Custom, Excise & Service Tax Tribunal
M/S Ami Sanag Micromation(P)Ltd vs The Commissioner on 21 June, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Bench Division Bench
Court I
Appeal No.E/46/2007 & 461/2007
(Arising out of Order-in-Denovo No.04/2006-C.Ex. dated 29-09-2006 passed by Commissioner of C&CE, Hyderabad-II)
For approval and signature:
Honble Ms. Sulekha Beevi, C.S. Member(Judicial)
Honble Mr.Madhu Mohan Damodhar, 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 Lordship wish to see the fair copy of the Order?
4.
Whether Order is to be circulated to the Departmental authorities?
M/s AMI Sanag Micromation(P)Ltd.
..Appellant(s)
Vs.
The Commissioner.
C&C.E, Hyderbad-II
&
..Respondent(s)
The Commissioner.
C&C.E, Hyderbad-II.
..Appellant(s) Vs. M/s AMI Sanag Micromation(P)Ltd.
..Respondent(s) Appearance Shri V.J.Sankaram, Advocate for the Appellant Shri R.R.Bangar, AR for the Respondent Coram:
Honble Ms. Sulekha Beevi, C.S, Member(Judicial) Honble Mr.Madhu Mohan Damodhar, Member(Technical) Date of Hearing : 16/05/2016 Date of decision: 21-06-2016 FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.]
1. Both the above appeals emanate from the same order and involve identical issue and period. Appeal No. E/46/2007 is filed by assesee and appeal No. 461/2007 is filed by Revenue. The parties are hereafter referred to as assessee and Revenue for sake of convenience.
2. The case against the assessee is that they are effecting clearances of computers by bifurcating the value of the goods into (i) CPU and (ii) HDD and there by discharging payment of central excise duty only on the former without taking into account value of the latter. It appeared that assessee intentionally suppressed the fact with intent to evade payment of duty on computer peripherals by clearing them on trading invoices instead of on central excise invoices.
3. A show cause notice dated 24-11-1995 was issued to the appellant interalia proposing differential duty payable on the computer peripherals. The adjudicating authority in his order dated 19-01-1998 confirmed the duty demand of Rs.48.18 lakhs, imposed penalty of Rs.50 lakhs and an option to redeem confiscated goods on payment of fine of Rs.25 lakhs. On appeal , the Cestat, vide orders dated 15-10-1999 remanded the matter to original authority for denovo consideration with a direction that function of each item should be commented upon in detail and then conclusion is to be reached as to whether its value could be included in the assessable value or not. After denovo adjudication in the denovo order dated 31-03-2004, the Commissioner directed the jurisdictional Asst. Commissioner to carefully re-examine the case records, identify the peripherals etc., and to re-determine the value of computer system. Meanwhile a show cause notice dated 05-01-2000 was issued to Managing Director of the appellant, on adjudication of this notice vide Order-in-Original dated 31-03-2004 a penalty of Rs.1,00,000/ was imposed on him. On further appeal to CESTAT, vide order dated 14-02-2005, both the matters were remanded for denovo consideration for re-computing the duty liability and re-determination of penalty after examining the question of time bar. On such second denovo adjudication vide Order dated 29-09-2006, the authority held that acquisition of knowledge by department was when the investigations actually concluded, that Managing Director being in charge of day to day affairs is liable for penalty as imposed. However, after computation of duty payable, done on basis of CESTATs order, reduced duty liability of Rs.21.67 lakhs was confirmed. Being aggrieved by the confirmation of duty demand, interest and penalty by said order dated 29-09-2006 the assesee represented by learned counsel Shri. V.J. Sankaram is in appeal before us on the following main grounds:
a) However, the learned Commissioner without providing documents, invoices other relevant papers on which duty is proposed to recomputed passed a non-speaking order violating the principles of natural justice.
b) No computation statement confirming demand of Rs.21,66,995/- was provided to the appellants. It is not known on what basis Commissioner computed the demand.
