2000 (4) TMI 117 - AT - Central Excise

Tribunal upholds duty demand on machinery, clarifies deemed removal, and validates audit-based notice

The Tribunal upheld the demand of duty on plant and machinery/testing equipment, along with a penalty, based on documentary evidence from the balance ... Fabrication and capitalisation in company's balance sheet as evidence of manufacture - deemed removal for captive consumption under the Explanation to Rules 9 & 49 of the Central Excise Rules - invocation of extended period of limitation for suppression/nondisclosure to the Department - competence of Additional Collector to adjudicate matters involving allegation of clandestine removal after amendment of Section 11A(1)Fabrication and capitalisation in company's balance sheet as evidence of manufacture - Particulars in Schedule 'Q' of the balance sheet and annexed annual report establishing fabrication and capitalisation of testing equipment constitute reliable evidence of manufacture for excise purposes. - HELD THAT: - The Tribunal accepted the Collector (Appeals)'s finding that Note 6 of Schedule 'Q' unequivocally states that testing equipment worth Rs. 31.26 lakhs were fabricated and capitalised. The balance sheet and profit and loss account are statutory documents prepared and certified under the Companies Act, signed by responsible officers and audited; they cannot be dismissed as mere attempts to present a rosy picture without specific rebuttal. The appellants did not produce contemporaneous records to contradict the recorded fabrication, and the Chartered Accountant's verification lends credence to the entries. Consequently the adjudicating authority was justified in treating the balance sheet particulars as probative of manufacture. [Paras 6]The entries in the balance sheet and annual report were rightly held to prove fabrication and manufacture for the purpose of levying excise duty.Deemed removal for captive consumption under the Explanation to Rules 9 & 49 of the Central Excise Rules - Explanation to Rules 9 & 49 applies and excisable goods manufactured and consumed or utilised as such are deemed to have been removed even if not subjected to further processing or physically removed. - HELD THAT: - The Tribunal rejected the appellant's contention that deemed removal requires further processing or loss of identity. The Explanation clearly treats excisable goods manufactured and consumed or utilised as such as deemed removals; physical removal or further processing is not a prerequisite. Reliance on earlier authority was held misplaced because that decision did not negate the settled principle that intermediate or captive manufacture can attract excise duty. Thus manufacture of testing equipment used within the factory attracted duty under the deemed removal concept. [Paras 7]The deemed removal principle under the Explanation to Rules 9 & 49 is applicable and supports imposition of duty on the fabricated equipments used captively.Invocation of extended period of limitation for suppression/nondisclosure to the Department - Extended period of limitation is invokable because the appellants did not disclose manufacture to the Department, obtain the requisite licence, or file classification/price lists, thereby suppressing material facts. - HELD THAT: - The Tribunal observed that there was no L4 licence, no disclosure to the Department of manufacture, and no filing of classification or price lists. Correspondence between the parties took place only after manufacture and use. In these circumstances, and in view of precedent that subsequent acquisition of knowledge by the Department does not negate the statutory extended period where facts were suppressed, the extended period was properly invoked. The Tribunal also distinguished prior authority relied upon by the appellants as factually inapposite. [Paras 8]Invocation of the extended period of limitation was justified on the ground of nondisclosure/suppression.Competence of Additional Collector to adjudicate matters involving allegation of clandestine removal after amendment of Section 11A(1) - After amendment w.e.f. 14-5-1992, Central Excise Officer (including Additional Collector) was competent to issue and adjudicate show cause notices even where the proviso to Section 11A had been invoked; therefore the Additional Collector validly adjudicated the matter. - HELD THAT: - The Tribunal accepted the Collector (Appeals)'s specific finding on statutory competence, noting that the amendment to Section 11A(1) rendered Central Excise Officers competent to adjudicate such show cause notices. Executive or administrative instructions as to monetary limits do not negate statutory power; exceeding administrative monetary ceilings renders only an administrative irregularity, not a jurisdictional defect. Consequently the challenge to the Additional Collector's jurisdiction was rejected. [Paras 9]The Additional Collector was competent to adjudicate the present case and the adjudication was not vitiated for want of jurisdiction.Final Conclusion: The Tribunal upheld the duty demand and penalty, finding that the balancesheet entries proved fabrication and manufacture, the Explanation to Rules 9 & 49 rendered such captive use a deemed removal attracting duty, the extended limitation period applied for nondisclosure, and the Additional Collector was competent to adjudicate; the appeal is dismissed. Issues Involved:1. Demand of duty on plant and machinery including testing equipment.2. Jurisdiction of the Additional Collector.3. Applicability of the extended period for issuing the demand.4. Concept of deemed removal u/r 9 & 49 of the Central Excise Rules.5. Validity of the show cause notice based on audit objection.Summary:1. Demand of Duty on Plant and Machinery Including Testing Equipment:The Tribunal upheld the demand of duty amounting to Rs. 4,92,566.28 and a penalty of Rs. 50,000/- based on the documentary evidence in the balance sheet, which indicated that the appellants had manufactured plant and machinery/testing equipment worth Rs. 31.26 lakhs. The balance sheet and Director's report were considered true unless proven otherwise. The Tribunal found no merit in the appellants' claim that the equipment was part of a research and development process and not finished goods, as the balance sheet explicitly mentioned the fabrication and capitalisation of the equipment.2. Jurisdiction of the Additional Collector:The appellants contended that the Additional Collector lacked jurisdiction to adjudicate the matter post-14th May 1992, as only Collectors were empowered to issue and decide demands involving allegations of fraud or suppression. However, the Tribunal held that the statutory position after the amendment of Section 11A(1) w.e.f. 14-5-1992 allowed any Central Excise Officer to issue and adjudicate show cause notices, including those invoking the proviso to Section 11A. Therefore, the Additional Collector was competent to adjudicate the present matter.3. Applicability of the Extended Period for Issuing the Demand:The Tribunal agreed with the department that the extended period of limitation was applicable as the appellants had neither taken a license for manufacturing the impugned goods nor filed any classification list or price list. The Tribunal found that the appellants had suppressed facts from the department, justifying the invocation of the extended period of limitation.4. Concept of Deemed Removal u/r 9 & 49 of the Central Excise Rules:The Tribunal rejected the appellants' argument that the provisions of Rules 9 & 49 were not applicable because the equipment was not subjected to further processing. The Tribunal clarified that the explanation to Rules 9 & 49 deems excisable goods manufactured and consumed or utilised within the factory as removed for the purpose of levying duty. The Tribunal cited the Supreme Court's decision in Wallace Flour Mills Co. Ltd. v. C.C.E., which held that the taxable event is the manufacture of goods, and the duty collection is merely postponed to the date of removal.5. Validity of the Show Cause Notice Based on Audit Objection:The Tribunal dismissed the appellants' contention that a show cause notice for demanding duty cannot be issued merely on the basis of an audit objection. The Tribunal noted that the balance sheet and the annual report, which are statutory documents, provided sufficient evidence of the manufacture of the impugned goods. The Tribunal distinguished the present case from Swastik Tin Works v. C.C.E., where the show cause notice was issued without any investigation.Conclusion:The Tribunal upheld the demand of duty and penalty, confirming the findings of the Collector (Appeals) and rejecting the appellants' arguments on all issues. The appeal was dismissed.