Custom, Excise & Service Tax Tribunal
) Savira Industries vs ) Commissioner Of Central Excise on 4 September, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH
CHENNAI
Appeal Nos.E/294/2009
E/364/2009 & E/CO/28/2011
[Arising out of Order-in-Original No.2/2009 dt. 27.2.2009 passed by the Commissioner of Central Excise, Chennai]
1) Savira Industries Appellant
2) Commissioner of Central Excise
Chennai-II
Versus
1) Commissioner of Central Excise,
Chennai-II
2) Savira Industries Respondent
Appearance:
Shri C. Venugopal, Consultant For the Appellant Shri R. Subramanian, AC (AR) For the Respondent CORAM : Honble Shri R. Periasami, Technical Member Honble Shri P.K. Choudhary, Judicial Member Date of Hearing : 11.5.2015 Date of Pronouncement :4.9.2015 FINAL ORDER No.41087-41088/2015 Per R. Periasami
As both the assessee's appeal and Revenue appeal are arising out of a common impugned order, they are taken up together for disposal.
2. The brief facts of the case are that the appellants are a SSI unit engaged in the manufacture of scaffolding, shuttering and propping, items falling under Chapter sub-heading No.7308 of the First Schedule to the Central Excise Tariff Act, 1985. Based on the intelligence, the officers of Central Excise Commissionerate-II visited the appellant's unit and verified the records and also recorded statements. Accordingly, a show cause notice dt. 30.1.2008 was issued to the appellant demanding excise duty of Rs.1,25,98,225/- on the scaffolding equipments manufactured and cleared by them during the period from 2004-05 to 2006-07 (upto 12/2006) under Section 11A(1) of the Central Excise Act and also proposing for imposition of penalty under Section 11AC of the Act as well as Rule 25 of the Central Excise Rules. 2002. It was alleged in the SCN that appellants are manufacturing / fabricating on the items (i) APS units (ii) Props (iii) Spans (4) Floor Forms. Assessee received raw materials GI pipes, HR sheets supplied by various construction companies and carried out the activities of drilling, punching holes, welding and bending etc. on job work basis and returned to them and raised bills towards labour charges. It was alleged that the above activity amounts to manufacture and as per Section 2(f) of the Central Excise Act and excisable. The adjudicating authority in the impugned order partially confirmed the demand of Rs.48,52,976/- and also imposed equal penalty under Section 11AC and along with interest. Assessee filed appeal against the confirmation of the demand. They also filed a writ petition before the Hon'ble High Court, Madras under Article 226 for issuance of writ of mandamus and the High Court by their order dt. 28.4.2014 in W.P.No.12330/2014 allowed the writ petition and directed the Tribunal to dispose of the appeal as expeditiously as possible within 6 months from the date of receipt of the order.
3. Revenue reviewed the impugned order passed by Commissioner and filed appeal on that portion of the order where the adjudicating authority dropped the proceedings on the value of clearances of Rs.34,18,463/-, Rs.2,17,56,220/- and Rs.1,22,83,948/- for the year 2004-05, 2005-06, 2006-07 respectively which are excluded from the total value of clearances in respect of goods manufactured through sub-contractor M/s.Cutmax Engineering.
4. Heard both sides. The learned consultant appearing for the appellant submitted a written synopsis and reiterated the same. He explained the nature of the fabrication carried out by the assessee under job work on the duty paid pipes and sheets supplied by various customers. He explained with the help of technical write up of diagram of pipes and sheets which are received before processing and the pipes and sheets after processing. All these items are used in scaffolding of the construction of buildings. He submits that the activity carried out by them does not amount to "manufacture" and no new commodity emerges out and there is no marketability since after fabrication it was returned to the principal supplier. There is no sale of goods. Even after drilling, threading, bending and welding, there is no change in the character of steel pipes and sheets which continue to remain as pipes and sheets. The department failed to establish the test of "manufacture". He relied various Supreme Court and Tribunal decisions holding the above activities are not amounting to 'manufacture'. He relied the following citations :-
(i) CCE Vs Deepak Galvanising & Engg. Indus. P. Ltd.
