Custom, Excise & Service Tax Tribunal
Ardh Metals & Alloys Pvt. Ltd. vs Commissioner Cgst And Central ... on 24 April, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Excise Appeal No. 773 of 2012
(Arising out of Order-in-Appeal No. BC/321-322/Bel/2011-12 dated
16.02.2012 passed by the Commissioner of Central Excise (Appeals),
Mumbai-III)
M/s. Ardh Metals & Alloys Pvt. Ltd. Appellant
Presscopper House, Plot No. C-212/213,
TTC Industrial Area, MIDC, Turbhe,
Navi Mumbai 400 703.
Vs.
Commissioner of CGST & CE, Belapur Respondent
1st Floor, CGO Complex, CBD Belapur, Navi Mumbai 400 614.
AND Excise Appeal No. 774 of 2012 (Arising out of Order-in-Appeal No. BC/321-322/Bel/2011-12 dated 16.02.2012 passed by the Commissioner of Central Excise (Appeals), Mumbai-III) Dinesh H. Shah Appellant C/o. Ardh Metals & Alloys Pvt. Ltd., Presscopper House, Plot No. C-212/213, TTC Industrial Area, MIDC, Turbhe, Navi Mumbai 400 703.
Vs. Commissioner of CGST & CE, Belapur Respondent 1st Floor, CGO Complex, CBD Belapur, Navi Mumbai 400 614.
Appearance:
Shri Mayur Shroff, Advocate, for the Appellant Shri Amrendra Kumar Jha, Deputy Commissioner, Authorised Representative for the Respondent CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Date of Hearing: 24.02.2023 Date of Decision: 24.02.2023 FINAL ORDER NO. 85747-85748/2023 PER: SANJIV SRIVASTAVA These appeals lie against order in appeal No BC/321- 322/Bel/2011-12 dated 16.02.2012. By the impugned order in 2 E/773,774/2012 original No Belapur/Bel-II/R-I/5/RY/ADC/2011-12 dated 28.12.2011 which held as follows has been upheld:
a. The Central excise duty of Rs 14,42,587/- (Rupees Fourteen Lakhs Forty Two thousand Five Hundred and Eighty Seven Only) on the Copper Rods/ Bars Profiles/ Pipes/ Tubes etc cleared from their factory without payment of Central Excise duty (as detailed in Annexure A to the notice) during the period from February 2006 to April 2009, is ordered to be recovered under Section 11A(2) of the Central Excise Act, 1944.
b. Interest at appropriate rate on the rebate amount already sanctioned and paid to them is ordered to be recovered under section 11AB of the Central Excise Act. c. Penalty of Rs 14,42,587/- (Rupees Fourteen Lakhs Forty Two thousand Five Hundred and Eighty Seven Only) is imposed under section 11AC of the Central Excise Act, 1944.
d. Penalty of Rs 1,00,000/- (Rupees One Lakh only) is imposed on Shri Dinesh H Shah, Managing Director, M/s Ardh Metal and Alloys Pvt Ltd under Rule 26 of Central Excise Rules, 2002.
2.1 Appellant is engaged in manufacture of excisable goods namely Ferrous and Non Metals in various shapes and sizes i.e. Copper, Brass, steel in Rods, Bars, Profiles, Pipes, Tubes etc. they avail CENVAT credit as admissible in law.
2.2 Appellants were receiving copper scrap from their customers for conversion in Rods/ Bars/ Profiles/ Pipes/ Tubes etc. Appellant was getting scrap converted into copper strips/ plates/ bars on job work basis and then converting them into Rods/ Bars/ Profiles/ Pipes/ Tubes etc, by further processing in their premises. During the process of conversion from scrap to the finished goods there was certain quantum of process loss. In spite of the process loss the appellant were returning the finished goods to their customers which was equal in quantity to the scarp received.
2.3 After investigating the matter revenue was of the view that appellant were clearing the finished goods to the extent of the process loss clandestinely without payment of duty.
