TaxTMI 
TaxTMI 
2010 (2) TMI 524
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....is filed against Commissioner of Central Excise, Mysore (referred to as 'revenue') and Other by Commissioner of Central Excise, Bangalore-III, Commissionerate (hereinafter referred to as 'revenue') filed against Karnataka Soaps & Detergents Ltd. (hereinafter referred to as 'assessee, Bangalore Unit') is under challenge. 2. The facts in nutshell common to both the appeals are as follows : The assessee, Bangalore Unit is manufacturer of Soaps, Detergents, Perfumery compounds, Sandalwood oil and is registered under the Central Excise, Act ('as Act') and availed the benefit of Cenvat credit on inputs used in the manufacture of said goods. The assessee is having its units at Mysore and Bangalore. The assessee at Mysore Unit manufactures sandalwood oil classifiable under chapter heading 33.01 of the Central Excise Tariff Act, 1985 (hereinafter referred to as 'CETA, 1985'). The manufactured sandalwood oil at Mysore Unit is also transferred to their Bangalore Unit for manufacture of soaps and other items (excisable goods) apart from selling to others at Mysore. The internal audit wing of the Department of Central Excise conducted i....
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....s of assessee company, the Department found that assessee had failed to determine the correct assessable value of sandalwood oil before being removed on payment of the duty to the Bangalore Unit, which resulted in contravention of rules 6 and 8 of Central Excise Rules, 2002 read with rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (hereinafter referred to as 'Valuation Rules') and while doing so, it appeared they have intentionally adopted lower costs of production, and thus discharged duty on the lower assessable value, viz., continued to adopt value determined in 2000-01 though the actual market value had increased from time to time and differential cost was being realised through book adjustment each year by way of journal entries in the books of account which resulted in short payment of duty of excise. Hence, a show-cause notice came to be issued by the Commissioner of the Central Excise, Mysore, calling upon the assessee to show cause as to why :- (a) Central Excise duty of Rs. 2,52,45,268 should not be demanded from them under proviso to section 11A(1) of the Central Excise Act, 1944 and the amount of Rs. 2,52,4....
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....7,074 availed on the basis of the supplementary invoices issued by the Mysore Unit on the ground that it was irregularly availed under Rule 7(1)(b) of Cenvat Credit Rules, 2002 (Annexure-P). The said show-cause notice reads as under: (i) The Cenvat credit amounting to Rs. 2,52,27,074 (Rupees Two Crores Fifty Two Lakhs Twenty Seven Thousand and Seventy Four only) wrongly availed by them on the basis of supplementary invoices (as detailed in the annexure) issued by KSDL, Mysore, along with interest leviable thereon should not be demanded from them under the provisions of rule 12 of 2002 Rules read with section 11A/11AB of the Central Excise Act, 1944. (ii) Penalty should not be imposed on them under rule 13 of the 2002 Rules read with section 11AC of the said Act. 8. On receiving the reply to the show-cause notice, matter came to be adjudicated and the demand made in the show-cause notice was confirmed and the Cenvat credit availed by assessee was ordered to be recovered amounting to Rs. 2,52,27,074 together with interest by its order dated 25-2-2005 (Annexure-C). 9. The Tribunal on considering both the appeals accepted the argument....
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....tention to evade payment of duty when the Tribunal itself has come to a conclusion that looking in the totality of the circumstances, there was no revenue loss to the exchequer especially when the entire quantity of finished products has been cleared under section 4A on the basis of Maximum Retail Price which would have taken into account the manufacturing cost of the sandalwood oil? 3. Whether the Tribunal, in the above facts and circumstances, was right in upholding the order of the lower authority invoking the longer period of limitation under section 11A(1) of the Central Excise Act, 1944 when the law on this issue has been settled by numerous decisions of the Supreme Court? 4. Whether the Tribunal was right in passing the impugned order by ignoring the law as settled on this issue by various decisions of the Hon'ble Supreme Court? 12. We have heard Sri G. Shivadas, learned counsel appearing for the assessee and Sri Raghavendra, learned counsel appearing on behalf of Sri N.R. Bhaskar (standing counsel) for the revenue. RE : CEA 11/2006 13. As rightly pointed out by the learned counsel for the revenue and as observed by us in precedin....
