Custom, Excise & Service Tax Tribunal
Sun Pharmaceuticals Industries Ltd vs Commissioner Of Central Excise on 25 September, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNALSOUTH ZONAL BENCH
CHENNAI
Appeal No.E/18/2008
[Arising out of Order-in-Original No.21/2007 (C) dt. 28.9.2007 passed by the Commissioner of Central Excise, Pondicherry]
Appeal No.E/325/2008
[Arising out of Order-in-Original No.9/2008 (C) dt. 23.3.2008 passed by the Commissioner of Central Excise, Pondicherry]
Appeal Nos.E/130,134/2010
[Arising out of Order-in-Original No.74 & 75/2009 (C) dt. 30.11.2009 passed by the Commissioner of Central Excise, Puducherry]
Sun Pharmaceuticals Industries Ltd. Appellant
Versus
Commissioner of Central Excise,
Puducherry Respondent
Appearance:
Shri Ashok B. Nawal, Advocate For the Appellant
Ms. Indira Sisupal, AC (AR) For the Respondent
CORAM :
Honble Shri R. Periasami, Technical Member
Honble Shri P.K. Choudhary, Judicial Member
Date of Hearing/Decision :25.9.2015
FINAL ORDER No.41542-41545/2015
Per R. Periasami
All the four appeals are filed against the separate orders passed by Commissioner of Central Excise, Pondicherry. The issues involved in these appeals are identical and therefore all are taken up together for disposal.
E/18/2008
2. Appellant is an 100% EOU manufacturing Bulk Drugs falling under Chapter 29 of Central Excise Tariff Act, 1985. The appellants cleared the goods in DTA to their own DTA unit and to others. Appellant was issued with SCN No.19/2007 dt. 2.4.2007 demanding duty of Rs.6,77,59,232/- by denying the benefit of Notification 23/2003 (condition No.3) related to the consumption of indigenous raw materials for manufacture of final products. Further, it was alleged that valuation adopted by the appellant on the DTA clearance is to be enhanced based on the FOB value of exports. Adjudicating authority in his order confirmed the demand of Rs.6,60,61,346/- under proviso to Section 11A along with interest and also imposed equal penalty under section 11AC.
E/325/2008
3. Appellants were issued with SCN No.42/2007 dt. 1.11.2007 demanding differential duty on the goods cleared to DTA. It was alleged that value adopted by the appellant on the comparable goods cleared to DTA is to be denied and FOB value of exports should be adopted for valuation. SCN also proposed levy of Special Additional Duty (S.A.D.) for calculating differential duty and whether S.A.D. to be considered when goods are not sold but sent to their own units on stock transfer basis and also whether higher education cess should be considered under Section 3 (1) of Central Excise Act. Adjudicating authority confirmed the demand of Rs.4,94,11,050/- under Section 11A along with interest and imposed penalty of Rs.50 lakhs under Rule 25 of Central Excise Rules, 2002.
E/130-134/2008
4. The issue in these appeals are identical to Appeal E/325/2008 only the demand relates to the subsequent period wherein the Commissioner of Central Excise, Puducherry issued two SCNs dt.14.8.2008 and dt. 1.5.2009. The adjudicating authority by a common adjudication order confirmed differential duty of Rs.8,99,54,350/- along with interest and also imposed penalty of Rs.10,000/- under Rule 25 of Central Excise Rules. Hence appellant filed these appeals. The case was heard on 7.5.2015, 9.7.2015 and 28.8.2015.
5. The learned Advocate appearing for the appellants submitted a written synopsis for all the three appeals on issue wise and reiterates the synopsis. He submits that they are registered as EOU and the raw materials were imported and also procured indigenously and the final product bulk drugs are manufactured and exported and also cleared to DTA and paid appropriate customs duty as per Notification No.23/2003-CE dt.31.3.2003. He submits that the period involved in the appeals relates to April 2004 to September 2006.
