Case Law Details

Case Name : M/s Bosch Chasssis Systems India Ltd Vs. C.C.E., Delhi III (CESTAT New Delhi)
Appeal Number : Central Excise Appeal No.855 of 2008
Date of Judgement/Order : 22/09/2008
Related Assessment Year :
Courts : All CESTAT (609) CESTAT Delhi (193)

(1)   Whether the assessee is entitled to take cenvat credit on the basis of supplementary invoice of the manufacturer in case additional duty of excise is paid suo motu on receipt of the show cause notice alleging wilful mis-statement or suppression of facts or contravention of the provisions of the Central Excise Act or the Rules with intent to evade duty invoking proviso to Sub-Section (1) of Section 11A of the Act?

(2)     Whether filing of application before the Settlement Commission under Section 32E of the Act for waiver of interest & penalty and immunity from prosecution- after suo motu paying the entire duty demand as per the show cause notice, does not amount to admission of the facts alleged in the show cause notice as regards mis-statement or suppression of facts or contravention of the relevant statutory provisions with intent to evade payment of duty?

(3)     Whether the Settlement Commission is required to record a specific finding regarding suppression of facts etc., and in the absence of any such finding, a conclusion cannot be drawn from admission of the facts alleged, so as to disentitle the applicant to take cenvat credit under the Cenvat Credit Rules?

The controversy has arisen in context of admissibility of the supplementary invoice in respect of additional duty in view of clause (b) of rule 7(1) of Cenvat Credit Rules in terms of which supplementary invoice cannot be taken as proof of payment of duty where duty had become recoverable on account of  non-levy or short-levy by reason of fraud , collusion or willful misstatement or suppression of facts or contravention of any provisions of the Central Excise Act or Customs Act or Rules made thereunder with intent to evade payment of duty. In a nutshell, the benefit of Cenvat credit can be denied only in cases of fraud, collusion, etc., but the assessee can establish that no case of fraud, collusion etc. was made out against him.  Thus, whether in the particular case, the benefit of cenvat credit has rightly been disallowed should be left to the appellate forum to consider.(Para 12)

In the above view of the matter, Issue Nos.2 and 3 are answered in the negative,  that is, in favour of the assessee and against the Revenue, and it is held that the mere filing of application before Settlement Commission under Section 32E of the Act for waiver of interest, penalty and immunity from prosecution and suo motu payment of duty as per show cause notice may not necessarily per se construed  as admission of the allegations in the show cause notice as regards the fraud, collusion etc. Inference in this regard may be drawn from the contents of the application, that is, pleadings of the applicant and finding of the Settlement Commission, if any. Issue No.1 pertains to the merits of the case and parties generally agreed that the same may be decided by the Division Bench at the stage of final disposal of the appeal.(Para 13)

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

West Block No.2, R.K.Puram, New Delhi

COURT-I

Central Excise Appeal No.855 of 2008

Date of hearing: 22.9 .2008

Date of decision: 22.9. 2008

Arising out of the order in original No.2/CE/JM/2008 dated 24.1.2008 passed by the Commissioner , Central Excise , Gurgaon.

Larger Bench

Coram : Mr. Justice S.N. Jha, President, Mr. M. Veeraiyan,  Member (Technical), Mr. P.K. Das, Member (Judicial)

M/s Bosch Chasssis Systems India Ltd………Appellants

Gurgaon

vs.

C.C.E., Delhi III…………….Respondent

Shri A.M. Rao, Advocate for the appellants

Shri H.K.Thakur, Authorized Departmental Representative (Jt. CDR) for the Revenue

O R  D  E  R

Per Justice S.N. Jha:

This appeal has come up before the Larger Bench for decision on the following issues:

(1)           Whether the assessee is entitled to take cenvat credit on the basis of supplementary invoice of the manufacturer in case additional duty of excise is paid suo motu on receipt of the show cause notice alleging wilful mis-statement or suppression of facts or contravention of the provisions of the Central Excise Act or the Rules with intent to evade duty invoking proviso to Sub-Section (1) of Section 11A of the Act?