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....nbsp; 1. CCE v. Home Ashok Leyland Ltd. 2001 (134) ELT 647 (Mad.). 2. CCE v. Home Ashok Leyland Ltd. 2007 (210) ELT 178 (SC). 3. Ashok Leyland Ltd. v. State of Tamil Nadu [2004] 134 STC 473 (paras 33 to 49). 4. Section 11A of the Central Excise Act, 1944. 5. Amco Batteries Ltd. v. CCE 2003 (153) ELT 7 (SC). 6. CCE v. Mahindra & Mahindra Ltd. 2004 (171) ELT 159 (SC). 7. CCE v. Mahindra & Mahindra Ltd. 2004 (179) ELT 21 (SC). 8. CCE v. Narmada Chematur Pharmaceuticals Ltd. 2005 (179) ELT 276 (SC). 9. CCE v. Jamshedpur Beverages 2007 (214) ELT 321 (SC). 10. Bharat Electronics Ltd. v. CCE 2004 (165) ELT 485 (SC). 11. Continental Foundation Jt. Venture v. CCE 2007 (216) ELT 177 (SC). 12. Tamil Nadu Housing Board v. CCE 1994 (74) ELT 9 (SC). 14. Per contra, Sri. Raghavendra, learned Advocate appearing on behalf of Sri. N.R. Bhasker, would contend under section 4(1)(a) prescribes the assessable value would be "transaction value" in respect of each transaction provided the buyer and the seller bein....
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....he anomaly came to be accepted by the assessee and was quick enough to react by remitting the amount of differential duty along with interest. Hence, this itself clearly demonstrate that there has been suppression of fact and thus the authorities were justified in exercising the extended period of limitation and demanding the differential duty with interest. Hence he submits that the Order-in-Original passed by the Commissioner of Central Excise O-I-O-2005/04, dated 30-11-2004 as confirmed by CESTAT by order dated 1-6-2005 in Appeal No. 248/2005 [Final Order No. 855/2005] is just and proper and does not call for interference. RE : CEA NO. 23/2005 16. In support of his grounds urged in Appeal No. 23/2005 it is contended by learned counsel for appellant revenue, that Tribunal was not justified in allowing the appeal of the assessee by its order dated 1-6-2005 passed in Appeal No. 277/2005 (Final Order No. 856/2005) since rule 7(1)(b) of Cenvat Credit Rules 2002 does not allow the assessee to claim Cenvat credit since there is prohibition to avail the Cenvat credit particularly when the Tribunal by its order has confirmed the suppression of facts by the assessee and also ....
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.... excisable commodity is manufactured. Major quantity of sandalwood oil manufactured at Mysore Unit is cleared to Bangalore factory for use in the manufacture of toilet soap and other products/goods. Duty is paid at the Mysore factory on the sandalwood oil and for payment of duty the assessee adopts the cost construction method as prescribed under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 as there is no sale made from Mysore factory to Bangalore factory. The duty paid at Mysore factory is taken at credit at the Bangalore factory. The toilet soaps manufactured in Bangalore factory are cleared for payment of appropriate duty under section 4A of the Central Excise Act, 1944 on the basis of Maximum Retail Price (MRP) less permissible deductions. Provisions of Law (Section and Rules) 19. In order to appreciate the rival contentions raised by the learned counsel for the parties and for determining the substantial questions of law framed in these two appeals, it would be necessary to extract the relevant provisions of the Central Excise Act, Central Excise Valuation (Determination of Price of Excisable Goods) Valuation Rules, 2000, Ce....
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....he period of such stay shall be excluded in computing the aforesaid period of (one year) or five years, as the case may be. (1A) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty, by such person or his agent, to whom a notice is served under the proviso to sub-section (1) by the Central Excise Officer, may pay duty in full or in part as may be accepted by him, and the interest payable thereon under section 11AB and penalty equal to twenty-five per cent. Of the duty specified in the notice or the duty so accepted by such person within thirty days of the receipt of the notice. (2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined....