6. In respect of Appeal E/18/2008, he submits that the adjudicating authority in his impugned order denied the exemption of the Notification No.23/2003-CE dt. 31.3.2003 condition No.(3). He submits that the goods cleared to DTA were manufactured wholly out of indigenous raw material. He submitted the relevant manufacturing records in the form of computer printouts batch wise in support of usage of indigenous raw material. He drew our attention to page No.57 of paper book containing list of invoices for procurement of raw material and Invoice No.L018 dt.7.6.2004 at page 1 of paper book wherein they cleared "Metadoxine IH" to their sister unit at Dadra. He submits that each product contained batchwise number and manufacturing date. At Sl.No.3 of invoice, the batch No is mentioned as PEDL No.0381 dt. 17.4.2004 and this batch number PDEL linked to the Batch Manufacturing Records (BMR). That Batch Manufacturing Records are annexed at pages No.2 to 18 of the compilation. The total quantity of 56.50 kgs of final product "Metadoxine IH" manufactured out of indigenous raw materials. He drew attention to the extract prepared for PDEL 0381 dt.17.4.2004 showing the details of quantity of raw materials supplied by various indigenous suppliers under different invoices. He drew our attention to para 11.08 of OIO in respect of appeal No.E/18/2008 and submits that these documents were submitted before adjudicating authority in the form of computer printouts and also soft copies of ERP documents. The adjudicating authority held that as these are only computer printouts and cannot be considered as records as proof of consumption of indigenous raw materials and manufacture of final products. The adjudicating authority also held that as the appellants failed to maintain hard copies of internal records batch wise evidencing consumption of raw material. He submits that their unit is fully adopted to ERP systems and the manufacturing and production of finished goods are fully accounted and can be easily verified from the receipt of inputs stage to clearance of final products each stage. The clearance of final products are clearly declared in RT-2. The adjudicating authority relied Board's circular dt. 21.12.2001 and held that they have to maintain separate registers but failed to reconcile the data submitted in the form of computer printouts. He submits that since they have satisfied condition (3) of Notfn No.23/2003 they are eligible for payment of normal excise duty. He relied the following decisions :
(1) CCE Surat-I Vs Prime Furnishing Pvt. Ltd.
2014 (308) ELT 505 (Tri.-Ahmd.)
(2) CCE Ludhiana VsMalwa Cotton Spinning Mills Ltd.
2010 (252) ELT 517 (P&H)
(3) CCE SuratVs Favourite Industries
2012 (278) ELT 145 (SC)
(4) Bannari Amman Sugars Ltd. Vs CCE Salem
2009 (241) ELT 433 (Tri.-Chennai)
(5) GEM Granites Vs CC
2007 (216) ELT 153 (Tri.-Chennai)
(6) Imperial Granites (P) Ltd. Vs CC
2007 (218) ELT 618 (Tri.-Bang.)
7. On the second relating to valuation, he submits that the adjudicating authority demanded differential duty by adopting FOB value of exports for the goods cleared in DTA to their sister unit. They have paid excise duty on the computed value as per valuation rules after including selling and distribution expenses. He further submits that the sale price in the domestic market cannot be compared with sale in the international market for determining the value of the clearance of the goods cleared to DTA. The FOB value is always higher when compared to the goods sold to DTA. He relied the following decisions :-
(1) Buying Overseas Vs CC
2015 (317) ELT 264 (Tri.-Mumbai)
(2) Eicher Tractors Ltd. Vs CC Mumbai
2000 (122) ELT 321 (SC)
(3) Exide Industries Ltd. Vs CC
2010 (252)ELT 447 (Tri.-Mumbai)
8. He further submits that the adjudicating authority while determining the value has not considered the adjustment towards quantity and rate discounts. He drew our attention to page 38 of worksheet. While comparing the FOB price, the adjudicating authority has not considered the quantity. The quantity of 595 kgs. cleared under export invoice dt. 2.8.2004 cannot be compared with 10 kgs. Instead of Rs.609 declared by them as computed price, the adjudicating authority adopted FOB price of Rs.2267/-. Similarly, for invoice dt. 21.9.94 he has adopted a value of Rs.1450 of FOB value instead of Rs.609. As per Rule 4 of CVR only the same quantity and value to be compared for determining the value. He relied the following case laws :-
(i) Banyan Chemicals Ltd. Vs CCE Vadodara
2009 (236) ELT 298 (Tri.-Ahmd.)
(ii) Cadila Healthcare Ltd. Vs CCE Vadodara
2008 (234) ELT 108 (Tri.-Ahmd.)
(iii) CCE RaigadVs I.G. Petrochemicals
2006 (201) ELT 294 (Tri.-Mumbai)
(iv) Marshal Power and Telecom (Ind) Ltd.
2008 (224) ELT 169 (Sett.Comm.)
(v) CCE Vs I.G.P. Ltd.
2003 (156) ELT 917 (Tri.-Mumbai)
(vi) Exide Industries Ltd. Vs CC Mumbai
2010 (252) ELT 447 (Tri.-Mumbai)
9. He further submits that in respect of appeal E/18/08, out of total demand confirmed in the OIO, Rs.2,29,88,663/- is hit by limitation as there is no suppression of facts. The SCN was issued only on 2.4.2007 whereas the department sought clarification on 28.9.2004 and they submitted all the details of DTA clearances and consumption of indigenous raw materials in 2004 covering the period April 2004 to July 2004 and the ARE-1 returns filed in time. The department was fully aware of the facts and the above demand amount of Rs.2,29,88,663/- is hit by limitation. On limitation, he relied the following decisions :-
(1) Commissioner Vs Meghmani Dyes & Intermediates Ltd.
2013 (288) ELT 514 (Guj.)
(2) Ruia Aquaculture Farms Ltd. Vs CC
2006 (199) ELT 241 (Tri.-Mumbai)
(3) CCE Indore Vs Mild India Industries Ltd.
