Custom, Excise & Service Tax Tribunal
M/S.Liberty Shoes Ltd vs Cce, Panchkula on 5 June, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SCO 147-148, SECTOR 17-C, CHANDIGARH-160017 DIVISION BENCH COURT NO.1 Appeal No. E/1272/2008-Ex(DB) [Arising out of the OIO No.6/Commr/PKL/07-08 dt.3.5.2008 passed by the CCE, Panchkula) Date of Hearing: 28.09.2016 Date of Decision: 05.06.2017 For Approval & signature: Honble Mr.Ashok Jindal, Member (Judicial) Honble Mr.Devender Singh, Member (Technical) 1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No 3. Whether their Lordships wish to see the fair copy of the order? seen 4. Whether order is to be circulated to the Department Authorities? Yes M/s.Liberty Shoes Ltd. Appellant Vs. CCE, Panchkula Respondent
Appearance Ms.Krati Somani, Advocaate for the appellant Shri Satyapal, AR for the respondent CORAM:Honble Mr.Ashok Jindal, Member (Judicial) Honble Mr.Devender Singh, Member (Technical) FINAL ORDER NO. 61025/2017 INTERIM ORDER NO. 9/2017 DATED 12.04.2017 PER: ASHOK JINDAL The appellant is in appeal against the impugned order denying the credit of Rs.1,96,83,096/- and demand was confirmed under Rule 6(3) (b) of Cenvat Credit Rules, 2004 to the tune of Rs.47,84,763/- alongwith education cess @ 2% of the total demand and penalty of equivalent amount of Rs.1,96,83,096/- alongwith penalty of Rs.25 lakhs under Rule 25 of Central Excise Rules, 2002.
2. ? The brief facts of the case are the appellant is engaged in the manufacture of footwear under the brand name of Liberty. The appellant is also undertaking packing/repacking and labelling/re-labelling of imported footwear. This activity of packing/repacking and labelling/re-labelling of the goods amounts to manufacture as per section 2(f) (iii) of the Central Excise Act, 1944. During the period of dispute, the process of packing/repacking and labelling/re-labelling of containers or adoption of any other treatment to render the footwear marketable to the consumer were exempted from the duty under Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006. The said exemption was subjected to certain specified conditions of the said notifications. The said notification exempts footwear subjected to only one or more of the following processes, namely:
(i) packing/repacking
(ii) and labelling/re-labelling of the containers
(iii) adoption of any other treatment to render the footwear marketable to the consumer.
The notification further provides for the condition that the footwear should have been: (i) bearing a brand name or trade name of any person, (ii) in respect of which retail sale price has been declared and (iii) on which appropriate duty of excise or as the case may be, the additional duty has already been paid. Summary of time period and amount in question along with grounds for such demand is mentioned herein under:
Period involved Ground for confirmation of duty July 2005 to June 2006 Non-availment of exemption and paying excise duty thereby availing cenvat credit November 2004 to June 2005 Denial of Cenvat credit availed on inputs or input services which were used in the manufacture of exempted footwear in terms of Rule 6(1) of the CCR.
May 2006 to June 2006 Denial of Cenvat credit availed on inputs or input services which were used in the manufacture of exempted footwear in terms of Rule 6(1) of the CCR.
Therefore, it was held that the activity undertaken by the appellant does not amount to manufacture in terms of Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006, therefore, the appellant is not entitled to avail the credit on CVD and additional duty of customs paid by them at the time of import of footwear.
3. For the period November, 2004 to June 2005 and May, 2006 to June 2006, the demand has been sought to be confirmed in terms of Rule 6(1) of Cenvat Credit Rules,2004 on the premise that as the appellant is manufacturing dutiable as well as final exempted products and are availing the credit on the common inputs/input service, therefore, the appellant is required to pay 10% of the value of the exempted goods cleared by the appellant during this period. In these sets of fact, the show cause notice was issued on 14.02.2007 alleging that during the period July, 2005 to June, 2006, the has wrongly availed credit on duty paid imported footwear and packing material as footwear were exempted from payment of duty. It was alleged that the appellant has no option but to avail the exemption notification which is mandatory in terms of section 5A (1@) of the Central Excise Act, 1944. In addition to this, it is further alleged that manufacture of footwear is fully exempted from payment whole of excise duty, the cenvat credit was not allowed on such quantity inputs and input service which are used in the manufacture of final exempted products in terms of Rule 6 (1) of Cenvat Credit Rules for the period November, 2004 to June, 2005, the appellant is liable to pay an amount 10% of the exempted goods in terms Rule 6 (3) (b) ibid. The show cause notice was adjudicated and the demand proposes in the show cause notice was confirmed alongwith interest and penalties were also imposed. Aggrieved with the said order, the appellant is before us.