(2)        Whether filing of application before the Settlement Commission under Section 32E of the Act for waiver of interest & penalty and immunity from prosecution- after suo motu paying the entire duty demand as per the show cause notice, does not amount to admission of the facts alleged in the show cause notice as regards mis-statement or suppression of facts or contravention of the relevant statutory provisions with intent to evade payment of duty?

(3)        Whether the Settlement Commission is required to record a specific finding regarding suppression of facts etc., and in the absence of any such finding, a conclusion cannot be drawn from admission of the facts alleged, so as to disentitle the applicant to take cenvat credit under the Cenvat Credit Rules?

2.         The dispute relates to taking of Cenvat Credit of additional duty. The Appellant, engaged in the manufacture of motor vehicle parts, such as, brake systems, brake assemblies and components thereof, have three factories at Jalgaon and Pune in the State of Maharashtra and Manesar (Gurgaon) in the State of Haryana. In their Gurgaon factory, they receive inputs from Jalgaon and Pune units cleared on payment of duty on the basis of cost of production as per Rule 8 of the 2000 Valuation Rules. They take Cenvat credit of excise duty paid by Jalgaon and Pune Units. The product after processing etc. is finally cleared to Maruti Udyog Ltd. on  payment of duty on the basis of price indicated in the purchase orders. By the impugned order, Cenvat credit has been denied on the ground that the differential duty had been paid towards short payment of duty on account of suppression of facts etc. in terms of proviso to Section 11A(1) of the Central Excise Act.

3.         Cenvat Credit Rules, 2002 (replaced by 2004 Rules) , inter alia, laid down the eligibility as well as the manner and procedure in the matter of availment of cenvat credit. Rule 7 thereof (now Rule 9) specified the documents on the basis of which cenvat credit could be taken by a manufacturer. One of the documents is supplementary invoice in respect of additional duty. The rule, however, contained an embargo to the effect that if the additional duty had become recoverable on account of 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 the rules made thereunder with intent to evade payment of duty, the supplementary invoice in respect of such additional amount of duty will not be admissible as proof for taking credit.

4.           It may be clarified here that there was/is no express provision to the effect that the manufacturer or importer will not be entitled to take Cenvat credit of the duty so paid. However, as cenvat credit can be taken only on the basis of specified documents, and  in terms of clause (b) of Rule 7(1), supplementary invoice in respect of payment of  additional duty is an admissible document but subject to  the exception  mentioned therein (supra), it would follow that in view of  the embargo or  exception, where additional duty had been paid on account of non-levy or short-levy etc. by reason of fraud, collusion etc. , cenvat credit cannot be claimed on the basis of supplementary invoice in respect of such additional duty. In order to convey the point, Rule 7  so far as relevant may be quoted as under:

“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.” (emphasis added)

5.         It may be mentioned here that the appellant’s Jalgaon Unit had filed an  application under Section 32E of the Central Excise Act before Settlement Commission seeking waiver of interest, penalty and immunity from prosecution after paying the entire duty demand of Rs.75,96,878/- as per the show cause notice. The dispute arose as to whether additional duty in terms of show cause notice which had been issued in terms of proviso to Section 11A (1) of the Central Excise Act, invoking the extended period of five years on the ground of suppression and willful mis-statement of facts and contravention of relevant provisions of the Act and the rules with intent to evade payment of duty” as alleged in the show cause notice, could be taken credit  of in terms of the “exception” part of Rule 7(1) (supra). Counsel for the appellants took a stand that unless  a specific finding on the point of fraud, collusion etc. as the case may be, is recorded by the Settlement Commission, mere filing of the application under Section 32E will not amount to admission of allegations in the show cause notice so as to attract the “exception” clause. In support of the plea, the Counsel placed reliance on Essar Steel Ltd. Vs. C.C.E. – 2008 (222) ELT 154 (Tri-Ahd.).

