Custom, Excise & Service Tax Tribunal
Finolex Cables Ltd vs Commisioner Central Excise And Service ... on 3 June, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL,MUMBAI
REGIONAL BENCH - COURT NO. IV
Excise Appeal No. 86384 of 2014
(Arising out of Order-in-Original No. PUN-EXCUS-001-COM-047-13-14 dated
31.01.2014passed by the Commissioner of Central Excise, Pune-I)
Finolex Cables Limited .... Appellant
26-27, Mumbai Pune Road,
Pimpri
Pune - 411018.
Versus
Commissioner of Central Excise .... Respondent
Pune-I Commissionerate ICE House, Sasson Road Opp. to Wadia College Pune - 411 001.
Appearance:
Ms. Payal Nahar, Advocate for the Appellant Shri Xavier P.M. Mascarenhas, Authorized Representative for the Respondent CORAM:
HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL) FINAL ORDER NO. A/85534/2024 Date of Hearing: 02.02.2024 Date of Decision: 03.06.2024 Per: M.M. Parthiban This appeal has been filed by M/s Finolex Cables Limited, Pune (herein after referred to as "the appellant") assailing Order-in-Original No.PUN-EXCUS-001-COM-047-13-14 dated 31.01.2014 (hereinafter referred to as "the impugned order") passed by the Commissioner of Central Excise, Pune-I.
2.1 Brief facts of the case are that the appellant is engaged in the manufacture of PVC insulated wires and cables, semi-finished cables, bare copper wire, aluminium wire and PVC compound. The appellant clears various semi-finished goods manufactured by them to their own factories situated at Pimpri, Goa, Roorkee wherein these goods are used for captive consumption for manufacture of dutiable goods at 2 E/86384/2014 Pimpri and Goa units. The duties paid by the appellant on the intermediary goods are available as Cenvat credit for the recipient units situated at Pimpri and Goa. However, no Cenvat credit was availed in respect of Roorkee plant as a said unit was availing area based duty exemption. For determining the assessable value of intermediate goods, the appellant has adopted the cost of production on a monthly basis and made statutory addition of 10% to the base value and paid the duty on such provisionally determined value. Upon ascertaining the audited cost report in the month of October/November of each year and after obtaining the CAS-4 certificate indicating the actual value of such intermediate goods, the appellant discharges the differential duty, if any, with appropriate interest as per law. The appellant had also informed the Department about the aforesaid practice of duty payment on intermediate products by their letter dated 23.03.2011.
2.2 However, the Department objected to such practice adopted by the appellant and issued show cause notice dated 06.05.2013 demanding differential Central Excise duty of Rs.78,67,377/- under Section 11A(4) of the Central Excise Act, 1944 along with applicable interest, besides proposing for imposition of penalty under Section 11AC(4) ibid read with Rule 25(1)(a) of the Central Excise Rules, 2022.The said SCN was adjudicated by the learned Commissioner in determination of the differential duty at an amount of Rs.19,07,181/- and by dropping the differential duty proposed over and above the said amount determined by him and appropriated the said amount paid by the appellant along with interest of Rs.3,93,863/- under Section 11AA ibid. Besides he imposed penalty of Rs.19,07,181/- on the appellant under Section 11AC(1a) and further penalty of Rs.15,00,000/- under Rule 25(1)(a) ibid. Being aggrieved with the above order, the appellant has filed this appeal before the Tribunal.
3. Heard both sides and perused the records of the case. I have examined the submissions advanced by the learned Advocate appearing for the appellant and the learned Authorized Representative of the Department. Further, I have also perused the additional written submissions in the form of paper books submitted by both sides along with citation of case laws which both sides have mentioned in support of their case.
3E/86384/2014 4.1 The issue involved in this appeal is to decide whether the differential Central Excise duty demanded under Section 11A(4) of the Central Excise Act, 1944 is sustainable or not; and whether penalty can be imposed on the appellant under the said Act and Rules made there under for their failure to pay the differential duty as above.