4. Learned Counsel for the appellant submits that the exemption provided under Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006 on the footwear manufactured by the appellant is optional and bar of section 5A of the Act is not applicable. Thus, the appellant has option to duty, the credit cannot be denied to the appellant. To support her contention, she relied on the decision of the Tribunal as well as High Court of Bombay:
(i) Balkrishna Paper Mills Ltd. vs.CCE, Thane-2015 (329) ELT 468 (Tri.-Mum.)
(ii) Padmavati Pulp and Paper Mills vs. CCE, Thane-2015-TIOL-2434-CESTAT- MUM
(iii) Indian Seamless Metal Tubes Ltd. vs. CCE, Pune-III-2013-TILO-2208-CESTAT-MUM
(iv) Mahindra and Mahindra Ltd. vs. CCE, Mumbai-2015 (321) ELT 51 (Bom.)
(v) Arvind vs. CCE, Ahmdeabad-III-2016 (334) ELT 146 (Tri.Ahmd.)
(vi) MMM Coaches Ltd. vs. CCE, Panchkula-2008 (231) ELT 506 (Tri.Del.).
5. She further submits that the decision in the case of M.R.Tobacco Ltd. vs. Union of India-2007 (213) ELT A115 (SC) is not applicable to the facts of the case.
6. It is her further submission that the credit availed and utilized for payment of duty, cannot be required to be reversed in view of the decision of the Honble Bombay High Court in the case of Ajinkya Enterprises-2013 (294) ELT 203 (Bom.). It is her further submission that without prejudice to the above submission, the appellant has paid excise duty on import of footwear, therefore such duty paid by the appellant must be adjusted against the demand of credit availed on the import of footwear.
7. For the demand of Rs.47,84,763/-, it is the submission of the learned Counsel that Rule 6 of the Cenvat Credit Rules is not applicable as exempted and duty paid goods were not manufactured in the one premises of the appellant. It is her submission that the Commissioner has confirmed the demand of duty equal to 10% of the price of exempted footwear manufactured by the appellant under Rule 6 ibid on the premise that the appellant has failed to maintain the records of inputs and input services used in exempted and excisable goods. It also alleged in the show cause notice that the credit taken on the packing material as inputs and input services used for manufacture of exempted goods also. It is submitted by the learned Counsel that the appellant is receiving inputs in the form of packing material which are to be used in manufacture of footwear. It is her submission that the such packing material received in respective godowns i.e. received separately in manufacturing unit of excisable goods, therefore, the question of availing credit on the packing material used for manufacturing exempted goods does not a rise. The invoices of packing material used in the exempted final products have been produced and on the said invoices no credit has been taken. With regard to this contention, the learned Commissioner has not given any credence. It is further submitted that with respect to common services used by the appellant for dutiable and as well as exempted final products, the appellant has already reversed the proportionate credit, therefore, in terms of Rule 6 (3) (b) of Cenvat Credit Rules, the demand is not sustainable. To support this contention, she relied on the following decisions:
(a) Chandrapur Magnet Wires (P) Ltd. -1996 (81) ELT 3 (SC)
(b) Hello Minerals Waters (P) Ltd.-2004 (174) ELT 422 (All.)
(c) Dr.Writers Food Products Pvt.Ltd.-2009 (Tri.-Mum.)
(d) CCE, Mangalore vs. Kuremukh Iron & Steel Co.Ltd.-2011 (271) ELT 172 (kar.)
(e) CCE, Ahmedabad s. Maize Products-2009 (234) ELT 431 (Guj.).
8. It is her further submission that as no demand is sustainable, the education cess is not payable by the appellant. It is submitted that the show cause notice has been issued by invoking the extended period of limitation, therefore, the demands for the extended period of limitation are not sustainable. The penalty is also not imposable on the appellant.
9. On the other hand, learned AR reiterated the findings of the impugned order.
10. Heard both sides and considered the submissions.
11. On careful consideration of the submissions, the following issues emerge:
(1) Whether as per section 5A (1A) of the Act, the appellant is duty bound not to pay duty under Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006 and consequently, the appellant is not entitled to avail credit.
(2) Whether in the facts and circumstances of the case, the appellant is liable to pay 10% of the value of exempted goods or not.
