Customs, Excise and Gold Tribunal - Tamil Nadu
Iljin Automotive Pvt. Ltd. vs Cce on 13 February, 2004
Equivalent citations: 2004(175)ELT169(TRI-CHENNAI)
ORDER
Jeet Ram Kait, (T), Members
1. This appeal filed by the appellants is directed against the order in Original No. 25/2001 dated 1.11.2001 passed by the Commissioner of Central Excise, Chennai-II Commissionerate whereby he has confirmed a duty demand of Rs 1,09,39,967/- under Rule 57U(3) of the Central Excise Rules, 1944 and another amount of Rs 5,61,959/- under Rule 9(2) of the Rule read with Section 11A(1) of the Act This amount was however adjusted from the amount already paid by the appellants in their PLA. The Commissioner has also imposed mandatory penalty equal to the duty demanded viz. Rs. 1,09,39,967/- in terms of Rule 57U(6) of the Rules apart from imposing another penalty of Rs. 10,00,000/- under Rule 173(1)(bb) ibid.
2. Brief facts of the case are that the appellants are engaged in the manufacture of automobile components falling under chapter sub-heading 8708.00 of the Schedule to the CETA 1985 for M/s Hyundai Motors (India) Ltd. (M/S HMTL) and are discharging the duty liability for the automobile components manufactured and cleared by them. They also availed Modvat Credit in respects of inputs under the erstwhile Rule 57A and capital goods under erstwhile Rule 57Q of the CE Rules, 1944. Appellants herein have taken Modvat Credit in respect of machinery (capital goods) falling under chapters 84 and 85 of the CETA, 1985 to the tune of Rs. 1,09,39,967/- in their RG 23C Part II account which were lent by M/s HMIL vide invoice No. 001 & 002 dated 2.6.98 under Rule 57Q based on their declaration under the Erstwhile Rule 57T(1) filed with the department. The said lending of the capital goods was based on an agreement titled "Leave & Licence Agreement" by which M/S HMIL had removed the capital goods for the permissive possession of the manufacturer (appellants). While removing the capital goods, M/s HMIL had reversed the applicable excise duties as per the provisions of the erstwhile Rule 57S(1)(ii). In terms of the agreement the ownership of the said capital goods vested with M/s HMTL and the appellants were not the owners of the said capital goods at any point of time. This factual position was accepted by the General Manager of the appellants and the Manager Taxation of M/s HMIL. In the circumstances show cause notice was issued to the appellants vide SCN No. 22/2000 dated 03.07.2000 alleging that the appellants have wrongly availed Modvat Credit on capital goods to the tune of Rs. 1,09,39,967/- (in their RG23C Part II account) which were lent by M/s HMTL and that they have suppressed the fact of the ownership of the capital goods from the department. It was also alleged that the appellants have manufactured and cleared part of automobiles like Knuckle Assembly, Sub-assembly etc. for passengers cars using the capital goods supplied by M/s. HMTL and cleared the same without including the amortized cost of the said capital goods in the assessable value of the components cleared by the appellants. After considering the reply to the show cause notice and after affording personal hearing to the appellants, the impugned order demanding duty and imposing penalty was passed against which the party has come in appeal.