4.2 In the impugned order, the learned Commissioner has given certain findings to decide whether the appellant is liable to pay the differential duty and that whether the penalty is imposable on him. The relevant portion of the findings is extracted and given below:
"20.2.... As the assessee had resorted to undervaluation by adopting an incorrect methodology of assessment, the Department was of the view that notional addition of 15%, after considering the growth rate of cost of production inclusive of basic raw material as well as labour charges, was the proper assessable value for calculating the Central Excise duty payable on the goods cleared by the assessee to the sister units.....
xx xx xx xx xx
(c) As the assessee have now submitted the final CAS-4 certificates issued by an independent Cost Accountant in respect of the goods cleared by them to their sister units, I find that the demand of differential duty of Rs.78,67,377/-, which, in the absence of any final CAS-4 certificate at the material time, was worked out on the basis of notional 15% addition to the provisional assessable value calculated by the assessee, would no more hold good. Consequently, the same needs to be reduced to the extent of differential duty worked out on the basis of final CAS-4 certificates, which are now on record. The assessee have already calculated and paid the differential duty along with interest based upon the final CAS-4 certificates issued by an independent Cost Accountant which stands verified by the jurisdictional Assistant Commissioner of Central Excise and therefore, I find no reason to differ from the same.
xx xx xx xx xx 20.4... Although, subsequent to the receipt of the final CAS-4 certificates, the assessee have determined their differential duty liability and paid the same along with interest, I find that at the time of clearance of such goods to their sister units, the assessment of such goods was undisputedly improper and incorrect and was deliberately done with an intent to evade duty, and hence there is a wilful mis-
statement about the assessable value adopted by them which is mis- declared to be final value of such goods and which later on i.e., after receipt of the final CAS-4 certificates, has in fact proved to be incorrect.
(b) I find that the assessee are working in a self-assessment regime, where such a deliberate defiance in non-compliance of statutory provisions is not condonable...."
4E/86384/2014 4.3 A plain reading of the above findings, indicate that there is apparent contradiction as the learned Commissioner had found that the appellant had himself worked out the duty to be paid at the time of clearance of goods to their sister units and discharged the same before clearance of such goods on the basis of available records. However, on ascertaining the actual cost of production involved during the relevant time from the final CAS-4 certificates, they had paid the differential Central Excise Duty on the value of actual cost duly determined by independent Cost Accountant and duly verified by the jurisdictional Assistant Commissioner and also paid the applicable interest thereon for the delay in payment. All the above activities are undertaken by the appellant after informing the Department about the practice in discharging their duty liability in respect of intermediate goods that arise during the course of manufacture of final products. On the one hand he had accepted the determination of the differential duty on actual value of the goods adopted by the appellant and dropped the ad-hoc calculation done by the department at 15% above the base cost data as proposed in the SCN. However, on the other he had concluded that the appellant had mis-declared the final value. Hence, there is apparent contradiction in the conclusion arrived at in the impugned order. In the above factual matrix of the case, there is no evidence to show that there was any suppression or wilful mis- declaration in the act of clearing the intermediate goods. It is not the case of the department that they knew the actual cost upon which the correct duty on intermediate goods could have been worked out, as the SCN also proposed certain addition of 15% to the base cost adopted by the appellant. There was only a different in the percentage of addition of 10% adopted by the appellant and 15% proposed in the SCN. Thus, I am of the considered view that demand of duty by invoking the provision of Section 11A(4) of the Central Excise Act, 1944 is not sustainable.
5.1 I further find that the above issue for consideration before me is no more open to debate, as the issue has been discussed at length and was decided by the Hon'ble High Court of Gujaratin the case of Commissioner of Central Excise & Customs, Bhavnagar Vs. Saurashtra Cement Ltd. - 2010 (260) E.L.T. 71 (Guj.).The relevant paragraphs of the said judgement are extracted and given below:
5E/86384/2014 "15. For appreciating the controversy between the department and assessee, it is necessary to have a close look at the relevant provisions of Central Excise Act as well as Rules. The dispute centers around the applicability of Rule 25 of the Central Excise Rules. It reads as under :-
Rule 25. Confiscation and penalty. - (1) subject to the provisions of section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer,-
(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or
(b) does not account for any excisable goods produced or manufactured or stored by him; or
(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or
(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause
(d) has been committed, or [rupees two thousand], whichever is greater.
16. The Tribunal considering Rule 25 has observed in its order that Rule 25 provides for imposition of penalties which shall not exceed the duty on the excisable goods, when there is contravention of the nature referred to in clause (a), clause (b), clause (C) or clause (d). The Tribunal found that clause (a) of Rule 25 refers to removal of excisable goods in contravention of any of the provisions of the Rules. When goods were removed, no excise duty was required to be paid at that point of time. As such, it cannot be said that the contravention of the nature mentioned in the said clause has been committed by the assessee. Clause (b) is to the effect that the manufacturer does not account for any excisable goods manufactured by him. The said clause does not stand contravened inasmuch as the goods were duly reflected in the statutory records. Similarly, clause (c) does not stands contravened inasmuch as the assessee has not manufactured goods without applying for registration. Clause (d) refers to contravention of any of the provisions of the Rules with intent to evade payment of duty. Excisable goods were entered in records, cleared on Central Excise invoices and duty was also paid subsequently, though belatedly along with interest. As such, the said clause (d) is also not contravened. After analyzing and examining all these four sub-clauses of Rule 25, keeping in mind the facts of the case, the Tribunal held that the invocation of Rule 25 for imposition of penalty for delayed deposit of duty is not in accordance with law.
