TaxTMI 
TaxTMI 
2019 (8) TMI 126
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....ustries Ltd., Precision Engineering Division (PED) is stock transferring Watch Parts and Bracelets manufactured by them to M/s. Titan Industries Ltd., WD, Hosur. 2.1 During verification of records of the appellant, it appeared that they were not following correct valuation for the said clearances in terms of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. It further appeared that appellants had not included certain cost components to arrive at the cost of production, as specified in the Cost Accounting Standard - 4 (CAS-4). The Department took the view that appellants are indulged in a deliberate attempt to evade payment of excise duty by undervaluing the said goods; that duty is required to be levied at relevant rate on the assessable value to be arrived at after including all cost components under CAS-4. 2.2 Accordingly, proceedings were initiated by way of the following Show Cause Notices for the period from 01.04.2005 to 31.03.2010: Sl No. Appellant SCN No. & Dt. Proposed demand (in Rs.) Ground alleged 1. M/s. Titan Industries Ltd., Watch Division SCN No. 37/2010 dt. 05.05.2010 read with corrigendum d....
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....ion. Hence, the extended period of limitation cannot be invoked. (iv) She also submitted that the question of suppression of facts does not arise for the following reasons : (a) For the period from 01.02.2005 to 31.01.2006, audit of the appellant's entire books and records were done between 22.02.2006 and 25.02.2006; (b) For the period from 01.02.2006 to 28.02.2007, the appellant's records were also audited; (c) For the period from 11.03.2007 to 31.01.2008, audit had been done between 12.02.2008 and 13.02.2008; (d)For the period from 01.02.2008 to 28.02.2009, audit was conducted on 20.03.2009. (v) So also, office of the Accountant General (CERA) pursuant to their letter dated 10.11.2006, conducted audit for the period 2003-04, 2004-05 and 2005-06. Pursuant to letter dated 17.09.2009, CERA conducted audit of the appellant for the period 2004-05, 2005-06 and 2006-07. Pursuant to letter dated 18.01.2010, CERA conducted audit for the period 2006-07, 2007-08 and 2008-09. For all these reasons, the entire proceedings are hit by limitation. 4.1 On the other hand, Ld. AR Shri. B. Balamurugan appearing on behalf of the respond....
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....ing February 2006 completely examining all their records and accounts including their removals for the period of three years prior to the audit. (iii) An audit was conducted during February 2007 completely examining all their records and accounts including all our removals for the period of three years prior to the audit. (iv) CERA Audit was conducted and all the revenue particulars for 2002-2003; 2003-2004 and 2004-2005 and all relevant records were examined by the Audit Team from 12.06.2006 to 16.06.2006. The audit took place and all records were verified including their costing statements, calculation of value, calculation of duty and no adverse objections or comments were raised. (v) CERA Audit was conducted and all the revenue particulars for 2004-2005; 2005-2006 and 2006-2007 and all relevant records were examined by the Audit Team from 04.06.2007 to 08.06.2007. The audit took place and all records were verified including their costing statements, calculation of value, calculation of duty and no adverse objections or comments were raised. 25. They relied on the following decisions of the Hon'ble Supreme Court/CESTAT in support of their ....
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.... corrected their valuation methodology. Certainly, this was not done. 11.1 On the other hand, Show Cause Notices have been issued as late as May, 2010 and to enable coverage of the disputed period from 01.04.2005 to 31.03.2010, the extended period of limitation has been invoked. The raison d'étre given in all these Show Cause Notices for invocation of such extended period of limitation is that "they have wilfully suppressed the fact from the Department that they were clearing the goods at a lower value from their unit at Hosur" to other units. Surely, this could and should not have escaped attention in the plethora of audits that had been conducted of the appellant. 11.2 We further note that even the Show Cause Notices themselves did not quantify the amounts involved, which was eventually done only by the issue of corrigenda in March 2011, quantifying the amounts. The quantification of the amounts has thus happened almost around ten months after the issuance of the Show Cause Notices. 12. In view of the discussions and conclusions hereinabove, we hold that the proceedings in all these appeals are hit by limitation since there is no justification for invocation o....
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....but also the technical breach in the certificate (CAS-4) which was prepared/issued NOT by a qualified person, but by an employee who was admittedly, just a graduate. 4. The non-compliance with conditions of Notification, non-furnishing of proper CAS-4 certificate, but an obviously interested employee preparing CAS-4 certificate and furnishing the same as compliance, that too incomplete, clearly amounts to (c) wilful misstatement & (d) suppression of facts & (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax. 5. When the Law prescribes the format of a certificate of CAS-4, It recognises certificate issued by a qualified person and none else. It is not certainly something unknown to a Company, of the Stature/reputation/Brand of the assessee herein. Going by the brand name perhaps the revenue did not doubt the credibility, for long, till they verified before issuing SCN. 6. CBEC circular 692/8/2003 mandates as under .... "....(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 CA....
