Custom, Excise & Service Tax Tribunal
Ismt Ltd vs Commissioner Of Central Excise on 19 February, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/3240, 3241 & 3242/05 (Arising out of Order-in-Original No.23/ASR/2005-ADJ dated 29/06/2005 passed by Commissioner of Central Excise, Pune-III) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Anil Choudhary, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
ISMT Ltd., Sanjay Gupta M.G.Apte Appellants Vs. Commissioner of Central Excise, Respondent Pune Appearance:
Shri.Gajendra Jain, Advocate for appellant Shri.Ahibaran, Addl. Comm. (AR) SDR, for respondent CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical) Honble Mr.Anil Choudhary, Member (Judicial) Date of Hearing : 26/02/2014 Date of Decision : 26/02/2014 ORDER NO Per: P.R.Chandrasekharan
1. The appeal is directed against Order-in-Original No.23/ASR/2005-ADJ dated 29/06/2005 passed by Commissioner of Central Excise, Pune-III.
2. Vide the impugned order, the learned Commissioner has confirmed a duty demand amounting to Rs.1,43,84,829/- towards ineligible credit availed by the appellant without receipt of inputs, scrap; Rs.3.00 lakhs towards inputs not received on which the credit has been availed; Rs.6,41,516/- towards credit attributable to goods sent on job work but not received back either as such or by way of scrap; Rs.22,17,400/- towards DSRM Rolls manufactured by the appellant and sold to Indian Seamless Steel & Alloys Ltd., (ISSAL in short) in September 1996 and leased back to the appellant and Rs.13,05,482/- towards reversal of credit in respect of 38 Nos. of DSRM Rolls sold to Indian Seamless Metal Tubes Ltd. (ISMTL in short) and leased back to the appellants. He has also imposed a penalty amounting to Rs.89,22,882/- on the main appellant; Rs.15 lakhs on Shri M.G.Apte, General Manager (Finance) of the appellant firm under Rule 209A of the Central Excise Rules, 1944 and a penalty of Rs.25.00 lakhs on Shri Sanjay Gupa, the agent of scrap dealer. However, Shri Sanjay Gupta has not appeared before us. Therefore, we are taking up the appeals only in respect of the main appellant, M/s.ISMT Ltd. and Shri M.G. Apte, General Manager (Finance) of the main appellant.
3. The first demand of Rs.1,43,84,829/- has been made on the ground that during the year 1995-96 the appellant took credit on a quantity of 92,427 MTs of scrap said to have been received as per RG-23A Part-I Register maintained by the appellant, whereas in form 3CD, which is a statutory return filed by the appellant with the income tax authorities, the appellant had shown the purchases of all raw materials including non-cenvatable raw materials at 80,990 MTs. Further, in the daily stock statement maintained by the appellant, which indicates the opening balance, receipt, consumption and closing balance of the raw materials, the receipts were shown to be 78,408 MT. Therefore, notice was issued to the appellant alleging that they have availed excess credit on a quantity of 14,019 MTs (92,427 MTs 78408 MTs) without actual receipt of the materials and therefore, no credit could be taken on the said quantity amounting to Rs.1,43,84,828/-. As regards the demand of Rs.3.00 lakhs, this demand pertains to the quantity of raw materials short received by the appellant being the difference between the quantities indicated in the duty paying documents and the weighment of the inputs received at the weigh bridge of the appellants. In respect of this quantity, the appellant had raised debit notes on the supplier/transporter towards non-receipt of the goods and had recovered the amount. Therefore, the adjudicating authority concluded that in the absence of actual receipt of the goods, no credit could be taken and accordingly confirmed a duty demand of Rs.3.00 lakhs. As regards the third demand of Rs.6,41,516/-, the appellant had supplied raw materials to job workers under Rule 57F (4) of the Central Excise Rules, 1944 and the waste generated during the job working process was required to be returned, which was not done, or the waste generated should have been cleared on payment of duty for which no evidence has been led by the appellant and therefore, after adjusting for the invisible loss during job-working process, the adjudicating authority confirmed the above demand towards the visible loss, which occurred during the job-working process. As regards the fourth demand of Rs.22,17,400/- the duty demand was confirmed on the ground that the appellant manufactured 76 Nos. of DSRM Rolls falling under CETH 84.55 and the said DSRM Rolls were sold to M/s.ISSAL. Since the goods were sold, the appellants were required to pay duty on such DSRM Rolls manufactured by them. The fifth demand of Rs.13,05,482/- was confirmed on the ground that the appellant had imported 38 Nos. of DSRM rolls and took credit of the CVD paid thereon and subsequently, these rolls were sold to ISMTL but the credit taken was not reversed. Inasmuch as the rolls were sold, the appellant was required to pay duty or reverse proportionate credit.
