Case Law Details
Panacea Biotec Ltd. Vs Commissioner of Central Excise And Service Tax (CESTAT Chandigarh)
Introduction: In a recent order, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chandigarh ruled in favor of M/s Panacea Biotec Ltd., setting aside the excise duty demand of Rs. 1,65,92,802/- imposed on the clearance of Hemophilus Vaccine. The crucial ground for quashing the demand was the absence of concrete evidence establishing M/s Panacea Biotec Ltd. as the actual manufacturer of the vaccine.
Background: M/s Panacea Biotec Ltd., engaged in the production of PP Medicaments, had availed CENVAT credit on inputs, input services, and capital goods, clearing final products by paying the required duty. A CAG Audit raised concerns about the duty-free clearance of Hemophilus Vaccine, leading to a show-cause notice in 2012. Despite an initial confirmation of the demand in 2013, CESTAT, in 2015, remanded the case for re-evaluation. Subsequent proceedings in 2017 upheld the demand, prompting the appellants to file appeals.
Key Arguments and Findings:
Rule 6(3) of CCR, 2004 Challenge:
- The appellants contested the legal sustainability of the demand under Rule 6(3) of CCR, 2004. They cited the precedent of Tiara Advertising, emphasizing that the rule provides options to service providers, and authorities cannot enforce these options on behalf of the service provider.
- The Tribunal noted that the issue had been settled in favor of the appellants in various cases, including M/s SPAC Taopica Products (India) Ltd. and M/s Nava Bharat Ventures Ltd.
Manufacturer Identity Dispute:
- The crucial contention was that M/s Panacea Biotec Ltd. was not the actual manufacturer of the vaccine. The appellants presented evidence, including an agreement with M/s Panheber, balance sheets, a license issued to M/s Panheber by the Drug Controller, and reports submitted by the Assistant Commissioner.
- The Tribunal emphasized that the case was remanded specifically to determine whether M/s Panheber was the manufacturer. It found that the Commissioner had not adequately considered the evidence proving M/s Panheber as the manufacturer.
RG-1 and RG-23A Entries Challenge:
- The appellants argued that the show-cause was based on entries in RG-1 and RG-23A registers, and the Department was aware of the facts, so the extended period could not be invoked.
- The Tribunal referred to precedents like CCE Vs ITC Ltd. and Cellular Ltd., asserting that the Department’s lack of knowledge could not justify the extended period.
Rule 6(3) Enforcement and Alternate Submissions:
- The Tribunal reiterated the appellants’ argument that Rule 6(3) options cannot be enforced, citing the Telangana High Court’s interpretation.
- It noted that the case of Tiara Advertising, relied upon by the Department, was under appeal before the Supreme Court. However, it emphasized that Rule 14 could be invoked for wrongly availed credit, but in this case, 10% of the value of exempted goods was demanded.
Conclusion: The Tribunal concluded that the Department failed to negate the appellants’ claims regarding the vaccine’s actual manufacturer, M/s Panheber. It emphasized the need for proper verification and dismissed the demand under Rule 6(3) of CCR, 2004. The appeal was allowed in favor of M/s Panacea Biotec Ltd., with consequential relief as per law.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The appellants, M/s Panacea Biotec Ltd., are engaged in the manufacture of PP Medicaments and have been availing CENVAT credit on inputs, input services and capital goods as applicable and cleared the final products on payment of duty. On the basis of CAG Audit, it was alleged that the appellants have manufactured and cleared Hemophilus Vaccine which is duty free and thus were required to reverse 10% of the value of the exempted goods in terms of Rule 6(3) of CCR, 2004; a show-cause notice dated 17.12.2012 was issued to the appellants and was confirmed vide OIO dated 29.11.2013; on an appeal filed by the appellants, CESTAT vide Final Order No. A/52883/2015-EX (DB) dated 14.09.2015 remanded the case back for de novo adjudication with the direction to ascertain whether the appellant is manufacturer of the vaccine, cleared duty free, which is in question. In the de novo proceedings, Commissioner vide Order dated 18.05.2017 has upheld the demand of Rs.1,65,92,802/- against the appellant with equal penalty.
2. On an appeal filed by the appellants, this Bench vide Final Order A/60794/2019-EX (DB) dated 01.10.2019 dismissed the appeal; on an ROM application filed by the appellant, this Bench vide Misc. Order No.60157/2021 dated 24.09.2021 has restored the appeal observing that certain arguments advanced by the learned Counsel for the appellants, escaped consideration while passing the order cited above. Hence, this appeal.
