Custom, Excise & Service Tax Tribunal
M/S. L.G. Balakrishnan And Bros Ltd vs Commissioner Of Central Excise, Trichy on 13 June, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/MISC/00696/2011 and E/00687/2010
[arising out of Order-in-Revision No.11/2010, dated 06.08.2010 passed by the Commissioner of Central Excise & Service Tax, Tiruchirapalli]
M/s. L.G. BALAKRISHNAN AND BROS LTD.
APPELLANT
Versus
COMMISSIONER OF CENTRAL EXCISE, TRICHY
RESPONDENT
Appearance:
For the Appellant Shri R. Parthasarathy, Adv.
For the Respondent Shri B. Balamurugan, AC (AR) CORAM:
Honbe Shri D.N. Panda, Judicial Member Honble Shri B. Ravichandran, Technical Member Heard on 13-06-2016 Pronounced on 15-06-2016 FINAL ORDER NO. 40954 / 2016 Per B. Ravichandran:
The appeal is against Order dated 06.08.2010 of Commissioner of Central Excise, Trichy. The appellant is engaged in the manufacture of various dutiable items like chain, parts thereof, inter-changeable tools, machines and machine parts etc. They were also availing Cenvat credit on various capital goods and inputs in terms of Cenvat Credit Rules, 2004. The appellants factory at Gudalur had two divisions, namely, Chain Division and Rolling Steel Division. In Sept.08, through a business transfer agreement, they have transferred Chain Division business, in toto, including plant, machinery, raw material work-in-progress and finished goods to a new company M/s. Renold Chain India Pvt. Ltd., (RCIPL). Consequent upon such a sale and transfer of Chain Division, a dispute arose regarding payment of Cenvat credit availed on inputs available, goods-in-process, finished products and capital goods which were part of Chain Division. Proceedings were initiated against appellant to recover such Cenvat credit attributable to the above items on the ground that the appellant is liable to reverse the credit on these goods (inputs, intermediate goods, final products and capital goods) as they are no longer in their ownership and control and as such on sale and transfer of Chain Division to a new legal entity, these items are deemed to have been cleared attracting the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004.
2. The proceedings concluded vide the impugned order, wherein, learned Commissioner held that the appellant is liable to pay Rs.1,33,25,607/- on finished excisable goods; Rs.91,76,449/- towards credit on inputs removed as such; Rs.31,17,33,687/- towards Cenvat credit on capital goods cleared to the new legal entity; and Rs.5,36,685/- on LPG transferred, to M/s. RCIPL. The original authority also imposed penalty equivalent to the confirmed amount as above.
3. Learned counsel for the appellant submits mainly on the following grounds:-
(a) As far as manufactured final products, he submits that an amount of Rs.1,33,25,607/- has been discharged by the new legal entity, namely, M/s. Renold Chain India Pvt. Ltd. (RCIPL). He states that though the excise duty liability on the final products emerges immediately after manufacture there was no clearance by the appellant as the goods were part and parcel of slump sale to M/s. RCIPL, who later discharged duty liability as and when these goods were cleared out of the factory. Since there is no physical clearance of manufactured items by the appellant, there can be no duty liability fastened on them.
(b) Regarding Cenvat credit availed on input, goods-in-process and capital goods, he submitted that the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004 has no application as there is no physical clearance of any of these items. At the time of availing credit on inputs/capital goods, these credits were legally taken and there has been no dispute regarding their eligibility. The short point is only about the further disposal of capital goods and inputs on transfer of these goods to a new legal entity. The learned counsel relies on the decision of the Honble Supreme Court J.K. Spinning and Weaving Mills Ltd., & Anr. Vs Union of India & Ors. reported in 1987 (323) E.L.T.234 (S.C.), Honble High Court of Allahabad in the case of Hero Motors Ltd. Vs Commissioner of Central Excise, Ghaziabad reported in 2014 (310) E.L.T.729 (All.) and Honble High Court of Madras decision in the case of Commissioner of Central Excise, Tiruchirapalli Vs Cestat, Chennai reported in 2015 (323) E.L.T. 290 (Mad.), to reiterate his submissions that when there is no physical removal of items, the provisions of Cenvat Credit Rules, 2004 will not be attracted to recover and demand any credit availed on such inputs on capital goods.
