Indo Shell Cast Pvt. Ltd Vs commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that demand invoking extended period cannot be sustained on account of revenue-neutrality as duty charged by Unit-I would be taken as cenvat credit by Unit-II.
Facts- The appellant is Unit-II and is engaged in the manufacture of rough castings. These rough castings are supplied to Unit I for further processing into machined castings.
On verification of records, it was found that appellant (Unit II) transferred their products to Unit I on stock transfer basis by paying duty adopting the value based on their declared cost of production. The value so adopted by the appellant was found to vary with actual cost of production of the castings as per CAS 4 statement prepared on the basis of the audited accounts of the appellant as certified by Chartered Accountant.
It was noted by the department that the value adopted by the appellant for payment of duty was not based on 110% value cost of production arrived at as per the CAS 4 statement certified by the Chartered Accountant. This has resulted in short payment of duty for some financial years where there was excess payment of duty for some financial years.
The non-adoption of correct assessable value thus resulted in short payment of duty and also excess payment of duty. The Unit I availed credit on such duties. It appeared to department that by excess duty the appellant has transferred ineligible credit to Unit-I.
Show cause notice was issued to the appellant proposing to demand differential duty and also to disallow the cenvat credit availed on the excess duty paid. After due process of law, the original authority confirmed the demand of differential duty on Unit II along with interest and imposed penalties. The cenvat credit availed by Unit I on the excess duty paid was disallowed and was ordered for recovery of the same along with interest and imposed penalties. Aggrieved by such order, the appellants are now before the Tribunal.
Conclusion- The actual cost of production can be ascertained only on finalization of accounts of each financial year and certification of CAS 4 by the Cost Auditors. In fact, there is no evasion of duty and the short payment occurred only because the actual cost of production could not be ascertained at the time of clearance of goods.
We have no hesitation to conclude that the facts present is a revenue-neutral situation and therefore the demand invoking extended period cannot sustain and requires to be set aside which we hereby do. The demand for the normal period is sustained.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The issue involved in both these appeal being analogous were heard together and are disposed by this common order.
2. The appellant in E/42463/2013 is Unit-II and is engaged in the manufacture of rough castings. These rough castings are supplied to Unit I for further processing into machined castings. Both Unit I & II are registered separately under Central Excise Rules. Rough castings manufactured in Unit II are in the nature of semi-finished goods which were subsequently consumed captively at Unit I for the manufacture of machined castings. The machined castings are cleared from Unit – I on payment of duty.
3. On verification of records, it was found that appellant (Unit II) transferred their products to Unit I on stock transfer basis by paying duty adopting the value based on their declared cost of production. The value so adopted by the appellant was found to vary with actual cost of production of the castings as per CAS 4 statement prepared on the basis of the audited accounts of the appellant as certified by Chartered Accountant. From letter dt. 12.08.2008 addressed by the appellant to the Deputy Commissioner of Central Excise (Audit), Coimbatore, it appeared that there is no sale involved on the clearance of castings from Unit II to Unit I and also that they have determined the assessable value based on the cost of production. When the goods are not sold by the manufacturer-assessee but are used captively by them on their behalf in the manufacture of other articles, the valuation of goods for the purpose of Central Excise duty, has to be done a per Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The said Rule 8 states that “where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the manufacture of other articles, the value shall be 110% of the cost of production or manufacture of such goods”.
4. It was noted by the department that the value adopted by the appellant for payment of duty was not based on 110% value cost of production arrived at as per the CAS 4 statement certified by the Chartered Accountant. This has resulted in short payment of duty for some financial years where there was excess payment of duty for some financial years.
5. The non-adoption of correct assessable value thus resulted in short payment of duty and also excess payment of duty. The Unit I availed credit on such duties. It appeared to department that by excess duty the appellant has transferred ineligible credit to Unit-I.
6. Show cause notice was issued to the appellant proposing to demand differential duty and also to disallow the cenvat credit availed on the excess duty paid. After due process of law, the original authority vide order dt. 30.08.2013 confirmed the demand of differential duty on Unit II along with interest and imposed penalties. The cenvat credit availed by Unit I on the excess duty paid was disallowed and was ordered for recovery of the same along with interest and imposed penalties. Aggrieved by such order, the appellants are now before the Tribunal.