2005 (189) ELT 224 (Tri.-Del.)
(4) Reliance Industries Ltd. CCE Mumbai
2003 (159) ELT 164 (Tri.-Mumbai)
(5) Norton Intec Rubbers (P) Ltd. Vs CC Madras
2004 (164) ELT 5 (Mad.)
10. On the third issue of S.A.D, he submits that adjudicating authority has not excluded the S.A.D. and held that since appellant has not made any sale but only effected inter-unit transfer, SAD is includable. He submits that the goods cleared to their sister unit on stock transfer are not exempted from sales tax. Therefore, they are entitled to condition (i) of Notification No.20/2003. He relied the following decisions :-
(i) Micro Inks Vs CCE
2014-TIOL-258-CESTAT-AHM =
2014 (303) ELT 99 (T-Ahd.)
(ii) VVF Ltd. Vs CCE Belapur
2014-TIOL-04-CESTAT-Mum.
(iii) STI Industries Vs CCE
2014-TIOL-2611-CESTAT-Ahm.
(iv) Hanil Era Textiles Ltd. Vs CCE Belapur
2007 (210) ELT 414 (Tri.-Chennai)
11. On the Education Cess, he also submits that educational Cess is not to be charged for third time as they have calculated educational cess twice. On this issue, he relied on Larger Bench decision in the case of Kumar Arch Tech Pvt.Ltd. Vs CCE Jaipur 2013 (290) ELT 372 (Tri.-LB).
12. On the other hand, Ld. A.R raised the preliminary objection on the reconciliation of the data submitted by the appellant and submits that no such reconciliation / clarification was undertaken by the A.R.
13. In respect of appeal E/18/2008, regarding claim of benefit of Notification 23/2003, he drew our attention to para 11.01,11.02, 11.03 & 11.05 of the impugned order wherein the adjudicating authority in his findings after verifying the records clearly concluded that the appellants have not submitted any evidence on the utilization of indigenous raw materials in the manufacture of final product cleared to DTA. He drew our attention to para 12.02 of the OIO. The adjudicating authority has clearly brought out that appellants have not maintained separate set of records as prescribed in Boards circular dt. 21.12.2001. He further submits that printouts of hardcopies of records and documents have not been maintained by the appellant month wise and batch wise in the form of hardcopies. BMR package maintained in the computer system i.e. ERP system without any periodical back up of hard copies cannot be relied as evidence for consumption of indigenous raw material. Further, these computer print outs are unsigned copies. He drew our attention to the statement of Shri Iyyakannu wherein he has admitted inadequacy in the ER Package, particularly in correlating finished goods and the raw material used in the manufacture of such goods. Since the statement was not retracted therefore same is relevant The adjudicating authority has rightly denied the benefit of exemption notification.
14. Appeal E/325/2008: The AR submits that appellants have failed to establish the case with evidence that proviso to section 3(1)of Central Excise Tariff Act is applicable. Regarding valuation, he drew our attention to the impugned order para 13.03.18of the first OIO dt.28.9.07 in appeal E/18/2008 wherein the adjudicating authority has given a clear finding and also submits that appellant themselves have adopted FOB price for determining the value of some DTA clearances where buyers were unrelated. He drew our attention tosection 3(1) of Central Excise Act wherein the value of goods is to be determined in accordance with provisions of Customs Act and Customs Tariff Act under Section 14 of Customs Act. Price of goods is offered for sale in the course of international trade. Therefore, the rules made thereunder customs act or valuation rules becomes relevant for the purpose of proviso to section 3 (1) of Central Excise Act. He also submits that DTA clearances by EOU does not answer the rule of valuation. In the absence of any evidence for Rule 5, under rule 7 ofCVR read with section 4 of Customs Valuation Rules, the sale price charged to a customer in India cannot be considered as a price in the course of international trade. Valuation is to be adopted as per section 14 of the Customs Act. Therefore, the adjudicating authority has rightly taken the FOB price for determining the transaction value of DTA clearance. He also submits that there is no bar of adopting FOB price. He relied the following citations :-
1. Commissioner Vs Wipro GE Medical Systems Pvt. Ltd.
2009(242) ELT275 (Tri.-Bang.)
2. Hindustan Granites Vs CC Bangalore
2010 (262) ELT 885 (Tri.-Bang.)
15. In the rejoinder, learned counsel for the appellant countered the arguments of Revenue. He drew our attention to para 10.1 and 11.2 and 11.3 of the order wherein the Commissioner without giving any reason held that these documents cannot be relied and submits that Commissioner has not given any justification for not accepting the ERP package maintained by the appellants unit from the raw materials stage to the finished goods stage and the data maintained in the system. He relied Boards circular dt. 21.12.2001 wherein the Board has categorically clarified that the adjudicating authority has to satisfy the consumption of indigenous raw materials and the Board also clarified that the authority can engage cost account or any person to verify the production and consumption records. On the FOB value, he countered that at no point of time they have taken the FOB value of exports for computing transaction value for DTA sales either to unrelated clearances or clearance to their own unit. He drew our attention to chart where all the FOB price and their computation price have been tabulated which clearly shows that they have not adopted any FOB price.