2008 (28) ELT 40 (Tri.-Bang.)
(ii) CCE Vs Deepak Galganising & Engg. Indus. P. Ltd.
2015 (315) ELT A90 (A.P)
(iii) Elecon Engg Co. Ltd. Vs CCE 2005 (190) ELT 195 (Tri.-Del.)
(iv) CCE Vs Elecon Engg. Co. Ltd.
2012 (277) ELT A84 (SC)
(v) Simplex Concrete Piles (I) Pvt. Ltd. Vs CCE 2005 (186) ELT 170 (Tri.-Del.) 4.1 Further he submits that the entire demand is hit by limitation. There is no suppression of facts or misdeclaration by the appellant to evade excise duty. He relied above decisions wherein it was held that the above activity of drilling and cutting and bending is not amounting to "manufacture". Therefore, they were under bonafide belief that the activity is not amounting to "manufacture". He further submitted that the officers visited the unit on 18.12.2006 and made detailed verification and also recorded statements. The proprietor of the company clearly made in his statement that they are genuinely under the belief that these activities do not amount to 'manufacture'. He further submits that this statement was not contradicted either in the SCN or in the order. Further, the unit was closed since 1.1.2007 immediately after departmental action as the department did not allow them to clear the goods without payment of duty. SCN was issued demanding duty for 2004-05 to 2006-07 only on 30.1.2008 and therefore the entire demand is hit by limitation. He further submits that mere ignorance of facts or law does not attract extended period. He further drew our attention to para-12 of the SCN at page 100 on the alleged suppression or misdeclaration and submits that no specific averments brought out by the department except making general statement. There is no mens rea and there is no criminal intent to evade payment of duty. There is no suppression and no penalty can be imposed. In support of limitation, he relied the following decisions :-
(i) Uniworth Textiles Ltd. Vs CCE 2013 (288) ELT 161 (SC)
(ii) UOI Vs Rajasthan Spinning and Weaving Mills 2009 (238) ELT 3 (SC)
(iii) Ruchi Infotech Ltd. Vs CCE 2015 (37) STR 131 (Tri.-Del.)
(iv) Jaiprakash Industries Vs CCE 2002 (146) ELT 481 (SC)
(v) Continental Foundation Joint Venture Vs CCE 2007 (216) ELT 177 (SC)
(vi) Pushpam Pharmaceuticals Vs CCE 1995 (78) ELT 401 (SC)
(vii) CC Vs Cochin Minerals Rutiles Ltd.
2010 (2590 ELT 182 (Ker.) He further relied on the following case laws on limitation issue :-
(i) CCE Vs Pepsi Foods Ltd. 2010 (260) ELT 481 (SC)
(ii) Jaiswal Steel Processing Vs CCE 2014 (306) ELT 159 (Chatis.)
(iii) Dhillon Oil & Fats Pvt. Ltd. Vs CCE 2015 (316) ELT 242 (P&H)
(iv) CCE Pune Vs TELCO Ltd.
2006 (204) ELT 83 (Tri.-Mumbai) (V) Raunaq International ltd. Vs CCE Surat 2001 (138) ELT 1009 (Tri.-Del)
(vi) Aruna Industries Vishakhapatnam and Others 1986 (25) ELT 580 (Tribunal)
(iv) Mahindra & Mahindra Ltd. Vs CCE Aurangabad 2006 (201) ELT 27 (Tri.-Del.)
(v) CCE Vs Kay Kay Press Metal Corporation 2013 (297) ELT 40 (Guj.) 4.2 He also submitted that the adjudicating authority has not computed the value or nor given any break up as to what is excluded and what is included. On valuation, the department took up the raw material supplier details for arriving at the cost of raw materials since they have not produced any raw material. He merely relied on the supplier's details. However, the value of clearances excluded as shown in para 23 of the impugned order is neither supported by any worksheet nor it has even a remote resemblance to the value exclusion claimed in the worksheet furnished by them. He submits that duty liability redetermined is not supported by duty calculation work sheet. In the absence of statistical worksheet demand of duty on the strength of assumed lump sum amount of value of clearances, demand is not sustainable in law. Therefore, the learned consultant pleaded for setting aside the order both on limitation as well as on merits.