6.         The Division Bench observed in the referral order that Section 11A contemplates payment of additional duty in cases of short-payment etc. , the notice having been issued invoking the extended period  in terms of the proviso to sub-section (1) of Section 11A which relates to non/short payment of duty by reason of fraud, collusion etc., the payment of additional duty in terms of show cause notice may amount to admission of facts alleged, but as this tentative view  was in conflict with the decision in Essar Steel Ltd. (supra), the appeal was referred to  Larger Bench for decision on issues  mentioned above. The Bench noted that the appellants Jalgaon Unit had admittedly paid the entire differential duty as per  show cause notice and then approached the Settlement Commission seeking waiver of interest & penalty and immunity from prosecution, and although no such application was made by the Pune Unit, there was no dispute that the balance amount  which is the subject matter of dispute in the present proceedings, was similarly paid by the Pune Unit on receipt of similar show cause notice in terms of the proviso to Section 11A of the Act.

7.         We heard Shri A.R. Madhav Rao for the appellants and Shri H.K. Thakur, Joint C.D.R. for the Revenue at length.

8.         Shri Madhav Rao submitted that having regard to the scheme of the Settlement under Chapter V of the Act, and particularly the provisions of Sections 32E and 32F, mere filing of the application before Settlement Commission can not be treated as admission of the guilty so as to give rise penal consequences. Counsel submitted that, no doubt, the applicant is required to make a full and true disclosure of his duty liability, but he may explain the circumstances in which the liability  had arisen, which means that where the Settlement Commission is satisfied with the explanation that it may grant  exemption from penalty and interest and immunity from proceedings. Counsel placed reliance on the case of Sir Shadi Lal Sugar and General Mills Ltd. vs. Commissioner of Income Tax’ 1987 (31) ELT 325 (SC).

9.         Shri H.K. Thakur, learned Joint CDR, submitted that the show cause notice was issued invoking the extended period. As the extended period can be invoked only in cases of fraud, collusion, suppression of facts etc., the mere filing of application before Settlement Commission must be construed as admission of guilt, and in such a case, payment of differential duty under supplementary invoice cannot be utilized as credit under the Cenvat Credit Rules.

10.       In order to appreciate the rival submissions of the parties, we may briefly notice the relevant provisions relating to Settlement Scheme under Chapter V of the Central Excise Act, as it stood at the relevant time, prior to amendment by the Finance Act, 2007.  Section 32E provides for filing application for settlement of cases. Section 32F deals with the procedure on receipt of the application. Sub-section (1) thereof lays down that on receipt of the application, the Settlement Commission shall call for a report from the concerned Commissionerate of Central Excise and on the basis of materials contained in such report and having regard to the nature and circumstances of the case etc. may entertain the application or reject the same. Where the application is entertained under sub-section (6), the Settlement Commission may call for the relevant records and, where the Commission is of the opinion that any further inquiry or investigation in the matter is necessary, it may direct the Commissioner to make such enquiry or investigation and furnish report on the matters covered by the application and any other matter relating to the case. Under sub-section (7), after examination of the records and the report of the Commissioner of Central Excise, if any, and such further evidence as may be placed before it or obtained by it, the Settlement Commission may pass such order as it thinks fit on the matters covered by the application and any other matter relating to the cases not covered by the application but referred to in the report of the Commissioner. The Commission is required to give an opportunity of hearing to the applicant as well as the Commissioner.  Sub-section (1) of Section 32E has bearing on the issue involved and it may, therefore, be quoted in extenso as under:

“Section 32E(1). Application for settlement of cases.: (1) An assessee may, at any stage  of a case relating to him make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his duty liability which has not been disclosed before the Central Excise officer having jurisdiction, the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable  by him and such other particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of  misclassification or otherwise of such excisable goods, to the Settlement Commission to have the case settled and any such application shall be disclosed of in the manner hereinafter provided:”(emphasis added)