16. In further counter, ld. A.R submitted that since Rule 11 is not applicable, the FOB value is to be adopted as this is the nearest sale price available for the DTA clearance. Further, he countered the counsels submission on the admissibility of Notfn 23/03 and submits that no evidence produced before the adjudicating authority regarding usage of raw material and the appellants are now submitting voluminous data before the Tribunal which cannot be accepted at this stage.
17. We have carefully considered the submissions of both sides and examined the records. There is no dispute that appellants are registered as an EOU from 22.4.2004 and exporting the Bulk drugs and also clearing in DTA sales to unrelated persons and on stock transfer basis to their sister unit located in the States of Gujarat and Maharashtra and the Union Territory of Dadra. The issues to be decided on all the four appeals are as under :-
(1) In appeal No.E/18/2008, the main issue is whether indigenous inputs have been used in the manufacture of finished goods cleared in DTA and whether condition (3) of the Notfn 23/03 is admissible to appellant or otherwise.
(2) Whether the valuation adopted by Revenue for determining the transaction value of DTA clearance by taking FOB value instead computed value is correct or otherwise. Whether there was suppression of facts or not and whether the demand is hit by limitation or otherwise.
(3) In respect of three remaining appeals, the issue in addition to valuation of adopting FOB value, whether Special Additional Duty (SAD) to be considered while calculating the rate of duty of Central excise under section 3 (1)of Central Excise Act for the clearances made to their sister unit on inter unit stock transfer; Whether the goods are not exempted from VAT by the State Government and
(4) the last issue is whether education cess and higher secondary education cess to be considered thrice while calculating the rate of duty of central excise under section 3910/(5) whether the appellant is liable for penalty under section 11AC in respect of first appeal and liable for penalty under Rule 25 in respect of other three appeals.
18. The main dispute in all the appeals relates to valuation and rate of duty of the clearance to their sister unit. The period involved is 22.4.2004 to 27.3.2009. Only in appeal E/18/08 the benefit of exemption notification was denied on the ground that there was no evidence to prove that only the indigenous raw materials were used in the manufacture of final products. The other issues are identical in all the three appeals.
19. We propose to discuss the first issue on the admissibility of Notification No.23/03 and condition (3) of notification in respect of appeal E/18/2008. We find that the appellants discharged excise duty on DTA clearance @ 16% as per condition (3) of the notification No.23/03 as these goods were wholly manufactured out of indigenous raw materials. Whereas the adjudicating authority denied the benefit and had demanded duty on the aggregate of customs duty which is applicable to goods manufactured out of imported and indigenous raw materials. It is relevant to reproduce the extract of the Notification No.20/03 as under :
In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) (hereinafter referred to as the Central Excise Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below, and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, produced or manufactured in an export oriented undertaking or an Electronic Hardware Technology Park (EHTP) Unit or a Software Technology Park (STP) Unit and brought to any other place in India in accordance with the provisions of Export and Import Policy and subject to the relevant conditions specified in the Annexure to this notification, and referred to in the corresponding entry in column (5) of the said Table, from so much of the duty of excise leviable thereon under section 3 of the Central Excise Act as specified in the corresponding entry in column (4) of the said Table.
Sr.No.
Chapter or heading No. or sub-heading No.
Description of Goods
Amount of Duty
Conditions
(1)
(2)
(3)
(4)
(5)
...
...
...
...
...
(3)Any Chapter All goods other than those referred to in Sr. Nos. 5, 5A, 6, 7 and 7A [OLD-
Sr.Nos.5,6 and 7 of] of this Table In excess of amount equal to aggregate of duties of excise leviable under Section 3 of the Central Excise Act or under any other law for the time being in force on like goods produced or manufactured in India other than in an export oriented undertaking, if sold in India (3) ANNEXURE S.No. Conditions 3 If,-
the?(i) goods are produced or manufactured wholly from the raw materials produced or manufactured in India;
the?(ii) goods are cleared into Domestic Tariff Area in accordance with sub-paragraphs (a), (b), (e) and (g) of Paragraph 6.8 of the Export and Import Policy; and
(iii) such goods, if manufactured and cleared by the unit other than export oriented undertaking are not wholly exempt from duties of Excise or are not chargeable to NIL rate of duty.