5. On the other hand, Ld. A.R for the Revenue submitted written submissions and reiterated the findings. He submits that assessee failed to take registration and paid duty. He drew our attention to para 18 & 19 of the OIO wherein the adjudicating authority clearly brought out the nature of description of the item and nature of processors carried out by the appellant He further submits that the raw material are pipes and sheets classifiable falling under chapter 72 whereas the manufactured items have a different name and description and classifiable under chapter 73.08. The adjudicating authority has rightly held that above activities amount to "manufacture". On the Revenue's appeal, he reiterated the grounds of appeal and submits that value of APS units and Props in respect of work carried out through sub-contractor M/s.Cutmax Engineering are to be included in the value of the appellant and extended period has been rightly invoked as there is suppression of facts. He relied on the following decisions :-
(i) CCE Ahmedabad Vs Richardson & Cruddas ltd.
2012 (280) ELT 249 (Tri.-Ahmd.)
(ii) Mahindra & Mahindra Ltd. Vs CCE Aurangabad & others 2005 (190) ELT 301 (Tri.-LB)
(iii) South Bihar Sugar Mills Ltd. Vs UOI 1978 (2) ELT J336 (SC)
(iv) UOI Vs Delhi Cloth and General Mills Co.Ltd.
1977 (1) ELT J199 (SC)
6. Ld. Consultant countered the arguments of AR. He submits that Commissioner has rightly excluded the value of goods done by the sub-contractor. He also submits that no proceedings were initiated against the said sub-contractor and no SCN has been issued to M/s.Cut Max Engineering. Regarding department arguments that both raw material and finished goods are figuring in separate tariff headings, he submits that merely an item falling under two different chapter headings cannot be termed as the process amounting to "manufacture". In this regard, he relied on the following decisions :-
CCE Vs S.R. Tissues Pvt. Ltd.
2005 (186) ELT 385 (SC)
7. We have carefully considered the submissions of both sides and perused the records. The issue in dispute relates to manufacture & excisability and classification of the goods fabricated by the appellants and demand of excise duty The appellants carried out fabrication of 1) APS units 2) Props 3) Spans 4) Floor Forms which are used as scaffolding materials by various construction companies. The entire fabrication activity was carried out by the appellants on job work basis where the duty paid steel pipes and sheets are supplied by the construction firms and same are returned to them after fabrication and they received only labour charges. The details of description of the items and usage are dealt by the Commissioner in detail at para 17 & 18 of OIO. The appellants carried out threading, punching/drilling holes, welding, bending on steel tubes and steel sheets. The adjudicating authority held that these activities amounts to "manufacture" as per Section 2(f) of the Central Excise Act and are excisable and classifiable under Chapter 7308 of CETA and confirmed the excise duty by invoking the larger period. The appellants contended that the demand is hit by limitation as well as on merit as there is no suppression of facts as they were under bonafide belief that the said activity does not amount to manufacture as held by various Tribunal decisions.
8. Therefore, we propose to discuss first whether the demand is hit by limitation, whether extended period invoked is justifiable and whether the suppression of facts proved beyond doubt so as to invoke the longer period.
9. On perusal of records, SCN, we find the officers on gathering intelligence visited the appellant fabrication unit on 18.12.2006; verified the records and also recorded statements from the proprietor and the SCN was issued on 30.01.2008 covering the period of three Financial years from 2004-05 to 2006-07 (upto 12/2006) by invoking proviso to Section 11A of Central Excise Act. It is pertinent to see that neither in the SCN nor in the impugned order, there is any iota of evidence brought out against the appellants on the wilful suppression of facts with intent to evade duty. The only remarks we find in the SCN at para-12 mentioning as "but for the investigation carried out by the officers non-payment of duty could not have come to light". On the contrary, it is evident from the statements of Shri A.C. Rajasekaran, Proprietor of the firm dt. 18.12.2006 and 15.10.2007 which is brought out at para-3 (a) to (i) of SCN wherein he categorically stated inter alia that they are only job worker carried out fabrication and received labour charges and also stated that he was not aware that such fabrication undertaken by them would attract excise duty. Further, in their reply to SCN they submitted before adjudication authority it was stated that they have not suppressed any facts with intention to evade duty as they were under bonafide belief based on the following Tribunal decisions such activity of drilling, cutting, bending, welding of steel tubes and sheets not amounts to manufacture:-
(i) CCE Pune Vs TELCO 2006 (202) ELT 812 (Tri.)
