Pegasus Pharmaco India Pvt Ltd. Vs Commissioner Central Goods & Service Tax (CESTAT Delhi)
a) Balaji has not commenced commercial production prior to the cut-off date of 31.3.2010 even though a single invoice was issued and therefore, it was not entitled to the benefit of the exemption notification nor has it claimed it until a few days before the slump sale agreement.
b) The so called slump sale agreement between Balaji and the assessee was, in essence, only an agreement by which the benefit of the exemption notification claimed by Balaji was transferred to the assessee to enable it to claim the benefit on the pharmaceuticals manufactured by it in its own plant (now renamed Unit I) on which the assessee had already availed the full benefit of exemption up to 10 years. Nothing in the business of Balaji remained with the assessee after transfer as the product line of Balaji was discontinued, the name was discontinued (along with it any possible goodwill), the machinery was disposed of, the location was changed to the assessee’s own plant.
c) The MOU signed between Unit I and Unit II is essentially one signed by the assessee with itself with two of its officers, viz., the Managing Director and General Manager signing as two parties whereby its own plant and land was leased to itself to manufacture the same goods which it had been manufacturing claiming the benefit of the area based exemption notification.
d) In essence, the slump sale agreement and the MOU are but a method employed to claim the benefit of the exemption notification for the pharmaceuticals manufactured by the assessee in its own plant beyond the maximum permissible period of ten years. Thus, paying about Rs. 25 lakhs under the slump sale agreement, the assessee has claimed exemption from duty beyond ten years of about Rs. 23
e) The Circulars of the CBEC, which allowed the benefit of exemption when the ownership of the Unit has changed or new machinery is added or new product lines are added or the factory is shifted to a new location, do not come to the aid of the assessee for the reason that in this case, the only thing which changed with the slump sale agreement which the assessee signed with Balaji and the MOU which it signed with itself is the claim of the benefit of the exemption by Balaji and its transfer to the assessee so as to extend the benefit of the exemption to the pharmaceuticals manufactured by it beyond 10 years.
In view of the above, we find that the order passed by the Commissioner is correct in denying the benefit of exemption under notification No. 49/2003 and confirming the demand of duty under section 11A along with interest from the assessee under section 11AA of the Central Excise Act, 1944.
FULL TEXT OF THE CESTAT DELHI ORDER
These three appeals have been filed assailing the same Order-in-Original1 dated May 01, 2019 passed by the Commissioner of Central Goods and Service Tax, Dehradun and are therefore being disposed of together. Appeal No. 50093/2020 is filed by the assessee Pegasus Pharmaco India, while appeal No. 52716 of 2019 is filed by C S Rao assailing the penalties imposed on him. Appeal No. 52893/2019 is filed by Raghuveer Beti assailing the penalties imposed on him.
2. We have heard both sides and perused the records.
3. The facts of the case, in brief, are that M/s. Pegasus Pharmaco India Pvt Ltd.2 situated in Khasra No. 112, Village Matlabpur, Roorkee, Uttarakhand, is a manufacturer of pharmaceutical products. It had availed area based notification 49/2003-CE dated June 10, 2003 which was available in the location of its premises. However, the exemption notification was available to an assessee for ten years only, which period came to an end. Thereafter, the assessee purchased unit namely M/s. Shri Balaji Packing Industries3 695, Nanhera, Ananthpur, Bhagwanpur, Roorkee. Balaji was initially a partnership firm and was thereafter converted into a proprietary firm of Shri Yogesh Kumar Sharma. It was engaged in manufacture of cartons. The assessee purchased Balaji under the slump sale agreement i.e., an agreement in which the entire business is bought without valuing its individual components. The agreement was signed on February 12, 2016 and thereafter it was named by the assessee as Unit No.II of M/s. Pegasus Pharmaco India Pvt Ltd. while its original unit was named Unit No. I. Within 20 days of purchasing Balaji, the assessee shifted it to the assessee’s own address viz., Khasra No. 112, Matlabpur village Roorkee. (now called Unit No. I). Instead of manufacturing cartons, which was the product of Balaji, the assessee started manufacturing pharmaceutical products using the plant and machinery of Unit No. I, and started claiming exemption under Notification No. 49/2003 in the name of Unit No. II. The machinery meant for manufacture and production of cartons by Balaji were sold by the assessee. Meanwhile, in the original premises of Balaji, Shri Yogesh Kumar Sharma, the original proprietor continued to run a unit to manufacture cartons, i.e., same products as before under the name of Shri Ram Packing Industries which was also a proprietary firm. In other words, the only change that has happened, so far as the business of Shri Yogesh Sharma was concerned, was instead of manufacturing and selling cartons in the name of Balaji, he started doing so in the name of Shri Ram Packing Industries.