20. As seen from the above, Sl.No.3 of the notification exempts all goods which are produced or manufactured by EOU other than those referred to in Sl.No.5,6 and 7 of the Table which are in excess of amount equal to aggregate of duties of excise leviable under Section 3 of the Central Excise Act subject to fulfilment of Condition No.3 of the Table. In order to avail exemption under Sl.No.(3) of the notification, appellants have to comply all the three conditions stipulated in Condition No.(3) of the Table of the Notification. In so far as clause (ii) and (iii) there is no dispute on either side and the dispute is in respect of clause (i) of condition No.(3) i.e. whether the goods are manufactured wholly from the raw material produced or manufactured in India.
21. Appellants contended that entire sales pertaining to 57 invoices of DTA clearance are wholly manufactured out of indigenous raw materials and they submitted comparative worksheets for each invoice and batch number, quantity manufactured and cleared and the inputs consumed and the Goods Inward Register No. (GIR) and supplier's invoice. We have perused Invoice No.L018 dt.7.6.2004 showing clearance of METADOXINE IH 103.50 Kgs. 40 Kgs and 56.500 kgs. as per their batch wise production. The said invoice clearly shows the batch number and manufacturing date against the description of the final product. In respect of Sl.No.3 of the invoice, the batch number is shown as PDEL 0381 and the date of manufacture is 17.4.2004 and the Quantity is 56.500 kgs. On perusal of corresponding BMR available as printouts at pages 2 to 18, we find the Batch No. for manufacture of the product METAXODINE is shown as PDEL 0381with BMR CODE : BD0581/03. From the BMR, it is seen that the input Pyridoxine Hydrochloride (Vitamin B6) specifies the item code RA 50127. From the Input Item code in the ERP report generated for this batch number, for this invoice and for this item it is clearly indicated the lot number, quantity issued and the GIM No.etc. The details of said input in the report is given as under :-
Lot Number : 183RI40654 Quantity Issued: 45,660 Kgs.
Goods Inward Memo No. (GIM No.): 183RR40365 The next column clearly shows Supplier's name as Nandlal Bankatlal Pvt. Ltd. and the last column of the report also shows the Supplier Invoice No.0602. It is evident from this E.R.P report that 100 kgs. of this input Pyridoxine Hydrochloride was consumed in the manufacture of METADOXINE IH under Invoice No.L018 under 3 lot numbers i.e. (i) Lot No.183RI40654 [45,660 kgs.] and (ii) Lot No.183RI40999 [49,410 kgs.] and (iii) Lot No.183RI41123 [4,930 kgs.]. For second lot the supplier's name was shown as C.J. Shah & Co. and the input invoice Nos.312417 and 012250. From the above sequence of this Batch Manufacturing Records (BMR) for the said invoice read with system generated report of E.R.P, we are convinced that the quantity of 100 kgs. Pyridoxine Hydrochloride (Vitamin B6) is related to Batch No.PDEL0381 and as evident from the name of the supplier it is proved beyond doubt that the input is procured indigenously used in the manufacture of METADOXINE.
22. We find that the entire work sheet submitted by the appellant for 57 invoices which is generated by the system and combined with BMR and the Appellant's contended that in the same sequence the entire quantity of inputs can be tallied and traced back to the final product manufactured and cleared in respect of each invoice.
23. It is pertinent to see that the same set of documents discussed above were also submitted before the adjudicating authority during the proceedings instead of verifying the correctness he had rejected these documents as not valid documents only on the ground that they have not maintained hard copy of the documents as per the Board's Circular No.85/2001 dt. 21.12.2001 and these are only computer generated printouts not authenticated by any person. We are not in agreement with the adjudicating authority's findings for rejecting these documents as the appellants were following ERP system for monitoring the movement from the stage of inward receipt of raw materials to the finished goods stage. Tis practice has been followed by all major industries and the Govt recognized this as method of maintaining and control system. Once the system is able to show from GMR data for particular final product, the Batch No., raw material consumed, lot number of the raw material including raw material suppliers name and invoice, it cannot be rejected merely on the ground that these are not a valid data.
24. In this regard, we find that the Boards circular No.85/2001-Cus. dt. 21.12.2001 had clearly clarified this issue. The relevant paragraph 2 of the said circular is reproduced as under :-
2. The matter has been examined.?It is reiterated that the benefit of notification No. 8/97-C.E., dated 1-3-97 may be allowed to the units using imported as well as indigenously procured raw materials provided the unit is able to satisfy the jurisdictional authorities beyond doubt that the goods to be sold in DTA are manufactured out of wholly indigenous raw materials by way of maintenance of records etc. as provided in the said Boards Circular. Maintenance of separate records would include, inter alia, separate raw material registers for indigenously procured goods and imported ones, separate finished goods registers - one for final products manufactured out of indigenously procured raw materials and the other for final products manufactured out of imported materials, batch-wise production and dispatch registers in respect of the quantity manufactured and sold in DTA etc. The jurisdictional officers would thus need to satisfy themselves that the goods under DTA sale have been manufactured wholly out of indigenous raw materials. The Circular referred to above even enjoins the jurisdictional officers to get the input-output norm fixed by the Cost Account so as to ensure that imported inputs, if common, are not used in the manufacture of the final products to be cleared in DTA. But the intention is certainly not to insist upon separate machinery, separate godowns and separate branches of manufacturing process (which would amount to establishing a separate factory within the factory) before extending the benefit of the above-said Circular."