(ii) Karnataka Electricity Board Vs CCE 2003 (158) ELT 585 (Tri)
(iii) Behi Asociates Vs CCE 2002 (140) ELT 399 (Tri)
(iv) CCE Vs Kerala Electricity Board 2001 (133) ELT 4458 (Tri)
(v) SAE India Ltd. Vs CCE 1997 (94) ELT 568 (Tri.)
(vi) R.S. Steel Works Vs CCE 1993 (64) ELT 469 (Tri.) In view of the above Tribunal decisions, the appellants genuinely believed that mere cutting, bending, welding of steel rods/sheets not amount to 'manufacture' and held no new commodity emerged out and there is merit in appellant's justification. It is pertinent to state that the dutiability of structurals and parts thereof was held in favour of Revenue only by the Tribunal's Larger Bench decision in the case of Mahindra & Mahindra Ltd. Vs CCE (supra). Therefore, there is enough justification in favour of the appellant and there was no suppression of facts with intent to evade non-payment of duty.
10. In this regard, the Tribunal on identical issue of fabrication of steel structurals in the case of CCE Vs TELCO Ltd. (supra), Raunaq International ltd. Vs CCE (supra) and Mahindra & Mahindra Ltd. Vs CCE (supra) clearly held that extended period not invokable in such cases as the appellants are under bonafide belief that such structures are not excisable and charge of suppression of facts not sustainable and set aside the impugned orders.
11. The Hon'ble High Court of Gujarat on identical issue of limitation in CCE Vs Kay Kay Press Metal Corporation (supra) upheld the Tribunal order and dismissed the Revenue appeals. The High Court order is reproduced as under :-
"1.1?The appeal was admitted for consideration of the following substantial question of law formulated by this court.
Whether the Tribunal below committed substantial error of law in allowing the Appeal filed by the assessee on the question of limitation on the ground of divergence of views at the relevant point of time although according to the law of precedent, even there was divergence of views, it is the duty of the assessee to follow the one which is binding as a precedent.
2.?We heard learned advocate Ms. Nayana Gadhavi for the appellant-department and learned advocate Mr. Paritosh Gupta holding brief for learned advocate Mr. Paresh M. Dave, for the respondent.
2.1?The assessee was engaged in manufacturing of fabricated iron and steel structures. The Unit used to undertake processes such as cutting, bending, punching with the help of machines available in the factory. The Excise Officers visited the factory premises on 31-3-2000 on the basis of specific information that respondent had been manufacturing the excisable goods without obtaining registration and had thereby indulged into the evasion of duty. On the basis of material gathered during visit, the Commissioner of Excise issued show cause notice in March, 2003 calling upon the respondent as to why the excise duty to the tune of Rs. 41,04,217/- should not be levied on the finished goods which were allegedly cleared during the period 1998-1999 and 1999-2000. The assessee had already paid Rs. 1 lakh which amount was accounted for.
?2.2 The assessee was also called upon in the show cause notice for explaining as to why the penalty and interest should not be levied. The said show cause notice culminated into order dated 20-5-2004 by the adjudicating authority who confirmed the demand of excise duty for Rs. 41,04,217/-. It also imposed the penalty of equivalent amount under Section 11AC of the Central Excise Act, 1944 as well as the penalty of Rs. 5,00,000/- and Rs. 10,000/- and further ordered for payment of interest.
?2.3 The assessee preferred an appeal before the Income Tax Appellate Tribunal (Appeals). The Tribunal considered that show cause notice was issued in March, 2003, which was for the period 1998-2000 and thus it was time barred. The department had invoked the extended period as per the first proviso to Section 11A of the Act on the ground that there was suppression and misstatement by the assessee. The Tribunal did not approve the action on the part of the department in invoking the extended period.