4. There was no change in the business of the assessee also inasmuch as it continued to manufacture pharmaceutical products which it was manufacturing earlier. No separate legal entity was created with the name of Unit II and both Unit I and II are part of same legal entity namely M/s. Pegasus Pharmaco India Pvt Ltd., the assessee.Both were located in the same premises. Initially, for 20 days after acquisition of Balaji, Unit No. II is said to have operated from the original premises of M/s. Balaji. Further, the same machinery which were being used to manufacture pharmaceutical in the name of Unit No. 1 were used to manufacture the same pharmaceutical products in the name of Unit II. A Memorandum of Understanding4 was signed between the so called Units I and II whereby the land and machinery of Unit No. I were leased to Unit No. II. In other words, there was an agreement between two arms of the same legal entity effectively operating from the same premises and using the same machinery to manufacture the pharmaceutical products. This MOU was signed between Mr Raghuveer Beti, Managing Director of M/s. Pegasus Pharmaco India Pvt Ltd. representing its unit No. I and Shri C S Rao, General Manager of the same company representing Unit No.II. In other words, the MOU was signed by the assessee with itself with the Managing Director and General Manager of the assessee signing on behalf of the two units.
5. Receiving intelligence that the assessee was wrongfully availing the exemption Notification No. 49/2003-CE dated June 10, 2003, its premises were searched by the officers on March 15, 2016 and it was noticed that the benefit of exemption Notification to the assessee had ended on February 20, 2016. Days prior to this date, it had purchased Balaji under the slump sale agreement. Balaji was operating from rented premises. Balaji was a small scale industry and has not crossed threshold limit, to render it liable to pay Central Excise duty. It had also not availed the benefit of area based exemption Notification No. 49/2003. Just 20 days before the sale, M/s. Balaji opted for the benefit of exemption Notification No. 49/2003 and thereafter sold its business in a slump sale agreement to the assessee who called it Unit No. II and shifted its business to its own premises. After 8 days, on March 10, 2016, the assessee sold the entire plant and machinery of Balaji, entered into an MOU with its own Unit No. I and started manufacturing pharmaceuticals in its old premises using its own machinery in Unit I. The case of the Revenue is that after completing its entitlement of exemption for 10 years, the assessee purchased Balaji which manufactures cartons under a slump sale agreement and called it Unit No. II. Nothing in the business of Balaji remained. The premises were changed to assessee’s own place. The entire machinery of Balaji were sold. No cartons were manufactured. The assessee is using its own machinery in Unit I to manufacture pharmaceuticals from its own premises.
6. A show cause notice was issued to the appellants herein by the Commissioner of Central Tax, Dehradun, paragraph 13 of which reads as follows:-
“13. M/s Pegasus Farmaco India Pvt. Ltd., Unit-II, Khasra No. 112, Matlabpur Village, Roorkee are, therefore, required to show cause to the Commissioner, Central Goods & Services Tax, Commissionerate, E-Block, Nehru Colony, Dehradun as to why:-
a) Benefit of exemption from Central Excise duty under the Notification 49/2003-CE dated 10.06.2003 for the period 17.02.2016 onwards should not be denied to them;
b) Central Excise Duty amounting to Rs. 23,04,75,983/- (Rupees Twenty Three Crore Four Lakh Seventy Five Thousand Nine Hundred and Eighty Three Only) as detailed in Annexure-A to this notice on excisable goods namely pharmaceutical goods/P.P. Products (Tablets and capsules) falling under CETSH 3004 of the Central Excise Tariff Act 1985 manufactured and cleared, for the period 20.04.2016 to 06.2017, should not be demanded and recovered from them under provisions of Section 11A(4) of Central Excise Act, 1944;
c) Applicable interest on above duty should not be demanded and recovered from them under Section 11AA of Central Excise Act, 1944; and
d) Penalty should not be imposed upon them under Section 11 AC (1)(a) of Central Excise Act, 1944 read with Rule 25 of Central Excise Rules, 2002.
14. Whereas, Sh. Raghuveer Beti, Director of the noticee, Shri C. S. Rao, Plant Head of the noticee, Shri Yogesh Kumar Sharma, Proprietor of M/s Shri Balaji Packing Industries & M/s Shri Ram Packing Industries and Shri Pramod Kumar Sharma, Village Manakpur, Adampur Roorkee, are also hereby required to show cause within 30(thirty days) of the receipt of this show cause notice to the Commissioner, Central Goods & Services Tax, Commissionerate-Dehradun, E-Block, Nehru Colony, Dehradun, as to why penalty under Rule 26 of Central Excise Rules, 2002, should not be imposed upon them.”