7. Ld. Counsel Sri M.S. Nagaraja appeared for the appellant and put forward arguments mainly on the ground of limitation. It is submitted that the appellant namely M/s.Indo Shell Cast Pvt. Ltd., Unit I is manufacturer of machined castings and parts for use in automobile industry. In order to achieve high quality precision of the castings, the appellant-company imported machinery and established Unit II in July 2005 at Malumichampatti, Coimbatore for manufacture of rough castings. These rough castings were stock transferred to Unit I situated in Sidco Industrial Estate, Coimbatore for manufacture and clearance of Machined Castings to the Automobile Industries on payment of Excise Duty.
8. Unit II was purchasing raw material and availing cenvat credit of the duty paid. They manufactured rough castings and stock transferred them under excise invoices to Unit I on payment of duty on 110% of the estimated cost of production. Unit I thus availed CENVAT credit of the duty paid on rough castings. The internal audit party of the Department audited the books of accounts during the period from 18.07.2008 to 21.07.2008 and sought further details on the method of determining the value of the goods manufactured and stock transferred from Unit II to Unit I. The appellant furnished all the details and books of accounts as sought by the department. However, show cause notice dated 02.05.2012 was issued invoking the extended period alleging that the appellant has suppressed facts with intention to evade payment of duty. It is alleged in the SCN that the value adopted for the stock transfer of goods by Unit II to Unit I varies with actual cost of production as per CAS 4 statements prepared on the basis of audited accounts. It is alleged in the SCN that the appellant had not adopted correct assessable value of 110% of the cost of production arrived at on the basis of CAS-4. Thus it is alleged in the SCN that non adoption of the correct assessable value has resulted in short payment of duty for certain periods and excess payment of duty for other periods. It was further alleged that the excess payment of duty has resulted in transfer of excess cenvat credit to Unit I. SCN has proposed to demand differential duty of Rs.61,81,244/- along with interest from Unit II for the period 2007-08, 1.4.2008 to 31.1.2009 and 1.4.2011 to 30.9.2011. The SCN also proposed to disallow and demand cenvat credit of Rs.13,42,860/- on the ground that the excess duty paid by Unit II was not eligible.
9. It is submitted by the Ld. Counsel that the Unit II has manufactured rough castings and stock transferred to Unit I on payment of duty with budgeted / estimated cost of production for captive consumption by Unit I. The actual cost of production of the goods (Rough Castings) for the purpose of payment of duty in terms of Rule 8 of the Valuation Rules, 2000 cannot be determined at the time of clearance of the goods. The actual cost of production can be ascertained only on finalization of accounts for each financial year and certification of CAS 4 by the Cost Auditors. The Rough Castings are “inputs” used by Unit I for manufacture of Machined Castings. Unit I availed cenvat credit of the duty paid by Unit II and utilized the same for payment of duty on finished products (Machined Castings) sold to the customers. Both Unit I & Unit II come under the same company and common Annual Report / Profit and Loss Account. In fact, there is no evasion of duty and the short payment occurred only because the actual cost of production could not be ascertained at the time of clearance of goods.
10. It is submitted by the Ld. Counsel that immediately after the audit, the appellant vide letter dated 12.08.2008 had sought clarification from the department as to the discrepancy in the differential duty calculated by audit as duty short paid. The audit had quantified the differential duty based on the cost of production of the company as a whole including Unit I and Unit II. This was erroneous as the value of finished products (machined castings) cleared from Unit I cannot be taken into consideration for arriving at the assessable value of rough castings stock transferred to Unit I. Even though appellant pointed out this and had sought for clarification from the department vide their letter dt. 12.08.2008, there was no reply in this regard. The appellant further issued letter dt. 21.11.2008 furnishing further documents and also requesting for clarity as to the demand of differential duty pointed out by the internal audit party. Much later, afte continued correspondence, show cause notice dated 2.5.2012 has been issued alleging suppression of facts with intent to evade payment of duty. The appellant has not suppressed any facts and all the details were known to the department. In fact, the demand has been raised from the figures available in the accounts of the appellant. It is also pointed out by the Ld. counsel that for some period, there is excess payment of duty. This itself would establish that the appellant had no intention to evade payment of duty and the short payment, if any, has arisen only due to the fact that the cost of production was not available for computation of the assessable value of rough castings at the time of clearance of such goods.