4. The Ld. Counsel for the appellant made the following submissions.
4.1 As regards the first demand of Rs.1,43,84,829/- is concerned, the reason for the difference between the RG-23A Part-I account and the daily stock statement account is due to the fact that the part of the goods weighing 14434 MTs were received during 1994-95, however, the appellant did not take credit for want of receipt of duty paying documents and when the documents were received during 1995-96, they took the credit. Availing of credit for the goods received in 1994-95 during 1995-96 is not prohibited in law and hence, the demand is not sustainable in law. The appellant also relies on the decision of this Tribunal in the case of Sunrise Structurals & Engineering Ltd., Vs. CCE, Nagpur 2004 (117) ECR 307 (Tri-Mum) and Milton Polyplast Vs. CCE 2006 (205) ELT 210 (Tri-Mum) in support of his contention that the Cenvat Credit Rules pertaining to availment of credit was substituted in the year 2000 without any saving clause and therefore, the duty demand could not have been confirmed after 2000. As regards the denial of credit of Rs.3.00 lakhs is concerned, the learned Counsel submits that the credit has been taken based on duty paying documents and therefore, this credit cannot be denied even though there might be a marginal variation in the quantity indicated in the duty paying documents and the actual receipts. Since the difference is only marginal, availment of duty credit is permissible in law. As regards the demand of Rs.6,41,516/- is concerned, it is the appellants contention that the scrap was generated at the job-workers site and it was the job-worker who manufactured the goods. Therefore, the demands were required to be made on the job-worker and not on the appellant, who was only a supplier of raw materials. Reliance is placed on the decision of the Honble Bombay High Court in the case of CCE Vs. Rocket Engineering Corporation Ltd. 2008 (223) ELT 347 (Bom) in this regard. As regards the demand of Rs.22,17,400/- on DSRM Rolls machined and manufactured by the appellant and sold to ISSAL in September 1996, the learned Counsel submits that the appellant never removed these goods from their factory but captively used the same in the manufacture of various final products within their factory. Since the DSRM Rolls are capital goods as defined in Rule 57Q of the Central Excise Rules, 1944, the appellant was entitled for duty exemption under Notification No.67/95-CE dated 16/03/1995 and therefore, the demand is not sustainable. Similarly with respect to the demand of Rs.13,05,482/- is concerned, in this case also the capital goods were used within the factory of the appellant even though they were sold and reversal of the credit would be warranted only when the capital goods are removed as such or after use. Inasmuch as the capital goods have not been removed, merely because they have been sold, the question of reversal would not arise at all and hence, the demand is not maintainable in law. Accordingly, he pleads for setting aside the impugned order and allowing the appeal.