3 E/773,774/2012 2.4 A show cause notice dated 29.03.2010 was issued to the appellant asking them to show cause as to why "a. The Central excise duty amounting to Rs 14,42,587/-
(Rupees Fourteen Lakhs Forty Two thousand Five Hundred and Eighty Seven Only) on the Copper Rods/ Bars Profiles/ Pipes/ Tubes etc cleared from their factory without payment of Central Excise duty (as detailed in Annexure A to the notice) during the period from February 2006 to April 2009, should not be recovered under proviso to sub section 1 of Section 11A of the Central Excise Act, 1944.
b. Interest on the aforesaid Central Excise duty short paid should not be demanded and recovered under the provisions of section 11AB of the Central Excise Act.
c. Penalty should not be imposed on them under the provision of Rule 25 of Central excise Rules, 2002 and provisions of section 11AC of the Central Excise Act, 1944.
d. Penalty should not be imposed on Shri Dinesh H Shah, Managing Director, M/s Ardh Metal and Alloys Pvt Ltd under Rule 26 of Central Excise Rules, 2002."
2.5 The show cause notice has been adjudicated as per the order in original referred in para 1. Appeal filed by the appellants has been dismissed as per the impugned order. Hence this appeal.
3.1 Have heard Shri Mayur Shroff, Advocate for the appellant and Shri Amrendra Kumar Jha, Deputy Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the appellant learned counsel submits:
Impugned order proceeds on the mistaken perception in law, that the job worker cannot use his own inputs for completing the job work assignment. There is no such prohibition as per Rue 4 (5) (a). Issue is settled in catena of decisions:
o Sterlite Industries (I) Ltd. [2005 (183) ELT 353 (T-LB)} affirmed by Hon'ble Bombay High Court as reported at [2009 (244) ELT A 89 (Bom)] o Shakti Industrial Wires Pvt Ltd. [2002 (149) ELT 668 (T-mum)]
4 E/773,774/2012 o Jindal Polymers [2001 (135) ELT 657 (T-del)] o Kapsons Industries Ltd. [2007 (218) ELT 460 (T-Del)] In case of Welspun India Ltd [2009 (248) ELT 898 (T-Ahmd) it was held that goods cleared from the job workers premises were at par with normal clearance except shifting the duty liability to be discharged on these goods at the hands of principal manufacturer. Impugned order wrongly distinguishes the above referred order.
The decisions relied upon in the impugned order against the appellant are distinguishable and not applicable to the facts of present case.
There was no intent to evade payment of duty. the demand made alleging improper valuation at the hands of job workers is revenue neutral. the demand is mostly time barred.
3.3 Arguing for the revenue learned authorized representative reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 Following findings have been recorded in the impugned order.
4.3 The entire case of clandestine clearance has been made against the appellant in respect of the goods cleared by the appellant on the proper documents as per rule 4(5) of the CENVAT Credit Rules, 2004 or duty paying documents without establishing flow of any additional consideration. In the present case it appears the additional consideration has flown from the appellant to their customer in form the material used by the job worker to compensate for the processing loss.
4.4 In case of Sterlite Industries, referred to by the counsel for appellant, a larger bench of tribunal has held as follows:
2. The revenue is denying the Modvat credit to the present job worker on the grounds that the inputs were used in the manufacture of the goods which were cleared without payment of duty. Pausing here for a second, let us take a situation where
5 E/773,774/2012 the basic inputs is sent by the principal manufacturer after debiting the Modvat credit taken by him. The job worker takes the credit of the same his factory, utilises other inputs procured directly by him after taking the Modvat credit on the same and clear the processed goods to the principal manufacturer on payment of duty and the principal manufacturer takes the credit of the same in his factory and utilises such credit for payment of duty on his final products at the time of clearance. In such a situation, there can be no objection or dispute by the revenue as regards the admissibility of the credit on the inputs received directly by the job worker and utilised in his factory. The only effect of the above procedure adopted by the principal manufacturer and the job worker would be additional paper work. It is basically to avoid such a situation the procedure under Rule 57F(3) has been enacted. As rightly observed by the earlier decision's the mechanical application of Rule 57C which destroys the basic benefit intended to be extended to the assessee should be avoided. If the interpretation adopted by the revenue is upheld, the benefit otherwise intended to be given will get frustrated apart from leading to discriminatory situation, where the manufacturer has himself processed the inputs and in the other case where he is sending it to the job worker.