c) No finding was given in the order in regard to eligibility to the benefit of Cenvat Credit in respect of duty paid hard disk drive and cum-duty benefit already allowed by the Commissioner vide Order-in-Original No.12/2004-CEX dated 31-03-2004 and the same was confirmed by Cestat vide Final Order dated 14-02-2005.
d) Out of the 18 items which were in dispute, the learned Commissioner during De-novo adjudication allowed exclusion from the assessable value in respect of 10 items and in regard to rest of the items, the dispute is in regard to interpretation of valuation provisions and as per the settled decisions the value of hard disk drive is to be excluded from the assessable value of computer system the learned Commissioner ought to have dropped the proceedings on the question of time bar.
e) Since the show cause notice dated 27-04-1995 having been issued beyond the period stipulated under Section 11A is clearly barred by time.
f) In regard to proposal to impose penalty under 209A of Central Excise Rules, 1994, referring to proceedings in O.R.No.187/95 dated 27-04-1995 show cause notice dated 05-01-2000 is beyond the provisions contained in Section 11A. There is no basis , reason or logic in implicating the Managing Director after 5 years of initiation of first proceedings.
4. The Revenue represented by Shri. R.R. Bangar ,AR reiterated the grounds of appeal stated in the appeal No.461/2007 filed by Revenue against the very same order(order dated 29-09-2006). The grievance of the department is that the order in denovo limiting to the issue of 1) re-computation of duty liability and 2) redetermination of penalty and time bar leaving the proposal of confiscation without any finding is not legal and proper.
5. We have heard both sides and gone through the appeal records.
6. The assessee has its registered office of factory at 401, Paigah Plaza, and also at 202, Paigah Plaza, where the assembly and testing of computers are done. According to the department, the assessee, intentionally, with an intent to evade payment of duty has created a service centre at 202, Paigah Plaza as subterfuge in the vicinity of the Registered Manufacturing premises. The modus operandi adopted by the assessee is that some parts/peripherals of the computer which are purported to be bought out items, and meant for trading activity, are brought to the registered premises and used in the manufacture of functional computer. By taking recourse of this method the assessee was paying duty only on a part of the computer instead of the full system which comprises its integral part also. The correspondences of the assessee with its customers revealed that the purchase orders are placed on the assessee on the basis of their offered quotations. While offering the quotation appellants insist the customers to place two purchase orders for the goods to be supplied by them. The appellants advice customers to place one purchase order on the address at 401, Paigah Plaza and another at 202, Paigah Plaza for split quantities of goods, so as to cover the entire quantity ordered by customer. In the quotation for supplies from 401, Paigah Plaza the excise duty component was included. Whereas, the purchase order placed on 202, Paigah Plaza no excise duty was indicated.
7. One transaction has been explained in the show cause notce, which is as follows:
The appellant supplied computer system to M/s BHEL. In response to the enquiry placed by M/s BHEL, the assessee vide their letter dated 19-12-1992 the following quotation was raised for supply.