(c) He further submitted that the proceedings were against them invoking suppression, fraud etc., resulting imposition of equal penalty. Regarding transfer and sale of Chain Division to a new legal entity, they have intimated the jurisdictional officer immediately with all details. In fact, the remarking of the factory area and licensing of new unit has been done by the department after taking notice of the changed ownership. Even the demand has been issued within normal time, though invoking suppression etc. The learned counsel submitted that there is no case for imposing any penalty, least of all, equal penalty in facts and circumstances of the case. If at all, it could be a question of interpretation, even if they have to reverse the credit, the new entity will be readily entitled for all these credits. There has been no removal or diversion of any of these products and there is no allegation to that effect also. The learned counsel relies on Supreme Court decision in the case of International Auto Ltd. Vs Commissioner of Central Excise, Bihar reported in 2005 (183) E.L.T.239 (S.C.) and CESTAT decision in the case of M/s. Jayashree Packaging Vs Commissioner of Central Excise, Chennai-I reported in 2016-TIOL-970-CESTAT-MAD.
4. Learned Authorised Representative contested the submissions of the appellant by stating that the terms of the agreement and the various documents connected to the transfer and sale of assets to the new entity will clearly show that the appellant is no more having any control of the Chain Division and hence they cannot claim any benefit of credit on those items which are effectively transferred to new entity as per the sale agreement. He further submitted that in the facts of the case, physical removal should be presumed as Chain Division is effectively handed over to another company and there is no requirement for physically removing the items. It is his submission that Rule 3 (5) has been correctly implemented by the original authority. Regarding penal provisions, the learned Authorised Representative submitted that the details of goods transferred were not intimated to the department, though regarding transfer of Chain Division intimation was given and the change of licensing with a new demarcation of premises for factory was done with the approval of jurisdictional officer.
5. Heard both sides and examined the appeal records in detail.
6. The main point for decision in this appeal is the liability of the appellant to pay an amount equal to credit availed on inputs, work-in-progress and capital goods consequent on sale/transfer of Chain Division, available at the time of transfer of the said division to M/s. RCIPL. The appellants liability for penalty under section 11AC is also a matter to be resolved.
7. The admitted facts of the case are that the appellant had two divisions in which the excisable goods are manufactured. The Chain Division has been transferred to a new joint venture company, which is created by the appellant with M/s. Renold International Holding Ltd., (RIHL). The new legal entity RCIPL has acquired/taken-over the Chain Division of the appellant. Consequent on such new arrangement, the appellant got their Central Excise registration suitably amended along with new area demarcation. The new entity also got Central Excise registration approved. At the time of such creation of new joint venture company, the capital goods, inputs and goods-in-process along with finished goods lying in the said Chain Division were also transferred to a new legal entity. The dispute t is on the Cenvat credit reversal of inputs/capital goods as well as excise duty payment on the finished product.
8. The excise duty liable to the appellant on the finished goods and work-in-progress is considered first. It is the case of the appellant that there is no physical removal of these goods. On transfer of Chain Division, M/s. RCIPL, came in custody and ownership of these goods and have duly discharged appropriate duty on these items. The assertion of the appellant has been acknowledged by the original authority also. M/s. RCIPL vide their letter dated 20.07.2010 have stated that they have taken inventory of all items including work-in-progress and finished goods in their books of accounts as on 01.10.2008 and have paid appropriate duty on such goods. The said declaration of M/s. RCIPL has been supported by certificate dated 17.07.2010 of Chartered Accountants to the effect that the finished goods cleared from the factory of M/s. RCIPL have suffered applicable excise duty. We notice that this factual position as asserted by the appellant have not been rebutted by the original authority in any finding. Though, excise liability arises immediately on manufacture it is only on removal of goods the duty is to be discharged. We find that the duty on finished excisable goods is liable to be paid upon clearance and in this case, there is no physical clearance of excisable goods by the appellant. On creation of new joint venture company, the duty liability on clearance of these goods has admittedly been discharged by that company. Hence, we find the demand on appellant amounting to Rs.1,33,25,607/- cannot be sustained.
