TaxTMI 
TaxTMI 
2020 (10) TMI 818
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....der rule 26 of the Central Excise Rules, 2002, who are the Officers of Balco and VAL. 2. Brief facts are that the appellant M/s Balco is inter alia engaged in the manufacture and clearance of 'Aluminium and Article thereof' falling under Chapter No. 76 of the First Schedule to the Central Excise Tariff Act, 1985 and is registered with the Central Excise Department vide Central Excise Registration No. AAACB1290NXM002. 3. The primary raw material for the purpose of manufacture of aluminium is 'Calcined Alumina' which is in turn manufactured from 'bauxite ore' extracted from mines. The appellant was initially having alumina refinery and aluminium smelter for which it was allocated own captive mines. However, the appellant is not permitted to sell bauxite extracted from the captive mines in the open market and therefore, on account of limitation of capacity of its refinery at Korba, the appellant was not able to use the bauxite fully from its captive mines. Accordingly, the appellant decided to get 'Calcined Alumina' manufactured on job work basis from VAL by using the bauxite extracted from its captive mines. This was found to be better and more cost effective method, than impor....
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.... a requisition memo to VAL directing to produce records alongwith job work documents, and in the same month books of accounts, etc. of VAL were audited by the Department. 9. During the material period i.e. August, 2007 to July, 2010, VAL removed alumina on payment of central excise duty to their other unit at Jharsuguda and also to M/s Balco on the following basis:- A. Removal to the applicant's (VAL) other unit at Jharsuguda on 'stock transfer' basis referred as 'Inter Unit Transfer (ITU) Sales'. C.E. duty paid on the basis of cost of production + 10% profit. B. Removal to BALCO, Korba based on purchase orders - referred as 'Direct Sale' Aug. 07 - Nov. 08 - Based on London Metal Exchange (LME) average price and Dec. 08 onwards - Based on Alumina Spot Tender Price of the Govt. Owned company NALCO. C. Removal to BALCO, Korba of said goods obtained by job working on BALCO's input (Bauxite) under 'conversion agreement' - referred as 'Conversion Sale'. -do- 10. In case of goods removed by 'job worker' (VAL), the provision for valuation w.e.f. 01.04.2007 is as follows:- Notification No. 9/2007-CE (NT) dt. 01.03.2007 Rule ....
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....ed goods were not sold by M/s Balco) of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000. 12. The appellant M/s VAL on understanding that there have been an error in valuation of alumina cleared to M/s Balco under job work arrangement, raised a supplementary invoice on M/s Balco for an amount of Rs. 24,65,79,458/- dated 20.12.2009 which included duty + cess. 13. On completion of investigation at the end of M/s VAL, show cause notice dated 11.10.2010 was issued asking M/s VAL to show cause as to why duty of Rs. 64,70,09,162/- + cess totalling Rs. 66,64,19,436/- as per the calculation chart be not demanded and recovered under proviso to sub-section (1) of Section 11A of Central Excise Act alongwith interest and with proposal to appropriate the proposed demand from the amount of Rs. 66,64,19,436/- already deposited towards differential duty liability on the alumina removed during the period August, 2007 to August, 2010, alongwith proposal to impose penalty under Section 11AC read with Rule 25 of Central Excise Rules, 2002. Penalty was also proposed on four officers of M/s VAL under Rule 26. 14. Pursuant to raising of supplementary invoice o....
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....mina which was available through various sources was the comparable price of Alumina at which NALCO sold Alumina in the market to various parties. (k) The applicant was under "bona fide belief" that since the clearances to BALCO were to be treated as clearances to 'independent parties' and since the comparable price of Alumina was available in the market, the same was adopted for discharging duty on the quantities of Alumina cleared by them to BALCO. (l) They were also under bona fide belief that only in case of stock transfer they were to follow COP + notional profit. (m) In the present exercise the applicant stands to lose as crores of rupees was lying as unutilised credit, could be utilised to recover from BALCO during the material time, and would not have incurred interest liability of Rs. 15,37,19,183/-, and thus non-payment of duty resulted in gain to the Government to this extent. (n) Payment of differential duty was not with any malafide intention but based on bona fide belief that valuation for removals to their own unit would be under Rule 8 of the Valuation Rules. (o) Their bona fide belief was, however, incorrect in view of t....
