. KARTHIKEYAN)
Member(Technical) (M.V. RAVINDRAN)
Member (Judicial)
/pnr/