9. The next issue is regarding amount payable on capital goods under Cenvat Credit Rules, 2004 consequent upon the sale and transfer of Chain Division to a new Joint venture company. An amount of Rs.1,17,33,687/- has been confirmed for recovery from the appellant in terms of Rule 3(5) of Cenvat Credit Rules, 2004. The original authority held that the appellant deemed to have removed said capital goods from their premises to a new and separate factory premises of M/s. RCIPL consequent upon the sale and transfer of Chain Division. The relevant provision of Rule 3 (5) of Cenvat Credit Rules, 2004 relied upon by the original authority is reproduced as below:-
(5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9:
Provided that such payment shall not be required to be made where any inputs are removed outside the premises of the provider of output service for providing the output service:
Provided further that such payment shall not be required to be made when any capital goods are removed outside the premises of the provider of output service for providing the output service and the capital goods are brought back to the premises within 180 days, or such extended period not exceeding 180 days as may be permitted by the jurisdictional Deputy Commissioner of Central Excise, or Assistant Commissioner of Central Excise, as the case may be, of their removal. The admitted fact of the case is that, there is no physical removal of either capital goods or inputs from the factory of the appellant. The original authority observed, in passing, that certain goods have been transferred by lorry. This has been categorically countered by the appellant stating that the transfer of capital goods with reference to other two establishments are mixed-up with the present case by the original authority. Even the demand in the present proceedings do not relate to other Units of the appellant and insofar a Gudalur Unit is concerned, there is no physical removal of either capital goods or raw materials at the time of sale and transfer of Chain Division. We find the central point to be considered for application of the above mentioned rule is whether or not the inputs or capital goods on which Cenvat credit has been taken are removed as such from the factory of the appellant. The Honble Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd., & Anr.(supra) examined the scope of term removal. It was held that there can be no doubt that the word removal contemplates shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another. The Tribunal in Dalmia Cements (Bharat) Ltd. Vs Commissioner of Central Excise, Tiruchirapalli reported in 2008 (224)E.L.T.484 (Tri.-Chennai) following the ratio of the Honble Supreme Court in the above decision examined the scope of application of Rule 3 (5) of Cenvat Credit Rules, 2004. The Tribunal observed as follows:-
9.? We also find that one of the decisions cited by ld. Consultant for the Revenue, indeed, supports the assessees case and the same is the Apex Courts decision in J.K Spinning and Weaving Mills case (supra). In that case, their lordships had examined, inter alia, the meaning of place of removal defined under Section 4(4)(b) of the Central Excise Act. After noting that the term removal had not been defined anywhere in the statute, the Apex Court observed as under :-
There can be no doubt that the word removal contemplates shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another. The word removal has not been defined under CCR, 2004 either. In the circumstances, the above observation of the Apex Court assumes significance and has to be followed as binding ruling. Accordingly, we are of the view that all the decisions cited by ld. Counsel in support of the assessees contention that Rule 3(5) of the CCR, 2004 would not be invocable unless there was physical removal of capital goods/inputs are in accordance with the ruling of the Apex Court.