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....ant's account, and duty paid would have been taken credit by BALCO, clearly showing absence of any intention to evade. 16. The said dispute was settled by the Settlement Commission at Kolkata vide Final Order No. F-282/CE/11/-SC (KB) dated 23.09.2011 with the following findings:- "As per VAL, Balco was procuring Alumina from various other sources at more or less the same price at which VAL were discharging duty on Alumina supplied by them to BALCO on direct sale basis or on conversion basis. The quantum of Alumina procured by BALCO from VAL and other sources is as follows:- Qty. in M.T. Conversion basis Sale basis From other sources 2007-08 1,27,938 47,879 1,52,391 2008-09 2,41,839 1,15,694 1,23,575 17. It was further observed by the Commission that there were no bonafide reasons for discharging duty on the basis of LME prices of Alumina, or on spot tender price of NALCO. Apparently, VAL was clearing the goods at less price to BALCO, it appears for taxation benefit of Vedanta Group, profit has been generated in BALCO by adopting supply of Alumina at low price from BALCO. The plea of neutrality is not available to them as ....
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....herein, objecting to cenvat credit availed by M/s Balco on the supplementary invoices issued by M/s VAL in respect of additional duty paid by M/s VAL (as per supplementary invoices), alleging suppression of assessable value of clearances of calcined alumina, being aforementioned supplementary invoice dated 20.12.2009 for differential duty of Rs. 24,65,79,458/-, being in violation of Rule 9 of Cenvat Credit Rules. It was further alleged that scrutiny of contract between the parties dated 01.01.2008 revealed the price quoted for sale of 'calcined alumina' was linked to LME price. It was further observed in the show cause notice that during the course of scrutiny or enquiry, M/s VAL debited an amount of Rs. 24,65,79,458/- vide debit entry No. 2750, 2751 and 4929 all dated 20.12.2009 and intimated their Range Superintendent vide letter dated 21.12.2009, that as advised the clearances by them on job work fall under Rule 10A(iii) of Central Excise Valuation Rules, 2007, and duty has to be discharged on the basis of principles laid down in the case of Ujjagar Prints read with Board Circular. It was also stated by VAL that duty involved is Revenue neutral as the same is available as cenvat....
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....ther stated that in the facts and circumstances there is no malafide in issue of supplementary invoice for differential duty by VAL. Further, such supplementary invoices were issued by VAL, on realising the mistake in the method of valuation of clearances to Balco under the job work arrangement. The supplementary invoices issued in December, 2009, whereas show cause notice was issued to VAL in October, 2010, almost about eleven months thereafter. Further, Balco has taken cenvat credit bonafide under proper intimation to the Department. Intimation of issue of supplementary invoice was also given by VAL to the Department in December, 2009 itself. It was also pointed out that Balco received the bauxite ore from their captive mines which they consumed in part in production themselves and cleared a part of the ore to VAL, under job work arrangement. Thus, VAL has no appropriate comparable price to value job work calcined alumina for paying appropriate excise duty. Thus, the parties bonafide linked the transaction price of calcined alumina to the price of aluminium as per LME, which is widely accepted. Further, stated that from December, 2008 onwards the excise duty was paid by VAL on th....