Issue No.1
12. The facts of the case are not disputed that the appellant is importing footwear and engaged in the activity of packing/repacking and labelling/re-labelling of the goods and the said activity amounts to manufacture as per section 2 (f) (iii) of Central Excise Act, 1944. The only dispute with regard to that, that Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006, the activity of packing/repacking and labelling/re-labelling of containers or adoption of any other treatment to render the footwear marketable to the consumer were exempted from the duty under Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006. The said exemption is having certain specified conditions to follow and if those conditions of the said notifications have been fulfilled, then the assessee is entitled to avail the benefit of the notifications, otherwise not. The case of the Revenue is that as per section 5A (1A) of the Act as the goods have been exempted, the appellant is not required to pay duty on such goods. When the appellant is not required to pay duty on those exempted goods, the appellant is entitled to avail the credit. We have gone through the provisions of section 5A (1A) of the Act which are reproduced as under:-
(1A) for the removal of the doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.
13. Bare reading of the said provision indicates that a manufacturer will not have an option to pay duty only where the goods are exempted and the exemption granted is absolute. Admittedly, in this case, the exemption granted Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006, is not absolute but conditional. Therefore, in the light of the decision of this Tribunal in the case of Balkrishna Paper Mills Ltd. (supra), wherein this Tribunal has observed as under:-
It would be seen from the said Section 5A that the Central Government is empowered to exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the Notification from the whole or any part of the duty. Further, a reading of Section 5A(1A) shows that for the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of Excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of Excise on such goods. Thus, a bare reading of the above Section indicates that a manufacturer will not have an option to pay the duty only where the goods are exempt and the exemption granted is absolute.
14. We hold that the benefit of notification is optional to the appellant and the appellant is not entitled to avail the benefit of notification, in that circumstance, it cannot be said that the goods are exempted goods. As we have held that the goods are not exempted goods, therefore, the appellant has correctly paid duty on the said goods, consequently, the credit cannot be denied to the appellant. Therefore, we hold that the demand of Rs.1,96,83,096/- is not sustainable. The same is set aside.
Issue No.2
15. The allegation against the appellant is manufacturing both dutiable as well as exempted final products and availing the credit on inputs and input service and not maintaining the separate accounts for inputs and input services. Therefore, the appellant is liable to pay 10% of the value of exempted goods. The appellant during the course of investigation, in its statement as well as during the proceedings before the adjudicating authority has categorically stated that the activity of packing/repacking and labelling/re-labelling of the goods has been done in the separate godown and on packing material the appellant has not taken the credit. The invoices have also been produced to that extent for verification. Further, the proportionate credit availed on common input services has already been reversed by the appellant. In view of the decision of this Tribunal in the case of Dr Writers Food Products Pvt.Ltd. (supra), wherein this Tribunal has observed as under:
8.?The learned Jt. CDR, in view of the above, emphasized, that only when the credit is reversed before utilization and before clearance of the exempted goods, only then it will amount to not taking the credit. Hence, he prayed that the matter may be remanded to the Commissioner to verify this aspect. We, however, note that there is no specific finding by the Honble Supreme Court that if the credit is reversed after utilization and after the clearance of the exempted goods, it would still amount to taking the credit and exemption will not be available. The appellants, in the case before us, have not only reversed the credit of Rs. 70,21,383/- but also paid the interest of Rs. 4,71,189/-. We feel that by doing so, the appellants, have undone the act of taking/utilizing the credit and in the light of the Allahabad and Gujarat High Court judgments supra, it amounts to not taking the credit and, therefore, they are not required to pay an amount equal to 10%.
We hold that the appellant has not taken the credit on inputs i.e. packing material used in the manufacture of exempted final goods and reversed the proportionate credit availed on common input service, the appellant is not liable to pay 10% of the value of the exempted goods. Therefore, the demand of Rs.47,84,763/- is also set aside.
17. In view of the above observation, we set aside the demands proposed in the show cause notice are not sustainable against the appellant. Consequently, the impugned order is set aside and the appeal is allowed with consequential relief, if any.
(pronounced in the open court on ________________) (Devender Singh) ( Ashok Jindal) Member (Technical) Member (Judicial) mk Per : Devender Singh, Member (T)
18. Having gone through the order recorded by Ld. brother Member (Judicial) Mr. Ashok Jindal, I agree with the Ld. brother on issue No. 1. However, I am unable to agree with my Ld. brother on issue No. 2. Hence, I am recording a separate order in relation to issue No. 2 in relation to demand pertaining to inadmissible credit.