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....or otherwise, to the mandatory legal procedure, but also to at least reply on its stand to such legal points and only thereafter does the onus shifts to the Revenue to justify invoking larger period? (ii) Whether the CESTAT can ignore the allegations of non-compliance with legal procedures that has a direct impact on the valuation of a product and in turn, its taxability, and whether such allegation which has never been rebutted by the assessee, either in its reply to SCN or during adjudication proceedings, for the reasons best known to the appellant, tantamount to: (c) wilful mis-statement; (d) suppression of facts; and (e) contravention of any of the provisions of this Chapter or of the Rules made thereunder with an intent to evade payment of service tax, of Section 73(1) of the Finance Act, 1994, and accordingly justify invoking the larger period of limitation? (P Dinesha) Member (Judicial) (Madhu Mohan Damodhar) Member (Technical) PER SULEKHA BEEVI The above matter has come up for hearing as per the order of reference by the Hon'ble President dated 02.05.2019. 2. The facts of the case having been narrated in detail in the inte....
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....l) placed reliance on series of audits conducted to hold that there is no evidence of suppression of facts with intent to evade payment of duty. Member (Judicial) has placed much reliance on the costing certificate issued by the Manager of the company to hold that such issuance of certificate was itself a misstatement and suppression of facts with intend to evade payment of duty. 5. Today when the matter came up for hearing before me, Ld. Counsel Ms. Radhika Chandrasekar appeared and argued the matter. She submitted that the clearances of goods by these appellants were mainly to their sister units from where such goods were captively consumed for further manufacture. The clearances can be diagrammatically represented as under. 6. Thus clearances were on stock transfer basis and Rule 8 of the Central Excise Valuation Rules 2000 would apply. The appellants have filed regularly periodical returns and also paid the Central Excise duty. This was on the basis of costing arrived by the Senior Manager (Costing) of the appellant units. The department later entertained a view that certain costs have not been included in the costing to arrive at the assessable value. Since continuous au....
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.... stressed by her that since there were no objections raised pursuant to audits the appellants were under bonafide belief that costing done by the Senior Manager was sufficient compliance. Moreover another SCN was issued to the appellant's Watch Division for the year 2003-04 invoking extended period alleging wrong availment of credit. The Tribunal vide Final order No.40600/2018 dt. 09.03.2018 had set aside this demand on the ground of limitation observing that series of audits were conducted and there was no suppression on the part of the appellant. 7. Ld. Counsel relied upon the decision of the Hon'ble High Court of Allahabad in the case of CCE Noida Vs Accurate Chemical Industries 2014 (310) ELT 441 (All.) to argue that when the assessee has filed ER-1 returns on monthly basis, the Range Officer is required to carry out a detailed scrutiny of ER-1 returns. The decision in the case of CCF Vs Mahindra and Mahindra Ltd - 2018 (11) G.S.T.L. 126 (Bom.) was relied by Ld. counsel to submit that if all facts were within the knowledge of the department after the conduct of audit, allegation of suppression cannot sustain. In CCE Bangalore Vs MTR Foods Ltd - 2012 (282) ELT 196 (Ka....
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.... by the Member (Judicial). 10. Heard both sides. 11. From the submissions made as well as the questions referred, the duty cast upon me is to decide whether the invocation of extended period is sustainable. It is not disputed that the valuation should be under Rule 8 of Central Valuation (Determination of Price of Excisable Goods) Rules 2000. As per Rule 8, "where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten percent of the cost of production or manufacture of such goods." 12. The above Rule merely says that the value shall be 110% of the cost of production. It does mention the method of arriving at the cost of production. When different methods were adopted, the Board vide Circular 692/8/2003 clarified that the cost of production of captively consumed goods has to be henceforth done strictly in accordance with CAS-4. Thus in order to achieve uniformity in arriving at cost of production Board mandated compliance of CAS-4. From the date of the circular the costing is to be done as per the certificate in CAS-4 issued by a Cost Acc....
