T.K. Jayaraman, Member (T)
1. These appeals have been filed against the OIO No. 5/2004 dated 30.11.2004, passed by Commissioner of Central Excise, Mysore and OIO No. 04/05 dated 28.02.05, passed by the Commissioner of Central Excise, Bangalore-III Commissionerate.
2. The appellants manufacture soap. They have factories at Mysore and Bangalore. In the Mysore factory Sandal Wood Oil, an excisable commodity is manufactured. The entire quantity of Sandal Wood Oil manufactured at Mysore factory is cleared to the Bangalore factory for use in the manufacture of toilet soap. Duty is paid at the Mysore factory on the sandalwood oil on the basis of cost construction method, as there is no sale made from Mysore factory to Bangalore factory. The duty paid at Mysore factory is taken as credit at the Bangalore factory. The toilet soaps manufactured at Bangalore factory are cleared on payment of appropriate duty under Section 4 (A) of the Central Excise Act, 1944 on the basis of Maximum Retail Price (MRP) less permissible deductions.
3. Revenue proceeded against the appellants in Mysore on the ground that they adopted the Assessable Value of the year 2000-2001 even for the subsequent years 2001-2002, 2002-2003 and 2003-2004, inspite of escalation of cost for the raw materials since 2000-2001. The appellant immediately re-determined the Assessable Value of sandalwood oil and paid the differential duty of Rs. 2,52,45,343/- by debiting PLA. Upon payment of differential duty the Mysore factory raised supplementary invoices on the Bangalore factory. Based on the supplementary invoices the Bangalore factory availed Cenvat credit of differential duty paid by the Mysore factory. The Commissioner of Central Excise, Mysore issued Show Cause Notice dated 30.08.2004 demanding differential duty of Rs. 2,52,45,268/-. The Commissioner of Central Excise, Mysore, confirmed the demand by invoking the extended period. In the meanwhile, the Bangalore Commissioner, initiated proceedings to disallow and recover the Cenvat credit of the Additional Duty paid by the appellants' Mysore factory on the ground that the said Additional Duty was paid on account of suppression of the actual value of the excisable goods by their Mysore factory. Show cause notice dated 03.12.2004, was issued to the appellants by the Commissioner, Bangalore-III Commissionerate. In the impugned order the Commissioner disallowed the Cenvat credit. The appellants are aggrieved over the orders of the Commissioner, Mysore and Bangalore respectively. They have strongly challenged the impugned orders.
4. Sri. G. Shivadass, the learned Advocate appeared for the appellants and Sri. R.N. Vishwanath, the learned SDR appeared for the Revenue.
5. The learned Advocate adduced the following arguments:
I. Both the Commissioners, in the impugned orders, have held that in the entire act of the appellants in not paying the appropriate duty at Mysore, there has been no loss of Revenue to the department.
II. The appellants unit is a state Government Undertaking, whose accounts are subjected to scrutiny by various agencies including AG's Audit. Hence, there cannot be any intention to evade payment of duty.
III. Since the final product is assessed to duty under Section 4 (A) on the basis of MRP less permissible deductions, the MRP would have been fixed taking into account the increased cost of the raw material. The increased cost of raw material has suffered duty at the Bangalore factory. IV. In view of the above, the duty paid at Bangalore factory would have in any way been paid as excise duty by the appellants. This is so because whatever duty is paid by the Musore factory, the same is taken as Cenvat credit by the Bangalore factory.
V. The learned advocated relied on the following case laws:
++ Electricity Pole Manufacturing v. CCE- 1999 (109) ELT 595
++ BPL Sanyo Utilities & Appliances v. CCE- 2002 (149) ELT 1416
++ Amco Batteries Ltd v. CCE- 2003 (153) ELT 7 (SC)
++ CCE, v. Mahindra & Mahindra Ltd -
++ CCE v. BPL Sanyo Utilities & Appliances - 2004 (62) RLT 293
++ BPL Ltd v. CCE -Final Order No. 761/2004 dtd 08.04.04
++ CCE v. Narmada Chematur Pharmaceuticals - 2005 (179) ELT 276 (SC)
VI. Availment of Cenvat credit Additional duty paid by Mysore unit is not covered by the exclusion under the erstwhile Rule 57E or the Rule 7 (1)(b) of the Cenvat credit Rules, 2002, in view of the fact that the above Rule will be applicable to only sale from one manufacturer to another manufacturer. In this case, since both the factories belong to the same manufacturer and when there is no sale, the above rule will not be applicable. Hence, Cenvat credit will be admissible. VII. The above position is clear from the fact that the Mysore factory has been paying duty under the provisions of Rule 8 of the Central Excise Valuation Rules 2000, which applies only to transactions not involving sale. Once the department has accepted that there is no sale between the Mysore and Bangalore factory there cannot be any bar of availment of CENVAT under rule 7 (1) (b). Even in the context of Rule 57 CC the Tribunal held that in the context of Modvat rules the expression 'sale' has to be interpreted as between two entities and not been two devisions of same entity.
++ Kalyani Brakes Ltd. v. CCE -
++ Essel Packaging Ltd. v. CCE - 2000 (117) ELT 466
6. Sri R.N. Vishwanath, the learned SDR reiterated the departmental view.
7. We have gone through the rival contentions. In this appeal we have to examine the Order in Original dated 10.12.2004 passed by the Commissioner of Central Excise, Mysore and also the Order in Original dated 25.02.05 passed by the Commissioner of Central Excise, Bangalore-III.