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....,458/-, based on the Supplementary invoices issued by VAL. The Show cause notice dated 06.05.2013 alleged that excise duty was not paid suo motu by VAL and such liability had arisen on account of fraud, wilful misstatement or suppression of facts with intent to evade duty at the end of Vedanta aluminium Limited (VAL) and therefore CENVAT Credit availed by the Appellant was against rule 9 (1) (b) of the Credit Rules. 25.3 That the Impugned Order denied CENVAT Credit to the Appellant - Balco, under Rule 9(1)(b) of the Credit Rules simply on the basis that, VAL in its settlement proceedings, settled its duty liability and deposited the penalty imposed by the Settlement Commission and thus mens rea stood established against VAL for committing fraud, collusion or willful misstatement and suppression of facts to evade payment of duty. In this manner, the Impugned Order simply placed reliance on the settlement proceedings in the matter of VAL to deny CENVAT Credit to the Appellant. 26. Being aggrieved by the Impugned Order, the Appellants filed the instant appeals before this Tribunal. The synopsis of the submission of the Appellant are as follows- 26.1 Rule 9(1)(b) of Credit Rul....
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....ment cannot be permitted to take a contrary stand in Appellant's - Balco case by treating it as a sale transaction to deny CENVAT credit. Reliance is placed on Lloyd Electric & Engineering Ltd. V State of Himachal Pradesh 2015 (324) ELT 248 (S.C.). Given this, Rule 9(1)(b) is not applicable at all and the Impugned order is liable to be set aside on this ground alone. The Impugned Order has failed to arrive at an independent finding on the alleged evasion of duty committed by VAL. In the absence of the same, CENVAT Credit has been incorrectly denied to the Appellant under Rule 9(1)(b) of the Credit Rules 26.3 It is submitted that the Impugned Order is erroneous by relying on the Settlement Commission's Order in the matter of VAL, for establishing mens rea on the part of VAL. The present Show cause notice dated 06.05.2013 and the Impugned Order have neither alleged nor undertaken any independent investigation against VAL to establish mens rea on its part. It is settled law that charge has to be established from the Show cause notice in question, and cannot be borrowed from another proceedings. In the absence of the same, the entire proceedings initiated vide Show cause no....
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....hreeram Capacitors Pvt. Ltd., 2017 (348) ELT 355]. It is also settled law that settlement of case is not an admission of guilt as held in Indian Oil Corporation Ltd vs CCE 2011 (274) ELT 561. Given this, the entire reliance placed in the Impugned Order on the settlement proceedings, without giving any independent finding on the conduct of VAL, and the failure to independently establish fraud, etc. on account of VAL, makes the Impugned Order incorrect in law. 26.6 In any case, the Settlement Commission itself in para 10.4 of its Order dated 23.09.2011 left the question open with respect to Cenvat Credit in the hands of the Appellant (para 10.4 of the Settlement Commission's Order, page 150 of the appeal paper books). Given this, reliance placed on the Settlement Commission's Order dated 23.09.2011 to deny CENVAT Credit to the Appellant is absolutely incorrect on the face of it. 26.7 Lastly, the Settlement Commission by invoking its powers under section 32F of the Central Excise Act 1944 settled the issue by accepting the duty liability and imposing penalty to arrive at a fair settlement. Payment of penalty in terms of section 32F of the Excise Act, cannot be equated with impos....
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....ed, that there was wilfull misstatement and suppression at the end of job-worker, i.e. VAL, the restriction under Rule 9(1)(b) cannot be applied as there is no intention to evade payment of duty of Excise, as the same would be available to the Appellant as CENVAT Credit for clearance of its Final Product. Given the above, the Impugned Order is liable to be set aside. 26.10 That the Impugned Order has rejected the submission of revenue neutrality on the basis of an observation in the Order of Settlement Commission that "it appears that for taxation benefits of Vedanta group, profits have been generated in Balco by adopting supply of Alumina at a very low price". That the said contention is in complete ignorance of the fact that the supply of Calcined Alumina was on job-work basis and the Appellant merely paid processing charges and excise duty. Therefore, there being no sale, the question of generation of profits by the Appellant does not arise. This clearly goes to show that the Impugned Order has been passed without application of mind, and on this ground itself, the Impugned Order is liable to be set aside. Benefit of Notification no. 214/86-CE is available at a later....
