CESTAT, BANGALORE BENCH (SMB)
Commissioner of Central Excise, Bangalore
FINAL ORDER NO. 701 OF 2012
APPEAL NO. E/58 OF 2011
Date of Pronouncement – 05.11.2012
1. In this appeal filed by the assessee, the short question is whether under section 11AC of the Central Excise Act .they were liable to be penalized on the facts of this case. The facts are that the appellant had removed a Horizontal Cold Chamber Pressure Die Casting Machine (which had been purchased on 04/12/2006 and on which CENVAT credit had been taken) to another unit of theirs on 04/06/2008 without reversing the credit, that this fact was not disclosed to the department until the officers thereof visited the factory and detected the fact on 27/09/2008, that eventually the appellant paid the credit amount of Rs. 81,600/- on 24/10/2008, that they also paid interest thereon amounting to Rs. 3,953/- in terms of section 11AB of the Central Excise Act on the same date, that in a statement dt. 17/02/2009, the Managing Partner of the appellant-firm admitted that the machine had been shifted to their second unit for carrying out certain casting on ingots as they did not have the sufficient space to install the machine in their unit, that it was also admitted that they had availed CENVAT credit on the machine at the time of its purchase but had not informed the department about its shifting to the second unit, that it was also pointed out that the CENVAT credit had since been reversed and the applicable interest paid at the instance of the department, that a show-cause notice dt 22/09/2009 was issued to the appellant, inter alia, for demand of the aforesaid amount of Rs.81,600/- and for appropriation of payment thereof as also for appropriation of the payment of interest thereon and also for imposition of penalty on the appellant under section 11 AC of the Central Excise Act read with Rule 15(2) of the CENVAT Credit Rules, 2004, that this show-cause notice invoked the extended period of limitation under proviso to Section 11A(1) of the Act on the ground of suppression of facts with intent to avail undue benefit under the CENVAT Credit Rules, that in a reply to the show-cause notice the party, inter alia, contested the penal proposal on certain grounds, that the adjudicating authority, inter alia, imposed penalty equal to duty on the assessee under Section 11AC of the Act read with Rule 15 of the CENVAT Credit Rules, 2004, that this penalty was contested by the party in an appeal preferred to the Commissioner(Appeals) on certain grounds based on Rule 4(5)(a) of the CENVAT Credit Rules, 2004 and that this challenge did not succeed with the result that the penalty came to be sustained by the Commissioner(Appeals).
2. The learned consultant for the appellant submits that the relevant proposal in the show-cause notice was based on Rule 3(5) of the CENVAT Credit Rules, 2004 and that the provision actually applicable to this case is Rule 4(5)(a). It is submitted that the machine in question was transferred to another unit of the appellant to be used by that unit as job worker for casting certain machines for the appellant. The capital goods so transferred to the other unit was intended to be returned to the appellant after the job work. On these facts, Rule 4(5)(a) was applicable. Had the appellant reversed the CENVAT credit on the capital goods at the time of its transfer to other unit, they would have been entitled to take recredit of the same amount on receipt of the capital goods back from the job worker unit. On these facts, it is argued that there was a revenue-neutral situation wherein there was no warrant to impose any penalty under Section 11 AC of the Act. In this connection, the learned consultant has relied on the following decisions:-
1. OHM Industries v. CCE [Final Order No. 746 of 2010, dated 26-3-2010]
2. Zenith Machine Tools (P.) Ltd. v. CCE  28 STT 298 (Bang.-Cestat)
3. Pooja Forge Ltd. v. CCE 2006(196) ELT 18(Tri.-Delhi)]
It is further pointed out that an appeal filed by the department against the Tribunal’s decision in the case of Pooja Forge Ltd. (supra) was dismissed by the Hon’ble High Court of Punjab & Haryana vide CCE v. Pooja Forge Ltd. 2008 (229) ELT 46. The learned consultant further submits that the appellant did not have any intent to avail undue CENVAT credit in the aforesaid revenue-neutral circumstances. They paid up the amount in question with interest thereon without delay after they were asked to do so. It is also submitted that these payments were made under sub-section 2B of the section 11A of the Act and, therefore, the penalty imposed on the assessee under section 11 AC by the original authority should have been set aside by the Commissioner(Appeals) having regard to Explanation 3 to the said sub-section 2B.
3. The learned Additional Commissioner(AR), apart from reiterating the relevant findings of the original and first appellate authorities, refers to the Managing Partner’s statement as reproduced in para 5 of the statements of facts appended to the show-cause notice and submits that he clearly admitted that the casting machine (capital goods) had been shifted to the other unit for want of sufficient space in the appellant-unit. The Managing Partner also admitted that the shifting of the machine from the appellant-unit had not been disclosed to the department. He also admitted that the CENVAT credit amount and interest thereon were paid only when pointed out by these officers of the department. In such circumstances, according to the Additional Commissioner(AR), the appellant cannot be claimed exemption from payment of Section 11AC penalty. An endeavour has also made to discuss the case laws cited by the learned consultant for the appellant. It is also pointed out that there is no evidence on record to indicate return of the capital goods to the appellant-unit. In the circumstances, the plea of revenue-neutrality is not sustainable.