5. The learned Additional Commissioner (AR) appearing for the Revenue on the other hand reiterates the findings of the adjudicating authority. He submits that as regards the demand of duty of Rs.1,43,84,829/- is concerned, it is clear that in the returns filed before the Income tax authorities in form 3CD for the year 1995-96, the appellant had indicated the purchases at 80,990 MT, which is much lower than the figure of 92,427 MTs shown in the RG23A Part-I Register. The figure of 92,427 MTs pertains to Cenvatable inputs whereas the figures in the 3CD return reflects both Cenvatable inputs as well as non-centavable inputs and in the normal course, the figures declared in form 3CD should be higher than those reflected in RG-23A part-I register. He also points out that for the previous two years, 1993-94 and 1994-95 are concerned, the figures declared in form 3CD is higher than those declared in the RG-23A register. Therefore, during the year 1995-96 alone, the declaration of a lower figure in form 3CD does not stand to any reason. Further, in the daily stock statement which accounts for the receipt, consumption and during stock of raw materials, the receipt shown is only 78,408 MTs. As per the procedure followed by the appellant, as evidenced from the statement of Shri Pattanshetti, Assistant Manager (Stores), it is clear that the appellants have been maintaining the daily stock an actual basis and as soon as the goods are received, entries are made in the register. If that be so, the actual receipt of goods during 1995-96 can be taken only at 78,408 MTs and not 92,427 MTs as indicated in the RG-23 Part-I register. Therefore, the adjudicating authority is right in denying Cenvat Credit on 14019 MTs which is in excess of the figures reflected in the daily stock register. Accordingly, he submits that the demand of Rs.1,43,84,829/- by denying the credit on excess material is clearly sustainable in law.
5.1 As regards the demand of Rs.3.00 lakhs, he submits that the appellant has taken a very strange stand; while on the one hand, they admit shortage in receipt of inputs and have raised debit notes on the supplier/transporter for non-receipt, on the other, they claim that they are entitled to Cenvat credit on the material not received. The action of the appellant in raising debit notes on the supplier/transporter clearly evidences the fact that the appellant did not receive the material. Therefore, the demand of Rs.3.00 lakhs being Cenvat Credit on material not received is sustainable in law.
5.2 As regards the denial of Cenvat Credit of Rs.6,41,516/- is concerned, the goods have been removed under Rule 57F (4) to the job workers. Rule 57F (5) (i) mandates that the waste, if any, arising during the course of any operation mentioned in sub-rule (4) shall be returned to the factory of the manufacturer of final products. Sub Rule (ii) further mandates that no such waste as referred to in clause (i) is required to be returned to the factory of the manufacturer of final products, if the excise duty payable on such waste is paid. Therefore, the entire responsibility of satisfying the terms and conditions prescribed under Rule 57F (4) falls clearly and squarely on the supplier of inputs and in the present case since the appellant has not discharged this responsibility cast on him, the duty demand has been correctly made and cannot be faulted at all. As regards the demand of duty on 76 Nos. of DSRM Rolls, the learned Additional Commissioner submits that the appellant had sold these goods to ISSAL and therefore, the appellant ought to have discharged the duty liability. Similarly in respect of 38 Nos. of DSRM Rolls which were imported and used in the factory of the appellant, the same were also sold to ISSAL and therefore, the appellant should have discharged duty liability by reversing the Cenvat Credit taken. Accordingly, he pleads for upholding the impugned order.