3. Shri R. Raghavan, learned Counsel for the appellants reiterated the grounds of appeal and submitted that ownership of the capital goods is not a criteria for availing Modvat Credit and there is no express provision in the rules about the ownership. He has also invited our attention to the judgment of the Tribunal in the case of Sharda Motors Industries Ltd. vs. CCE, Chennai-II reported in 2002 (51) RLT 33 (CEGAT-Del) wherein in similar facts and circumstances the Tribunal has held that credit in respect of inputs and capital goods cannot be denied though the capital goods are not owned by the assessee. The Tribunal held so after referring to the clarification issued by the Central Board vide circular No. 263/8/99 dated 1.3.89 wherein it was specified that Modvat Credit facilities would be available in cases of purchases as well as well as stock transfer. The said decision has been followed by South Zonal Bench in the case of M/s HIDS Automotives Ltd vide final order No. 575/2003 dATED 11/7/2003. He has also invited our attention to the order of the Mumbai-Bench of the Tribunal in the case of German Remedies Ltd. vs. CCE, Goa, reported in 2002 (144) ELT 606 wherein it was held that Modvat Credit not to be denied when available according to other provisions of rules, merely on ground of non-fulfilment of condition of Rule 57R(3). It was also held therein that appellants are not required to disclose whether they are owners of capital goods or not. He has further invited our attention to the order of the Delhi Bench of the Tribunal in the case of Rasandik Engineering Industries (I)Ltd. vs CCE, reported in 2003(55) ELT 784. He further submitted that there was no suppression of fact involved as the assessee has filed RT 12 return as well as declaration under Rule 57T have been filed and the department was well aware of the activities carried on by the assessee. He has also submitted written notes relating to facts and law to the Court. It is inter alia stated therein that there is no requirement to state in the declaration filed whether the capital goods for which credit is claimed in the said declaration is acquired by purchase or otherwise and that from 17.6.94 (after CEN 236/94 CE (NT) dated 17.6.94), the condition regarding ownership has been done away with as a measure of liberalization. He in the circumstances prayed for allowing the appeal.
4. Shri A Jayachandran, learned JDR appearing for the Revenue reiterated the department's view. He has also referred to the comments received from the Commissionerate, copy of which is filed in the paper book. It is stated in the comments that the Tribunal in the case of Sharda Motors Industries (supra) did not consider the fact that rule 57R by implication suggests purchase as a mode of acquisition besides recognising the other specified modes of acquisition in the rule and the Tribunal's decision needs to be declared 'per incurian'. Further they have also held back information in regard to ownership of the capital goods. Sub-rule 3 of Rule 57R and Rule 57AC (3) recognises only hire purchase, lease or by a loan agreement from a financing company as the other modes of acquisition apart from purchase.
5. We have carefully considered the submissions made by both the sides and perused the case records and the case laws cited by party. We note that in the grounds of appeal filed by the assessee, the relief claimed is limited to setting aside the order impugned so far as it relates to confirmation of demand of duty and mandatory penalty and penalty under Rule 173Q and there is no challenge to the confirmation of demand of Rs. 5,61,959/- under Rule 9(2) read with Section 11A(1) of the CE Act. Therefore, this portion of the order confirming demand is upheld.
6. Coming to the next question relating to legality or otherwise of availing the credit Rs. 1,09,39,967/- is concerned, we observe that the learned Counsel for the appellants vehemently argued on the following points:
(a) There is an agreement entered into by M/s HMIL with the appellants and based on the agreement the capital goods have been provided to the appellants (manufacturer of the final product) under leave and licence agreement';
(b) that ownership of the capital goods is not the criteria for availing the credit and that the only requirement is that the appellants must have possession of the capital goods which condition is fulfilled and that there is no requirement to declare whether the manufacturer is the owner of the capital goods or not.
(c) similar cases have been decided by the Tribunal in favour of the assessee as per the case laws cited supra.
(b) Longer period of limitation cannot be invoked in this case as the appellants have filed RT 12 returns along with extract from RG 23 Part II and declaration under Rule 57T and hence the department was fully aware of the activities carried on by the appellants and no objection regarding ownership of the machines has been raised at that time and hence they were under the bona fide belief that credit would be available for such transfer.
7. Examining the contention at serial No., 1 above, we observe that agreement which the appellants are purported to have entered into with the supplier of the capital goods was neither made available to the department at any time, nor to the Tribunal at the time of filing the appeal. Copy of the same was made available to the Court for the first time on demand by the Bench on the last date of hearing on 17.09.2003.