4. I have given careful consideration to the submissions. It is not in dispute that the capital goods on which CENVAT credit had been availed was shifted to another unit without reversal of the credit. The show-cause notice, therefore, invoked Rule 3(5) of the CENVAT Credit Rules, 2004 and rightly so. Nowhere in their reply to the show-cause notice did they contest the applicability of Rule 3(5) or invoke Rule 4(5) or any other rule. As a matter of fact, the appellant chose to contest only the penal proposal in relation to the capital goods in question. They submitted that section 11AC of the Act provided that no penalty would be imposable if the assessee proved that there is a reasonable cause for their failure. Today the learned consultant fairly concedes that section 11AC did not provide so. The reply to the show-cause notice also stated that the adjudicating authority has discretionary powers under section 11AC. as against which the learned consultant today fairly concedes that section 11 AC is a mandatory provision. The third leg of arguments contained in the reply to the show-cause notice is that the department failed to establish mens rea or culpable mental state against the appellant for a penalty under section 11AC. The learned consultant has sought to elaborate this plea by submitting that the factum of payment to the credit amount with interest thereon by the appellant at the instance of the department indicates that the appellant did not have any intent to avail undue benefit. In such circumstances, it is argued that the section 11AC penalty is liable to be set aside.
5. I have already noted that an amount equal to the CENVAT credit availed and utilized by the assessee was voluntarily paid up by them and also interest thereon was paid under section 11AB of the Act. No issue survives in regard to the CENVAT credit or interest thereon. The question to be considered is whether, on the facts of this case, the section 11AC penalty imposed on the assessee is sustainable or not. On this issue, certain decisions have been cited by the learned consultant. In the case of OHM Industries (supra), certain capital goods on which CENVAT credit had been availed were shifted from one unit to another unit by the assessee. In that case, it was an admitted fact that the entire goods manufactured and cleared by the second unit was received by the first unit. In that situation, it was held that the credit of the duty paid on the capital goods was not liable to be denied to the assessee. In the present case, on the other hand, the Managing Partner of the appellant clearly stated under section 14 of the Central Excise Act that the casting machine had been shifted to the second unit for want of space in the factory. Though the appellant claims that the machine was returned within 180 days from the date of its removal, this claim has not been substantiated. As a matter of fact, they did not raise this claim before the original authority. Further, there is no evidence of any job-worked goods having been received by the appellant from their second unit. In such circumstances, two things have emerged – firstly the above decision is inapplicable and secondly the plea of revenue-neutrality is unacceptable. In the case of Zenith Machine Tools (P.) Ltd. (supra), I have come across the following findings of the Tribunal:
“5…… It is undisputed in this case, that the said job worker M/s. Aditya Engineering is doing job work for the appellant. It is also undisputed that the entire job worked material from M/s. Adity Engineering comes to the appellant for use in the further manufactured of excisable products. I find that the provisions of Rule 4(5)(a) very clearly envisages eligibility to CENVAT credit on the inputs or capital goods which are sent to a job worker. The only condition in Rule 4(5)(a) is that the said goods has to be received back within 180 days of that being sent to job worker and this condition not complied with, then assessee shall reverse an amount equivalent to the CENVAT credit taken and can take the CENVAT credit when the capital goods are received back in the factory or the job worker’s premises. I find that there is no dispute that the said capital goods are utilized by the job worker, it would lend support to the argument that there would be a revenue neutrality and the reversal of CENVAT credit would be revenue neutral as the appellant is entitled to take credit on such amount as soon as he receives the capital goods back from the job worker’s premises. This being the case, I do not find any reason for reversal of the CENVAT credit on the capital goods which were found in the factory premises of the job worker,……………”
On the other hand, in the instant case, it was not the case of the assessee before the adjudicating authority that they were working under Rule 4(5)(a) and the said authority had no occasion to consider any plea of job work or one of revenue-neutrality. The full text of the Tribunal’s decision in the case of Pooja Forge Ltd. (supra) has not been produced before me. What is produced is the text of the High Court’s order, which indicates that no substantial question of law had been raised before the Hon’ble High Court and, therefore, there was no occasion for the Hon’ble High Court to consider any issue. The decisions cited before me are, therefore, irrelevant to the facts of the present case.
6. The assessee has tacitly admitted their liability to have reversed the CENVAT credit at the time of removal of the capital goods. They also voluntarily paid interest under section 11AB. These payments cannot be accepted as payments under sub-section 2B of section 11A of the Act inasmuch as these were made under compulsion. Hence, the question of invoking Explanation 3 ibid does not arise. It is not in dispute that the show-cause notice invoked the extended period of limitation on the ground of suppression of facts with intent to avail undue CENVAT credit. The assessee did not choose to contest the demand on the ground of limitation, thereby virtually accepting the allegation of suppression. Their only grievance is against the penalty. The grounds for invoking the extended period of limitation are Indisputably identical to the grounds for invoking the section 11 AC. If that be so, where the demand has not been contested on the ground of limitation, it is not open to the assessee to oppose the section 11 AC penalty. In other words, where mens rea stands accepted in relation to the demand of duty, it has to be accepted by the assessee vis-a-vis the proposal for imposition of penalty under section 11AC. In the result, the penalty is unquestionable in this case.
7. The appeal is dismissed.
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