7. The Commissioner passed the impugned order, the operative part of the which is as follows:-
1) I deny the benefit of Central Excise duty exemption under Notification No. 49/2003-CE dated 10.06.2003 to M/s Pegasus Farmaco India (P) Ltd [Unit-II] Khasra No. 112, Village-Matlabpur, Roorkee;
2) I confirm the demand of Central Excise duty amounting to 23,04,75,983/- (Rupees Twenty Three Crore Four Lac Seventy Five Thousand Nine Hundred Eighty Three only) from the party for the period 20.04.2016 to 30.06.2017 under Section 11A(4) of Central Excise Act, 1944;
3) I confirm Interest as per applicable rates on the above confirmed demand of duty under Section 11AA of Central Excise Act’ 1944;
4) I impose a penalty of Rs. 23,04,75,983/- (Rupees Twenty Three Crore Four Lac Seventy Five Thousand Nine Hundred Eighty Three only) on the party under Section 11AC(1)(c) of Central Excise Act, 1944;
5) I impose the penalty of Rs. 2,00,00,000/- (Rupees Two Crore only) on Sh Raghuveer Beti, Director of the party under Rule 26 of the Central Excise Rules, 2002;
6) I impose the penalty of Rs. 50,00,000/-(Rupees Fifty Lakhs only) on Sh C S Rao, Plant Head of the party, under Rule 26 of the Central Excise Rules, 2002;
7) I impose the penalty of Rs. 5,00,000/- (Rupees Five Lakhs only) on Shri Yogesh Kumar Sharma (proprietor of M/s Shri Balaji Packing Industries and M/s Shri Ram Packing Industries) under Rule 26 of the Central Excise Rules, 2002;
8) I impose the penalty of Rs. 5,00,000/- (Rupees Five Lakhs Pramod Kumar resident of Village-Manakpur, Adampur, Roorkee under Rule 26 of the Central Excise Rules, 2002.”
8. Aggrieved, the assessee filed an appeal on the following grounds:-
1) Balaji started commercial production before March 31, 2010.
2) Statements by the proprietor of Balaji, Shri Yogesh Sharma were tendered under duress.
3) The appellant has entered into slump sale agreement and then shifted the unit of Balaji to its own premises.
4) The recommencement of manufacturing activities by the seller in its old premises shall not in any way hit the exemption available to the appellant.
5) The appellant is entitled to avail the benefit of exemption under Notification No. 49/2003-CE dated 10.06.2003.
9. Accordingly, it has been prayed to hold that the assessee was entitled to benefit of exemption of Notification and consequently drop the demand along with the interest, quash the penalty and allow other consequent reliefs.
10. In their appeals, Raghuveer Beti and C S Rao, have asserted that the assessee was entitled to the benefit of exemption Notification and consequently the penalties imposed on them under Rule 26 of the Central Excise Rules need to be set aside.
11. It is submitted that Balaji was entitled to the benefit of the exemption notification because it had started commercial production of goods (cartons) prior to the cut off date of 31 March 2010, though it did not claim the benefit until few days before it was sold to the assessee. Balaji had commenced production prior to cut off date, March 31, 2010 and the first sale invoice No. 1 was issued on 31.3.2010. Chartered Accountant’s certificate to that effect was also submitted. It is further submitted that a declaration was filed with the office of District Industries Centre (DIC) although Balaji had not filed part II of the acknowledgement with the DIC. Non-filing of part II of the acknowledgement with the DIC does not take away the eligibility of the exemption under Central Excise as it was not a condition to the notification. It has further been submitted that in paragraph 9.9 and 9.10 of the impugned order, the Adjudicating Authority has mentioned that the electricity connection of 63 KVA was obtained by Balaji only on April 24, 2010 and therefore, it was inferred by him that the production could have taken place only after that day. It is submitted that prior to this date, the appellant had obtained a generator on rent of Rs.5000/- for the period March 25, 2010 to April 24, 2010. So long as it is on record that Balaji had the generator and existence of the same has also been recorded in its books of accounts, manufacture was possible.
12. The Adjudicating Authority held that the machines and inputs required for manufacture were brought into the State of Uttaranchal only on March 30, 2010 and it was very unlikely that Balaji could have undertaken the manufacturing activity on the same date. It has been submitted on behalf of the appellant that in view of the deadline of March 31, 2010, Balaji had worked 24 X 7 and commenced the production. Further, the manufacture of cartons does not require too much of heavy machinery, all the machinery was installed on the same day, manufacturing had been commenced and the first invoice was issued on March 31,2010. Therefore, the commercial production had begun on that day.
13. The Adjudicating Authority has, based on sale figures, inferred that Balaji had undertaken only trial production until June 2010 which inference was not warranted. In fact, commercial production began on 31 March 2010 itself but there were no orders until June 2010 when production on a large scale commenced. Since the production began on 31 March, 2010, Balaji was eligible for benefit of Notification No. 49/2003.