3. Shri T.R. Rustagi, learned Counsel for the appellants, submits that the demand under Rule 6(3) of CCR, 2004 is not legally sustainable. It was held in Tiara Advertising- 2019 (30) GSTL 474 (Telangana) that “Rule 6(3) of CCR, 2004 merely offers options to an output service provider who does not maintain separate accounts in relation to receipt, consumption and inventory of inputs! input services used for provision of output services which are chargeable to duty! tax as well as exempted services; if such options are not exercised by the service provider, the provision does not contemplate that the service tax authorities can chose one of the options on behalf of the service provider; as rightly pointed out by Shri S. Ravi, learned Senior Counsel, if the petitioner did not abide by the provisions of Rule 6 (3) of CCR, 2004, it was open to the authorities to reject the claim as regards the disputed CENVAT credit of Rs.17,15,489/-;” it was also held that “in the event the petitioner was found to have availed Cenvat Credit wrongly, Rule 14 of the Cenvat Credit Rules, 2004 empowered the authorities to recover such credit which had been taken or utilised wrongly along with interest; however, the second respondent did not choose to exercise power under this Rule but relied upon Rule 6(3)(i) and made the choice of the option thereunder for the petitioner, viz., to pay 5%/6% of the value of the exempted services; the statutory scheme did not vest the second respondent with the power of making such a choice on behalf of the petitioner; the Order-in-Original, to the extent that it proceeded on these lines, therefore cannot be countenanced” which was also followed by the Tribunal in the cases of M/s SPAC Taopica Products (India) Ltd.– 2023 (9) TMI 715- CESTAT-Chennai and M/s Nava Bharat Ventures Ltd.- 2021 (11) TMI 426-CESTAT-Hyderabad.
4. Learned Counsel further submits that learned Commissioner has not considered the appellant’s submission that the Vaccine in question was not manufactured by the appellant but was actually manufactured by M/s Panheber, in spite of the overwhelming evidence produced. He further submits that the following as evidence establish that M/s Panheber was the manufacture of Vaccine and not the appellants:
(i) Agreement between the appellant and M/s Panheber for providing manufacturing facility, utilities and services of the employees; the details of sale, rent paid etc. are clearly mentioned.
(ii) Balance sheet of M/s Panheber, wherein it was recorded under Notes of Accounts that “The Company (PanEra) has taken various assets situated at Lalru, Punjab on operating lease agreements from its Associate, Panacea Biotec Ltd.
(iii) License issued by the Drug Controller to M/s Panheber confirming separate licensing facility of M/s Panheber in the premises of the appellant.
(iv) The reports submitted by Assistant Commissioner which nowhere mentions that M/s Panheber (PanEra) did not exist; it only says that there are excise records to confirm the existence of M/s PanEra in the same premises.
(v) RG-1 and RG-23A maintained by the appellant clearly indicate that the vaccines are received in the factory/ accounts of the appellant and not manufactured.
(vi) The affidavit filed in this regard.
5. Learned Counsel further states that the show-cause is based on the entries made in RG-1 and RG-23A registers and therefore, the Department cannot allege that the fact was not in the knowledge of the Department and therefore, extended period cannot be invoked in view of the following cases:
- CCE Vs ITC Ltd.- 2013 (291) ELT 377
- Praj Ind. Ltd.- 2014 (36) STR 1273 (Tri. Mumbai).
- Cellular Ltd.- 2009 (16) STR 712.
6. Shri Aneesh Dewan, learned Authorized Representative for the Department, on the other hand, submits that it is incorrect to state that this Bench has not considered several alternate submissions advanced by them while passing the previous order. He submits that it is incorrect to say that the entire credit being received from the input service distributor (ISD), Rule 3 of CCR, 2004 is not applicable; there is no such exclusion in the said Rule. He submits that the appellant’s contention, that the appellants cannot be asked to pay 10% of the value of the exempted goods by virtue of retrospective amendment to the Rules by Section 73 of the Finance Act, 2010, is incorrect; it is clear that the retrospective amendment made in the CENVAT Credit Rules was only for the disputes pertaining to specified period from 09.2004 to 3 1.03.2008. Since the period of dispute in the instant case is April, 2008 to April, 2009, the same is not covered under the retrospective amendment that was made in CENVAT Credit Rules by Section 73 of the Finance Act, 2010.
7. Learned Authorized Representative further submits that the appellants have failed to exercise the option; appellants have reversed only Rs.9,25,338/- out of the total credit availed and have also failed to substantiate the nature of the services which they claimed to specified under the erstwhile Rule 6(5) CCR, 2004 and are squarely covered by the provisions of the Rules and the demand was rightly confirmed by the Commissioner. He further submits that the Returns filed by the appellants did not exhibit the fact about maintenance of any separate accounts which was noticed only during the course of audit; Department did not have any mechanism to check as to what is happening inside the factory premises. Therefore, extended period is correctly invoked.
8. Learned Authorized Representative further submits that learned Counsel has relied upon the case of Tiara Advertising (supra); however, the case is appealed against and is pending before the Hon’ble Supreme Court- 2023 (70) GSTL J59 (SC). He also relies on CCE Vs Nicholas Piramal (India) Ltd.- 2009 (244) ELT 321 (Bom.).