6. We have carefully considered the submissions made by both the sides.
6.1 As regards the demand of duty of Rs.1,43,84,829/- is concerned, the appellant has reflected three different figures, 80990 MTs in form 3CD which is a statutory return under the income tax law, being the total quantity of Cenvatable inputs and non-cenvatable inputs received, 92,427 MTs in the RG23A Part I register for the quantity of cenvatable inputs received and 78,408 MTs in the daily stock statement, which is a statutory register prescribed for receipt of raw materials. In view of the variations in the receipts, the appellant was directed, during the course of hearing on 25/09/2013, to produce copy of the balance sheet and schedules showing the details of inventory held for the year 1995-96, so as to resolve the difference among the three figures reflected in the three different accounts maintained by the appellant. The appellant has produced a copy of balance sheet and the schedule. However, the said document does not reflect the opening balance, receipt and the closing balance of the raw material, but merely indicates the quantity of raw material consumed during the year. Thus, this document is of no use in ascertaining the receipt of raw materials, during 1995-96. The statutory document prescribed (during the relevant period) as regards receipt of raw material is the Form-IV register which should indicate the opening balance, the quantity received, the quantity issued for consumption and the closing balance of the raw materials and the said register is required to be maintained on a daily basis. The daily stock statement maintained by the appellant corresponds to the requirement of Form IV register. Thus, this is the statutory register on the basis of which the raw materials received, consumed and closing stock are ascertained for Central Excise purposes. In the present case, as per the daily stock statement register, the quantity of receipt of raw materials during the year 1995-96 is found to be 78,408 MTs. Further, from the statement of Shri Pattanshetti, Assistant Manager (Stores) of the appellant firm, it is evident that the receipt of goods were entered as soon as they were received and the consumption of the goods were also recorded on a daily basis. If the appellant had followed this procedure as admitted by them, there is no reason to dis-believe the figures reflected in the daily stock statement maintained by the appellant. Therefore, we hold that for excise purposes reliance placed by the adjudicating authority on the figures reflected in the daily stock statement register cannot be faulted at all. Therefore, there is no merit in the contention of the appellant that the figures reflected in the RG-23A register should be preferred over those shown in the daily stock statement register. Further the figures in daily stock statement is also corroborated by the figures declared in the return filed before the Income tax authorities. On the basis of these evidences available, we have no hesitation to conclude that the quantity of raw material received by the appellant during 1995-96 was only 78,408 MTs. and therefore, the appellant could have taken credit only on this quantity. Accordingly, we hold that the adjudicating authority has correctly confirmed the demand of Rs.1,43,84,829/-.
6.2 Reliance placed by the appellant on the decision in the case of Sunrise Structurals & Engineering Ltd. and Milton Polyplast (supra) do not help the cause of the appellant for the following reasons. In the Sunrise Structurals & Engineering Ltd. case, the fact was that a show-cause notice was issued under Rule 57I of the Central Excise Rules, on 19/06/2001, when the said provision was not in existence in the statute book, having been substituted by the CENVAT provisions by Notification No.27/2000-CE (NT) dated 31/03/2000 without any saving clause in the notification. It was in that context, this Tribunal held that the show-cause notice issued subsequent to the substitution when the rules were not in force is not sustainable in law. In the Milton Polyplast Ltd. case, the earlier decision of Sunrise Structurals & Engineering Ltd. was followed. However, in the present case, the show-cause notice has been issued on 23/02/1999 when the provisions were in force for the cause of action which had arisen during 1993-94 to 1995-96.Therefore, the issue of show-cause notice, when the rules were in force, cannot be questioned. Further, Section 38A of the Central Excise Act, provides saving clause in respect of rules, notifications and orders made or issued under Central Excise Act, 1944 and the said section has been given retrospective effect with effect from 1944 and the proceedings initiated have been validated vide Section 132 of Finance Act, 2001. In these circumstances, the challenge to the issue of show-cause notice and the proceedings would not sustain.
6.3 Coming to the next demand of Rs.3.00 lakhs, appellant has not disputed the fact that they did not receive the material and therefore, they raised debit notes on the supplier/transporter towards non-receipt of the goods and recovered the charges for the value of the materials not received. It is clear from this factual position, as admitted, the appellant wants to avail credit in respect of material not received. This contention of the appellant cannot be accepted at all. The Cenvat Scheme envisages receipt of duty paid inputs and its utilization in the manufacture of dutiable final products. Therefore, we dismiss this contention and uphold the confirmation of duty demand to the extent of Rs.3.00 lakhs being the credit taken on raw materials not received.