1. 80386-33 CPU running at 33 Mhz 3167 weitek co-
processor 64 kb Cache memory(15ns.5RAM) Rs.73,000/-
1.1 80387-33 CPU Mhz co-processor 4 MG Memory IDE 40MB HD.D. with intelligent disc control card Rs.26,800/-
2. Charge for integration cards free
3. Software & control Rs.36,000/-
4. 0.5 KVA 4 ps. Etc. Rs.27,550/-
8. In the aforesaid quotation, it was mentioned that for item No.1, the purchase order is to be placed on the address at 401, Paigah Plaza and for rest of the purchase order is to be placed on the address 202, Paigah Plaza. In the terms and conditions regarding excise duty, it was mentioned that excise duty is applicable for item No.1 only and will be at present rate of 17.25%. Consequently, M/s BHEL placed purchase order dated 05-01-1993 for the items at a combined cost of Rs.1,63,350/- at address 401, Paigah Plaza only. The Territory Manager of assessee factory vide letter dated 07-01-1993 replied to M/s BHEL stating that they have not received purchase order as per their quotation. The assessee requested to amend the purchase order and accordingly M/s BHEL placed two purchase order. One for an amount of Rs.73,000/- at the address 401, Paigah Plaza and another purchase order for Rs.90.350/- at the address 202, Paigah Plaza. The computer system was then dispatched on two delivery challans dated 27-03-1993 issued form the address 401, Plaigah Plaza and 202, Paigah Plaza. The letter issued to the department from University of Hyderabad dated 13-07-1993 states that they placed two purchase order, on 401, Paigah Plaza and 202, Paigah Plaza for supply of two computers. While delivering the system, the 40MB HDD, 16 bit Eternet Card, 200 MB HDD, 4MB Memory, 1.44 MB Floppy Disk Drive, 16 bit Eternet Card were fitted in the CPU mother board, and brought in assembled condition from their factory. The assessee was thus clearing computer peripherals without including their value in the assessable value of the computer system and not discharging Central Excise duty on such items. It is also the case of department that there were no separate accounts for the trading items and no documents were maintained for transfer of items from trading premises to manufacturing premises.
9. The main defence raised by assessee against the allegations is that separate invoices were issued for the bought out items which were not manufactured by them, but were only supplied by them to customers. They did not avail Modvat credit on bought out items. Such items have already been subjected to duty and cannot be subjected to duty again. Further, that software development and other integrated services are not taxable. The assessee contends that HDD, floppy drive, controller cards, random Access Memory etc. are peripherals and are not essential part of computer system. These were not included in the assessable value as being peripherals they were supplied according to customers requirements.
10. The crux of the dispute is whether the value of the computer peripherals fitted with the main system and supplied together could qualify for exclusion from the assessable value. For better appreciation of the issue under consideration it would be worthwhile to take note of the relevant potion of the first denovo order dated 31-03-2004, viz;
By applying the above judicial decisions, I now proceed to consider the individual items mentioned in the show cause notice for its inclusion in the assessable value:
(a) Basic computer : It consists of Central Processing Unit enclosed in a mechanical box and it forms basic component of the assessable value.
(b) Key Board: It is an input device through which data/information is fed into the computer. Since it forms part of computer, its value is also includable.
(c) Monitor: It is a video display unit on which the input or output commands are displayed. Since without monitor, it is not possible to observe the commands and data, it forms essential component of the computer and its value is includible in the assessable value.
i) Hard disk drive: It is a data-storing device permanently fixed in the computer and forms essential component of the computer. Its value is also includible in the assessable value of the computer.
ii) Floppy disk drive: It is a devic where removable medium called Floppy diskette is used to store and retrieve the data. It is inbuilt in the mechanical box of the CPU and hence forms part of the computer. Its value is includable.
iii) Cartridge tape drive: it is a data backup device where a removable medium called cartridge tape is used to store and retrieve the data. Its value is also includable in the assessable value.
Even though it can be argued that drives discussed above are non-essential in the sense that computer can function without them, they are more considered as primary sources of input and output and are regarded as extensions of the system than as peripheral.
i) Controller cards:
CGA/VGA cards: these cards are require to connect a Monitor to the Computer and hence its value is includable in the assessable value.
Telex cards: This an add-on card mounted on the Motherboard to connect a telex. Since this is an optional requirement, its value is not includible Port cards: These are required to connect serial devices like Terminal, Printer, and Mouse etc. since the devices are optional, the value is not includable in the assessable value.
ii) PRINTER : This is an optional out put device connected externally to print the data. By its optional nature, its value is also not includible.
iii) MOUSE: This is an optional external device used as substitute for the keyboard in graphical user interfaces. Even though it became standard equipment, its value is not to be included.
iv) CO-PROCESSOR: It is distinct from the main processor in that it performs additional functions or assists the main processor. The most common type of co-processor is numeric or math co-processor. By its nature and use, its value is not liable to be included.
v) MS DOS: This is an operating system software and is optional. Its value is also not liable to be included.
vi) RANDAM ACCESS MEMORY: This is a semi conductor based memory that can be read and written by the microprocessors or other hardware devices. This also can be considered as an extension of system and hence its value is includable.
vii) PLOTTER: This is an optional device for plotting graphs, maps, designs, drawings etc. It is an external output device. Its value is not includable.
viii) NETWORK INTERFACE: This is used for interconnecting computers and is optional. Hence its value is not to be included.
ix) DIGITIZER: This is an optional device used for converting drawing into digital form and storing in the computer. Its value is also cannot be included.
x) UPS/STABILISER: This is an external device meant for providing uninterrupted and stable power to the computer and does not form part of the computer system. It is optional in nature. Its value also cannot be included.[emphasis supplied]
11. When the appellant had appealed against this order, the Tribunal vide order dated14-02-2005 observed has under:
4. After hearing the rival submissions, we are inclined to accept the decision of the adjudicating authority as regards the includibility and non-includability of certain items of the computer in the value of clearances cleared. It should be borne in mind that the remand order has the effect of setting aside the original order passed by the adjudicating authority. Hence, contrary to the view of the adjudicating authority, we hold that the penalties in the original order do not survive. That means, in the de-novo order, the adjudicating authority should have considered the question of penalty and also the time bar. In as much as she has ignored these points we have no other option, but to remand the case to the original authority(Commissioner) for re-computing the duty liability and redetermination of penalty, after examining the question of time bar. Thus, these appeals are disposed of in the above terms.
12. It is seen that based on this remand order of Tribunal the denovo adjudicating authority has passed order covering the areas as mandated in the Tribunal order. The appellant has no case that fresh evidence with regard to includability and non includability of items in the assessable value was furnished after remand in denovo adjudication. The relevant portions of the denovo Order in Original dated 29-09-2006 is reproduced below:
10. I have seen the Honourable CESTATs Order. As per the remand order of the Honble CESTAT, I am required to determine two issues:
(a) Recompute the liability on the basis of Commissioners Order (Order-in-Denovo No.12/2004-C.Ex. Dated 31-03-2004).
(b) The issue of personal penalties.
11. Both these issues are required to be determined after determining the issue of limitation. On the issue of limitation, it was submitted that the department had all the relevant information when the classification list and price lists were filed before the excise authorities. This argument is incomprehensible to me. The show cause notice clearly states that the classification lists filed by them related to computer systems, computer mother board, add on cards ec. The department was seeking to classify these goods under S.H.No.8473.00 as parts of the computer which indicate that the department was always under the belief that these goods are parts of the computers. If the Noticee would have declared all the relevant facts, the department would not have sought to classify their goods as computer parts. Regarding the price lists it is evident that they were enclosing with these price lists only purchase orders which were other than items cleared form their service centre. It is also observed that the noticee had obtained split orders from their customers and cleared these goods under trading invoices from their service centre. In the light of these facts, it is difficult to entertain the claim of the Noticee that they had declared all relevant facts in the classification lists and price lists.
12. It was also submitted in the written submission during the personal hearing that the officers had visited their factory on 02-04-1993 and studied the manufacturing process in de tail and recovered certain records, registers and documents. Their contention is that this visit brought out items separately and therefore, the show cause notice dated 27-04-1995 was clearly time barred, as it was issued beyond 6 months from the date of knowledge of the department.
13. As regards the knowledge of the department, it is seen that the Larger Bench of the Honble CESTAT has settled the issue in the case of M/s Nizam Sugar Factory Vs Collector of Central Excise, Hyderabad-1999(114) ELT 429. In this case, the Honble CESTAT has stated that there is no warrant to refer to the acquisition of the knowledge to the department when understanding the relevant date defined under Section 11A(iii) of the central Excise Act, 1944. In coming to this conclusion, the Honble CESTAT has referred to a number of case laws.
14. Even otherwise, the argument is based on the assumption that all relevant facts required for issuing notice, have been placed before the department on 02-04-1993 itself. This may not be a correct assumption. From the show cause notice, I see that the investigation process was a long drawn one. The last statement of Shri G.G.Choudhary, was recorded on 14-03-1995 which concluded the proceedings. The notice was issued immediately thereafter. In that view of the matter, I feel that the acquisition of the knowledge by the department was when the investigations actually concluded.
15. On the second issue, viz. penalty of Shri G G Choudhary, I find that no arguments have been raised in the written submissions or during the course of personal hearing. Therefore, I hold that Shri G.G.Choudhary being in-charge of day to day affairs is liable for penalty in terms of Rule 209A of the Central Excise Rules.
16. As regards to the computation of the duty payable, it is done on the basis of the Honble CESTATs order which has accepted the criteria laid down in Order-in-Denovo No.12/2004-C.Ex. dated 31-03-2004. The duty on that basis works out to Rs.21,66,995/-.
13. The appellant has placed reliance on various judgments as under to canvass the position that the parts which are not integral to the computer system is not to be included in the assessable value.
a) The judgment of the Honble Apex Court in Vintron Electronics (P)Ltd Vs CCE Delhi 2012(279) ELT 161(SC) was a case where the core issue was the classification/duty liability on add-on cards and mother boards. In the said case, the assessee had filed declaration before adjudicating authority to classify add on cards under sub-heading No.8473(10%) At that time the duty payable under classification 8471 was 5%. There was subsequent change in rate of duty under 8471 and 8473 when the assessee sought re-classification. Thus in the said case, the assessee was paying duty and the dispute was with regard to classification. In the case on hand, the appellant contends that the peripherals are bought out items and so no duty is payable. The facts being entirely different the above judgment is not applicable.
b) In CCE, Mumbai Vs CMS Computers Ltd -2005(182) ELT 20 SC, the issue was whether monitors and computers are essential part of computer and could be included in the assessable value. In para 4 of the said judgment, the Honble Apex Court observed as under:
Thus it cannot be concluded that respondents sell their computer as a unit which include a monitor and printer. As a monitor and printer are not essential part of the computer their value cannot be included in the value of computer. We however, clarify that situation may be different where a manufacture sells a computer with a monitor and printer as a unit (emphasis supplied) In the case on hand, the appellant sells computer systems/as a unit and therefore, as clarified, the ratio laid in the above judgment is of no assistance to the appellant
c) The Tribunal in the case of Electronic Corporation of India Ltd Vs CCE, Hyderabad 2004(167) ELT 420(Tri.Bang) held that bought out items however essential, supplied along with machine cannot be subjected to duty. We do not have any quarrel with this legal position. But the appellant though contends that the peripherals are bought out items have failed to produce invoices and establish their case that these are bought out items manufactured by others, on which duty has been already paid. The said decision is therefore distinguishable on facts.
d) Another judgment relied by appellant is CCE, Pondichery Vs ACER India Ltd 2004(172) ELT 289(SC) and PSI data Systems Ltd. 1997(89) ELT.3(SC). The question considered in these cases was whether the value of software installed in the computer before clearance is includable in the assessable value. The issue in the present case being entirely different the judgment is not applicable. Moreover, in the denovo proceedings, the adjudicating authority has held that the value of MS DOSoperating software is not includable while computing liability.
e) In O.R.G. systems vs CCE, Vadodhara 1998(102) ELT.3.(SC) Apex Court observed that a complete computer is one which has CPU, Etched in Software, and input device(key board), an out-put device(Monitor), and disc driver. In the case on hand, the adjudicating authority has rightly considered these components to be includable in assessable value. The Tribunal in the case of Integrated Data Systems 2002(147) ELT 81 (Tri-Chennai) has remanded the matter directing the adjudicating authority to denovo adjudicate in the light of decision in O.R.G. Systems case( supra)
14. Most of the judgments placed before us by the appellant are regarding the issue whether the software is includable in the assessable value. The issue in the case being entirely different we do not consider it necessary to discuss them. At the cost of repetition, it has to be stated that the appellant was clearing computer system/a whole unit as is seen from the illustration in the show cause notice. Though appellants contend that peripherals were bought out items assembled in the factory, and then cleared as a computer unit, there is no iota of evidence to establish how the items from their trading premises was transferred to manufacturing premises. So also, there is no satisfactory explanation for insisting upon the customers to place split orders on two premises.