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....notice under sub-section (1) in respect of the duty so paid : Provided that the Central Excise Officer may determine the amount of short payment of duty, if any, which in his opinion has not been paid by such person and then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of "one year" referred to in sub-section (1) shall be counted from the date of receipt of such information of payment. Explanation 1.-Nothing contained in this sub-section shall apply in a case where the duty was not levied or was not paid or was short-levied or was short-paid or was erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty. Explanation 2.-For the removal of doubts, it is hereby declared that the interest under section 11AB shall be payable on the amount paid by the person under this sub-section and also on the amount of short-payment of duty, if any, as may be determined by the Central Excise Officer, but for this sub-section. ....
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....ure of such goods." Cenvat Credit Rules, 2002 "Rule 7. Documents and Accounts.-(1) The Cenvat Credit shall be taken by the manufacturer on the basis of any of the following documents namely :- (a) ** ** ** (b) A supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provision of Central Excise Rules, 2002 from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by or on behalf of the said manufacturer or importer, in case additional amount of excise duties or additional duty of customs leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty become recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any provisions of the Act or of the Customs Act, 1962 or the rules made thereunder with intent to evade payment of duty." Findings CEA. 11/2006 20. The ....
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....fit and had submitted the cost construction sheet to the department on 18-8-2000 and not thereafterwards though there was escalation in the price of sandalwood oil. On the basis of the said cost construction sheet duty had been paid on the inter-unit assessable value of Rs. 6,859 per kg. of sandalwood oil up to November, 2003, though there was an increase in the cost of product from the year 2001 itself. In fact it was admitted by the said Officers, the increase in the cost price was not disclosed to the Department though a minor percentage of oil was sold to other customers at Mysore for a higher price. 24. Rule 6 of Central Excise Rules requires an assessee to assess the duty payable on any excisable goods before its removal from factory of manufacture. The assessment of excisable goods is dependant on provisions of section 4(1)(a) or section 4(1)(b) of the Central Excise Act, 1944, as the case may be. In case an assessee does not sell the excisable goods but indulges in captive consumption either in his own factory or elsewhere, section 4(1)(b) of the Act contemplates that assessable value shall be determined as may be prescribed. The prescription can be traced to the ....
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....the Institute of Cost & Works Accountants of India (ICWAI) for developing costing standards for costing of captively consumed goods. (2) The Institute of Cost & Works Accountants of India [ICWAI] has since developed the Cost Accounting Standards, CAS 2, 3 and 4, on capacity determination, overheads & cost of production for captive consumption, respectively, which were released by the Chairman, CBED on 23-1-2003. (3) It is, therefore, clarified that cost of production of captively consumed goods will henceforth be done strictly in accordance with CAS-4. Copies of CAS-4 may be obtained from the local Chapter of ICWAI. [Emphasis supplied by us] (4) Board's Circular No. 258/92/96-CX, dated 30-10-1996, may be deemed to be modified accordingly so far as it relates to determination of cost of production for captively consumed goods. (5) This Circular may be brought to the notice of the field formations. (6) Suitable Trade Notices may be issued for the benefit of the Trade. (7) Hindi version will follow. (8) Receipt of these instructions may be acknowledged. In the above....
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.... alia, the cost of material, labour cost and overheads including administrative cost, advertising expenses, depreciation, interest etc. (ii) Profit before tax has to be taken from audited balance sheet of the previous year and the profit margin has to be calculated as a percentage of cost of production in the previous year as per the formula prescribed by the Cost Accounts Branch of Department of Expenditure (copy enclosed). (iii) The profit margin of the previous year as arrived at step (ii) as a percentage of cost of production has to be loaded to the cost of production of the impugned goods derived at (i) above for the current year to arrive at the assessable value of captively consumed goods. C.A. certificate and the loss and profit statement should be scrutinised carefully, in the light of these guidelines and should not be accepted blindly or automatically. 4. Board's earlier circular/instructions as mentioned above stand modified to this extent. Sd (S.C. Bhatia) (Under Secretary to the Govt. of India) Annexure A clarification has been sought whether gross profit o....
