TaxTMI 
TaxTMI 
2014 (11) TMI 1062
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....nt of penalty under Section 11AC. He has also ordered appropriation of amount of Rs. 3,93,78,240/- paid by the appellant against the above duty demand. He has further denied Cenvat credit of Rs. 22,13,22,732/- availed by the co-appellant M/s. Tien Yuan India (Pvt.) Ltd. (TYIL in short), Taloja and ordered for its recovery along with interest thereon and has also imposed an equivalent amount of penalty. Further an excise duty demand of Rs. 1,55,105/- has been also confirmed in respect of 31.680 MT of TERPENE removed without payment of duty in the guise of Crude Mentha Oil (CMO) by M/s. Tien Yuan India (Pvt.) Ltd. Unaccounted stock of 12.8 MT of Menthol Molten and 4.6 MT of Eucalyptus Oil seized under Panchanama dated 23-6-2006 has been confiscated under Rule 25 of the Central Excise Rules, 2002 with an option to redeem the same on payment of a fine of Rs. 22 lakhs. A penalty of Rs. 2.5 crore each has been imposed on Shri S.K. Jindal, CMD and Shri Vijay Jindal, Director, of Jindal Drugs under Rule 26 of the Central Excise Rules, 2002. Cenvat credit of Rs. 2,54,36,792/- has been disallowed to M/s. Tien Yuan India (Pvt.) Ltd., Taloja during the period November, 2006 to June, 2007 and i....
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....th each other. The intelligence also indicated that JDL, Jammu was clearing CMO on payment of Central Excise duty in the guise of DFMO. This enabled it on the one hand to claim benefit of the area based exemption under Notification No. 56/2002-C.E., and on the other, it enabled its sister concern TYIL, Taloja to fraudulently avail Cenvat credit. (v) Consequent upon the intelligence, searches of the factory premises of JDL, Jammu, TYIL, Taloja and office premises of JDL, Mumbai were conducted by the Central Excise Officers on 23-6-2006 and certain discrepancies in the stock of finished goods and raw-materials were noticed. The officers found shortage of 22860 kgs. of CMO and excess stock of 7050 kgs of Terpene at JDL, Jammu. Similarly, at TYIL, Taloja, the officers found shortage of 1000 kgs. of menthol crystal and unaccounted stock of 12800 kgs. menthol molten and 4600 kgs. of Eucalyptus oil. (vi) As part of investigation, statements of the Company officials of both JDL, Jammu and TYIL, Taloja and other independent persons were recorded under Section 14 of the Central Excise Act, 1944. The investigation revealed that the chemical composition of CMO is as....
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....it had received CMO in the guise of DFMO inasmuch as the percentage of L. Menthol in the so-called DFMO was less than 76.46%. The notice also sought to recover interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 and impose penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the said Act, besides proposing confiscation of the finished goods cleared by utilizing inadmissible Cenvat credit. (x) By a common order dated 6-3-2009, the Commissioner of Central Excise, Belapur adjudicated both the show cause notices confirming the duty demands together with interest and imposing penalties, besides ordering confiscation of the goods and appropriating the amounts of Rs. 3,93,78,240/- and Rs. 2,00,00,000/- paid by the JDL, Jammu and TYIL, Taloja, respectively, at the time of investigation. Aggrieved by this order, the present appeals have been filed by the said appellants. 3. The submissions made by the learned Counsel for the appellants can be summarized as follows : - (i) The appellant manufactures Deterpenated/Fractionated Mentha Oil (DFMO) at their factory in Jammu fr....
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..... 62 to 322. During the period from 26-12-2005 to 16-1-2006, the factory at Jammu was not working and, therefore, the appellant could not have cleared DFMO during this period. The appellants agree that during the period from 26-12-2005 to 16-1-2006, the appellant's factory at Jammu was not working and accordingly, they have reversed the credit taken of Rs. 3,93,70,240/- + education cess of Rs. 7,27,938/- and they are not disputing this liability. (iii) As regards the demands for the period 27-4-2005 to 20-12-2005 and 26-4-2006 to 25-10-2006, as per the Protocol Analysis Report relied upon in the show cause notice, the terpene content was much less than 1% for each of the consignments. During the period 21-4-2005 to 26-4-2005, in the initial stage of production, the terpene content achieved was a little above 1%. For the second period, out of the 57 consignments, 20 consignments were water white DFMO weighing 3,22,400 kgs. which is deterpenated and on which no duty demand can be made. It is an admitted position that terpene content in CMO is 4 to 9% and in respect of the consignments of the processed goods, the terpene content was less than 1%. Thus the decisive test t....
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....tional, the L-Menthol percentage is higher. The fact that there was no terpene generated at TYIL, Taloja, on or after April 2005 also shows that the product received by them at Taloja from Jammu unit was deterpentated. (vi) It is also contended that the Commissioner of Central Excise, Jammu passed an order dated 31-3-2008 dropping the proposal of duty demand under Section 11A in respect of these very consignments in question and the Assistant Commissioner at Jammu had already passed an adjudication order sanctioning refund claim. Therefore, the third adjudication as done in the impugned order on the very same question is not permissible. Reliance is also placed on the decision of the Tribunal in the case of Commissioner of Central Excise, Meerut v. Pace Marketing Specialities Ltd. [2000 (119) E.L.T. 77], Siddharth Tubes Ltd. - [2004 (170) E.L.T. 331] and Nestle India Ltd. [2004 (176) E.L.T. 314] in support of the above contention. Reliance is also placed on the decision of the Apex Court in the case of Smt. Sushila Devi v. Ramanadan Prasad & Ors. [1976 (1) SCC 361]. (vii) As regards the demand of Rs. 3,93,78,240/- for the period 26-12-2005 to 16-1-2006, ....
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.... in Deterpenated/Fractionated Mentha Oil is 76 - 85%, Please explain if the percentage is between 70 to 75% of L. Menthol in Mentha Oil, then it is Crude Mentha Oil, please explain? Ans : If the percentage of L. Menthol is below 76 % (between 70 - 75%) in a given sample, then it is certainly crude mentha oil." (b) In his statement dated 7-8-2006, Shri Pradip K. Maynil, Factory Manager of TYIL, Taloja had, inter alia, stated that menthol/menthol crystals can be manufactured from crude mentha oil in the plant at Taloja. Question No. 7 and its answer which are relevant are reproduced below : "Q-7 Whether menthol/menthol crystals can be manufactured from crude Mentha oil in this plant? A. Yes, we can manufacture menthol/menthol crystals from crude Mentha oil in this plant; we used to manufacture menthol/menthol crystals from crude Mentha oil before April, 2005." (c) In his statement dated 10-5-2007, Shri Vijay Jindal, Director of both JDL and TYIL, had, inter alia, stated that percentage of L. Menthol in DFMO would be about 76.46%. Question No. 4 and its answer which are relevant in this regard are reproduced below :....
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....es were carried out after 21-12-2005 and that all the deterpenated mentha oil shown as manufactured after 21-12-2005 till date was not actually manufactured and equal quantity of crude mentha oil received from UP was despatched to TYIL as such without processing and this was within the knowledge of all the shifts-in-charge. (f) In his statement dated 7-6-2006, Shri Sehyog Singh, Supervisor in JDL, Jammu, had, inter alia, stated that 5 consignments of CMO in the month of November, 2005, 18 consignments of CMO in the month of December, 2005 and 29 consignments of CMO in the month of January, 2006 were sent to TYIL as such. (g) In his statement dated 13-3-2006, Shri Deepak Malhotra, CEO at JDL, Jammu, had, inter alia, stated that the company was indulging in fraudulent availment of benefit of Notification No. 56/2002-C.E., dated 14-11-2002 by clearing unprocessed raw material (CMO) under the cover of invoices of final product (DFMO) without running the factory for production. The dispatches of crude mentha oil as such under sale invoices of DFMO were undertaken by shift-in-charge Shri Shailendra Gadge and Shri Atul Mehare under direct instruction of Shri S.....
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....orts. On seeing these reports, he stated that if the percentage of Terpene is 5 to 7% in CMO, then it has not been deterpenated, that means, it is crude mentha oil. Further, 12 of the 16 reports of Protocol of Analysis were of April, 2005, three of May, 2005 and one of June, 2005. These reports confirm the fact that JDL, Jammu had cleared CMO and not DFMO under the relevant invoices. This is further confirmed by the fact that their Monthly Returns (ER1) for the months of April & May, 2005 filed with Department showed no quantity of Terpene having been generated. In other words, there was no manufacture of DFMO from CMO during this period. (iv) Investigation also got hold of two sets of Protocol Analysis reports of the same consignment in certain cases showing different chemical composition for the same product which is indicative of the fact that the Protocol Analysis report could be manipulated : Set 1 Set 2 (i) A.R. No. - 05R 399/28-12-2005 05R 399/28-12-2005 Terpene 0.7539% 2.0795% L. Menthol 74.618% 72.9415% (i) A.R. No. - 05R 401/29-12-2005 A.R. No. - 05R 401/29-12-2005 Terpene L. Menth....
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....ecord that during the period 2005-2006 TYIL, Taloja had sold 190.57 MTs of Terpene to M/s. Hindustan Mint & Agro Products Pvt. Ltd. (v) That during the period December, 2005, 4 Trucks of Terpene were sent from TYIL, Taloja to JDL, Jammu without payment of duty. This was done in order to cover up the shortage of Terpene at the end of JDL, Jammu. (vi) That as per statement of Shri P.O. Patil, Quality Control Executive of TYIL, Taloja and that of Shri Vijay Jindal, Director of both JDL & TYIL, percentage of L-Menthol in DFMO should be about 76.46%. This also finds support from the statement of Shri Hanish Kumar of M/s. Ambika International, Jammu who are also engaged in the same business of deterpenation of CMO. As per his statement, percentage of L-Menthol in DFMO varies from 80 - 88%. It is needless to say that admitted facts need not be proved further as held by the Hon'ble Apex Court in the case of CC, Madras v. Systems & Components Pvt. Ltd. - 2004 (165) E.L.T. 136 (S.C.). (vii) In light of the above evidences, 233 consignments of so-called DFMO containing less than 76.46% of L-Menthol have been rightly taken as CMOs by the Department. ....
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.... Packing and marking 7. Sampling 8. Test methods 4.3.3 From the title 'Normative References', ld. Sr. Counsel referred to Gas chromatographic analysis of perfumery materials [IS No. (Part 19) 1988]. From this he submitted that both CMO and DFMO are put to test by Gas chromatography. Be that as it may, Indian Standard does not prescribe any percentage of L-Menthol either in CMO or in DFMO. Therefore, it does not also help the appellants. E. Multiplicity of proceedings 4.4 On behalf of the appellants it was contended that the Commissioner of Central Excise, Jammu vide his order dated 31-3-2008 has dropped the two show cause notices issued for the same period and that the said order has attained finality. Consequently, the present proceeding for the same period cannot be sustained. This submission ignores the fact that the earlier proceedings were initiated on the ground as to whether the process of deterpenation of CMO to get DFMO amounts to manufacture or not, whereas the present proceeding has been initiated mainly on the ground of wr....
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.... 4.7 In so far as TYIL is concerned, it had suppressed the fact of receipt of CMO in the guise of DFMO only to avail undue Cenvat credit with the intention to evade payment of duty. Therefore, the Commissioner has rightly confirmed the duty demand under Rule 14 and imposed equal amount of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act. In view of the foregoing premises, the impugned order deserves to be confirmed by rejecting the appeals and it is prayed accordingly. 5. We have carefully considered the rival submissions. 5.1 As regards the demand of duty to the extent of Rs. 3,93,78,240/- in respect of the clearances made during 26-12-2005 to 16-1-2006, it is an admitted position that during the said period, the appellant did not manufacture any DFMO at Jammu as their factory was not operating. The receipt of terpene from TYIL, Taloja, during this period, the statements of various officials of the appellant firm confirming the same, the absence of test reports for the DFMO for this period, all corroborate the fact that no deterpenation was undertaken at JDL, Jammu during this period and therefore,....
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....n deterpenated, since it is terpene which is being removed/separated from CMO. The test reports indicate that after deterpenation, the percentage of terpene had come down substantially which is indicative of the fact that the CMO has been subjected to deterpenation. Therefore, the duty demand on JDL, Jammu, except for the amount of Rs. 3,93,78,240/- is not sustainable in law and we hold accordingly. 5.3 As regards the contention that the jurisdictional Commissioner vide order dated 31-3-2008 as already adjudicated the issue involved in the present appeal is completely misplaced. The question for consideration, in the said case was whether deterpenation would amount to 'manufacture'. In the present case, the dispute relates to whether the goods cleared from JDL, Jammu and sent to TYIL, Taloja were DFMO or CMO. These two issues are completely different. Therefore, the argument that the present adjudication is a duplication cannot be accepted. 5.4 As regards the argument that the penalty under Section 11AC cannot be imposed on M/s. Jindal Drugs Ltd., Jammu, inasmuch as the duty demand has to be confirmed under the provisions of Notification No. 56/2002, this argument i....
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....f s. 38 of the Act, all rules made and notifications issued by the Central Government, as aforesaid are required to be published 'in the Official Gazette, and thereupon those rules and notifications "shall have effect as if enacted in this Act". Thus it is manifest that the notifications and the rule impugned in this case have been incorporated into the Act itself and have become part of the taxing statute.' Thus any contravention of a notification issued under the Act will be contravention of the provisions of the Act itself. Therefore, the contention of the appellant the provisions of Section 11A are not attracted and consequently no penalty can be imposed under Section 11AC is completely bereft of any logic and deserves to be dismissed as completely untenable. 5.5 It is evident from the records that the appellant had not manufactured any DFMO during the period from 26-12-2005 to 16-1-2006 and had cleared CMO by misdeclaring the same as DFMO to TYIL, Taloja. To cover up and camouflage the transaction, the appellant despatched terpene from Taloja to its unit at Jammu, again misdeclaraing the same, so that it can be shown that deterpenation took place at Jammu during the....
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....viewed seriously. A collusion or conspiracy with a view to deprive the rights of the others in relation to a property would render the transaction void ab initio. Fraud and deception are synonymous. Although in a given case a deception may not amount to fraud, fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata.' The ratio of the above decision will apply squarely to the facts of the present case before us. Therefore, the appellant cannot claim benefit of any Cenvat credit. Further by actively conniving and colluding with JDL, Jammu in the evasion of duty by claiming ineligible benefit under Notification 56/2002 and by taking ineligible credit, M/s. TYIL is liable to penalty under Rule 15 of CCR 2004 read with Section 11AC of the Central Excise Act and we hold accordingly. 5.6  As regards the demand of duty on terpene cleared in the guise of CMO by TYIL, Taloja to JDL, Jammu during December, 2005, amounting to Rs. 1,55,105/-, the receipt of the same has been confirmed by the officials of JDL, Jammu. Further the statements of the transporter also ....
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....ral Excise Act, 1944, is upheld. (v) Central Excise duty demands of Rs. 1,55,105/- (in respect of Terpene manufactured and cleared without payment of duty) and of Rs. 98,083/- (in respect of Menthol Crystals found short during the stock taking on 22-6-2006) are upheld against M/s. Tien Yuan India (P) Ltd., Taloja under Section 11A of the Central Excise Act, 1944 along with interest thereon under Section 11AB ibid. (vi) Imposition of penalty of equivalent amount of Rs. 1,55,105/- is also upheld against M/s. Tien Yuan India (P) Ltd., Taloja, under Section 11AC of the Central Excise Act, 1944. (vii) Confiscation of goods valued at Rs. 95.08 lakhs (approx.) seized, on 23-6-2006 at the premises of M/s. Tien Yuan India (P) Ltd., Taloja, under Rule 25 of the Central Excise Rules, 2002 along with option to redeem the same on payment of fine of Rs. 22 lakhs, is upheld. (viii) The balance of demands towards duty, interest and penalties (other than those mentioned above against the appellants) are set aside. (Pronounced in Court on ......................) Sd/- (P.R. Chandrasekharan) Member (Technical) 7.1  [Per : Anil....
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....envat Credit Rules, 2004 read with Section 11AC of the Act. I also set aside the penalty of Rs. 63,00,000/- imposed on TYIL under Rule 25 of CER. 7.5 That as regards confiscation order of molten menthol and eucalyptus oil in the premises of TYIL which was seized on 23-6-2006 vide panchanama under Rule 25 for contravention of Rule 10 of the CER, valued at Rs. 81,05,856/- and 14,03,000/- respectively I find that other operative portion of the order, there is no discussion or finding in the order for confiscation of the said goods. This fact is also admitted by the Counsel for the Revenue as recorded by ld. Member (Technical) in para 4.5 above. The said goods as claimed by the appellant where meant for export and could not have been seized. Even the case made by the department of excess stock on the basis of the quantity taken as per book stock, does not tally with the books seized by the Revenue. Further it is contended that menthol molten is produced or manufactured against specific orders mainly for export. Further after the provisional release by the Revenue the seized lot was processed and exported. Similar is the position is respect of Eucalyptus oil seized. Further the ....
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....i) M/s. Tien Yuan India (P) Ltd., are liable to penalty amounting to Rs. 3,93,78,240/- under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 as held by the Hon'ble Member (Technical) OR M/s. Tien Yuan India (P) Ltd., are not liable to penalty under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of the Act as held by the Hon'ble Member (Judicial) (iv) Goods valued at Rs. 95.08 lakhs seized on 23-6-2006 at the premises of M/s. Tien Yuan India (P) Ltd., Taloja, are liable to confiscation under Rule 25 of the Central Excise Rules, 2002, with an option to redeem the same on payment of fine of Rs. 22 lakhs as held by the Hon'ble Member (Technical) OR They are not liable to confiscation as held by the Hon'ble Member (Judicial). (Pronounced in Court on 11-8-2014) Sd/- (Anil Choudhary) Member (Judicial) Sd/- (P.R. Chandrasekharan) Member (Technical) 10. [Per : P.S. Pruthi, Member (T) (As Third Member)]. - I have gone through the orders passed by the ld. Brothers. The detailed facts of the case may not be repeated here except for the purpose of justify....
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....r Rule 2(1) read with Rule 3(1)/Rule 4(1) of the Cenvat Credit Rules, because the credit was taken on the basis of invoices and Rule 3 only requires that duty should be paid on inputs. And even if what was received at TYIL was not DFMO but CMO, as confirmed in the adjudication order, the fact remains that the department has not disputed that CMO is an input for TYIL for manufacture of menthol crystals and also not disputed that the consignments were received by TYIL and used. He relied on Bombay High Court judgment in the case of Nestle India Ltd. reported in 2012 (275) E.L.T. 49 to justify that credit cannot be denied to TYIL. It was further contended that once the credit taken by TYIL is held to be correct, no penalty can be imposed on them under Rule 15 of Cenvat Credit Rules read with Section 11AC of the Act, because duty has been duly paid on the goods. And if at all, denial of credit would be enough. 13.1 The ld. Sr. Advocate went on to argue that penalty cannot be imposed on M/s. JDL Jammu, because the irregular credit is recovered under the self contained Notification No. 56/2002 Clause 2C(g) and is not a case of erroneous refund under Section 11B. Therefore the cas....
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....1 On the issue of penalty on TYIL, he drew attention to Rule 15(1) and 15(2) and emphasized the fact that credit taken on basis of invoices showing the goods as DFMO whereas actually they were CMO, clearly establishes that the Cenvat was taken wrongly without taking reasonable steps to ensure that appropriate duty had been paid on the inputs as indicated in the document accompanying the inputs. And penalty is imposable under Rule 15(2) because Cenvat credit was taken wrongly on account of fraud, collusion, wilful misstatement, suppression of facts. Contradicting the stand of ld. Sr. Counsel that notification does not form part of the Act, he relied on CCE v. Parle Exports Pvt. Ltd. - 1988 (38) E.L.T. 741 (S.C.) which held that a notification has statutory force. 14.2 Regarding the confiscation of the goods, the ld. Consultant pointed to Rule 10 of the Central Excise Rules, 2002 which requires a daily stock account to be maintained. Further, that Rule 25(1)(b) imposes penalty if any manufacturer does not account for any excisable goods produced or manufactured by them. 15. I have carefully considered the rival contentions and take up the matter on the four quest....
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....nces of excisable goods, the said goods should be considered to have been cleared without payment of duty to the extent of utilisation of such irregular or excess credit". Clause (e) above lays down the procedure for determining the amount of credit available/refundable to the manufacturer and the process whereby the excess credit availed is to be reversed or the short credit taken is to be allowed back. It is very clearly stated that the Assistant Commissioner/Deputy Commissioner after verification, as may be deemed necessary, shall determine the amount correctly refundable to the manufacturer and intimate the same to the manufacturer by the 15th day of the next month to the month under consideration. In this case I find that the excess credit was not determined in the normal course of checking of monthly returns filed by the manufacturer. Rather, the same has been detected or determined by the authorities during investigation. Clause (e) further goes on to say that in case the credit taken by the manufacturer is in excess of the amount determined, the manufacturer shall, within five days from the receipt of the intimation, reverse the said excess credit. In my considered view,....
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.... And in the case of Cummins Diesel Sales India Ltd. v. Commissioner - 2014 TIOL 2046 CESTAT (Mumbai) = 2015 (315) E.L.T. 63 (Tri.-Mum.). Whether the facts of the present case are same as in these judgments may be seen. I note that in the present case also, the assessments by which the original duty was paid were finalized and not reopened till date. In case the department wanted to deny credit to TYIL it should have refunded the duty originally paid by JDL which was not done. Therefore in all fairness, for this reason also credit is not deniable to TYIL. 15.3 A view has been presented by ld. Consultant that credit should be denied to TYIL because the goods received were actually CMO and not DFMO as shown in the invoices. In other words, there was no manufacturing at Jammu. But this is the very basis for the judgments cited in para above settling the issue that credit would be available at the recipient's end even if no 'manufacture' has taken place at the supplier's end. 15.4 The issue has to be examined strictly within the parameters of the legal framework as laid down in Notification 56/2002 and the precedent judgments. Such examination leads me to the conclusion ....
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....s the question of limitation and the second the question of notice. As far as the first aspect is concerned, refund of duty under the Act has been provided for by Section 11B. The section specifies the manner and circumstances under which refunds of duty may be made. It is neither of the parties case that the refund made to the petitioners of the excise duty paid by them was under this section........... 39. Although Section 11A does not refer to Section 11B, it speaks of duties "erroneously refunded". It cannot therefore refer to the refunds made to the petitioners under the notifications as there was no error in the provisional refunds made under the notifications to the appellants. What was sought to be recovered under Section 154 was not an erroneous refund but a benefit provisionally granted. 17.1 Therefore, as the situation is not of erroneous refund, Section 11A is not applicable and consequently penalty is not imposable under Section 11AC. 17.2 The fact also remains that since department held that there was no manufacturing by JDL, therefore no duty was payable by JDL and the consequent claiming of refund cannot be erroneous. As also discussed ....
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.... bonded store-room due to accumulation of stocks and were under the impression that only goods in bonded store-room were to recorded in RG.1. The case of Continental Chemicals (supra) is a Single Member judgment. On the other hand there is a catena of judgments holding that confiscation is imposable for non-accountal goods in RG-1. It was held so in Golbe Rexine - 2006 (203) E.L.T. 632 (Tri.-Chennai), CCE, Vapi v. Modison Ltd. - 2006 (203) E.L.T. 521 (Tri.-LB); CCE, Delhi v. Diamond Plywood Industries - 2003 (159) E.L.T. 854 (Tri.-Delhi). Thus there is no force in the appellant's contention. Therefore I find no fault with the order of confiscation and the redemption fine imposed. 19. In conclusion, I hold that (i) M/s. Tien Yuan India Pvt. Ltd., Taloja, (TYIL) are eligible for Cenvat credit amounting to Rs. 3,93,78,240/- under the Cenvat Credit Rules, 2004, as held by Hon'ble Member (Judicial). (ii) M/s. Jindal Drugs Ltd., Jammu are not liable to penalty of Rs. 3,93,78,240/- under Section 11AC of the Central Excise Act, 1944, as held by the Hon'ble Member (Judicial). (iii) M/s. Tien Yuan India (P) Ltd., are not liable to penal....