8. First let us examine the OIO passed by CCE, Mysore. During the period 2000-2001, the assessable value of Sandalwood Oil was Rs. 6859/- per kg on cost construction basis. It is not disputed that the same price of sandalwood oil was adopted for assessment for subsequent years even though the said goods were being sold at a much higher price regularly to other buyers. The appellants contend that the irregularity was a bonafide mistake and there was no intention to evade payment of duty. The adjudicating authority has not accepted this contention of the appellant. He has stated that the department has come to know about the irregularities only when the matter was investigated by the Audit Officers and the assessee had not made any attempt to correct themselves or seek clarification from the department. However, when the short levy was pointed out they have quickly reacted by making payment of differential duty along with interest. The adjudicating authority has referred to the statement of Sri. M.K. Hanumanthaiah, Deputy General Manager of M/s. KSDL, Mysore, wherein he has categorically stated that after submitted a cost sheet to the department on 18.08.2000, they had neither revised the value nor disclosed the increasing value to the department. In view of the above, the adjudicating authority has given a finding of intention to evade duty. The irregularity continued for a period of four years. The learned adjudicating authority has also relied on the observation of the Apex Court in para 14 in the case of M/s. Madras Petrochem Ltd v. CCE, Madras reported in 1999 (108) ELT 611 (SC).
9. The appellant who is under SRP has an obligation to pay duty on the correct value. The fact that the price of sandalwood oil has escalated is not in dispute. Definitely, the escalated cost has been taken into account while arriving at the value of the final product. Under these circumstances non-revision of the Value of Sandalwood Oil in stock transfer to Bangalore unit is a very serious lapse. The inference drawn by the adjudicating authority that there is intention to evade payment of duty cannot be faulted. The fact that the appellants are a Government unit is not relevant when the Excise law is violated with impunity. There is no sanction in law to treat Government units differently for serious infractions. Hence, suppression of facts and invocation of longer period are sustainable. Hence, we are in agreement with the adjudicating authority that the demand of Central Excise duty amounting to Rs. 2,55,45,268/- is sustainable. The adjudicating authority had already appropriated this amount as the appellant had paid the same when the audit detected the short levy. We also uphold the demand of interest. The interest has also been paid. In view of the above finding, the appeal No. E/248/05 is dismissed.
10. The Order in Original passed by Commissioner Bangalore, is concerned with the CENVAT credit availed by the appellant on the basis of supplementary invoices issued by the Mysore factory. The adjudicating authority has denied the CENVAT credit on the ground that the additional duty paid by the Mysore factory is on account of fraud, suppression of facts etc., and therefore in view of rule 7 (1)(b) of CENVAT Credit Rules, no credit can be availed on the supplementary invoices. However, the learned advocate for the appellants strongly contended that the bar for availing CENVAT credit on supplementary invoices will be applicable only when goods are sold and not for goods stock transferred. He relied on the following case-laws which interpreted the expression 'sale' in the context of Rule 57CC of the Central Excise rules.
Wheel & Axle Plant v. CCE, Bangalore - III -
Cenvat/Modvat - Goods when shifted to another unit of assessee i.e., Zonal Railways, for captive consumption, no sale of goods involved - Modvat Credit not required to be reversed under Rule 57 CC of erstwhile Central Excise Rules, 1944.
Ballarpur Industries v. CCE, Nagpur - 2001 (134) ELT 94 (T)
Modvat - Shifting of goods produced at one unit of assessee to another unit for captive consumption in manufacture of final goods chargeable at nil rate of duty, does not involve any 'sale' there being no transfer of properties as 'units' are not separate legal entities, hence, provisions of erstwhile Rule 57CC of Central Excise Rules, 1944 not applicable and Modvat credit not reversible under erstwhile Rule 57I ibid for alleged violation of these provisions.
11. The relevant portion of Rule 7(1)(b) is reproduced below:
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:-
b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions 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 became 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 willful 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.
A very careful reading of the above rules shows that the bar of 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 ay willful misstatement 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, where 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 even if the additional amount of duty becomes recoverable from A on account of fraud, suppression of facts etc., the unit B can take credit. The case laws relied on by the learned advocate are squarely applicable. We are in agreement with the above contentions of the appellant that Rule 7 (1) (b) of CENVAT credit rules cannot debar availment of CENVAT credit at Bangalore factory for the simple reason that the transaction between the two factories is not one of sale. It should also be borne in mind that both the factories belong to the Government of Karnataka. Although the irregularity committed in Mysore resulted in Revenue loss to the Mysore Commissionerate, looking into the totality of the circumstances, there was no revenue loss to the exchequer at all. This fact has been recorded by both the Adjudicating authorities. Whatever duty is paid at Mysore on Sandalwood oil, the same is taken as CENVAT credit at Bangalore. The duty on the finished products namely, toilet soaps is discharged under Section 4A on the basis of MRP. Since the value of soap takes into account the escalated cost of the sandalwood oil there cannot be any short payment of duty on the toilet soaps at Bangalore. In effect, the Government did not suffer any loss. In view of the above reasons there is absolutely no justification to deny CENVAT credit taken by Bangalore factory based on supplementary invoices issued by Mysore factory. Hence, the OIO passed by Commissioner of Central Excise Bangalore, has no merits. The same is set aside. Hence, we allow the appeal E/277/05.