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.... scrutiny of the officer or the audit party or the cost accountant or chartered accountant, within the time limit specified by the said officer or the audit party or the cost accountant or chartered accountant, as the case may be." 14. The intention and object of such audit is for verification of the accounts and also to ensure that mandatory compliances under law have been satisfied. The audit officers while conducting such audit, indeed mainly look into quantum of goods cleared as well as the Central Excise duty paid. During the scrutiny of accounts / documents / records, the audit party would certainly have occasion to look into the costing certificate furnished by the appellants. Needless to say that the Central Excise duty is paid by appellants on the basis of the valuation done as per this costing details. In a series of notices for conduct of audit, the appellant has been required to furnish various documents. For better appreciation, some sample of the notices issued by the department are reproduced as under: "No.AG(C&RA)/CERA)Prog/2006-07/222 Date: 29-5-2006 To Titan Industries (Jewellery) HOSUR-635 126 Sir, Sub: ....
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.... on the final day of Audit. Also one computer may be made available to the audit party for their exclusive use. 4. IMPORTANT: Details called for in the annexure may be sent urgently. 5. Request for postponement will not be entertained except for reasons of strike and lockout. 6. Revenue particulars of PLA and CENVAT for the period of last 3 years Viz., 2003-04, 2004-05 and 2005-06 separately may please be forwarded along with acknowledgement. Yours faithfully, For Senior Audit Officer / CERA" "C. No.III/10/911/2008-IA Dated: 03.02.2009 To 2: NAME: TITAL INDUSTRIES BRACELET & CLOCK DOOR NO: 28, SIPCOT INDUSTRIAL STREET: HOSUR LOCALITY: HOSUR AREA: HOSUR INDUSTRIAL COMPLEX DISTRICT: DHARMAPURI PINCODE: 635126 Gentlemen, Sub: Central Excise - Information relevant for the New Audit System in respect of your unit - called for - Regarding **************** Since it is proposed to conduct Audit of accounts of your factory under New Audit System, you are requested to furnish the following information which is relevant for the Audit within ten days from the date....
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....furnished completely and in time to enable the visiting audit party to prepare an Audit Plan to conduct a qualitative audit. Any request for postponement / cancellation received within a weeks time prior to the date of the audit shall not be entertained. Receipt of this letter may be acknowledged. Yours faithfully, For Joint Commissioner (Audit)" "No.AG(C&RA)/CERA/PARY X /2009-10/277 Date:6-7-2009 To M/s. Titan Industries (Bracelet Division) 28, Sipcot Industrial Street: Hosur HOSUR- 635126 Sir, Sub: Central Excise Revenue Audit - Intimation - Reg. Please refer to Rule 22 (3) of Central Excise Rules, 2002 1. The audit of the accounts of the Central Excise Receipts and Remittance in respect of your concern/company is programmed to conducted by the Central Excise Revenue Audit Party of this office from 20-7-09 to 24-7-09. 2. The assessee may see the identity cards of the party members and authority letter issued by CERA Headquarters and in case of any problem/difficulties with CERA Party, the assessee may contact the undersigned / the Deputy Accountant General personally or by teleph....
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.... 9. Details of power consumption per unit of production. 10. If both excisable goods / exempted goods are manufactured using common inputs, furnish details, 11. Declaration of marketing pattern 12. Details of various abatements claimed and typed and rate of discount allowed. 13. List of Branches / Depots Consignments Agents / Dealers and a copy of the agreement of consignment Agents / Dealers 14. Quality and Value of production / Clearance of each excisable goods separately for the last THREE years along with the details of duty payment in PLA and through CENVAT credit with reasons for decrease / increase 15. List of reports and returns filed to other departments like Income Tax, Sales Tax, etc. 16. Copy of Articles of Memorandum / Association 17. Copy of Balance Sheet, Trial Balance for the last TWO financial years. 18. Information regarding various procedures followed like Chapter X procedure / goods sent to job workers / re-entry of duty paid goods. 19. Details of Captive consumption of any intermediate / final products. 20. Details of trading activity if any taken place, ....
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.... officers of AG takes part in such conduct of audit. In spite of these repeated audits, the department did not raise any objection or query to the appellant as to why they have adopted cost of production on the basis of cost details given by their Senior Manager. Only in 2010, the department has raised this query. Immediately on being pointed out, appellants appointed a Cost Accountant and the costing details of accountant was furnished to the department. The demand in these cases have been raised on the basis of such costing details furnished by Cost Accountant appointed by appellant. From these facts, it is very clear that the department was fully aware that appellant was discharging duty on the basis of cost of production as per the details of the Senior Manager (Costing). When all the documents were put forward before the department, it cannot be said that the costing certificate issued by the Senior Manager (Costing) of the appellant was an act of suppression or misstatement on the part of appellant with an intention to evade payment of duty. Further when the department made enquiries in 2010, the appellant has sufficiently cooperated and appointed a Cost Accountant on their s....