Case Law Details
The Explanation given by the CBEC vide its Circular No. 643/34/2002-CX dated 1-7-2002 cannot apply in the cases where the transaction value of the concerned goods is available on record; to ignore such value on the record and to take resort to the explanation given by the CBEC would virtually amount to defeat the mandate of Rule 3(4) which will result In giving overriding effect to the explanation of the CBEC over and above and contrary to the provisions in the statutory rule comprised under Rule 3(4) of the Cenvat Credit Rules, 2002.
CASE LAWS DETAILS
DECIDED BY: CESTAT, PRINCIPAL BENCH, NEW DELHI, IN THE CASE OF: National Engg. Ind. Ltd. Vs. CCE, APPEAL NO: EXCISE APPEAL NO. 572 OF 2005, DECIDED ON APRIL 13, 2010
FACTS
In course of verification of audit, it was revealed to the Department that the appellants had availed Cenvat credit on the inputs namely “Grease Seal’ and had subsequently removed the said inputs to their sister unit namely M/s National Engineering Industries, Khatipura Road, Jaipur without issuing any invoice and by merely reversing the credit in RG-23A Pt. II register. As the transaction value of the said inputs was available at the dealer’s premises, which was the sister unit of the appellants, a show cause notice dated 24/11/03 came to be issued to the appellants requiring the appellants to explain as to why the duty to the tune of Rs. 5,25,979/- should not be recovered from them under Section 11A of the Central Excise Act, 1944 read with Rule 3 (4) of the Cenvat Credit Rules, 2002 along with interest chargeable under Section 11AB of the said Act on the duty short paid/not paid and as to why penalty should not be imposed under Rule 13 (1) of the Cenvat Credit Rules, 2002 read with Rule 25 of the Central Excise Rules. The proceedings were contested by the appellants by filing their reply dated 1st March 200^. It was the contention on behalf of the appellants that the inputs were not sold to an independent buyer, but were only removed in the nature of transfer to the sister unit and the value of the said goods clearly revealed from the invoice on the basis of which the credit was sought to be availed by the appellants. Since, the goods were not sold by the appellants, but were merely transferred to the sister concern, the Circular No. 643/34/2002-CX dated 1/7/2002 issued by the Board and particularly with reference to point 14 thereof clearly required the Department to accept the value of the goods, as disclosed in such Invoice. The contention of the appellants did not appeal to the Adjudicating Authority or to the Commissioner (Appeals) and hence the present appeal.
HELD
As already pointed out above/the undisputed facts in the case in hand are that the products namely Grease Seal procured by the appellants while availing the Cenvat credit in respect of the duty paid thereon, were not consumed in the process of manufacture of the final dutiable product, and instead, without issuing invoices but merely by reversing the amount of credit, the same were removed in favour of their sister concern who is a registered dealer and who resold the same within a period of two weeks from such transfer of goods by the appellants in favour of the dealer and, therefore, the transaction value of those goods was available at the dealer’s premises for the purpose of ascertaining the quantum of duty payable on such goods. There is no similarity between the facts of Eicher Tractors case and those of the case in hand in as much as that in the case of Eicher Tractors the transaction value was not available nor the records disclosed sale of the goods by the dealer or the sister concern immediately after transfer of the goods in their favor. This is a basic and vital difference between the facts of the case of Eicher Tractors and those of the matter in hand. In a case where transaction value is not available on records, obviously the explanation given by the Board under Circular dated 1st July 2002 would apply. But in cases where transaction value is available on record, authorities cannot Ignore binding nature of statutory provision of law comprised under Rule 3 (4) of the Cenvat Credit Rules, 2002. This point was not the subject matter of deliberation nor has been considered by the Larger Bench. Being so, the decision of the Larger Bench in Eicher Tractors case is of no help to the appellants in the matter in hand and is clearly distinguishable taking into consideration difference between the facts of the case in hand and those of the Eicher Tractors case.