As evident from the above circular, the Board has categorically clarified that jurisdictional officer need to satisfy themselves that the goods in DTA have been manufactured wholly out of indigenous raw material. The said circular also empowers the adjudicating authority to engage Cost Accountant if necessary and get the input and output norms fixed for both indigenous and imported goods.
25. In this regard, it is pertinent to state that the CBEC had already implemented special mechanism to verify the ERP data or SAP etc. through Excise Audit 2000 (EA-2000) for consumption of raw materials and manufacture of final products which are maintained in any ERP system. In the Excise Audit (EA 2000) Procedure, the Board has empowered the jurisdictional officers to carryout Computer Aided Audit Programme (CAAP) wherein the entire audit of records is being scrutinised through system without verification of any manual records. A special software is used for this purpose and by using this the entire ERP system of any industry for any product can be scrutinised starting from raw material stage to clearance of the finished goods. The computer audit team (CAAP) have been functioning in all the Commissionerates with specially trained officers for carrying out computer based audit. Under these circumstances, we find that the adjudicating authority has various mechanism to satisfy whether indigenous raw materials are used or not, either by appointing special auditor under Section 14A or depute his internal audit team specialised in CAPP audit or to engage cost auditor to audit the unit which is functioning under any ERP system.
26. It is pertinent to state that on perusal of one invoice and corresponding ERP data we are able to ascertain the use of indigenous inputs for manufacture of final product cleared in DTA as discussed in the preceding paragraphs. The same can be verified by any competent person for all 57 invoices which are covered under this impugned order (E/18/2008) and confirm whether the appellant had used wholly the indigenous raw material or otherwise. Therefore, we are of the considered view that the adjudicating authority denying benefit of Sl.No.3 of the notification read with condition (3)of the notification purely on the technical ground of non-maintenance of hard copies is not justified and not acceptable. Therefore, we hold that the entire demand confirmed on this count needs to be remanded to the adjudicating authority as these are merely a question of verification of facts. Therefore, we hold that the demand in respect of Appeal No.E/18/2008 confirmed on this count is liable to be set aside and remanded to the adjudicating authority with direction to follow the guidelines as stipulated in the Boards circular dt. 21.12.2001 and satisfy himself on the use of indigenous raw materials in the manufacture of bulk drugs cleared in DTA. For the reasons already explained above, the adjudicating authority is free to use the departmental audit source or engage special audit under section (14A) or any mechanism as deem fit. Accordingly, the confirmation of demand in Appeal No.E/18/2008 in so far as denying the benefit of exemption Notfn No.20/2003 Condition No.(3) is set aside and remanded to the adjudicating authority with the above directions.
27. As regards the limitation issue raised by appellant, in respect of same appeal No.E/18/2008, since the main demand itself is remanded to the adjudicating authority, that authority is directed to examine the issue on limitation while deciding the case in de novo.
28. We now propose to discuss the second issue on valuation.
The adjudicating authority in his impugned orders compared the FOB price and enhanced the transaction value for the DTA clearances.
Whereas the appellant contended that the majority of goods were cleared to sister unit on stock transfer basis and they had arrived the transaction value by taking the computed value. We find that the adjudicating authority rejected the appellants transaction value of Rs.609/- but has taken the FOB price of Rs.1450 in respect of unrelated DTA clearance and adopted FOB price of Rs.2267/- in respect of stock transfer to their sister units. In this regard, we find that this issue has been settled by various Tribunal decisions wherein the Tribunal held that FOB value of export cannot be adopted for payment of duty for DTA sales. The Tribunal's decisions in the case of (1) Banyan Chemicals Ltd. Vs CCE Vadodara (supra)and (2) Cadila Health Care Ltd. Vs CCE Vadodara (supra) are relevant to the case on hand. The relevant para-6 of Tribunals decision in the case of Cadila Health Care Ltd. is reproduced as under :-
"6.?We have carefully considered the submissions by both sides. We do not agree that the value of DTA clearances should necessarily be same as that of value of export. The value of exports could be different for different customers, especially if the exports are to different countries. In the present case, it has not been disputed that the value adopted for payment of duty for DTA clearances is the transaction value. There is also no finding that the value adopted for DTA sale is a manipulated one. Therefore, the transaction value declared by the appellant cannot be dis-regarded and FOB value of export to some other customer be adopted for such DTA clearances."