From a reading of the above, it would appear, as already indicated earlier, that the applicant is required to make a full and true disclosure of duty liability which has not been disclosed before the jurisdictional Central Excise officer and also ‘the manner in which such liability has been derived’,  apart from the other things. The clause, ‘the manner in which such liability has been derived’ suggests that while admitting the duty liability in full or part – the applicant can explain the circumstances in which he could not discharge the full duty liability giving rise to impugned show cause notice. He may not admit the entire alleged duty liability but he is required to make a full and true disclosure of the liability. This is evident from the next clause ‘additional amount of duty accepted to be payable by him’, which suggests that he may admit only part of the alleged duty liability , but in any case,  he is required to disclose,  fully and truly, what he believes to be his outstanding duty liability. As a matter of fact, he is required to deposit the admitted duty after his application is entertained within a time frame.

11.       If the law permits the applicant to explain the non-discharge of his full duty liability, it may be difficult to hold that the payment of additional/differential duty suo motu on receipt of the show cause notice would per se amount to acceptance of the allegations that non-payment or short-payment etc. was the result of any fraud, collusion or suppression of facts etc.  We hasten to clarify that this observation should not be understood to suggest that irrespective of the nature of the allegation and the attending facts and circumstances, no adverse conclusion can be drawn. We simply wish to emphasise that the non/short payment of duty could be bona fide and there may be good reasons for the assessee to opt for ‘settlement’ not contest the show cause notice. Taking recourse to the Settlement Scheme and the payment of additional/differential duty on receipt of the show cause notice, therefore, per se may not necessarily treated as admission of guilt. The admission, if any, may be found in pleadings of the applicant, that is to say ‘the manner’ in which he seeks to explain the occurrence of the liability. In Sir Shadi Lal Sugar and General Mills Ltd. vs. C.I.T. (supra), a similar argument as one  made on behalf of the Revenue in the present case was rejected in these words:

16.     “We find that the assessee admitted that these were the income of the assessee but that was not an admission that there was deliberate concealment. From agreeing to additions, it does not follow that the amount agreed to be added was concealed. There may be hundred and one reasons for such admissions, i.e. when the assessee realizes the true position it does not dispute certain disallowances but that does not absolve the revenue to prove the mens rea of quasi criminal offence”

If the plea of the Revenue is accepted, it will render the entire exercise before the Settlement Commission nugatory and the provisions of Section 32E (1) [‘manner in which such liability has been derived’] redundant.

12.       In the instant case, as seen above, the controversy has arisen in context of admissibility of the supplementary invoice in respect of additional duty in view of clause (b) of rule 7(1) of Cenvat Credit Rules in terms of which supplementary invoice cannot be taken as proof of payment of duty where duty had become recoverable on account of  non-levy or short-levy by reason of fraud , collusion or willful misstatement or suppression of facts or contravention of any provisions of the Central Excise Act or Customs Act or Rules made thereunder with intent to evade payment of duty. In a nutshell, the benefit of Cenvat credit can be denied only in cases of fraud, collusion, etc., but the assessee can establish that no case of fraud, collusion etc. was made out against him.  Thus, whether in the particular case, the benefit of cenvat credit has rightly been disallowed should be left to the appellate forum to consider.

13.       In the above view of the matter, Issue Nos.2 and 3 are answered in the negative,  that is, in favour of the assessee and against the Revenue, and it is held that the mere filing of application before Settlement Commission under Section 32E of the Act for waiver of interest, penalty and immunity from prosecution and suo motu payment of duty as per show cause notice may not necessarily per se construed  as admission of the allegations in the show cause notice as regards the fraud, collusion etc. Inference in this regard may be drawn from the contents of the application, that is, pleadings of the applicant and finding of the Settlement Commission, if any. Issue No.1 pertains to the merits of the case and parties generally agreed that the same may be decided by the Division Bench at the stage of final disposal of the appeal.

14.       The reference is, thus, disposed of. The appeal may now be listed for disposal before the Division Bench.

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