As already pointed out above, Rule 3 (4) of Cenvat Credit Rules, 2004 clearly requires transaction value to be considered in the cases where inputs are removed without being consumed by the manufacturer/in favour of third person. However, in the cases where the goods are removed in favour of sister concern or related person, not by way of sale, then certainly problem can arise as regards the valuation of such goods to ascertain the duty liability. It was in that context, while explaining Rule 3 (4), the Board has advised that in those cases, it would be reasonable to adopt the value shown in the invoice on the basis of which trfe Cenvat credit was taken by the assessee. This explanation, however cannot apply in the cases where the transaction value of the concerned goods is available on record to ignore such value on the record and to take resort to the explanation by the CBEC would virtually amount to defeat the mandate of Rule 3 (4) which will result In giving overriding effect to the explanation of the CBEC over and above and contrary to the provisions in the statutory rule comprised under Rule 3 (4) of the Cenvat Credit Rules, 2002. The view that we are taking in the matter also finds support from the decision of the Tribunal in the case of Borkar Packaging P. Ltd. vs. CCE, Daman.
Relevant Extracts
8. Rule 3 (4) of the Cenvat Credit Rules, 2002 provides that while inputs or capital goods, on which Cenvat credit has been taken, are removed as such from the factory, the manufacturer of the final products shall pay an amount equal to the duty of excise which is leviable on such goods at the rate applicable to such goods on the date of such removal and en the value determined for such goods under sub-Rule (2) of Section 3 or Section 4 or Section 4A of the Central Excise Act, 1944, as the case may be, and such removal shall be made under the cover of an invoice referred to in Rule 7.
9. A plain reading of the said rule, therefore, would reveal that in a case where the goods are procured for consumption thereof in the final dutiable products by availing Cenvat credit In respect of the duty paid on such goods, if the same goods instead of consumption thereof for manufacture of dutiable final products are transferred to a third party, then the manufacturer has to pay an amount equal to the duty of excise leviable on such goods at the rate prevalent on the date of removal of such goods and for that purpose, the value of such goods is to be determined in terms of Section 3 (2) or Section 4 or Section 4A of the said Act, as the case may be.
10. The Board’s Circular dated 1st July, 2002 while dealing with the question as to how the valuation has to be done when the Inputs or capital goods on which Cenvat credit has been taken are removed from the factory under sub-Rule (1C) of Rule 57AB of the Central Excise Rules, 1944 or under Rule 3 (4) of the Cenvat Credit Rules, 2001 or 2002 answered the same as under:-
“Where inputs or capital goods, on which credit has been taken, are removed as such on sale, there should be no problem in ascertaining the transaction value by application of Section 4 (1) (a) or the Valuation Rules, [provided tariff values have not been fixed for the inputs or they are not assessed under Section 4A on the basis of MRP].
There may be cases where the inputs or capital goods are removed as such to a sister unit of the assessee or to another factory of the same company and where no sale is involved. It may be noticed that sub-rule (1C) of Rule 57AB of the erstwhile Central Excise Rules, 1944 and Rule 3 (4) of the Cenvat Credit Rules, 2001 (now 2002), talk of determination of value for “such goods” and not the “said / goods”. Thus, if the assessee partly sells the inputs to independent buyers and partly transfers to its sister units, the transaction value of “such goods” would be available in the form of the transaction value of inputs sold to an unrelated buyer (if the sale price to the unrelated buyer varies over a period of time, the value nearest to the time of removal should be adopted).
Problems will, however, arise where the assessee does not sell the inputs/capital goods to any independent buyer and the only removal of such input/capital goods, outside the factory, is in the nature of transfer to a sister unit. In such a case proviso to Rule 9 will apply and provisions of Rule 8 of the valuation rules would have to be invoked. However, this would require determination of the “cost of production or manufacture’, which would not be possible since the said inputs/capital goods have been received by the assessee from outside and have not been produced or manufactured in his factory. Recourse will, therefore, have to be taken to the residuary Rule 11 of the valuation rules and the value determined using reasonable means consistent with the principles and general provisions of the valuation rules and sub-section (1) of Section 4 of the Act. In that case it would be reasonable to adopt the value shown in the invoice on the basis of which CEVAT credit was taken by the assessee in the first place. In respect of capital goods adequate depreciation may be given as per the rates fixed in letter F. No. 495/16/93-Cus.-VI, dated 26-5-93, issued on the Customs side.”