9. Heard both sides and perused the records of the case. The brief point that requires consideration is as to whether the appellants or M/s Panheber are manufacturers of the vaccine in question. The appellants have produced series of evidence to submit that the vaccine in question was not manufactured by the appellants and therefore, it was incorrect to invoke the provisions of Rule 6 of CCR, 2004; on going through the CESTAT Order No.A/52883/2015-EX (DB) dated 14.09.2015, it is clear that the brief point on which the case was remanded to the Adjudicating Authority was to see whether the vaccine is manufactured by M/s Panheber Biotec Pvt. Ltd., a separate legal entity located in the same factory compound. We find from the impugned order that learned Commissioner has confirmed the demand on the basis of the entries in the RG-1 record, holding that RG-1 Register, a statutory record maintained by the noticee during the relevant period being primary record clearly shows the production and clearance of exempted goods. We find that learned Commissioner further finds though M/s Panheber had a license to manufacture the impugned vaccine, there is no documentary evidence to prove that the same was manufactured by them in the impugned premises; they might have even contravened the provisions of Drug Law, camouflaging things and that this was not ethical for the noticee to take this kind of plea.
10. On going through the records, we find that the Drug Controller has categorically clarified vide Letter dated 06.04.2017 that M/s Panacea Biotec Pvt. Ltd. and M/s Panheber Biotec Pvt. Ltd. were issued different drug manufacturing licences for separate modules in the year 2008 and that M/s Panheber Biotec Pvt. Ltd. has been renamed as M/s Panera Biotec Pvt. Ltd. registered with the same address. We find that there is an Agreement dated 10th July, 2008 between the appellant and M/s PanEra Biotec Pvt. Ltd. and the same is named “Agreement for providing manufacturing facility, utilities and services of employees”. Similarly, the books of accounts of M/s Panheber Biotec Pvt. Ltd. indicates that they have taken various assets situated at Lalru, Punjab on operating lease agreements from its associate M/s Panacea Biotec Pvt. Ltd. (the appellant); these are generally non-cancellable and are renewable by mutual consent on mutually agreed terms. The books of accounts do indicate that lease amounts have been paid to the appellant. We also find that Central Drug Standard Control Organization vide their letter dated 6th June, 2007 indicated that they have permitted M/s Panheber Biotec Pvt. Ltd., Lalru, Punjab to manufacture bulk 7518/07. We find that a copy of the same has been marked to the Commissioner of Central Excise, Chandigarh. This being the position, the Revenue could have caused necessary verification to establish whether such drug is manufactured by M/s Panheber Biotec Pvt. Ltd during the relevant time.
11. We find that learned Commissioner has not controverted the above evidence as submitted by the appellants. Learned Commissioner has relied upon the fact that there are not records maintained by M/s Panheber and that the records maintained by the appellant do have the entries for the manufacture of the said vaccine. This is to our understanding, a simplistic way of coming to a conclusion. The appellant’s submission, that the entries in the RG-1 were due to a mistaken notion by their clerical staff, was loud and clear. It appears that no verification, whatsoever, has been caused to verify the claims of the appellant. It is also not on record whether any communication or correspondence was made with the Drug Authorities to ascertain the claims of M/s Panheber and the appellants. Drug manufacturing being closely monitored by various agencies and subject to various controls cannot happen in a secretive manner. It is on record that various authorities, national and international, have visited the facility where M/s Panheber have manufactured the vaccines. Under the circumstances, the claim of the appellants cannot be simply brushed aside saying that they might have contravened Drug Laws and that it was a flimsy stand taken by the appellants. Moreover, the affidavit dated 17.12.2012 submitted by the appellants is also on record indicating that M/s Panheber, was not the appellant, have manufactured the said vaccines. This being so, we are of the considered opinion that the claim of the appellant is not negated on sound legal reasoning. Therefore, the inevitable conclusion that follows from the discussion is that the Department having not negated the claims of the appellant that it was not the appellants who have manufactured impugned exempted product i.e the Hemophilus Flu Vaccine. Therefore, we find that no case has been made by the Department to invoke the provisions of Rule 6(3) of the CCR, 2004.
12. Coming to the alternate submission that Rule 6 provides for the situations where a manufacturer manufactures dutiable as well as exempted products and avails CENVAT credit on all the inputs/input services/ capital goods and that the options given under Rule 6(3) of CCR, 2004 cannot be enforced, we find that as submitted by the learned Counsel for the appellants that Hon’ble High Court of Telangana has clearly interpreted the provisions in favour of the appellants. The findings of the Hon’ble High Court are clear that Rule 6 does not provide any mechanism for recovery of the said “10% amount” and that the Department is free to invoke Rule 14 of CCR, 2004 to demand wrongly availed credit, if any. We find that the Tribunal has followed this decision in the cases as cited above. We find no reasons to differ from the decision of the Tribunal for the reason that in the impugned case also though Rule 14 has been invoked, 10% of the value of exempted goods was sought to be demanded and not credit wrongly availed as such. Therefore, we find that the issue stands decided in favour of the appellants on the alternate submissions also.
13. We find that reliance placed by the learned Authorized Representative in the case of Nicholas Piramal (supra) is not applicable to the facts of the case and in view of the recent judgments in the cases of Tiara Advertising(supra); M/s SPAC Taopica Products (India) (supra) and M/s Nava Bharat Ventures Ltd. (supra). As we find that the appellant’s case stands firmly in their favour on merits, the issue of limitation becomes redundant.
14. In view of the above, the appeal is allowed with consequential relief, if any, as per law.
(Pronounced on 31/10/2023)