11.?We are also in agreement with ld. Counsels proposition that a deeming provision should be express. Any quasi-judicial authority, however learned, cannot deem the existence of a deeming provision where there is none in the text of the relevant statute. The Honble Supreme Courts judgment rendered in Shyam Oil Cake Ltd. (supra) seems to support the assessees case on this point. The said decision of the Tribunal was affirmed by the Honble Madras High Court (supra). The High Court observed that when there is no removal of goods under cover of invoice, as provided under rule 9, there is nothing in Rule 3 (5) to invoke the deeming fiction as insisted by the department. The language of Rule 3 (5) is plain and simple when the inputs are capital goods:-
17.?In this case, we find there is no removal of goods under cover of invoice as provided under Rule 9 of the Cenvat Credit Rules, 2004 and there is nothing in Rule 3(5) of the Cenvat Credit Rules, 2004 to invoke the deeming fiction as insisted by the adjudicating authority. The language of Rule 3(5) is plain and simple. When the inputs or capital goods on which cenvat credit has been taken are removed as such from the factory, then subject to compliance of other requirements, the credit availed in respect of inputs on capital goods shall be paid. This situation has not arisen in the present case, as no invoice has been issued for removal of the goods from the factory premises and, therefore, the said rule is not applicable to the case of the assessee.
18.?The above is the view succinctly expressed by the Allahabad High Court in Hero Motors case (supra). This Court is in agreement with the view expressed by the Allahabad High Court in the above-cited decision and the above decision is squarely applicable to the facts of the present case. In view of the above, the interpretation with regard to Rule 3(5) of CCR, 2004, as made by the Tribunal in the present case is fully justified and it calls for no interference at the hands of this Court.
10. In view of the above settled decision, we find that the provisions of Rule 3 (5) are not attracted in the present case. The original authoritys attempt to distinguish the above findings is not appropriate. He found that these decisions are regarding change of ownership of whole factory whereas here only a part of the factory is transferred. We find such finding as untenable. Further, regarding question of issue of invoice by the appellant for sale and transfer of capital goods and inputs to the new legal entity, we find on perusal of sample invoice that these are not invoices in terms of Rule 11 of Central Excise Rules, 2002. The appellant contended that the goods were identified with value for the purpose of business transaction and not for sale transaction in terms of Sales Tax or Central Excise provision. We note that the invoices issued did not contain the details of any removal, mode of transport, rate of duty, duty payable thereon etc., as per the requirement of Rule 11 (2) of Central Excise Rules, 2002. We also note that based on these invoices no credit can be availed by any buyer as these are not in terms of Rule 9 of Cenvat Credit Rules, 2004. In view of settled legal position regarding need for physical removal of capital goods or inputs, in order to attract the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004, we find that there is no justification to invoke such provision to demand and recover any amount from the appellant in this case. As such, we find no justification for the confirmation of demand towards capital goods. The same reasoning is applicable to the recovery of amount for the inputs amounting to Rs.91,76,449/-. The demand towards such recovery is also not sustainable. There is no allegation or finding regarding any irregular credit availed on inputs or capital goods or usage of these goods for other than approved purposes.
11. Regarding demand of the amount equal to credit availed to LPG transferred to M/s. RCIPL by the appellant during Oct.08 to Jun.09, the appellant conceded that the said amount is payable by them. The said LPG was cleared to M/s. RCIPL after the new Unit coming into existence.
12. We find that the show-cause notice in the present case was issued on 17.09.2009 invoking suppression, mis-statement etc. The original authority confirmed the allegation and imposed equal amount of penalty on the appellant. We find that the creation of new joint venture company, transfer of Chain Division to that company, consequent demarcation of excise premises of both the appellant and the new company have been done under due intimation and approval of the department. Regular returns have been filed containing details by the appellant as well as the new entity. We find no justification in invoking suppression of fact under these circumstances. As such, we find that apart from the merits of the demand (except for LPG clearance) the order is not sustainable with reference to imposition of penalty also.
13. In view of the above analysis and findings, we allow the appeal and set aside the impugned order except to the duty demand of Rs.5,36,685/- towards LPG cleared by the appellant from M/s. RCIPL.
(Pronounced in open court on 15.06.2016)
(B. RAVICHANDRAN) (D.N. PANDA)
TECHNICAL MEMBER JUDICIAL MEMBER
ksr
14-06-2016
DRAFT
Remarks
I
II
III
Date of dictation
13.06.2016
Draft Order - Date of typing
13.06.2016
14.06.2016
Fair Order Typing
14.06.2016
Date of number and date of dispatch
15.06.2016
2
E/MISC//00696/2011 and E/00687/2010