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.... by the Appellant in December 2009, is therefore completely time barred as extended period of limitation is not applicable in the facts and circumstances of the case and delay was not attributable to the Appellant. Reliance is placed on the decision in Orissa Bridge and Construction Corp Ltd vs CCE 2011(264) ELT 14 (SC) and Transpek Industry Ltd vs CCE 1999(108) ELT 562. 26.14 In any case, when the first Show cause notice dated 11.10.2010 stood issued to VAL, then the second show cause notice dated 06.05.2013 to the Appellant was required to be issued within time as held in Nizam Sugar Factory vs CCE 2006 (197) ELT 465 (SC)]. Since the second Show cause notice was not issued within the prescribed time, it is untenable in law for this reason itself. 26.15 That the Impugned Order has not shown any evidence of suppression, positive act of evasion etc. at the end of Appellant for the purpose of invoking extended period of limitation, in issuing the Show cause notice. It is submitted that Revenue authorities have to establish mens rea, positive act of evasion etc. on the part of the Appellant for the purpose of issuing the Show cause notice on the basis of extended period of limit....
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....It stated that where additional amount of duty became recoverable from manufacturer 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 provision of any provision of the Central Excise Act or rules made thereunder with intent to evade payment of duty, the supplementary invoices are not valid documents to avail cenvat credit. Why you have availed cenvat on these invoices as these invoices issued by your connected party and you are not entitled to avail the cenvat on these invoices. Ans. At the time of taking the cenvat credit, it was the bonafide belief that we are entitled to take the cenvat credit on these supplementary invoices and we had availed such credit. Now our management is considering the merit of the case and they will decide the matter accordingly." 28.2 Learned AR further refers to statement of Shri G. Rajendran, Vice President, Indirect Taxes and the extract of which is as follows:- "Q. No.13 Please explain the reason on the basis of which you have availed cenvat credit amounting to Rs. 24,65,79,458/- whereas rule 9(1)(b) of Cenvat Credit Rules, 2004 deb....
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....inium Ltd. Lanjigarh was taken by our Chief Finance Officer and Chief of Commercial matter". 28.3 Learned AR further refers to the group structure which include the appellant company and VAL, from para 3.2.1 of the show cause notice issued to VAL which is reproduced for clarity:- "3.2.1 Group structure of the company & holding of shares: As per the Balance Sheet for the period ending 30.03.2008, in the notes forming parts of Accounts at Sl. No. 1 names of related parties & description of relation, is stated as:- Holding Company:- Immediate - Twinstar Holding Company Ultimate -Vedanta Resources Holding Ltd. Vedanta Resources P/L Volcano Investments Ltd. Fellow Subsidiaries:- (i) Sterlite Industries India Ltd. (SIIL) (ii) Hindustan Zinc Ltd. (iii) Bharat Aluminium Co. Ltd. (iv) Sterlite Paper Ltd., (v) Sterlite Energy Ltd. &^ a number of Companies From the web page of Twin Star Holding Ltd., Vedanta Resources Pvt. Ltd., Sterlite Industries (India) Ltd., and Bharat Aluminium Company Ltd., the following information were gathered- (i) Twin Star Holdin....
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....dly the transaction between BALCO and VAL is duly documented and properly recorded in the books of accounts of both the companies. We further find that the method of valuation adopted for clearance of calcined alumina from VAL to BALCO was under a business like formula based on the price of aluminium at LME. Further, from the facts on record, we find that there is no incentive for VAL to suppress the clearance value or pay lower tax. Whatever duty was payable as per the invoice, the same was to be paid by BALCO to VAL. Secondly, it has been demonstrated from the appeal paper book, being the extract of cenvat credit, that VAL alone had sufficient credit balance in their cenvat account exceeding Rs. 1 crore, whereas the duty payable was in few lakhs only and thus the cumulative credit balance in cenvat register of VAL was increasing from month to month. Further, it is evident from record that the parties suo motu changed the basis of valuation to the tender price of NALCO for calcined alumina (under International Competitive Bidding). We further find that the situation is wholly revenue neutral as BALCO is clearing their finished product on payment of duty, and whatever duty is charg....