17. It is also to be borne in mind that Rule 25 starts with the word "Subject to the provisions of Section 11AC............". Section 11AC of the Central Excise Act deals with penalty for short levy or non-levy of duty in certain cases. It says that 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 willful misstatement 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 person who is liable to pay duty as determined under sub-section (2) of Section 11AC, shall also be liable to pay a penalty equal to the duty so determined. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the 6 E/86384/2014 duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules.
18. This issue has come up before the Andhra Pradesh High Court in case of Commissioner of C. Ex. Guntur v. Andhra Cements Limited (supra) wherein the Court has taken the view that as per Rule 25(d) of the Rules subject to the provisions of Section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, he is liable to pay the penalty in terms of Rule 25 of the Rules. The Court further observed that a bare perusal of this Rule would suggest that evasion of payment of duty is not sufficient to impose penalty on a producer or manufacturer. There should be an element of intention to evade payment of duty. Unless the authorities come to the definite conclusion that there was an intention to evade the payment of duty, a penalty cannot be imposed. Considering the facts before the Andhra Pradesh High Court, the Court observed that there is a finding of the Tribunal that the circumstances were beyond the control of the respondent-company as the matter was pending before BIFR, and as such, the amounts could not be deposited by the respondent-company within time and as soon as it was in a position to make the payment, the respondent-company made the payment not only of the duty, but also the interest calculated under Rule 8(3) of the Rules. The Court, therefore, come to the conclusion that the Tribunal has correctly interpreted Rule 25 of the Rules and the penalty cannot be imposed on the assessee company.
19. A similar issue has come up before the Kerala High Court in the case of Superintendent of Central Excise v. Sance Pharmaceuticals (supra). The Court in that case was concerned with issuance of show-cause notice and levy of penalty under Rule 173GG of erstwhile Central Excise Rules, 1944. The Division Bench of the Kerala High Court while confirming the order and judgment of the learned single judge, setting aside the penalty, has held that the learned single judge has correctly applied the law laid down by the Apex Court that penalty should not be imposed in absence of willful intention to evade payment of tax or duty, as the case may be. The Court further held that it is trite law that even the statute provides for imposition of penalty when there is failure to pay duty within the statutorily prescribed period, such imposition of penalty should be preceded by a finding that there was a willful default as such and in the case before the Kerala High Court, the deficit duty had been paid along with interest even before the issuance of the show-cause notice. The appellate authority had also found absence of any intention to evade payment of duty. The Court, therefore, took the view that the orders of penalty were not sustainable and rightly interfered with by the learned single judge.
20. Even in the case of Supreme Industries Limited v. CESTAT, New Delhi (supra), the Madhya Pradesh High Court took the view that enforcement of penal clause to be done subject to strict proof of intention to evade payment of duty. In the case before the Madhya Pradesh High Court, there was no material to show that there was intention to evade duty. The goods manufactured were not subject to quality control test and were kept on hold. The goods were to be 7 E/86384/2014 cleared by quality control department and only thereafter were to be sent to packing department after quality control test was concluded. Merely because in statement, the Commercial Manager of petitioner in that case has stated that goods were manufactured, that by itself cannot be a ground for holding that goods were ready for despatch to customer. The Court, therefore, took the view that confiscation and penalty is not sustainable under Rule 173Q of erstwhile Central Excise Rules, 1944.
21. The Apex Court judgment in the case of Union of India v. Rajasthan Spinning & Weaving Mills, 2009 (238) E.L.T. 3 (S.C.) also supports the case of the respondent assessee. The Apex Court after reproducing Section 11AC in the judgment, took the view that the main body of Section 11AC lays down the condition and circumstances that would attract penalty and the various proviso enumerate the condition, subject to which and the extent to which the penalty may be reduced. The Court further took the view that the penalty provision of Section 11AC would come into play only after recording a finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC. The penalty under Section 11AC is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in that section. The Court further held that Section 11AC would not apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application.