3. We are also in agreement with the appellant's contention that Rule 57C debars taking of credit in respect of the inputs used in the manufacture of the final product, if final product is exempted from the whole of duty of excise leviable thereon or chargeable to nil rate of duty. As such, to attract the provisions of Rule 57C, two situations in respect of the final product should be satisfied. Either the final product should be exempted, which situation can arise only when there is an exemption notification issued under Section 5A of the Central Excise Act or the final product is chargeable to nil rate of duty. Expression chargeable to nil rate of duty or exempted from whole of duty was considered by the Tribunal in the case of Orissa Synthetics Ltd. v. Collector of Central Ex. [1995 (77) E.L.T. 350 (Tri.)] and after taking note of the Ministries clarifications issued vide Circular No. 10/75/CX. 6, it was held that clearance under goods under provision of 191BB for export without payment of duty would not 6 E/773,774/2012 get covered by the above expression. Reference was made to the advice received from the Ministry of Law dealt in the paragraph of 9 in the said decision. It was opined in the said letter of the Law Ministry that the term 'exempted' has a definite connotation. The same as attributed to the notification issued by the Central Government. Similarly, the chargeable to nil rate of duty would refer to the tariff rate being nil and the goods cleared in terms of provision of Rule 199BB would not be covered by the said expression inasmuch as the same are not chargeable to nil rate. In the present case, we find the job worker could have cleared the goods on payment of duty and manufacturer could have claimed credit of the same. It is only under the special procedure laid down in terms of the Rule 57F(3) that the duty does not get paid at the job worker's end at the time of clearance of the goods, but ultimately gets paid at the manufacturer's end. In these circumstances, we are in agreement with the decision rendered in the case of Bajaj Tempo and Jindal Polymers.
3. Apart from the above two decisions, we also note that identical view was taken in the case of Shakti Insulated Wires Ltd. v. CCE & C, Mumbai-V [2002 (149) E.L.T. 668 (Tri.) = 2002 (51) RLT 115 (CEGAT-Mum)] & also in the case of CCEx, Jaipur v. Noorani Textiles Mills [2000 (122) E.L.T. 744 (Tribunal)].
4. In only case of Escorts Ltd. v. CC Ex, Delhi [2003 (160) E.L.T. 623 (Tri-Del.)] while interpreting Rule 57C of the Central Excise Rules, the Tribunal rejected the appellants claim of Modvat credit of duty paid on the inputs used in the manufacture of the parts, which were cleared without payment of duty to, appellant's other unit under Chapter X procedure and utilised in the manufacture of tractor which were cleared on payment of duty by observing that since no duty was paid on the part at the time of clearance, Rule 57C will apply and no Modvat credit would be admissible. However, the said decision was subsequently reversed by the Supreme Court as reported in Escort v. C.C.Ex. [2004 (171) E.L.T. 145 (S.C.)]. For appreciation, we reproduce paragraphs 8 & 9 of the said decision.
7 E/773,774/2012 "8. It is to be seen that the whole purpose of the Notification and the Rules is to streamlines the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rule 57D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where intermediate product may also come into existence. Thus in cases where intermediate product comes into existence, even though no duty has been chargeable to Nil rate of duty, credit would still be allowed so long as duty is paid on the final product.
9. In cases of manufacturers like the Appellants the final product is the tractor. The intermediate product would be parts which are manufactured for being used in the tractor. In such a case the parts would not be the final product. Thus Rule 57C would have no application. The mere fact that the parts are cleared from one factory of the Appellants to another factory of the Appellants would not disentitle the Appellant from claiming benefit of Notification No. 217/86-C.E., dated 2nd April, 1986. As stated above, the Notification itself clarifies that the inputs can be used within the factory of production or in any other factory of the same manufacturer."