19. The demand of Rs. 47,84,763/- has been raised on the ground that the noticee was manufacturing both dutiable footwear and imported exempted footwear and they were using common inputs such as packing material as well as input services in both types of footwear without maintaining the separate records. The contention of the appellants is that the exempted and dutiable goods were not manufactured by the appellants in the same premises and the inputs in the form of packing material were received separately in respective godowns. In respect of input services, it is submitted that the appellant has availed the Cenvat Credit on such services as are used exclusively for manufacturing of dutiable goods and in respect of common services, the appellants has reversed the Cenvat Credit on proportionate basis. I find that the appellants submissions that they have not manufactured exempted and dutiable goods in the same premises is not borne out by facts. Sh. M.M. Gulati, Manager and authorized signatory of the noticee in his statement dt. 04.10.2004, which has not been retracted, had stated that all the functions related to imported footwear including receipt and dispatches are carried out on behalf of the appellants at registered premises as well as godown at Namastey Chowk, Karnal Paragraph 6 of the show cause notice is relevant in this regard and the same is extracted below:-
6. Whereas, Shri M.M. Gulati, Manger and authorized signatory of the Noticee in his voluntary statement dt. 04.10.2006 (Annexure-B), tendered under Section 14 of the Act on behalf of the aforesaid Noticees, inter-alia, stated that they had imported Footwear from China and Hong-Kong from July, 2005 onward; that they were availing CENVAT Credit of CVD, Additional Customs Duty and Education Cess paid on the imported Footwear which were packed/repacked and labeled/re-labeled with Liberty labels and shoe boxes which amounts to manufacture in terms of Section 2(f) (iii) of the Act read with Third Schedule to the Tariff Act; that in the case of 37 Bills of Entry, they had taken the above said CENVAT Credit and duty liability had been discharged in respect of goods in question; that they were taking CENVAT Credit of the duty paid on packing materials such as Shoe Boxes and Cartons used in packing/repacking of these imported Footwear, that no separate records were maintained in respect of the above said packing materials which were used in exempted Footwear by virtue of the above mentioned Notification No. 6/2002-CE dt. 01.03.2002, as amended, as well as in other manufactured dutiable Footwear; that they were not paying 10% of the value of clearance of repacked imported Footwear which were cleared by them, in terms of Rule 6 (3) (b) of CCR, 2004; that they had cleared Footwear imported vide 12 Bills of Entry (Annexure-C) to this Show Cause Notice) without availing CENVAT credit and without payment of duty; that they were not availing the benefit of Notification No. 6/2002-CE dt. 01.03.2002, as amended, in Karnal unit, while the benefit of above Notification was availed in their Godown at Sector-5, Namastey Chowk, Karnal. However, all the functions relating to imported footwear including receipt and dispatches are carried out on behalf of M/s LSL, Karnal at registered premises as well as Godown at Namastey Chowk.
In view of the above, the appellants submission that such packing material was received at respective godowns is incorrect. In this context, I also find that the following finding of the adjudicating authority is not rebutted by the appellants.
they have not produced any private or statutory record required to maintain under Central Excise Law or other taxes of state in evidence to their submission such as input stock register, unpacked/unlabelled imported footwear stock account and packed/relabeled finished footwear stock account in respect of exempted footwear repacked/relabeled at their respective godowns.
20. As for the credit on input services used by the appellants, they have admitted that they have availed credit on input services commonly used by them for manufacture of dutiable footwear and exempted footwear and no separate account was maintained by them as was the requirement of Rules 6(2) of Cenvat Credit Rules, 2004. The noticee has debited an amount of Rs. 2,10,901/- on account of Service Tax attributed to the services used in the manufacture of final products. In view of the judgments cited by the noticee, reversal of proportionate credit is deemed to be equivalent to credit not availed.
21. In view of the above, I hold that the assessee is required to pay Cenvat Credit on the inputs which were used for exempted as well as dutiable products at the rate of 10% of the sale price of the exempted goods.
22. As for the extended period, same is applicable only for the period for November, 2004 to June, 2005 and not for the rest of the period. The appellants were carrying out the activity of packing/repacking and labeling/relabeling of imported footwear and domestic footwear at the registered premises. I find that the department did not know about the availment of CENVAT credit of inputs used for packing/repacking of labeling/relabeling of imported footwear as the appellants did not disclose the details of principal inputs with reference to the quantity of final products manufactured to the Department for availing CENVAT credit as no monthly return within ten days from the close of each month in the form of ER-6 was filed by them as required in terms of Rule 9A (3) of CCR, 2004 during the relevant period. Besides, the burden of properly availing Cenvat Credit is on the appellants in terms of Rule 9(6) of CCR, 2004. Extended period is thus invokable and penalty under Rule 15 of CCR, 2004 read with Section 11AC has rightly been imposed. In this context, I also place reliance on the judgment of Honble Allahabad High Court in the case of CCE, Ghaziabad Vs. Rathi Steel & Power Ltd. 2015 (321) ELT 200(All.) where it was held as under:-
32. We further find that under Rules, 2004, a burden is cast upon the manufacturer to ensure that Cenvat credit is correctly claimed by them and proper records are maintained in that regard.