11. The Larger Bench of the Tribunal in Eicher Tractors referring to the said answer by the Board under said Circular has observed that “It is seen that the Board vide its Circular dated 25/4/05 has categorically said that clarifications given in this Circular superseded the earlier Circular dated 1/7/02, The Revenue cannot argue against its own circular when the Board has stated that provisions of Rule 3 (5) of the Cenvat Credit Rules, 2002 would apply in respect of the capital goods and inputs on which credit has been availed are removed as such. We may reproduce the said rule 3 (5) of the Cenvat Credit Rules, 2004 which reads as under :-
“Rule 3 (5) : When the inputs or capital goods on which Cenvat credit has been taken are removed/ as such, from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice refer to in Rule 9.
In view of the said clarification and provisions of Rule 3 (5) of the Cenvat Credit Rules, 2004, we hold that the reference has been answered in favor of the appellants.”
12. The Larger Bench was dealing with the matter, wherein the Issue was in respect of correct valuation of the capital goods and inputs on which Cenvat credit had been availed but were removed without consumption in final product. In the said case, the said issue had arisen in the facts where the manufacturer had availed the Cenvat credit on the inputs purchased by them for use in their final products but they had removed the inputs without utilizing them in the final products by reversing the credit availed on such inputs. The revenue had objected to the reversal of the credit on such inputs on the ground that as per Rule 3 (4) of the Cenvat Credit Rules, 2002, on removal of the inputs, the manufacturer is required to pay an amount equal to the duty of excise which is leviable on such goods at the rate applicable to such goods on the date of removal and on the value determined for such goods under Section 4 of the Central Excise Act. In the background of those facts, the Larger Bench after referring to the said answer in the said Circular of the Board and the provision of law comprised under Rule 3 (5) of the Cenvat Credit Rules, 2004 answered the issue in favor of the assessee.
13. Undoubtedly as pointed out by the learned advocate for the appellants, the decisions given by the Larger Bench are binding upon the smaller benches of the Tribunal and the same cannot be ignored or dissented from by the smaller benches and in case of any difference of opinion, it is necessary for the smaller bench to justify the dissent while formulating the question for reference to a Larger Bench and direct the Registry to place the matter before the President for Constitution of Larger Bench. This decision in CCE, Ahmedabad vs. Ramesh Food Products (supra) in fact clearly supports the contention in that regard.
14. In the case in hand, however, we have neither an occasion to differ from view taken by the Larger Bench in the Eicher Tractors case nor an occasion to express any difference of opinion in respect of the said ruling. The point which arises in the matter in hand is that whether the matter in hand is covered by the said decision or not.
15. As already pointed out above/the undisputed facts in the case in hand are that the products namely Grease Seal procured by the appellants while availing the Cenvat credit in respect of the duty paid thereon, were not consumed in the process of manufacture of the final dutiable product, and instead, without issuing invoices but merely by reversing the amount of credit, the same were removed in favour of their sister concern who is a registered dealer and who resold the same within a period of two weeks from such transfer of goods by the appellants in favor of the dealer and, therefore, the transaction value of those goods was available at the dealer’s premises for the purpose of ascertaining the quantum of duty payable on such goods. There is no similarity between the facts of Eicher Tractors case and those of the case in hand in as much as that in the case of Eicher Tractors the transaction value was not available nor the records disclosed sale of the goods by the dealer or the sister concern immediately after transfer of the goods in their favor. This is a basic and vital difference between the facts of the case of Eicher Tractors and those of the matter in hand. In a case where transaction value is not available on records, obviously the explanation given by the Board under Circular dated 1st July 2002 would apply. But in cases where transaction value is available on record, authorities cannot Ignore binding nature of statutory provision of law comprised under Rule 3 (4) of the Cenvat Credit Rules, 2002. This point was not the subject matter of deliberation nor has been considered by the Larger Bench. Being so, the decision of the Larger Bench in Eicher Tractors case is of no help to the appellants in the matter in hand and is clearly distinguishable taking into consideration difference between the facts of the case in hand and those of the Eicher Tractors case.