6.4 Coming to the demand of Rs.6,41,516/- the appellant cleared the goods under Rule 57F (4). Under Rule 57F (5) the appellant was required to bring back the waste generated at the job-workers factory premises and the only situation where the appellant was exempted from bringing back the waste generated was when the waste was cleared on payment of duty at the job-workers end. In the present case, there is no evidence led before us to show that the waste generated at the job-workers end was cleared on payment of duty. In these circumstances, the confirmation of duty demand is sustainable in law. Reliance placed by the appellant on the Rocket Engineering Corporation Ltd. case (supra) does not help the appellants case for the reason that as per the facts of the said case the supplier of inputs paid the duty at the factory of job worker for the period April 1999 to March 2000 and for the period after 31/03/2000, in view of the amended provisions of law under Rule 57AC, the appellant was not required to discharge the duty liability. Therefore, the Honble High Court held that for the period after March 2000, the appellant was not required to discharge duty liability on the scrap generated. In the present appeal before us, the period involved is 1993-94 to 1995-96; therefore, the ratio of the said decision has no application. The rules as it stood at the relevant time envisaged return of scrap arising at the job- workers premises to the principal manufacturer. In view of the above, confirmation of duty of Rs.,6,41,516/- by the adjudicating authority is clearly sustainable in law.
6.5 As regards the demand of Rs..22,17,400/- and Rs.13,05,482/-, the Revenue has proceeded to confirm the demand on the ground that the goods were sold to ISMTL Excise duty is on manufacture and not on sale; whether the goods are sold or not, the liability to excise duty would arise on manufacture of the goods and the liability has to be discharged at the time of removal of goods from the factory. In the present case, in respect of 78 Nos. of DSRM Rolls manufactured by the appellant and captively used within the factory of production, Notification No.67/1995-CE dated 16/03/1995 provided for exemption on the capital goods captively used within the factory in the production or manufacture of excisable goods. It is not in dispute that the appellant used the capital goods in the manufacture of final products specified in Notification No.67/1995-CE. If that be so, the demand on the ground that capital goods were sold, would not sustain at all. Similarly, in respect of 38 Nos. of DSRM Rolls imported by the appellant and used within the factory of production and sold to ISMTL, reversal of credit is envisaged only when the capital goods are removed as such or removed after use or removed as waste and scrap under the provisions of Rule 57S (2) of the Central Excise Rules, as it stood at the relevant time. In these circumstances, reversal of credit taken on the capital goods captively used in the manufacture of final products is not warranted. Therefore, the demand of Rs.13,05,482/- on this ground is not sustainable in law.
6.6 In view of the above analysis, we uphold the demand of Rs.1,43,84,829/- being the ineligible Cenvat Credit availed by the appellant on raw materials not received, Rs.3.00 lakhs being the demand towards inputs short received in the factory and Rs.6,41,516/- being the Cenvat Credit on inputs supplied to the job-workers and not bringing back the waste which had arisen at the job workers end. However, we set aside the demands for Rs.22,17,400/- and Rs.13,05,482/- being the duty on DSRM Rolls captively consumed by the appellant.
6.7 As regards the penalties imposed of Rs.48.00 lakhs towards wrong availment of Cenvat Credit on Rs.1,43,84,829/-, and Rs.3.00 lakhs on the availment of credit on shortage of inputs and another Rs.3.00 lakhs being the penalty on wrong availment of Cenvat Credit on Rs.6,41,516/-, the total penalty imposed is Rs.54.00 lakhs as against duty demand of Rs.1.52 crore. This imposition of penalty is quite harsh and a penalty of 10% of duty demand would suffice for violation of statutory provisions. Accordingly, we reduce the penalty imposed on the main appellant to Rs.15 lakhs. As regards the penalty of Rs.15 lakhs imposed on Shri M.G. Apte, General Manager (Finance), he was only an employee of the appellant and did not stand to gain personally by the wrong credit availed by the appellant firm. Therefore, there is no reason to impose any penalty on him under Rule 209A of Central Excise Rules, 1944. Accordingly, we set aside the penalty imposed on Shri.M.G. Apte. The appeals are disposed of in the above terms. The appeal of Shri Sanjay Gupta, shall be listed for hearing separately on some other date and notice be issued accordingly.
(Dictated in Court) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 16