(THIS AGREEMENT is made and concluded at Irungattukottai on the Day of .....1999 by and between HYUNDAI MOTOR INDIA LIMITED, a company duly incorporated under the indian companies Act, 1956 and having its Registered Office at Plot No. H-1, SIPCOT Industrial Park, Irugnattukottai, Sriperampudur Taluk, Kancheepuram District, Tamil Nadu 602 105, India (hereinafter referred to as "HMI", which expression shall wherever the context so permits include its successors in interest, legal representatives and assigns) OF THE FIRST PART AND M/s. Iljin Automotive Private Limited, a company duly incorporated under the Indian Companies Act, 1956 and having its Registered Office at B1 & B2, SIPCOT Industrial Park, Irungattukottai, Sriperampudur Taluk, Kanchipuram District, Tamil Nadu 602 105, India (hereinafter referred to as "VENDOR", which expression shall wherever the context so permits include its successors in interest, legal representatives and assigns) OF THE SECOND PART HMI and Vendor hereinafter referred to as "the parties" collectively.
WHEREAS HMI has issued a Letter of intent dated ..... to the Vendor for the supply of Ordered Parts. HMI shall enter into a Basic Purchase Agreement, Warranty Agreement, Quality Assurance Agreement and Spare Parts Agreement with the Vendor subject to the Vendor fulfilling the obligations, terms and conditions of the Letter of Intent. In furtherance, upon the Vendor's request, HMI shall deliver machines, jigs, fixtures, moulds, dies, etc., more particularly specified in Annexure.)
8. On going through the agreement, it is seen that the capital goods have been given to the appellants "for the permissive possession of the appellants" which term have not been used in the Modvat Rules. What the rule says is that credit of duty shall be allowed if the capital goods are acquired by the manufacturer on lease, hire-purchase, or on loan agreement, from a financing company and the rules do not say that anything like permissive possession, leave and licence etc. Such terms have been used obviously to mislead the Department.
9. Further, it will be seen from the extracted portion of the agreement that the date of execution of the agreement is not indicated and the space meant for the purpose has been left blank. As could be seen from the stamp paper, the date of sale of the stamp paper itself is 18.1.1999 whereas the disputed period is 1/98 to 12/99 as mentioned in the Appeal format. Therefore, the date of execution of agreement cannot in any case be before the date of purchase of stamp paper itself. The agreement runs into seven pages and all the pages have been signed by both the parties without indicating the date of signature anywhere. Even the signature of the authorised signatory who has signed on behalf of M/s HMIL on page 1 to 6 is not the same person who has signed it on the concluding page i.e. last page as could be seen from the last page reproduced below.
16 CAPTIONS The captions herein are included for convenience of reference only and shall not be used in the construction or interpretation hereof.
17 LEGAL EFFECT 17.1 In the event of conflict between this Agreement and the Basic Purchase Agreement, this Agreement shall prevail over the Basic Purchase Agreement only in respect of clauses contained in this Agreement concerning the permissive possession of the Specialized Tools by the Vendor. In respect of all other clauses in this Agreement, the Basic Purchase Agreement shall prevail and binding upon the parties.
17.2 The parties recognise and agree that this Agreement will form a part and parcel of the Basic Purchase Agreement.
In Witness Whereof the Parties hereto have set their hands to this Agreement on the day, month and year first above written.
The Modvat declaration has been filed on 22 May 1998 i.e. before the receipt of the capital goods as provided for under the Rule 57T(1). The removal of the capital goods and the date of issue of the invoice is 2.6.98. This clearly proves beyond doubt that there was no agreement entered into between the two parties before the so called transfer of the capital goods on 'leave and licence agreement; when the agreement itself was entered only some time in January 1999 i.e. after seven months from the date of declaration. It is, therefore, clear that this agreement is a clear attempt to cover up the illegal transaction which has already been done between the two parties. Therefore, there is no valid agreement between the two parties.
10. As regards ownership of the capital goods, in terms of the amended rule, the ownership of the capital goods is not the criteria for taking credit. This does not mean that the manufacturer is not required to make a declaration regarding ownership, The specimen of the declaration to be filed under Rule 57Q appearing in the Central Excise Manual (Annexure 163), shows that the manufacturer is to make the following declaration amongst other particulars :
" I/We declare that:
(a) I am/we are the absolute owner(s) of the above capital goods as described above and have not acquired the same under lease/hire-purchase/loan OR
(b) I am/we are not absolute owner of the above capital goods. The mode of acquisition/possession of Capital goods is enclosed as per Annexure.