15 We also find that the denovo adjudicating authority with regard to issue of time bar has correctly analysed the facts and come to conclusion that acquisition of knowledge by the department was when the investigations actually concluded. On the second issue viz; penalty on the Managing Director of the assessee the authority has held that the said person being in charge of day to day affairs is liable for penalty in terms of Rule 209 of Central Excise Rules. The adjudicating authority has imposed penalty of Rs.1,00,000/ on Managing Director and Rs.2 Lakhs on the assessee. While we find ourselves in agreement with the raison detre of the adjudicating authority for imposing penalties, none the less, we find that they are on the higher side. Accordingly we order reduction in the quantum of penalty to Rs. 10,000/ on Sri. G.G. Chowdary, Managing Director of assessee and to Rs. 50,000/ on the asssessee.
16. Coming to the computation of duty payable, we find that the adjudicating authority has computed a duty demand of Rs.21,66,995/ on the basis of the Tribunals earlier order dated 14-02-2005. Assessee has raised a contention that no computation statement was provided to them, however we do not find any merit in this contention. The learned counsel for assessee relied upon the proposition laid in Kemtech International(P)Ltd Vs CCE (I&G) 2013(292) ELT 321(SC) to canvas the argument that the appellant was not provided with the basis of the computation of duty demand and this amounts to violation of principles of natural justice. We fully acknowledge that the appellant should be supplied copies of all documents which are likely to be relied for fresh adjudication.
17. At this juncture, the interim order dated 14-10-2004 passed by Tribunal is noteworthy. In the second round of appeal before the Tribunal (this appeal is the third round) the appellants had filed stay application. The Tribunal vide the said Miscellaneous Order, observed that as per remand order, the re-quantification is not over and the appellant was then given liberty to file application for waiver of pre-deposit after re-quantification of duty and the Miscellaneous Application was adjourned to 24-11-2004 by which re-quantification was directed to be completed, after supply of copy to assessee. The application was then taken up on 24-11-2004, the department then submitted that assessee has not furnished relevant documents for re-quantification. This was refuted by the appellant by contending that the impugned order having been passed basing on documents, the department has to quantify the amount. The appellants were thus granted waiver of pre-deposit as the quantification was not complete. The case was listed for early hearing and thereafter remanded. Needless to say that there is an equal responsibility on the part of the assessee to cooperate for completing the adjudication or attaining finality in the matter. During the pendency of the appeal, the assessee has not presented any application seeking direction against the department to furnish the details of computation. So the contention of appellant that they did not get any opportunity on how the amount was quantified is not tenable.
18. As regards the appeal filed by Revenue, the grounds raised in their appeal has been already discussed in the above paragraphs. One issue that remains to be addressed is regarding the confiscation of the plant and machinery. The adjudicating authority vide order dated 19-01-1998 had ordered confiscation of plant and machinery. In denovo proceedings, this was dropped. It is seen from records that assessee factory was taken over by APIDCL, and the factory has been put to sale, and land has been already sold by the said Corporation. In such circumstances, the grounds raised by Revenue that the Plant and Machinery ought to be confiscated, does not survive any more.
19. From the above, we do not find any reason to interfere with the afore said duty demand arrived at the denovo adjudication order which is impugned herein. The appeal filed by assessee is partly allowed by reducing the penalty imposed as above. The appeal filed by Revenue is dismissed.
(Pronounced on 20-06-2016 in open court)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI, C.S,)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
dks
19