33. The assessee, in response to the show cause notice had stated that there is no provision in Central Excise Law to disclose the details of the credit or to submit the duty paying documents, which in our opinion is false and an attempt to deliberately contravene the provisions of the Act, 1944 and the rules made thereunder with an intent to evade the duty.
34. In our opinion, the facts of the present case clearly suggest willful suppression of material facts by the assessee as well as contravention of the provisions of the Act and rules framed thereunder with an intent to evade the demand of duty as would be covered by Clauses IV and V of Section 11A(1) of the Act, 1944. Therefore, the invocation of the extended period of limitation in the facts of the present case is fully justified.
23. As for demand of Cess @ 2% in the order of adjudicating authority, though the same has not been demanded in show cause notice, it is a consequence of law and therefore should not escape realization.
24. In view of the above, I find no infirmity in the order of the Ld. adjudicating authority confirming the duty in relation to inadmissible Cenvat Credit on inputs and the same is upheld along with education cess and interest thereon and equivalent penalty under Rule 15 read with Section 11AC. As these figures are not coming out separately for inputs from the record, the same need to be worked out and informed to the appellants. For that exercise of quantification, the matter is remanded to the adjudication authority to inform the appellants for compliance in terms of this order.
Devender Singh Member (Technical) Difference of opinion As there is difference of opinion between the members, therefore, the matter be placed before the Honble President to appoint 3rd Member to resolve the following issue.
Whether the Member (J) is correct in holding that the appellant are not required to pay 10% of the value of exempted goods on the fact that the appellant has produced invoices of packing material on which no Cenvat Credit has been taken by the appellant and have reversed proportionate Cenvat Credit availed on input services attributable to final exempted goods.
OR The Member (T) is correct in holding that appellants are required to pay 10% of value of exempted goods by rejecting the contention of appellants that they have not manufactured exempted and dutiable goods at same premises in light of statement of Sh. M.M. Gulati and when appellants failed to produce any evidence of input stock register and footwear stock account in respect of exempted footwear at respective godowns.
(Order pronounced in the court on 12.04.2017) Devender Singh Member (Technical) Ashok Jindal Member (Judicial) NS Per : Mr. Anil G. Shakkarwar Heard the parties on the issue of difference of opinion and perused the record.
25. I find that the show cause notice was issued on 14.02.2007. In the said show cause notice, in Para 24, it is recorded The statement of Shri M.M. Gulati, Excise Manager shows that they were manufacturing dutiable and indigenous footwears as well as exempted imported footwears into their registered premises. Whereas, in Para-5 of the said show cause notice, it has been stated on 07.09.2006, the statement of Shri Arun Kumar, Authorised Signatory was recorded under Section 14 of Central Excise Act, 1944 who inter-alia stated that they had imported 30 containers of footwears and out of which 17 containers were cleared from their Karnal Unit after packing/ re-packing or labelling/ re-labelling, on payment of duty and Cenvat credit of CVD, Cess etc. was availed and rest of the 13 containers were directly off-loaded at their Namaste Chowk, Karnal and the same were cleared after being packing/ re-packing or labelling/re-labelling and no Cenvat credit was availed on those footwears as well as on the packing materials. Since the statement of Shri Arun Kumar, the authorised signatory of the appellant was recorded under Section 14 of the Central Excise Act, 1944, it was anadmissible evidence. The Commissioner who framed the charges in the said show cause notice dated 14.02.2007 has ignored the such important admissible evidence and therefore, the said show cause notice is not tenable in law. For the said reason, I agree with the opinion expressed by Member (Judicial) in the reference put up before me.
26. I therefore, hold that as held by Member (Judicial), demands proposed in the said show cause notice are not sustainable against the appellant. After answering the issue before me, I refer the matter back to the Presiding Member i.e. Member (Judicial) for further proceeding.
(Order dictated in the open court) (Anil G. Shakkarwar) Member (Technical) FINAL ORDER NO.
In view of the majority decision, we set-aside the demand proposed in the show cause notice is not sustainable against the appellant. Accordingly, the appeal is allowed with consequential relief, if any.
(Order pronounced in the court on 05.06.2017) Devender Singh Member (Technical) Ashok Jindal Member (Judicial) KL 2 Appeal No.E/1272/2008 M/s.Liberty Shoes Ltd. vs. CCE, Panchkula