22. It is also relevant to mention here that applicability of Rule 25 is subject to the provisions of Section 11AC of the Act. The term "subject to" in the context assumes some importance. The Apex Court in the case of Commissioner of Ce. Ex., Bhavnagar v. Saurashtra Chemicals Limited, 2007 (212) E.L.T. 7 (S.C), after referring to its earlier decisions observed that the term "subject to" is an expression whereby limitation is expressed. It is further observed that the expression "subject to" must be given effect to.
23. In K.R.C.S. Balakrishna Chetty and Sons & Co. v. The State of Madras, AIR 1961 SC 1152, the Apex Court took the view that on a proper interpretation of Section 5 of Madras General Sales Tax Act, 1939, the expression "subject to" only means that the exemption under the licence is conditional upon the observance of the conditions prescribed and upon the restrictions which are imposed by and under the Act whether in the rules or in the license itself; that is, a licensee is exempt from assessment as long as he conforms to the conditions of licence and not that he is entitled to exemption whether the conditions upon which the license is given are fulfilled or not. The use of the words "subject to" has reference to effectuating the intention of the law and the correct meaning, is "conditional upon". The observance of conditions of licence is necessary for the availability of exemption under Section 5. Where the licensee contravenes the conditions of the licence or Act or the rules, he becomes liable to pay the tax, notwithstanding that a license is issued to him under Section 5.
24. In view of the above discussion and legal position emerging therefrom, we have no hesitation in confirming the orders passed by the Tribunal and dismissing all these Appeals filed by the Revenue, by holding that there was no intention on the part of the respondent assessee to evade any payment of duty. It is only because of stringent financial condition, that the duty could not be paid in time and as soon as liquidity was available, duty was paid along with interest. The Tribunal has, therefore, rightly come to the conclusion that penalty 8 E/86384/2014 could not be levied under Rule 25 of the Rules and for the alleged default, the penalty was restricted to Rs. 5,000/- in each matter under Rule 27 of the Rules. We, therefore, hold that no question of law, much less any substantial question of law arises out of the orders passed by the Tribunal.
25. We, therefore, dismiss all these five Appeals without any order as to costs."
5.2 I further find that the Co-ordinate Bench of the Tribunal in the case of Sanvijay Rolling & Engineering Ltd., Vs. Commissioner of Central Excise, Nagpur - 2022 (379) E.L.T. 229 (Tri.-Mumbai) had held that the demand of duty invoking extended period of limitation is not invokable in case of duty demand for clearances made to its other units. The relevant paragraphs of the said order is extracted and given below:
"7. The period of dispute involved in this case is from April, 2006 to March, 2007. By invoking the proviso appended to Section 11A ibid, the department had issued the show cause notice to the appellant, seeking for recovery of the adjudged demands. Insofar as recovery of short/non-levied or non-payment of duty is concerned, the said statute mandates that the Central Excise officer shall issue the show cause notice within one year from the relevant date on the person, requiring him to show cause as to why the duty amount shall not be recovered. The period of one year is prescribed for effecting recovery in the normal circumstances. Whereas, in the case of non-levied/paid, short levied or short paid of the appropriate duty liability, owing to the reason of fraud; or collusion; or wilful misstatement; or suppression of facts, etc., the period of issuance of the show cause notice has been extended up to a period of five years under the proviso clause appended to Section 11A ibid.