?3. With the following observations, the Tribunal dismissed the appeal of the department.
the law on the issue is clear, i.e. to the effect that when there are divergent views, many of which are in favour of the assessee holding the field, no suppression or mis-statement can be attributed to the assessee, to entertain the same belief. As admittedly, in the present case, judgment prior to Larger Bench in the case of Mahindra & Mahindra Ltd., were lying that the processes allegedly adopted by the appellant did not amount to manufacture, we are of the view that the demand raised beyond the period of limitation, by invoking extended period, is barred. As such, irrespective of the fact as to whether the appellants themselves have undertaken the said activity or not, the demand is required to be quashed on the above issue itself. Ld. SDR appearing for the Revenue have placed on record the written submissions, which we find are mainly dealing with issues other than limitation. ?3.1 The Tribunal was justified in recording the aforesaid findings. In the facts of the case, it was not possible to ascribed any willful suppression or mis-statement on the part of the assessee for not paying excise duty because during the period in question, various decisions of the Tribunal were to the effect that the activity of cutting, bending, bunching of plats or channels in which the assessee was engaged, did not amount to manufacturing activity. In Continental Foundation Jt. Venture v. CCE, Chandigarh, 2007 (216) E.L.T. 177 (S.C.), Apex Court observed that when there was bona fide doubt as to non-excisability of the goods due to divergent views of the Honble Supreme Court, the extended period of 5 years cannot be invoked. Mere failure or negligence in not taking license or not paying duty, is not sufficient for invoking extended period.
?3.2 In the facts of the present case, it cannot be said that the conduct of the assessee was not bona fide. When the activity undertaken by it was not treated as manufacture, it would not have been expected to pay the excise duty. In order to show suppression or misstatement on the part of the assessee, a positive act has to be established.
?4. In view of the above, no error was committed by the Tribunal in dismissing the appeal. It was not possible to countenance the contention of the learned counsel for the appellant that there was a suppression of facts and payment of duty was intentionally evaded by the assessee.
5.For the? foregoing reasons, the question formulated is accordingly answered in negative in favour of the assessee. The appeal is dismissed being devoid of any merit as discussed above."
The ratio of the Hon'ble High Court order is squarely applicable to the present case as the appellants carried out drillng/threading, welding, and bending of steel tubes/sheets on job work basis and received only labour charges and this confirms that they were under bonafide belief due to several Tribunal decisions held in favour of the appellants. Therefore, it is established that the non-levy of duty was not due to any wilful suppression or with any intention to evade payment of duty.
12. The Hon'ble Supreme Court in the case of Uniworth Textile Ltd. Vs CCE (supra) clearly ruled that mere non payment of duty is not equivalent to collusion or wilful suppression of facts and in order to invoke extended period specific and explicit allegation must be proved by the Revenue. In the present case, the adjudicating authority has not brought out any such allegation of suppression of facts.
13. By respectfully following the Hon'ble Supreme Court decision above and the Hon'ble Gujarat High Court decision referred above we are of the considered view that the entire demand covered in the SCN dt. 31.1.2008 for the period 2004-05 to 2006-07 is hit by limitation as there is no suppression of facts and invocation of extended period not justified and beyond the scope of law. Since the demand itself held as time-barred no penalty imposable on the appellants. On the Revenue appeal, we hold that the lower authority has correctly excluded the value of sub-contractor who is an independent unit and carried out fabrication work and there is no demand raised against M/s.Cut Max Engineering. There is no infirmity in the impugned order in so far as it relates to deduction of value allowed on the value of goods pertaining to M/s.Cut Max Engineering. In view of the foregoing discussion, we set aside the impugned order on limitation alone without going into the merits of the case.
14. Accordingly, the assessee's appeal is allowed and the Revenue's appeal is rejected. The cross objection filed by assessee in Revenue's appeal is disposed.
(Pronounced in open court on 4.9.2015)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
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