By applying the ratio of the above decision, it becomes clear that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Inasmuch as, the matter stands decided by the Honourable Supreme Court, we would hold in favour of assessee.
5. As regards the decision in the case of Alpha Lavan laying down that the Modvat credit could be claimed in such a situation, we find the earlier decision of the Bajaj Auto was not followed. However, in view of the facts that the ratio of Bajaj Auto decision stands approved by the Supreme Court decision in the case of Escort Ltd. referred supra, we are of the view that the Alpha Lavan is no longer good law. This decision has been affirmed by the Hon'ble Bombay High Court as reported at [2009 (244) ELT 8 E/773,774/2012 A 89 (Bom)]. similar view has been expressed by the various decisions referred by the counsel."
4.5 In case of Welspun India Ltd. [2009 (248) ELT 898 (T- Ahmd)] following has been held:
"2. A short issue involved is that the appellant is doing job work for the principal manufacturer and in terms of provisions of Notification No. 214/86 and as such no duty was being paid by them. As they have taken the credit in respect of furnace oil used in the manufacture of said goods, the Revenue entertained a view that 10% of the value of such exempted goods required to be paid by the appellants. Accordingly demand was raised and confirmed along with imposition of penalty.
3. The said order of the Commissioner is impugned before us by the assessee as also by the Revenue on the ground that the goods cleared under job work are neither considered as exempted goods nor goods cleared at Nil rate of duty. The goods cleared from the job worker's premises are at par with the normal clearance except that of shifting duty liability to be discharged on these goods at the hands of recipient principal manufacturers, as held in the following cases :-
(i) 2007 (218) E.L.T. 460 (Tri. - Del.) Commissioner of Central Excise Jalandhar v. Kapsons Industries Ltd. (Unit-I)
(ii) 2005 (183) E.L.T. 353 (Tri. - L.B.), New Delhi, Sterlite Industries (I) Ltd. v. Commissioner of Central Excise, Pune
(iii) 2004 (175) E.L.T. 486 (Tri. - Mumbai), Jinalloy Steel Processor v. Commissioner of Central Excise, Belapur.
(iv) 2001 (135) E.L.T. 657 (Tri. - Del.), Jindal Polymers v. Commissioner of Central Excise, Meerut-II
(v) 1994 (69) E.L.T. 122 (Tribunal), Bajaj Tempo Ltd. v.
Collector of Central Excise, Pune.
4. It further stands contested that the provisions of Rule 6 of Cenvat Credit Rules, 2004 are meant for situation where the unit manufactures both dutiable and exempted goods using common inputs in respect of which Cenvat credit has been availed by 9 E/773,774/2012 them. The said provisions cannot be in respect of clearances under job work."