This Tribunals decision was relied in the case of Banyan Chemicals (supra).Therefore, in the present case, the facts are identical in nature. The appellant being a EOU and by relying Tribunals decision, we are of the considered view that when the department is not able to bring out clear cut evidence to show that computed value arrived at by the appellant is either manipulated or otherwise, merely taking FOB price for DTA sales is not justified. Therefore, the value adopted by the adjudicating authority by taking the FOB price and the consequential demand of differential duty is not sustainable. Accordingly, the demand of customs duty in respect of four appeals on account of taking FOB price is liable to be set aside.
29. As regards the third issue, whether S.A.D to be considered for calculating rate of central excise duty when the goods are not sold but cleared on stock transfer basis to their own unit, we find that appellants are discharging sales tax (VAT) as evident from the invoice and there is no specific exemption under the Sales Tax Act. In this regard, we rely Tribunals decision in the case of Micro Inks Vs CCE (supra) and in the case of VVF Ltd. Vs CCE (supra) wherein the coordinate Bench of the Tribunal had held that when the goods are transferred to their unit on stock transfer it cannot be said that sales tax is exempted so as to deny the benefit of exemption. The relevant portion of Tribunals order in the case of Micro Inks (supra) is reproduced asunder :-
"10. We are unable to accept the contentions raised by the ld. Departmental Representative and the findings recorded by the adjudicating authority for more than one reason. Firstly, it is the fact that the inter unit clearance from EOU to DTA are not exempted from payment of sales tax by the State Government by any notification and revenue unable to bring on record any notifications issued by the State Government or otherwise to indicate that inter unit transfers from EOU to DTA are exempted. It is an admitted fact that whenever there is an inter unit transfer, it is not sales transacations and hence the sales tax/CST/VAT may not get attracted does not mean ipso facto, it is an exemption granted by the State Government. In the absence of any notification granting exemption for specified products by the State Government from levy of sales tax on the finished goods cleared from 100% EOU, it would be incorrect to hold that the goods were exempted from sales tax, more so when the appellant has discharged the sales tax on the same products which were cleared to independent buyers. Secondly, we find that the lower authority seems to have been guided by the argument that inter unit clearance are not taxed by the State Government and is to be construed as an exemption granted. This is totally a wrong perception of the law inasmuch as that exemption, if any, under statute needs to be granted in accordance with law i.e., by issuance of notification by the concerned authorities. It is nobodys case that the State Government has no power to exempt sales tax/VAT on specific products. In our view, the only question which needs to be addressed is whether the goods cleared into DTA to appellants sister units are exempted or not exempted, which in our considered view due to foregoing reasons, has to be held in favour of assessee, in the absence of any evidence on record to show that the said products if cleared to DTA is exempt from payment of sales tax. It is to be noted that provisions of Central Sales Tax, 1956 recommends movements of goods inter State by raising stock transfer notes even to independent buyers/own units by non-payment of CST/VAT on such clearances, cannot be construed as an exemption granted by the State Government. We find that for the purpose of taking benefit of Notification 23/2003-C.E., as amended, the one and only condition specified in respect of the goods being cleared into DTA, is if the said goods are exempted by the State Government from payment of sales tax/VAT, in the present case there is no such notification or order issued by the State Government exempting impugned goods from the payment of sales tax/VAT. It is to be held that plain reading of Notification No. 23/2003-C.E. as amended is applicable Qua Goods and exemption is across the Board and is applicable to all such goods which are not exempted by the State Government by issue of notification or an order from payment of sales tax/CST/VAT. We also find that large emphasis placed upon, by the lower authorities as well as departmental representative on the decision of the Larger Bench in the case of Moser Baer (I) Ltd. (supra). In our view, the reliance on the ratio seems to be erroneous since the question which was raised before the Larger Bench was not the question that is before the Bench in the proceedings in these appeals. The Larger Bench was specifically referring to the issue which was in respect of a 100% EOU availing sales tax exemption, for determining the Excise duty payable on aggregate value of customs duty by inclusion of SAD, whether should be taken into account or not while answering such a reference, Larger Bench has held that the assessee in that case was availing sales tax exemptions in respect of sales from their unit located in the notified backward area, as has been specified in the order of exemption granted to them by the State Government of U.P. It would be not out of place to note that the State Government of U.P. had specifically granted exemption from leviable of sales tax on the goods which were manufactured in a notified area, hence the Larger Bench came to the conclusion that for discharge of excise duty, the SAD has to be included. The terms of reference to the Larger Bench being totally different than the facts of the issue which is raised in these appeals; in our view the reliance placed by the Revenue on the ratio of the Larger Bench decision will not carry their case any further."
The ratio of the above decisions squarely applies to the present case as majority of the goods are supplied on stock transfer basis. Therefore, the demand on account of special additional duty are set aside.