11. From the above, it is clear that manufacturer has to make a declaration about the nature and type of acquisition of the capital goods, though the ownership of the capital goods is not mandatory for availing credit. This requirement has been made to make the department aware of the exact nature of acquisition. However the appellants consciously avoided giving information about the exact nature of acquisition of the capital goods. The capital goods should be at least acquired by way of lease hire purchase on loan agreement in order to avail Modvat credit on capital goods.
12. Coming to the next question regarding assertion by the learned Counsel that similar cases have been decided in favour of the assessee, we now proceed to discuss each case law cited by the Counsel.
(a) Sharda Motors Industries v. CCE-Chennai -II, 2002 (51) RLT 33 (CEGAT-Del). In this case, the assessee was taking Modvat Credit in respect of capital goods belonging to and received from M/s Hyundai Motor India Ltd. Under leave and lease agreement. However, Modvat Credit was allowed to the assessee relying on Central Board's Circular No. 263/8/89 dated 1.3.89 which clearly specified that credit facilities would be available in case of purchase as well as stock transfer and also relying on the case law in the matter of Vimla Rolling Mills Pvt Ltd. vs. CCE, New Delhi reported in 1997 (20) RLT 753. On going through the facts in the case of Vimla Rolling Mills, it is observed that in that case in Appeal No.E/3203/93-NB Modvat Credit was allowed to the job worker in respect of inputs and not capital goods, received from Principle on stock transfer basis and the judgment does not deal with a situation under Rule 57Q unlike in the case before us. In the case of Sharda Motor Industries Industries Ltd. the full facts of the case as regards, date of agreement between the two parties, the terms of the agreement, date of filing declaration, date of invoice etc. have not been referred to and discussed. In the absence of these details, it cannot be said that the facts and circumstances in that case are similar to the facts and circumstances in the case before us. The ratio of the decision in the case of Sharda Motors (supra) therefore cannot be applied to the facts in the present case where the so called agreement has been managed as a cover up for the transaction already made in total disregard of the law.
(b) In the case of M/s HIS Automotives Ltd. vs. CCE, vide final order No. 575/2003 dated 11.7.03, we find that this order has been passed relying on the decision in the case of Sharda Motor Industries Ltd. (Supra). Since we have held above that the facts and circumstances in the case of Sharda Motor Industries (supra) are not similar to the facts in the present case, and since decision in the case of M/S HIS Automotives Ltd is on the reliance of the decision in the case of Sharda Motors Industries Ltd, this decision also cannot be applied to the present case.
(c) German Remedies Ltd. vs. CCE, Goa reported in 2002 (144) ELT 606 (Trib-Mumbai). This was a case where the assessee entered into an agreement with one M/s Madaus for manufacture of certain pharmaceutical formulation on loan licensee basis and the assessee was provided with capital goods by the Principal on lease basis unlike in the present case where the capital goods were said to have been made available on leave & licencee basis without any agreement. Even by the amending Notification No. 26/94 dated 17.6.94 cited in the said order, credit shall be allowed if such capital goods are acquired by a manufacturer on lease hire purchase or loan agreement subject to such restrictions and conditions as may be imposed by the Govt. In any event in the present case, as noted above, the so called agreement entered into has been managed as a cover up of the transaction already done.
(d) Rasandik Engineering Industries (I) Ltd, & Anr. Reported in 2003 (55) ELT 784 (cegat-Del.) This decision has been rendered relying on the earlier decision in the case of German Remedies Ltd (supra) and Sharda Motors Industries Ltd. (supra). We have already held above and the facts and circumstances in those two cases are not similar to the ones in the present case. Therefore, this decision is also not applicable to the present case.