14. It has been submitted hat the statement of Shri Yogesh Kumar Sharma, proprietor of Balaji was taken under duress. The statement was typed and has been recorded categorically as follows:-
“ The above statement tendered by mte is true & correct to the best of my knowledge and nothing has been hidden by me. The above said statement has been typed by me as my handwriting is not very comprehensible. I have read the said statement properly and signed the same after verifying and understanding its contents.”
15. The above text also does not establish that the statement was taken peacefully and not under duress. Yogesh Kumar Sharma has filed an affidavit on July 06, 2018 to clarify his stand. Therefore, the statement of Yogesh Kumar Sharma should be treated as involuntary given under duress.
16. It has further been submitted by the assessee that Balaji was purchased by it under slump sale agreement duly paying court fees. Thereafter, it was renamed Unit No. II and shifted to its own premises. Unit No. I has followed due process and rented the premises to Unit No. II and even paid the Service Tax and GST on the rent received from Unit No. II. The statement of Rajesh Singh that Unit I was closed at the end of February, 2016 and no production activity was being carried out up to March 2016 and from April, 2016, the production was carried out in the name of Unit No. II was not correctly interpreted. In his statement Rajesh Singh categorically stated that production had commenced but it was in Unit named as Unit No. II.
17. Regarding recommencement of manufacturing activity by Yogesh Kumar, the owner of Balaji after the slump sale in the name of Shri Ram Packing Industries, it was submitted that the assessee had sold the machines which it received as part of slump sale agreement. The Chartered Accountant Piyush Jindal had issued a certificate prior to and after shifting of the machinery. It is further submitted that Yogesh Kumar Sharma proprietor of Balaji had retracted his original statement dated 22.12.2016 on 07.2018 stating as follows:
“that I was under duress and tremendous stress on 22.12.2016 when my statement was recorded by the investigating officers which lead to tendering of incorrect facts, whereas the actual fact of the matter are that I have sold the entire manufacturing unit as to M/s. Pegasus Pharmaco India Private Limited in terms of slump sale agreement and they have continued the business of the said manufacturing unit with effect from 12th February 2016 in the same premises under a separate agreement/ arrangement after which they have shifted their production facilities to some other place, wherein they duly shifted the entire infrastructure including machineries etc. sold by me from the said premises.”
18. It was further submitted that M/s. A V Print Pack had issued VAT invoices No. 1533 dated 09.03.2016 for sale of old machines to M/s. Shri Ram Packing Industries. Thus, Yogesh Kumar Sharma has, after selling Balaji and its machinery, set up a new manufacturing unit in the name of Shri Ram Packing industries.
19. It has also been submitted that shifting of Unit to new premises will not disentitle the appellant to take the benefit of exemption notification as clarified by Central Board of Excise and Customs in Circular No. 960/3/2012 dated 17.02.2012. and plant or machinery or the production of new products by a eligible unit after the cut off date but during the exemption period of ten years will also not disentitle the appellant to the notification. As per Circular No. 939/29/2010-CX dated 22.12.2010 exemptions given under Notification No. 49 and 50 of 2003 dated 10.06.2003 would allow the new Units or existing Units, which have undergone substantial expansion before the cut off date i.e. on or before 31.03.2010.
20. In view of the above, it is prayed that the impugned order may be set aside.
21. Learned Departmental Representative supports the findings of the impugned order and asserts that it calls for no interference.
22. We have considered the submissions of both the sides.
23. The first question to be answered is whether Balaji had commenced commercial production prior to 31.3.3010 at all which was the cut-off date for the benefit of the exemption notification. It is not disputed that the first invoice was issued to Balaji on 03.2010. The exemption notification was available to “new industrial units which commenced commercial production on or before 7th day of January, 2003 but not later than 31st day of March, 2010.” Therefore, the date of commencement of commercial production of the unit becomes relevant. In the statement submitted by Balaji before the District Industrial Centre (DIC), on the basis of which acknowledgement in part I was issued to Balaji, the proposed the date of commercial production was shown as December, 2010. Part II of the declaration which indicates the actual date of commencement part of commercial production was not filed by Balaji. The machinery was purchased by Balaji on 29.03.2010 from M/s. M R Engineering Works and raw material was purchased from M/s. Uttaranchal Pulp and Paper Mills (P) Ltd. on the same date. The machinery had not even entered the State of Uttaranchal before 30.03.2010. It would not be unreasonable to infer that after purchase of machinery and raw material, it will take a few days to set up the machinery, initiate production, conduct trials and then finally starting commercial production. The appellant submitted that all these were accomplished within 24 hours of purchase of machinery and raw material by Balaji and commercial production was commenced on 31.03.2010 itself. In fact, at that time Balaji had not even an electricity connection which was obtained much later on 24.4.2010. Prior to this date, it had rented a generator for the period from 25.3.2010 to 24.4.2010 and about Rs.5000/- was paid as rent for the purpose. Subsequent sale of the goods during April, 2010 to March, 2011 were as follows:
