Custom, Excise & Service Tax Tribunal
M/S. Avtec Ltd vs C.C.E. Indore on 29 September, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL, NEW DELHI
PRINCIPAL BENCH, COURT NO. III
Excise Appeal No. E/2131 & 2134/2008-Ex[DB]
[Arising out of Order-In-Appeal No. 16-17/CEX/COMMR/IND/08 dated 17.07.2008 passed by CCE Indore]
Excise Appeal No. E/598-599/2009-Ex[DB]
[Arising out of Order-In-Appeal No. 57/COMMR/CEX/IND/2008 dated 12.12.2008 passed by CCE Indore]
Excise Appeal No. E/1835-1836/2009-Ex[DB]
[Arising out of Order-In-Appeal No. 18/COMMR/CEX/IND/2009 dated 24.03.2009 passed by CCE Indore]
For approval and signature:
Hon'ble Mr. S.K. Mohanty, Member (Judicial)
Honble Mr. B. Ravichandran, Member (Technical)
1
Whether Press Reporters may be allowed to see 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 CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether Their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
M/s. Avtec Ltd. ...Appellant
General Motors India Pvt. Ltd.
Vs.
C.C.E. Indore Respondent
Appearance:
Mr. B.L. Narsimhan (Advocate) for the Appellant Mr. Yogesh Aggarwal, (DR) for the Respondent CORAM:
Hon'ble Mr. S.K. Mohanty, Member (Judicial) Honble Mr. B. Ravichandran, Member (Technical) Date of Hearing.20.09.2016 Date of Decision.29.09.2016 Final Order No. 53881-53886/2016 Per B. Ravichandran:
These are six appeals by two appellants against original orders passed by the Commissioner of Central Excise, Indore. Ms. Avtec Ltd. (Avtec) are engaged in the manufacture of automobile parts like engine, transmission and assembly of these on job work basis for appellant No. 2 Ms. General Motors India Pvt. Ltd. (GMI). GMI are supplying raw materials on free of cost basis (FOC). GMI were procuring raw materials either indigenously or by import and were availing cenvat credit on them. The said raw materials were thereafter supplied to Avtec on payment of Central Excise duty. For payment of duty, the value is adopted by GMI on the basis of average moving price of raw materials. The duty paid materials were received by Avtec on which they take credit and use the credit for payment of duty on various goods manufactured on job work basis and cleared back to GMI. GMI, in turn take the credit of such materials received from Avtec. The dispute involved in these appeals is that the value adopted by Avtec to discharge central excise duty is not correct. The FOC materials supplied by GMI is not on the basis of proper valuation as the prices adopted by GMI appeared to be low on various grounds. Accordingly, proceedings were initiated against both the appellants resulting in the impugned orders. Original Authority held that the valuation followed by GMI to pay duty on FOC material supplied to Avtec is not correct. Consequently, the value adopted by Avtec to discharge duty on the various goods manufactured on job work and returned back to GMI is not correct. Differential duties were confirmed as proposed in the various demands. Penalties were also imposed on both the appellants.
2. The Ld. Counsel for the appellants submitted that GMI have recalculated themselves the differential duty payable on FOC materials and paid an additional amount of Rs. 2,71,43,012/- as differential duty. The differential duty occurred due to non-inclusion of Customs duty, ocean and inland freight charges in respect of FOC materials procured by GMI. They are not contesting this payment already made, except the effect that there can be no allegation of fraud, collusion to impose penalty on this valuation.
3. The Ld. Counsel submitted that the Avtec is a job worker and the credit flow starting from GMI to Avtec and back to GMI will clearly show that the whole exercise is revenue neutral and in such situation there could be no malafide or suppression of fact in these transactions. Further, continued reading of Rule 4(5)(a) of Cenvat Credit Rules, 2004 with Rule 4(5)(6) will show that a manufacturer can send the inputs directly to the job worker for manufacture of intermediate product and bring the said intermediate product to the factory for further use in the final product. In such situation, the supplier of input has to pay duty on intermediate product if it is not used in the manufacture of final product. He relied on the decision of the Honble Supreme Court in International Auto Ltd. 2005 (183) ELT 239 (S.C.). He further submitted that the reliance placed by original authority on Tribunals decision in Jay Yuhshin Ltd. 2000 (119) ELT 718 (Tri. LB) is not proper as the same has been reversed by the Honble Supreme Court in the case of International Auto Ltd. (supra).
4. It is the case of the appellant (Avtec) that they have not gained any undue benefit out of these transactions since differential duty, if any, payable by the appellant would be available as a credit to GMI. The variation in the value of FOC materials by GMI is based on their own ascertainment after re-verification and the appellant Avtec cannot be held responsible for any penal action in this regard.
5. Regarding adjustment of excess paid duty of Rs. 37,64,373/- towards short payment due to variation in value, the Ld. Counsel submitted that they are not pressing for the said point in the appeals.
6. The main point in the present appeal is the non-inclusion of royalty amount paid by GMI to overseas company in the value of FOC materials supplied to Avtec. The original authority held that the value of FOC materials supplied by GMI to Avtec should be loaded by 3% in terms of Rule 6 of Central Excise Valuation Rules, 2000. This aspect has been strongly contested by the appellant. The issue is dealt with in much detail later in the order.
7. The Ld. AR for the Revenue submitted that when the appellants did not follow the procedure as set out under Rule 4 of Cenvat Credit Rule, it is not open to them to claim that no duty is payable by the job worker and the intermediate product is duly used in the manufacture to final product by GMI, who discharged full duty liability. In the present case both the appellants independently involved in manufacture though on job work arrangements, chose to pay duty at the time of clearance of FOC materials by GMI and intermediate goods by Avtec. Hence, proper valuation has to be followed by both the parties in ascertaining the duty liability. Regarding the loading of value of FOC material on the ground of payment of royalty by GMI to ISUZU, the Ld. AR submitted that the technical knowhow is essential in the manufacture of intermediate as well as final product and hence, should form part of the value for Central Excise duty purposes.
8. We have heard both the sides and examined the appeal records.
9. On the general issue regarding correct valuation to be adopted for FOC material received from GMI and which become part of value of intermediate goods manufactured and cleared by Avtec on job work basis back to GMI, we find that they have chosen not to follow scheme in terms of Rule 4 of Cenvat Credit Rules, 2004. It is not for the appellant and the principal manufacturer now in this late stage to say there is no duty liability at all on Avtec in the whole process. Admittedly, GMI decided to clear FOC materials, their own as well as procured indigenously or imported, to Avtec on payment of duty. These FOC materials have become part and parcel of intermediate goods manufactured by Avtec, on which Avtec discharging duty and cleared back to GMI. In such an arrangement, it is necessary to have correct value ascertained for transaction between GMI and Avtec. These two operated as principal to principal in all these transactions. If full and proper value was not arrived at for the FOC materials, it is not open to the appellants later to claim they need not at all pay duty in view of procedure set out in Rule 4 of Cenvat Credit Rules, 2004. Having followed duty paid clearance and claim of credit, it is necessary to have proper valuation of the product. Revenue neutrality cannot be argued for payment of duty lesser than mandated by the law. However, the same could be a defense, if at all, against imposition of penalty under the ground of misrepresentation, fraud etc.
10. It is also clear that the value of FOC materials could be only determined by GMI and it is not at the hands of Avtec to ascertain the background details of how GMI arrived at such value. Avtec received the materials along with covering invoices showing value and duty payment. Having bonafidely taken into account such value and also availed the credit of such goods, the said value has been added while arriving at the final value of intermediate goods. In such situation, we find that the question of fraud, suppression etc. cannot be invoked against Avtec. GMI on realizing that certain components of value like customs duty, freight etc. were not added while arriving at the value for FOC materials have done the same on their own and paid the differential duty. Here, as rightly contended by the appellants duty paid is going to Avtec as a credit and again coming back as a credit to GMI when intermediate goods are received back. In such situation, we find the question of fraud, misrepresentation may not be sustainable. As such, we hold that that differential duty paid by GMI on FOC materials has correctly paid. However, the self adjustment of certain other excess payment against such differential duty is not permissible under the provisions of law and the same is not being contested by the appellants. We find, considering the facts and circumstances of the case, while we uphold the differential duty paid on FOC materials, imposition of penalty on this ground is not sustainable in view of the facts discussed above.
11. The only other main issue is regarding loading of 3% in the value of FOC materials on the ground of royalty fees paid by GMI to ISUZU. We find the reasoning and methodology while arriving at such percentage of loading by the original authority is devoid of merit. GMI entered into an agreement with ISUZU for drawing and specification and paid royalty charges for this. Admittedly, the agreement is in respect of technical information and support from ISUZU with reference to entire model of car and not for transmission assembly only. The agreement encompasses a host of activities for the entire vehicle, whereas in the present case Avtec are not engaged in the manufacture of entire vehicle and they are involved only in manufacture of certain intermediary transmission assembly etc. which goes into the manufacture of the vehicle. Further, we note provision of Rule 6 of Valuation Rules are applicable to situation where additional consideration is flowing from buyer to seller. In the present case admittedly GMI are providing certain drawings and designs to Avtec based on which the products are to be manufactured. We have perused the details of drawings and technology supplied by GMI to Avtec. We are not in agreement with the appellants in their plea that these are not technical information but simple arithmetical specifications to be followed by Avtec. We find the value of design, drawing and technical specification is to added in the value of goods cleared by Avtech. The appellants contended that the quantification to load the value of materials manufactured by Avtec has not been done by any rational or scientific method. We have noted that in para 19(vi) of the impugned order, the original authority disussed the loading of royalty charges. We find that the loading at 3% is arrived at on the basis of total sale price of Cars vis a vis total royalty paid to ISUZU by GMI. We find that 3% loading is without any reason or logic as could be seen from finding of the Original Authority. We find that SCN proposed 3% as a round figure and added that this will be subject to revision on production of certificate of Cost Accountant by Avtec or GMI. However, the impugned order noted that no such documents was produced and hence, 3% was loaded. We find that such summary loading in the value of excisable goods in terms of Rule 6 is not legally sustainable. Accordingly, we set aside the said finding in the impugned orders and remand the matter to the original authority to arrive at the correct quantum of loading to be made for the design and drawing supplied by GMI to Avtec who manufactured the products on job work.
12. In view of the above discussions and findings, we hold that the main appellant (Avtec) are liable to pay differential duty due to revised valuation of FOC materials supplied by GMI. However, no adjustment of other excess paid amount on different grounds is permissible.
13. In view of the findings recorded earlier the penalties imposed on the appellants are set aside. The original authority shall recalculate the exact quantification for loading towards drawing and design supplied by GMI to Avtec.
14. With the above observations, the appeals are disposed of.
(Pronounced in the open court on__29.09.2016)
(B. Ravichandran) (S. K. Mohanty)
Member(Technical) Member (Judicial)
Neha
8 | Page