4.6 In case of Essar Steel Ltd. [2016 (341) ELT 145 (T-Del)] following has been held:
"6. It is thus, obvious that as far as the duty liability of a job worker in terms of Rule 57F(4) of Central Excise Rules, 1944 is concerned, it is settled upto the level of Supreme Court that the job worker was not required to pay duty. We have reproduced above the provisions of Rule 57F(4) of Central Excise Rules, 1944 and the Provisions of Rule 4(5)(a) of the Cenvat Credit Rules, 2004 and have carefully perused the same. The language in both these Rules gives no scope to infer that if the job worker was not required to pay duty in terms of Rule 57F(4) it could be required to pay duty in terms of Rule 4(5)(a) because the conditions of Rule 57F(4) of Central Excise Rules, 1944 were stringent compared to the conditions of Rule 4(5)(a) of the Cenvat Credit Rules inasmuch as Rule 57F(4) categorically required the principal manufacturer to use the goods received from the job worker for further use in the manufacture of the final product or removing after payment of duty for home consumption or removing the same without payment of duty for export while Rule 4(5)(a) does not say so expressly though it is implicit therein. Thus, we are of the view that for the purpose of dutiability at the hands of the job worker, the provisions of Rule 57F(4) of Central Excise Rules, 1944 are essentially pari materia the Provisions of Rule 4(5)(a) of the Cenvat Credit Rules. Indeed vide judgments in the case Mukesh Industries Ltd. v. CCE, (supra) CESTAT essentially held as under :
Duty liability - Job worker - Respondents receiving grey MMF and knitted or crocheted fabrics from principal manufacturer under the cover of challans issued under Rule 4(5)(a) of Cenvat Credit Rules, 2001 and after completion of job work the goods stand returned to the principal manufacturer - Rule 57F(3) of erstwhile Central Excise Rules, 1944 and Rule 4(5)(a) ibid being independent provisions, fact that goods were not specified in the Notification No. 214/86-C.E. will not make a difference - No duty liability can be fastened upon the job-worker - Section 3 of Central Excise Act, 1944. [para 4] 10 E/773,774/2012 Similarly in the case of Dhana Singh Synthetics Pvt. Ltd. v. CCE, (supra) it was held as under :
Demand - Job worker - Fabric received by job worker accompanied with Challans issued under Rule 57F(5) of erstwhile Central Excise Rules, 1944 corresponding to Rule 4(5)(a) of Cenvat Credit Rules, 2002/2004, which returned after processing to principal manufacturer under said Challans without payment of excise duty - Demand raised as processed fabric not exempt under Notification No. 214/86-C.E. - HELD : Inputs received under Central Excise Challans and not under Notification No. 214/86-C.E. - As per C.B.E. & C. Circular No. 306/22/97-CX, dated 30-3-1997 for job work undertaken in terms of Rule 57F(4) ibid, duty liability to be discharged by principal manufacturer and not by job worker - No dispute that principal manufacturer cleared finished goods on payment of duty - Case of revenue neutral as any payment of duty by job worker will enable principal manufacturer to avail Cenvat credit - Order passed by adjudicating authority dropping proceedings against job worker upheld - Impugned order set aside - Section 11A of Central Excise Act, 1944. [paras 2, 3]
7. As regards the contention of the Revenue neutrality, we would like to add that the concept of Revenue neutrality is relevant only for the purpose of arriving at a finding whether there was any wilful misstatement/suppression of the facts on the part of appellant and this principle has no relevance as far as the merit of liability to pay duty is concerned. However, this issue is not of relevance for this appeal because the demand has been raised within the normal period of one year."
4.7 Circular No 54/88-CX dated 01.10.1988 relied in the impugned order, was in context of the rule 173H/173L of the erstwhile Central excise Rules, 1944 and has no application to the facts of the present case.
4.8 Even if for a moment it is held that appellant has undervalued the goods cleared on job work basis under Rule 4 (5) to the principal manufacture then also it will have no impact on the revenue. The duty so short paid will be compensated at the time of clearance of processed goods by the principal 11 E/773,774/2012 manufacturer. Tribunal has in case of SRF Ltd [2007 (220) ELT 201 (T-Chennai) has held as follows:
"7. We have carefully considered the case records and the submissions by both the sides. We find that though the facts of the case before us are slightly different as pointed out by the learned SDR, the ratio of the decision of the Apex Court in the International Auto Ltd. case is applicable to the instant case. The Apex Court had made it clear that when supplier of intermediate product and the manufacturer of final product operated under Modvat Scheme, availment of credit on inputs by the manufacturer of intermediate products who received free supply of inputs/components parts was immaterial and that the manufacturer of the final product was eligible to utilize the credit of duty paid on inputs received as well as the intermediate product received under Rule 57F(2)(b) [replaced by Rule 57F(4)] for clearance of final product used. In the circumstances, we find that the impugned order is inconsistent with the ratio of above decision of the Apex Court (supra).