13. In view of the above facts and circumstances of the case, we are of the considered view that Modvat Credit on capital goods could be availed even if the assessee is not the absolute owner of the capital goods. However, to avail the Modvat Credit on capital goods, the assessee should be either the owner of the goods or the assessee should have acquired the capital goods on lease, hire purchase or on loan basis and there has to be a written valid agreement to evidence the above facts.
14. As regards applicability of the bar of limitation for demand of duty, no doubt, the appellants have filed RT 12 returns and also declaration under Rule 57T, but the declaration does not show all the particulars. Though ownership of the capital goods is not mandatory for capital goods, the appellants were required to provide this information to the department as could be seen from the standardised pro forma, as noted above. Further, the appellants themselves admitted that capital goods have been transferred based on an agreement between them and M/s HMIL, when in fact there was no agreement. Copy of the so called agreement was not made available to the department nor to the Tribunal at the time of filing the appeal and in fact a copy of the same was made available for the first time on the date of final hearing of the appeal before the Tribunal. The agreement was also made as a cover up for the illegal transaction already entered into as could be seen from the stamp paper which was purchased on 18.1.99 i.e. much after the removal of capital goods and the date of execution of the agreement has also been purposely left blank. Further, as noted above, the person who has signed as the authorised signatory for M/s HMIL, on pages 1 to 6 is not the person who has signed on the last and concluding page (Page 7) of the agreement. It, is therefore, clear that a conscious attempt has been made to hold back vital information from the department. In the circumstances, it has to be held that longer period of limitation has been correctly invoked and we uphold the same. We, therefore, uphold the duty demanded in terms of the impugned order. However since we have upheld demand of duty for the extended period, and in the facts and circumstances of this case, we are inclined to think that interests of justice would be served if the mandatory penalty imposed under Rule 57U(6) is reduced and the same is reduced to Rs. 55,00,000/- (Repees Fifty five Lakhs). The penalty imposed under Rule 17Q(1)(bb) is also reduced from Rs. 10,00,000/- to Rs. 5,00,000/- (Rupees Five lakhs). Except for the reduction in the quantum of penalties, the impugned order is otherwise upheld and the appeal is dismissed.
Appeal No.E/180/2002/Md Contra per Shri S.L.Peeran (oral)
15. I have carefully gone through the order of my learned brother but I am unable to agree with the same. Therefore, I proceed to record my order. The facts and the arguments of the case are already noted in the order proposed by my learned brother.
16. The appellants have taken modvat credit in respect of capital goods falling under chapter headings 84 & 85 in their RG.23C Part II account. The machineries were lent by M/s HMTL after reversing the modvat credit taken by them. The question is as to whether the appellants are entitled to take modvat credit on the machinery utilized by them. The department proceeded on the ground that the machineries supplied by M/s. HMTL is not by sale and appellants are not the owner of the same. In this regard, the appellants contended that ownership is not the criteria for the purpose of taking modvat credit. It was pointed out that M/s. HMTL had already reversed the modvat credit and that appellants are entitled to take modvat credit on the basis of agreement and the receipt of capital goods. It is their contention that receiving goods in terms of relevant rules entails them to avail modvat credit. The Commissioner in para - 12.3 has held that Modvat/Cenvat credit is admissible in respect of goods only if they are owned by the assessee. This aspect of the matter is not correct for the reason that the issue pertaining to ownership being not necessary has already been dealt with by the Tribunal in the case of SHARDA MOTORS INDUSTRIES LTD Vs. CCE Chennai, 2002 (51) RLT 33 (CEGAT-Del.) The Central Board of Excise and Customs vide their circular No. 263/8/99- dated 1.3.89 have also specified that modvat credit facilities would be available in the case of purchase as well as stock transfer. The said decision has been followed by this Bench in the case of HIS AUTOMOTIVES LTD Vs. CCE, vide final order No. 575/2003 dated 11.7.2003. The findings recorded in the case of GERMAN REMEDIES LTD. Vs. CCE 2002 (144) ELT 606. (T-Mum.) wherein it has been held that modvat credit cannot be denied when available, according to other provisions of Rules, merely on the ground of non-fulfillment of condition of Rule 57R (3) is also applicable to the facts of the case. The judgment of Delhi bench in the case of RASANDIK ENGG. INDUSTRIES (I) LTD & Anr. reported in 2003 (55) ELT 74 also applies to the facts of this case. It is also seen that there is no suppression of facts as assessees have been filing RT-12 returns as well as declaration under Rule 57T of CER' 44 and the department is fully aware of the activities of the assessee. The contention taken by the appellants that there is no requirement to state in the declaration filed whether the capital goods for which credit is claimed in the said declaration is acquired by purchase or other wise by them is well taken and requires to be accepted in view of the fact that such requirement is done away with as a measure of liberalisation.