7.1 We have examined the case records. We find from Annexure-D appended to the appeal memorandum that the office of the Accountant General (Audit-II), Nagpur had verified the records maintained by the appellant during the disputed period 2006-07 and 2007-08 and vide note dated 30-11-2007 had informed the jurisdictional Range Superintendent, in-charge of the factory of the appellant that the duty amount had not been paid or short paid in terms of Rule 8 ibid. Further, vide the said note; the audit wing had also confirmed the fact that during the disputed period, the appellant had prepared the cost sheet as per CAS-4 guidelines, reflecting the material particulars regarding clearance of excisable goods to the sister's unit. Further, the letter dated 31-5-2007 annexed at page 305 in the appeal records also demonstrates the fact that for the purpose of audit under the EA-2000, the department had sought for submission of desired documents, which were duly complied with by the appellant. The impugned order at Page 32 has also acknowledged the fact that the books of accounts with regard to the present dispute were examined and verified by the audit wing of both the aforementioned departments. However, the present show cause proceedings were initiated by the department vide notice dated 15-3-2010, alleging that the appellant had suppressed the material particulars regarding non-observance of the procedures laid down under Rule 8 ibid and thus, it is liable to pay the differential duty under the proviso to Section 11A ibid. On 9 E/86384/2014 perusal of the relevant records, we are convinced that the appellant had informed the department regarding the modus operandi adopted by it in sending the disputed goods to its sister's units and also reasonably believed that the valuation provisions contained in Rule 8 ibid should be available for such transactions. Thus, under such circumstances, the rigor itemized in the proviso clause under Section 11A should not be available to the department and accordingly, the demand, if any, should only be confined to the normal period of one year. In the present case, since the period of dispute is from 2006 to 2008 and the show cause notice was issued on 15-3-2010, we are of the considered view that confirmation of the entire adjudged demands are barred by limitation of time as per the aforesaid statutory provisions and as such, the impugned proceedings are not maintainable on the ground of limitation alone. Further, we find that the principle or doctrine of revenue neutrality is applicable in the case in hand inasmuch as the higher duty amount payable by the appellant under Rule 4 ibid would be available to the sister's unit as Cenvat credit. Furthermore, we also noticed from the available records that the department was in doubt with regard to applicability of the proper valuation rules to the facts of the present case. This is evidenced from the show cause notice, where the proposals were made to confirm the duty demand by considering the provisions of Rule 8 ibid; whereas, the impugned order has confirmed the demand for contravention of the provisions of Rule 4 ibid. Hence, under such circumstances also, it cannot be said that there is element of mens rea on the part of the appellant in defrauding the Government revenue and thus, the extended period of limitation, in our considered view was not available to the department for initiation of the show cause proceedings.
7.2 We find that the case laws relied upon by the Learned Advocate support the case of the appellant that the extended period of limitation cannot be invoked in the circumstances, when the department was fully aware of the manufacturing activities and the information regarding sale of goods to different category of manufacturers were already in knowledge beforehand. In the case of Nirlon Ltd. v. Commissioner of Central Excise, Mumbai (supra), the Hon'ble Apex Court have ruled that something done with bona fide belief, without involvement of any mala fide intention to defraud the Government revenue, the proviso to Section 11A(1) ibid cannot be invoked. Further, it has also been held that when the entire exercise was revenue neutral, the appellant could not have achieved any purpose to evade the duty. Thus, in absence fulfilment of the ingredients mentioned in the proviso clause to Section 11A ibid, confirmation of the adjudged demands in the impugned order will not stand for judicial scrutiny. The issues decided in the case laws relied upon by the Ld. AR for Revenue are distinguishable from the facts of the present case. In the case of Neminath Fabrics Pvt. Ltd. (supra), the respondent had admitted shortage of the finished products and illicit clearance thereof without issuance of Central Excise invoices, without payment of Central Excise duty. Appreciating the evidence, it was held by the Hon'ble Gujarat High Court that when suppression stands admitted and proved the proviso to sub-section (1) of Section 11A ibid would stand attracted. In the case of Tigrania Metal & Steel Industries (supra) and Chemfab Alkalis Ltd. (supra), this Tribunal has held that when the Department officers were not aware of the facts, which were intentionally suppressed by the assessee, mere conducting the audit cannot prevent the departmental action in not issuing the show cause notice by invoking the extended period of limitation.10
E/86384/2014
8. In view of the foregoing discussions, we do not find any merits in the impugned order insofar as it has confirmed the adjudged demands by invoking the extended period of limitation contained in the proviso appended to Section 11A ibid. Therefore, the impugned order is set aside and the appeal is allowed in favour of the appellant on the ground of limitation."
6. In view of the foregoing discussions and analysis, and in terms of the judgement of the Hon'ble High Court and the order of the Tribunal, I am of the considered view that the demand of differential duty invoking extended period is not sustainable and that too when the requisite duty has been paid by the appellant after duly informing the department about the same and further additional duty was also paid upon ascertaining the actual cost through CAS-4 cost audited records along with interest due for such belated payment. For the same reason, imposition of penalty under Section 11AC (1)(a) of the Central Excise Act, 1944 and imposition of penalty under Rule 25(1)(a) of Central Excise Rules, 2002 are not sustainable. However, the further additional duty paid by the appellant after finalization of the books of accounts and upon ascertaining the final CAS-4 certificates from the cost accountant, which have been duly verified by the jurisdictional Assistant/Deputy Commissioner, to the extent it has been paid voluntary along with interest and the same having been appropriated towards the duty liability on the appellant in the impugned order, the same is upheld.
7. In the result, by setting aside the impugned order dated 31.01.2014 the extent of imposing penalties on the appellant as discussed in paragraph 6 above, the appeal filed by the appellant is allowed in their favour.
(Order pronounced in open court on 03.06.2024) (M.M. Parthiban) Member (Technical) Sinha