30. As regards the demand of educational cess and higher secondary education cess thrice while calculating excise duty, we find that appellants have already calculated educational cess twice while computing the transaction value and the same cannot be calculated again. In this regard, the Tribunals Larger Bench in the case of Kumar Arch Tech Pvt.Ltd. Vs CCE Jaipur (supra), the Larger Bench of Tribunal clearly held that levy of CESS cannot be levied third time. The relevant paragraph of the Larger Bench Tribunal is reproduced as under:
"10. However, we?are not in agreement with the stand of the Revenue for another reason. The charging provisions of education cess and S&H cess are Section 91 of the Finance Act, 2004 and Section 136 of the Finance Act, 2007 respectively according to which, this levy is a cess levied as surcharge to enable the Central Government to finance its commitment to provide universalized quality of basic education and secondary and higher education. Surcharge on a tax means additional tax on that tax. As discussed above, though education cess and S&H cess being cess to enable the Government to finance its expenditure on providing basic education and secondary and higher education, is a levy different and distinct from the tax on which it is levied as surcharge, the mode or measure of this levy is surcharge at the rate of 2% and 1% on the existing levies i.e. the taxes being collected by the Government as -
(a) Central excise duties under Central Excise Act, 1944 or any other law in force;
(b) customs duties under Customs Act, 1962 read with Customs Tariff Act, 1975 or any other law in force; and
(c) Service tax levied under Section 66 of the Finance Act, 1994.
Since the cess levied as surcharge under Section 91 of Finance Act, 2004 and Section 136 of Finance Act, 2007 has to be on the existing levies, the existing levies, obviously, would not include this cess. For this reason only, Sections 93 & 94 of Finance Act, 2004 and Sections 138 and 139 of Finance Act, 2007 while defining the measure of education cess and S&H cess in respect of excisable goods and imported goods respectively, specifically provide that the aggregate of duties of excise or aggregate of duties of customs levied by the Central Government in the Ministry of Finance (Deptt. of Revenue), on which this cess is to be levied as surcharge, would not include the education cess and S&H cess. Thus, the intention of the legislature was never to charge education cess on education cess. In fact this is not permissible from very mode of this levy as prescribed in Section 91 of the Finance Act, 2004 and Section 136 of the Finance Act, 2007, as when a new tax is introduced as surcharge on the existing levies, the base on which the new levy as surcharge is to be calculated will include only the existing levies, not the new levy. If the Revenues stand is accepted, and on the sum of Basic customs duty and Addl. Customs duty, first cess on imported goods under Section 94 of Finance Act, 2004 and Section 139 of Finance Act, 2007 is charged as duty of customs and on the aggregate of duties of customs, cess on excisable goods, under Section 93 of Finance Act, 2004 and Section 138 of Finance Act, 2007 is charged, it would amount to charging education cess on education cess for which there is no sanction in law. Apex Court in case of Jain Brothers v. U.O.I., reported in (1970) 77 ITR 107 has held that there can be no objection for double taxation if the legislature has distinctly enacted it, but while interpreting general words of taxation, the same cannot be so interpreted as to tax the subject twice over to the same tax. In our view, it is this principle which has to be kept in mind while calculating education cess and S&H cess on DTA clearances of a 100% EOU. Since the DTA clearance of a 100% EOU attract central excise duty and in terms of proviso to Section 3(1) of Central Excise Act, 1944, the measure of the excise duty leviable is aggregate of duties of customs charged on import of like goods into India under Customs Act, 1962 read with Indian Customs Tariff Act, 1975 or any other law for the time being in force, this aggregate of duties of customs on which education cess under Section 93 of Finance Act, 2004 and S&H cess under Section 138 of Finance Act, 2007 is to be charged, would not include education cess and S&H cess under Section 94 of Finance Act, 2004 and Section 139 of Finance Act, 2007. In other words, the education cess and S&H cess would be chargeable only once under Section 93 of Finance Act, 2004 and Section 138 of Finance Act, 2007 on the sum of basic customs duty and Additional customs duty. The ratio of the Tribunal decisions squarely applicable to the present case and demand of educational cess and Higher Educational Cess thrice is liable to be set aside.
31. In view of the foregoing discussions, we hold that
(i) in respect of appeal E/18/2008 duty demanded by denial of exemption No.20/03 is set aside to the extent and remanded to the adjudicating authority. The adjudicating authority to complete the proceedings as per the direction contained in this order at para (25) within a period of 3 months from the date of receipt of this order. It is needless to state that the appellant to be given reasonable opportunity and follow principles of natural justice. The appellants are directed to produce all the records and evidence before the authority.
(ii) In respect of demand on adoption of FOB Value for DTA sale, S.A.D. and Higher Secondary Cess in all the four appeals the demand is set aside to the extent.
(iii) Consequently, the appellants are not liable for any penalty and the penalty is set aside.
(iv) In respect of Appeal E/18/2008 the predeposit of Rs.1.0 crore made by the appellant, we make it clear that the appellant shall not claim any refund till finalization of adjudication proceedings. Appeals are disposed of in the above terms.
(Dictated and pronounced in open court)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
gs
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