17. In that view of the matter, and on the facts and circumstances of the case, it has to be held that appellants are entitled to avail Modvat Cenvat credit on the goods received from M/s. HMTL. It is also to be held that there is no suppression of facts in the case as all the facts were available with the department. There is no cause for imposing penalties as there is no contravention in terms of law and I set aside penalties also. The appellants are eligible for Modvat/Cenvat credit on the capital goods received by them M/s. HMTL. In that view of the matter, the impugned order is set aside and appeal is allowed with consequential relief.
POINTS OF DIFFERENCE In view of points of difference arisen in the matter between Members, the following question arises for determination by third Member :-
"Whether the appeal is required to be rejected and mandatory penalty under Rule 57U(6) is required to be reduced to Rs. 55,00,000/- and penalty imposed under Rule 173Q(1) (bb) is also required to be reduced from 10,00,000/- to Rs. 5,00,000/- as held by Member (Technical) for the reasons given in his order.
OR "Whether the appeals are required to be allowed in terms of the order recorded by Member (Judicial) and to hold that appellants are entitled to the benefit of Modvat/Cenvat credit on the capital goods received by them from M/s. HMTL and that there is no suppression of facts and penalties are not imposable.
E/180/2002 Per Shri C.N.B. Nair (Oral)
19. I have perused the records and heard both sides in regard to the points of difference referred to the third member.
20. The dispute is about the eligibility of the manufacturer for modvat credit in respect of capital goods not owned by him. In the present case, M/s. Iljin Automotive Pvt. Ltd., have obtained certain machinery in the nature of special purpose CNC Lathe machine, tool grinding machine etc. from M/s. Hyundai Motors India Ltd. The said machinery was received through leave and licence agreement. There is no dispute about the receipt of the capital goods by the appellant/assessee or use of the capital goods in the factory of the appellant/assessee for production purposes. There is also no dispute between the Members of the Division Bench, which heard the case, that the ownership of capital goods is not material for the purposes of their eligibility to modvat credit. All the same, it would appear that Ld. Member (T) was persuaded by certain unusual features of the agreement between the parties that the same was a colourable device entered into, to obtain the modvat credit. As against this, Ld. M (J) has taken the view that since the question of law remains settled in favour of the assessee by several decisions of this Tribunal (SHARDA MOTORS INDUSTRIES LTD Vs. CCE CHENNAI-II reported in 2002 (51) RLT 33, GERMAN REMEDIES LTD. Vs. CCE, GOA, reported in 2002 (144) ELT 606 etc.) the credit is to be allowed. From the perusal of the case law considered, I find that the issue raised remains squarely covered by these decisions in favour of the assessee. In fact, Sharada Motors Industries Ltd. was identically placed as the present appellant. Both are manufactures of parts for M/s. Hyundai Motors India Ltd., and both had obtained capital goods from M/s. Hyundai. Therefore, I am of the opinion that there is no reason to take a different view in the present case, the variations in the agreement covering the lease arrangements being not relevant to the question of modvat credit.
21. In view of the above, I am of the opinion that the proceedings against the assessee for denial of modvat on the capital goods were not well founded and the appeal is required to be allowed. Having answered the references as above, I return the appeal, to the Division Bench, for their consideration and for passing a final order.
MAJORITY ORDER In terms of the majority order, the impugned order is set aside and appeal is allowed with consequential relief, if any, as per law.