8. In the International Auto case, Telco had supplied components free of cost to International Auto Ltd. for manufacture and supply of floor plate assemblies. International Auto Ltd. had not taken credit and had not included the cost of free supplies in the value of the intermediary product. The Apex Court held that when the manufacturer supplied inputs free of cost under Rule 57F(2)(b) to the manufacturer of intermediate product who did not take credit of the duty, it was not necessary to include cost of such materials in the value of the intermediate product as the manufacturer of the final product Telco was eligible for the credit of duty paid on all inputs and the intermediate products for clearance of the final product excavators. In the instant case, SRF had received duty paid dipping chemicals on payment of duty and had taken credit. They had not included the cost of the dipping chemicals in the value of NDTCF cleared to Good year. The movement of the inputs was not under Rule 57F(4). The facts of the instant case are not identical to those of International Auto Ltd. to that extent. However even if SRF had paid duty on the correct value of the NDTCF, Goodyear could have availed credit of the same 12 E/773,774/2012 and it would have made no impact on the revenue that will accrue. Therefore, the impugned order is occasioned by the appellant's failure to follow a revenue neutral exercise. Operation of the Modvat scheme on the manufacturer of final product had rendered the valuation dispute of the intermediate product in question of no consequence.
9. In the case of Jay Yuhshin Ltd. v. C.C.E., New Delhi reported in 2000 (119) E.L.T. 718 (Tri-Del.), MUL had supplied certain components free of cost under Rule 57F(4)(i) & (ii) to M/s. Jay Yuhshin Ltd. to manufacture intermediate products needed in the manufacture of cars. Jay Yuhshin did not include the value of free supplies for valuation of the intermediate products supplied to MUL. Jay Yuhshin had also taken credit of duty paid on the free supplies. The Tribunal decided that Jay Yuhshin should pay duty on the value of intermediate goods including the value of free supplies and upheld the demand and penalty. Following the above decision Delhi Bench of this Tribunal had passed the order in Jay Yuhshin Ltd. v. C.C.E., New Delhi reported as 2001 (137) E.L.T. 1098 (Tri-Del) affirming the demand and penalty (though reduced the quantum). At the time of hearing of Jay Yuhshin's appeal before the Tribunal, the DR had stated that the intermediate manufacturer would use the credit attributable to such free supplies for clearing other products (implying that it was not intended under the scheme). While disposing the Civil Appeal filed by Jay Yuhshin against this order the Apex Court had set aside both the demand and the penalty.
10. The facts of the above case are identical to those of the case on hand except that the goods had not moved to SRF under documents prescribed in Rule 57F(4). The free supply of dipping chemicals indicate the arrangement between Goodyear and SRF which ensured the supply to Goodyear of NDTCF manufactured with the free supplies. Movement of goods under Rule 57F(4)(i) & (ii) on payment of duty had served only this purpose in the case discussed in Jay Yuhshin Ltd. v. C.C.E., New Delhi reported as 2001 (137) E.L.T. 1098 (Tri-Del.). They had started including value of free supplies from Goodyear from 1-4-1999. In the light of the ratio of the Apex Court's decision cited by the ld. Counsel for the (appellants, we find that in the facts of this case, the 13 E/773,774/2012 demand of duty, interest and penalty in the impugned order are not sustainable. We vacate the orders to that effect. The impugned order is otherwise; affirmed as not challenged. The appeal is allowed on the above terms. The appellant shall not claim refund of the duty already paid on this account as undertaken by the Counsel on instructions."
This decision has been affirmed by the Hon'ble Supreme Court as reported at [2016 (331) ELT A 138 (SC)] 4.9 Even if it is to be held that appellant was clearing his finished goods in the garb of job worked goods without payment of duty then also the case of revenue will fail in absence of any additional consideration received by the appellant against such clearances.
4.10 As we do not find any merits in the case on the issue involved we are not pronouncing on the issue of limitation.
4.11 As the demand for duty cannot be upheld, so the demand for interest and penalties imposed cannot be sustained.
5.1 Appeals are allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu