TaxTMI 
TaxTMI 
2014 (5) TMI 1103
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.... alia of manufacture and sale of calcined alumina, falling under Chapter Heading 2818.20 of the First Schedule to the Central Excise Tariff Act, 1985. 3. Alumina manufactured by Vedanta are excisable goods and liable to payment of Central Excise Duty under Section 4 of the Central Excise Act, 1944 read with Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, hereinafter referred to as 'the 2000 Valuation Rules'. 4. In 2006-2007 Vedanta commissioned a unit for manufacture of inter alia calcined alumina. Vedanta manufactured calcined alumina from raw materials procured from suppliers including Bharat Aluminium Co. Ltd., hereinafter referred to as BALCO for its own captive use at its unit at Jharsuguda and also for outright sale, including outright sale to BALCO. Vedanta also manufactured alumina as job worker and/or conversion agent for conversion charges. Bauxite supplied by BALCO to Vedanta free of charge was processed and converted into alumina and supplied to BALCO against conversion charges. 5. BALCO and Vedanta are inter-connected undertakings as defined in Section 2(g) of the Monopolies and Restrictive Trade Practice Act, 1969, h....
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....xchange and from December, 2008 onwards, the valuation was determined on the basis of the Alumina Spot Tender Price of NALCO, a Central Government Undertaking. 13. In Ujagar Prints v. Union of India reported in 1986 Supp. SCC 652 = 1987 (27) E.L.T. 567 (S.C.) the question of whether the value of processed fabrics and man-made fabrics for customers on job work basis, would be assessable to Central Excise Duty on the basis of the value of the processed fabrics, plus manufacturing costs for the purposes of Central Excise payable by the processor, or would include the profit at which the trader might subsequently sell the processed fabrics was referred to a Five Judge Bench, in view of conflicting decisions of the Supreme Court in Empire Industries Ltd. & Ors. v. Union of India & Ors. reported in (1985) 3 SCC 314 = 1985 (20) E.L.T. 179 (S.C.) and Union of India and Ors. v. Bombay Tyre International Ltd. reported in (1983) 4 SCC 210 = 1983 (12) E.L.T. 869 (S.C.). 14. By a judgment and order dated 4th November, 1988, in Ujagar Prints II v. Union of India & Ors. reported in (1989) 3 SCC 488 = 1988 (38) E.L.T. 535 (S.C.) a Five Judge Bench presided over by then Chief Justice R.....
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....that during the period of dispute, the unutilized Cenvat credit balance available with Vedanta was substantial and running into several crores as detailed in 'Annexure P-10' to the writ petition. 20. Mr. Bagaria further submitted that the petitioners had over-flowing credits which could have been utilized by them for providing differential duty on the alumina cleared by them to BALCO and, therefore, there was no reason for short payment or evasion of duty. This is not in dispute. 21. Mr. Bagaria submitted that BALCO and Vedanta are inter-connected undertakings within the definition given in the Monopolies and Restricted Trade Practice Act, hereinafter referred to as the 'MRTP Act', in that the two have a common holding company and common directors. Vedanta and BALCO do not, however, have any mutuality of interest in the business of each other and cannot be regarded as 'related persons' as defined under Section 4(3)(b) of the MRTP Act. 22. Mr. Bagaria submitted that even though Vedanta and BALCO were inter-connected undertakings within the meaning of Section 2(g) of the MRTP Act, the valuation of alumina cleared by Vedanta for supply to BALCO was not determined in ....
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.... of the respective years. 27. According to the petitioners, the losses were on account of initial expenditure for setting up the unit. The petitioners have contended that the Central Excise records maintained by Vedanta were regularly scrutinized by the departmental officials and were audited by various audit parties during the relevant period. Mr. Bagaria submitted that an audit of the Central Excise Records was conducted by the department during the period from 12th October, 2009 to 15th October, 2009. 28. Vedanta reworked the valuation of the alumina cleared to BALCO as a job worker on the basis of the cost of production plus 10%. By a detailed letter addressed to the department, Vedanta informed the department that though it was entitled to discharge duty on the value arrived at as per the law laid down by the Supreme Court in the case of Ujagar Prints, it was discharging duty on the basis of cost of production plus 10%. 29. On noticing that duty if any paid was available as credit to BALCO, applicants reworked the value of alumina cleared as a job worker and paid differential duty of Rs. 23,93,97,532/- as Excise Duty, Rs. 47,87,951/- as Education Cess and Rs.....
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....5,354/- on 11th August, 2010. These facts have not been disputed by the respondents. According to Vedanta, Vedanta issued supplementary invoices in favour of BALCO in respect of differential duty paid. 37. Mr. Bagaria argued that despite deposit of disputed duty along with interest, the departmental authorities further undertook detailed investigation and verification regarding the method of valuation of alumina cleared by Vedanta to BALCO. The department also went into details regarding group structure of both the companies and their share holding pattern and thereafter arrived at the conclusion that BALCO and Vedanta were inter-connected undertakings and that the valuation was required to be done in terms of the proviso of the Rule 9 of the Valuation Rules, 2000 and BALCO was required to discharge on the duty on the strength of alumina sold to BALCO on the basis of the cost of production. The Department did not however undertake any separate exercise to determine the actual cost of production in terms of Rule 8 read with CAS 4. 38. By a letter dated 9th August, 2010, the department called upon Vedanta to adopt the value on which duty was paid for clearance of applican....
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....p;The show cause notice proposed to invoke extended period of limitation, on the ground of non-production of documents leading to suppression of facts, wilful misstatement, withholding of information and contravention of the provision of the Central Excise Act with intent to evade payment of duty. The show cause notice also proposed to invoke the penal provisions not only against Vedanta but also against the petitioner Nos. 2, 3, 4 and 5. 45. Mr. Bagaria argued there could be no dispute that the entire quantity of alumina on which differential duty was demanded by the show cause notice had been accounted for in the daily stock accounts maintained by the applicants and was also reflected in the monthly returns filed by Vedanta with the appropriate authority. 46. Mr. Bagaria further argued that the entire quantity of alumina cleared by Vedanta to BALCO had been used by BALCO for manufacture of dutiable final products. The duty paid by Vedanta was available as Cenvat credit and was taken as Cenvat credit by BALCO. 47. Mr. Bagaria argued that during the relevant period, alumina cleared to BALCO as a conversion agent, or on direct sales basis was valued on the basis of....
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....on the basis of the comparable price available, and the fact that there was so much of unutilized Cenvat credit, which Vedanta could have utilized if it had adopted a higher value, as claimed in the show cause notice, clearly shows that Vedanta did not have any intention to evade payment of duty as alleged in the show cause notice. 55. Mr. Bagaria further submitted that it was Vedanta and not the Government, which had incurred loss in this case. Vedanta has incurred interest liability of Rs. 15,37,19,183/- which has admittedly been paid. The delayed payment of duty has resulted in gain to the Government in the form of interest. 56. The petitioners filed an application under Section 32E of the Central Excise Act, 1944 before the Settlement Commission, inter alia praying for grant of immunity from penalty under Rule 26 of the Central Excise Rules, 2002 and for grant of immunity from prosecution under the Central Excise Act, 1944, other Central Acts and the Indian Penal Code. 57. By a Final Order No. F-282/CE/2011-SC(KB), dated 23rd September, 2011, impugned in this writ petition, the Settlement Commission settled Central Excise Duty for the period in question at Rs.....
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....nge in itself shows the bona fides of the petitioner. 64. Mr. Sarkar argued that the impugned order has been passed in violation of principles of natural justice inasmuch as the Settlement Commission arrived at its finding on the issue of costs, etc., without giving the petitioners opportunity to explain their stand on the issues. 65. Section 32K of the Central Excise Act provides as follows :- "Power of Settlement Commission to grant immunity from prosecution and penalty. - (1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under Section 32E has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act [and also either wholly or in part from the imposition of any penalty and fine] under this Act, with respect to the case covered by the settlement : Provided that no such immunity shall be granted by the Settlement Commission in case where the proceedings for the prosecution for any such ....
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....d upon it under Section 32K to grant full immunity to the petitioners from penalty. 68. Mr. Bagaria argued and rightly, that when a statutory discretion is conditioned by imposition of conditions in the statute itself, on fulfilment of these conditions, the concerned authority is duty bound to exercise the discretion in the manner provided in the statute. 69. It is well settled that where discretion has been conferred on an authority which is state within the meaning of Article 12 of the Constitution of India such discretion cannot be exercised arbitrarily and/or in a discriminatory manner. If facts and circumstances warrant the exercise of discretion, discretion will necessarily have to be exercised. However, the question is whether the Settlement Commission was in the facts and circumstances of this case obliged to waive penalty. 70. Mr. Rajarshee Bharadwaj appearing on behalf of the respondents with Mr. K.K. Maity submitted that the Settlement Commission had, after considering all the materials on record, concluded that the duty was short-paid with intention to evade, as revenue neutrality was not available. The Settlement Commission bona fide concluded that th....
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....icals Ltd. v. Union of India & Ors. reported in 2007 (218) E.L.T. 495 (Bom.) and the judgment of the Delhi High Court in Brindavan Beverages Pvt. Ltd. v. Commissioner of Central Excise, Meerut reported in 2009 (237) E.L.T. 658 (Del.) = 2010 (20) S.T.R. 283 (Del.). 75. In this case, the petitioner has challenged an order passed by the Settlement Commission in Kolkata within the jurisdiction of this Court. The Central Excise duty payable by the petitioner has been settled finally by the Settlement Commission in Kolkata. The order of the Central Excise Authorities has merged in the order of the Settlement Commission impugned in this writ application. The petitioner has challenged the order of the Commission insofar as the same purports to levy penalty on the petitioners. In our view, this Court has jurisdiction to entertain the writ petition. Significantly, both in Sun Pharmaceutical Industries Ltd. v. The Union of India & Ors. (supra) and in Brindavan Beverages Pvt. Ltd. v. Commissioner of C. Ex. (supra) the Court did not hold that there was lack of jurisdiction. The Court declined to exercise jurisdiction. The aforesaid judgments were rendered in the facts and circumstances of....
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....retionary power of the Settlement Commission was required to be exercised in a consistent manner and not arbitrarily. The proposition finds support from the judgment of the Supreme Court in Vishnu Traders v. State of Haryana reported in 1995 Supp. (1) SCC 461 and the judgment of the Bombay High Court in West Coast Ingots Pvt. Ltd. v. UOI reported in 2008 (232) E.L.T. 21 (Bom.) cited by Mr. Bagaria. 81. Penalty is not applicable in every case of non-payment or short-payment of duty. The condition precedent for imposition of penalty is that, the authority would have to be satisfied that the non-payment or short-payment of duty was deliberate, with intent to evade payment of duty. This proposition finds support from the judgment of the Supreme Court in Union of India v. Rajasthan Spinning & Weaving Mills reported in 2009 (238) E.L.T. 3 (S.C.). 82. In Commissioner of Central Excise, Chandigarh v. Pepsi Foods Ltd. reported in 2010 (260) E.L.T. 481 (S.C.) the Supreme Court held that it is well-settled that when statute creates an offence and an ingredient of the offence is a deliberate attempt to evade duty either by fraud or misrepresentation, the statute requires 'mens rea'....