11. Ld. Counsel vehemently argued that the issue being revenue-neutral, the invocation of extended period cannot sustain. The duty if any paid by Unit II would be eligible for availing credit by Unit I. Therefore, there cannot be any malafide intention to evade payment of duty. To support this argument, Ld. Counsel relied upon the judgement in the case of Nirlon Ltd. Vs CCE Mumbai – 2015 (320) ELT 22 (SC); CCE Chennai Vs Tenneco RC India Pvt. Ltd. 2015 (323) ELT 299 (Mad.). and final order of the Tribunal in the case of Deepak Cables (India) Ltd. Vs CCE Pondicherry – 2018 TIOL-17-CESTAT MAD. The decision in the case of Precot Mills Ltd. Vs CCE Calicut – 2014 (313) ELT 789 (Tri.-Bang.) was also relied.
12. Ld. Counsel pointed out that credit has been denied alleging that excess duty paid by the appellant on the rough castings cannot be considered to be ‘duty’ and therefore credit is ineligible. There are absolutely no grounds for denying credit to the appellant when the duty has been paid as per Central Excise law.
13. For the subsequent period, show cause notices were issued proposing to deny the cenvat credit alleging that the appellant has availed credit on the excess duty paid by Unit II. The Commissioner (Appeals) vide OIA dt. 06.10.2016 set aside the demand which was confirmed by the original authority for the period April 2014 to March 2015 holding that the credit is eligible. Again, on the same issue of payment of excess payment of duty by adopting higher value of rough castings cleared by Unit II and availing of cenvat credit by Unit I, the Commissioner (Appeals) vide OIA dt. 07.09.2017 has set aside the demand confirmed by the original authority. It is submitted that the department itself has accepted that the credit is eligible. Ld. Counsel prayed that the appeals may be allowed.
14. Ld. A.R. Sri Rudra Pratap Singh appeared and argued for the Department. Ld. A.R adverted to para-33 of the OIO and submitted that the issue of revenue-neutrality has to be considered taking note of the facts and circumstances of each case. The original authority has concluded that there was non-disclosure of facts which has resulted in short payment of duty. It is the obligation of the appellant to pay the duty correctly by following the procedure prescribed in law. The appellant has followed their own procedure and thus negated the express provisions of law. Therefore, they cannot escape under the shelter of revenue-neutrality. The appellant has to pay tax first and only then can avail the credit. The judgement relied by the Ld. Counsel for appellant cannot be applied as these are distinguishable on facts.
15. Ld. A.R relied on CBEC circular No.692/08/2003-CX. dated 13.02.2003 and submitted that it has been clarified by the Board that the valuation of goods captively consumed has to be done strictly in accordance with CAS-4. The appellant has to follow Board circular. The CBEC vide circular No.206/01/2017-CX.6 dated 16.12.2017 has issued instructions that an assessee should be directed to furnish CAS-4 certificate of the financial years ending 31st March by 31st December of the next financial yar. The short payment of duty has occurred because they did not adopt the value as per CAS 4. It is violation of provisions of law and therefore the demand of duty and denial of credit are legal and proper. Ld. A.R prayed that the appeals may be dismissed.
16. Heard both sides.
17. The Ld. Counsel has put forward arguments mainly on the ground of limitation. The demand of differential duty is for the period from April 2007 to January 2009 and April 2011 to September 2011. The allegation is that the assessable value adopted for payment of duty on rough castings is not based on 110% of the cost of production arrived at based on CAS-4 statement as certified by Chartered Accountant. It is an undisputed fact that for the same reason of not adopting assessable value as per CAS-4 there is indeed excess payment of duty. The details of the value adopted, short and excess payment of duty paid for the years 2007-08 to 2012-2013 is furnished by appellant as under :