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....it showing the difference in values between the value adopted for payment of duty on sandalwood oil and the actual value sent to Bangalore Unit and this procedure was adopted only for accounting purposes and book adjustment each year and all these records having been kept open for perusal of the officers of department and audit parties and hence, this cannot be held to be suppression of facts relating to actual cost of production of final products and they have not evaded duty intentionally. 27. Section 4(1)(a) of the Central Excise Act prescribes that assessable value shall be the transaction value pertaining to each transaction provided goods are sold at the time of place of removal and buyer and assessee are not related and price is the sole consideration for such sale. This situation does not arise in the instant case. In respect of other transaction, where the goods are not sold the assessable value shall be determined as per Valuation Rules, 2000, as contemplated under section 4(1)(b). In the instant case it is found that sandalwood oil is transferred to Bangalore Unit, where it is used for manufacture of soaps. Thus, there is no sale of goods and thus section 4(1)(....
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....ade by the Officers of the respondent, it is admitted that the assessable value adopted for purpose of payment of duty by the assessee was not in accordance with the provisions of section 4(1)(b) read with Valuation Rules, 2000. 30. It has to be further noticed that manufacturers of Central Excisable Goods are under self-removal and self-assessment regulation including the assessee. The assessee is liable at the time of manufacture and clearance of goods to pay the duty on such self-declaration. Though assessee was fully conscious of the fact of adopting the cost construction method of valuation of the goods for the period March, 2001 to August, 2003 has accepted its lapses and without any whisper have paid the differential duty along with interest. 31. The concept of transaction value has admittedly came into effect from 1-7-2002 when correspondingly section 4(1)(b) came into effect, which was brought into force to facilitate the manufacturers to correctly adopt the value, which was in the form of Valuation Rules, 2000. Though, assessee has accepted and adopted this procedure in the year 2000-01 no explanation is forthcoming as to why the assessee did not bring....
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........" [Emphasis Supplied] 33. The learned counsel appearing for the assessee would contend that the decision rendered by their Lordship's in AMCO Batteries, Mahindra and Mahindra and Narmada Chematur Pharmaceuticals Ltd. referred to supra is fairly applicable to the facts of the present case. As also the decision of Continental Foundation Jt. Venture's case (supra), Bharat Electronics Ltd.'s case (supra) and Tamil Nadu Housing Board's case (supra). The propositions laid down in the said judgments cannot be disputed. However, it has to be seen whether the same would be applicable to the facts of the present case. In the decisions referred to above it has been held as follows- (a) Amco Batteries - In the said case regular books of account and proper documentation was maintained. (b) Mahindra and Mahindra's case - It has been held in para 4 to the following effect there can be number of eventualities where extended period of limitation in terms of proviso section 11A may be available to the department despite availability of MODVAT credit to an assessee. The availability of MODVAT credit to an assessee by itself is....
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.... such it was accepted in the statement recorded under section 14 of the Central Excise Act, which has not been retracted. Hence, the said judgment is not applicable to the facts of the present case. "(e) Tamil Nadu Housing Board's case (supra).-In the said judgment the issue which was under consideration with regard to invocation of proviso under section 11A in a case where there was scope for doubt whether the case of duty was made out or not and accordingly it was held that the extended period of limitation cannot be invoked." 36. In the said case there were two units of assessee viz., concrete unit and wood products unit and on the basis of the advice given by the Excise Department the license for wood products unit was not taken and license had been taken only for concrete unit and as such it was held that revenue was not justified in invoking the extended period of limitation. However, in the instant case we find that the question of any advice by the department did not arise and it has been found by the Assessing Officer that the assessee was fully aware about the modalities, procedure adopted and assessed and as such the Officers realising their lapses....
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....to in rule 7(1)(b) are illustrative in nature which would demonstrate that duty has been paid or evidencing paying of duty. Admittedly in the instant case TR-6 challan are produced by Mysore Unit to evidence payment of duty the Tribunal on careful examination & scrutiny of rule 3 and rule 7(1)(b) has held as follows :- "A very careful reading of the above rules shows that the bar for availment of credit on supplementary invoices would operate only when the additional amount of duty becomes recoverable from the manufacturer on account of non-levy or short-levy by reason of fraud, collusion or any wilful mis-statement or suppression of facts etc. Further, the prohibition to avail credit on supplementary invoices will operate only in the case of sale. In other words the receiver of the input should have purchased the goods from the manufacturer who had to pay the additional amount of duty after detection of suppression of facts fraud, etc., on his part. Therefore, when there is simply a stock transfer the prohibition under rule 7(1)(b) will not be applicable. In other words, when there are two units A and B, and if goods are stock transferred from unit A to unit B and ....
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....mply with Rule 57CC(9), he shall debit the presumptive sum equal to eight per cent of the value of the exempted goods at the time of clearance from the factory gate. This rule would apply to stock transfers also." In the said judgment it has been held in paragraphs 15 and 16 by their Lordships to the following effect :- "15. Under section 4(1)(a) normal price was the basis of the assessable value. It was the price at which goods were ordinarily sold by the assessee to the buyer in the course of wholesale trade. Under section 4(1)(b) it was provided that if the price was not ascertainable for the reason that such goods were not sold or for any other reason, the nearest equivalent thereof had to be determined in terms of the Valuation Rules, 1975. Therefore, rule 57CC has to be read in the context of section 4(1) of the 1944 Act, as it stood at the relevant time. Section 4(1)(a) equated "value" to the "normal price" which in turn referred to goods being ordinarily sold in the course of wholesale trade. In other words, normal price, which in turn referred to goods being ordinarily sold in the course of wholesale trade at the time of removal, constituted the basis of the as....
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....as under : "Rule 3. Cenvat Credit. 1) A manufacturer or producer of final products shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of- (i) The duty of excise specified in the First Schedule to the Tariff Act, leviable under the Act; (ii) The duty of excise specified in the Second Schedule to the Tariff Act, leviable under the Act; (iii) The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978); (iv) The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); (v) The National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), as amended by section 169 of the Finance Act, 2003 (32 of 2003) which was amended by section 3 of the Finance Act, 2004 (13 of 2004); (vi) The Education Cess on excisable goods leviable under clause 81 read with clause 83 of the Finance Bill (No. 2), 2004, which by virtue of the declaration made in the said Finan....
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.... Provided further that the CENVAT credit of the duty paid on the inputs used in the manufacture of final products cleared after availing of the exemption under the notification numbers 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated the 8th July, 1999] and 33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated 8th July, 1999] shall be utilized only for payment of duty on final products cleared after availing of the exemption under the said notification numbers 32/99-Central Excise, dated 8th July, 1999 and 33/99-Central Excise, dated the 8th July, 1999 : Provided also that the CENVAT credit of the duty paid on the inputs used in the manufacture of final products cleared after availing of the exemption under the notifications No. 39/2001-Central Excise, dated the 31st July, 2001 [G.S.R. 565(E), dated the 31st July, 2001], No. 56/2002-Central Excise, dated the 14th November, 2002 [G.S.R. 764(E), dated the 14th November, 2002], No. 57/2002-Central Excise, dated 14th November, 2002 [G.S.R. 765(E), dated the 14th November, 2002], notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 56/20....
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....d that there has been no loss of revenue to the Government. In paragraph 15 of the Order-in-Original dated 25-2-2005 it is held as follows :- "However, I find some force in the defence plea that there was no loss of revenue to the department since whatever duty paid by their Mysore unit is admissible as Cenvat credit, but for the reason discussed in the earlier paragraph. It is also relevant to note that there is no allegation of any suppression of any facts, made against the assessee and the credit taken on the supplementary invoices is clearly indicated by the assessee in their monthly returns. Since the credit taken on the said supplementary invoices is held to be not admissible, I observe that this in itself is sufficient punishment to the assessee, notwithstanding the fact that they are also held liable to pay appropriate interest on the said Cenvat credit so wrongly taken." Hence, we are of the opinion that questions of law formulated will have to be answered in favour of assessee and against revenue. 41. Accordingly the questions of law as formulated in appeals CEA No. 23/2005 & CEA No. 11/2006 are answered as follows :- CEA 23/2005 1....