Case Law Details
Shri Ram Agro Chemicals Pvt Ltd Vs Commissioner of CE & CGST (CESTAT Chandigarh)
Material Facts
The appeals arose from two Orders-in-Appeal dated 14.07.2020 and 15.07.2020 concerning M/s Shri Ram Agro Chemicals Pvt. Ltd., its director, M/s Sandley Industries and its director. The appellants manufacture zinc ingots and zinc sulphate fertilizer.
Based on intelligence, the DGGI initiated an investigation alleging non-compliance with Rule 6 of the CENVAT Credit Rules, 2004. During investigation, it was recorded that zinc skimming was pulverized into zinc metal and zinc ash, with the metal converted into zinc ingots and zinc ash used partly for captive consumption and partly sold. The Department alleged that zinc ash was a non-excisable by-product, that duty paid on its captive consumption and clearance was contrary to law, that CENVAT credit ought to have been reversed under Rule 6(3), and that amounts collected as duty were recoverable under Section 11D.
A show cause notice dated 12.06.2019 proposed reversal of CENVAT credit amounting to Rs.44,88,629 and appropriation of Rs.1,01,46,820 under Section 11D. The adjudicating authority confirmed the demands and imposed penalty on the director, which was upheld by the Commissioner (Appeals).
Procedural History
The appellants challenged the Orders-in-Appeal before CESTAT Chandigarh.
They relied on the Tribunal’s earlier decision in Mahesh Chemicals Allied Industries, which had dealt with an identical issue.
Legal Issues
- Whether reversal of CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004 was sustainable in respect of zinc ash.
- Whether reliance on CBIC Circular No. 1027/15/2016-CX dated 25.04.2016 was legally sustainable.
- Whether the demands under Rule 6 and Section 11D could survive after subsequent judicial developments.
- Whether invocation of the extended period of limitation was justified.
Relevant Statutary Provisions
- Rule 6(2) of the CENVAT Credit Rules, 2004.
- Rule 6(3) of the CENVAT Credit Rules, 2004.
- Section 11D of the Central Excise Act.
- Explanations 1 and 2 to Rule 6(1) of the CENVAT Credit Rules, 2004.
Appellants’ Submissions
The appellants submitted that:
- The issue had already been decided in their favour by the Tribunal in Mahesh Chemicals Allied Industries.
- The Tribunal had considered identical facts and legal issues and had allowed the appeals.
- The impugned orders were contrary to settled judicial precedents.
Department’s Submissions
The Department supported the findings contained in the impugned orders and sought confirmation of the demands and penalties.
Tribunal’s Findings and Reasoning
The Tribunal observed that the present dispute was identical to that decided in Mahesh Chemicals Allied Industries.
It noted that the earlier proceedings had been initiated on the basis of the Supreme Court’s decision in Union of India v. DSCL Sugar Ltd. and CBIC Circular No. 1027/15/2016-CX dated 25.04.2016, which treated bagasse, dross and skimming as non-excisable goods requiring reversal of credit under Rule 6.
The Tribunal further noted that the Supreme Court subsequently, in Union of India v. Indian Sucrose Limited, held that the Circular dated 25.04.2016 was unsustainable in law. Pursuant to that judgment, CBIC issued Circular No. 1084/05/2022-CX dated 07.07.2022 rescinding the earlier circular.
The Tribunal also observed that proceedings on the same issue had been dropped in other cases, including Haryana Agro Chemicals and proceedings involving Shri Ram Agro Chem Pvt. Ltd., by relying upon Indian Sucrose Limited and the subsequent CBIC Circular.
On limitation, the Tribunal referred to the findings in Mahesh Chemicals Allied Industries that there was no suppression of facts, the relevant information was available in the books of account, the assessee had undergone departmental audits, and the extended period could not be invoked. It also noted that the show cause notice had been issued beyond the normal limitation period.
Following its earlier decision, the Tribunal concluded that the impugned orders were unsustainable.
Final Ruling
The Tribunal:
- Set aside the impugned Orders-in-Appeal.
- Allowed all four appeals.
- Granted consequential relief in accordance with law.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
These four appeals are directed against two impugned orders passed by the Commissioner (Appeals), Panchkula, first dated 14.07.2020 in respect of M/s Shri Ram Agro Chemicals Pvt Ltd and its director Sh. Amit Jain; and second dated 15.07.2020 in respect of M/s Sandley Industries and its director Sh. Rakesh Kumar Sharma, vide which the appeals of the appellants were rejected and decision of lower authority was upheld. Since the issue involved in all these appeals is identical, therefore, all four appeals are taken up together for discussion and decision. For the sake of convenience, we may take the facts of the Appeal No. E/60370/2020 in the case of M/s Ram Agro Chemicals Pvt Ltd.
2.1 Briefly stated facts of the present case are that the appellant is engaged in the manufacture of Zinc Ingots and Zinc Sulphate fertilizer falling under Chapter Heading No. 7901 and 2833 of the Central Excise Tariff Act, 1985. The officials of DGGI on the basis of intelligence initiated an investigation against the appellant and other Zinc Sulphate manufacturers alleging non-compliance of Rule 6 of the Cenvat Credit Rules, 2004. Shri Amit Jain, director of the appellant appeared before SIO and his statement dated 28.11.2017 was recorded wherein he inter alia deposed that their firm manufactures Zinc Ash and Zinc Skimming fertilizers; they pulverize Zinc Skimming which results into Zinc Metal and Zinc Ash; the metal portion is melted in furnace and converted into Zinc Ingots; Sulfuric Acid is added in Zinc Ash powder which results into Zinc Sulphate; Zinc Ash powder is captively consumed as well as sold on payment of Central Excise Duty; the captively consumed Zinc Ash is cleared on payment of Central Excise Duty. Shri Amit Jain further informed that they had sold 114.77 MTs of Zinc Ash generated as by product valued at Rs.65,67,317/- and used 205.8 MTs Zinc Ash valued at Rs.80,97,952/- for captive consumption during the period April 2016 to June 2017; they are importing Zinc Ash/Skimming on payment of CVD. They are not availing cenvat credit of CVD paid on goods or service tax paid on imported Zinc Ash which is traded as such.
2.2 Thereafter, as per judgment of Hon’ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd – 2015 (322) ELT 769 (SC) by products including bagasse do not amount to manufacture. Hon’ble Bombay High Court in the case of M/s Hindalco Industries vs. UOI has held that Ash and Skimming of Aluminium, Zinc and other non-ferrous metal are not manufactured. Board Circular No. 1027/15/2016-CX dated 25.04.2016 has clarified that the bagasse, dross and skimming of non-ferrous metal or such products or wastage when cleared for a consideration from the factory not to be treated like exempted goods. As per explanations 1 & 2 inserted w.e.f. 01.03.2015, exempted goods shall include non-excisable goods cleared for consideration from the factory.
2.3 Thereafter, on the basis of factual position of the product, procedure adopted by the appellant and the decision of the Hon’ble Supreme Court, the DGGI formed an opinion that the appellant could not have whimsical chosen to clear Zinc Ash on payment of duty when no such duty is leviable in law. An Invoice for captive consumption can be issued if a new, distinct and excisable product emerges after the manufacturing process which was not in the present case. The residual Zinc Ash was non-excisable, therefore, there was no legal requirement to issue invoice for captive consumption and as such no duty was required to be paid. The payment of duty through Cenvat account on clearance of Zinc Ash as such or captive consumption was contrary to law in force. An invoice can be issued only when right to ownership is transferred between two legal persons but in the present case transaction was not between two legal persons nor any right to ownership was transferred. The invoice for captive consumption was not a valid transaction and appellant could not have issued it. Therefore, when the goods were not removed from the premises of the manufacturer, no Central Excise Duty was required to be paid. The duty on Zinc Ash was paid from Cenvat account so as to encash their Cenvat by passing on the incidence to their final buyer and also justify/avoid the reversal of Cenvat Credit.
2.4 Further, as per Circular dated 25.04.2016, Zinc Ash and Skimming are non-excisable goods and need to be treated as exempted goods for the purpose of reversal of credit of input or input services in terms of Rule 6 of the Cenvat Credit Rules, 2004. The appellant did not avail option under Rules 6(2) and 6(3) of the Cenvat Credit Rules, 2004 and did not maintain separate register for quantity of Zinc Ash used in the manufacture of their dutiable products and their exempted products. As per data submitted by the appellant, they have sold/captively consumed Zinc Ash upto June 2017. The appellant during March 2015 to June 2017 sold/consumed 1928.6 MTs Zinc Ash. The value of sold/captively consumed Zinc Ash comes to Rs.8,26,35,841/- on which the appellant was required to reverse credit amounting to Rs.44,88,629/ in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. The appellant during aforesaid period charged and collected Central Excise Duty on exempted by product i.e. Zinc Ash. As per Section 11D of the Act, every person is required to deposit any amount which is collected in excess of duty assessed or determined and paid. The appellant during aforesaid period sold/consumed 1928.6 MTs Zinc Ash where upon duty amounting to Rs.1,01,46,820/- was charged and paid which is liable to be appropriated under Section 11D of the Act.
2.5 On these allegations, a show cause notice dated 12.06.2019 was issued to the appellant. The appellant filed detailed reply to the show cause notice. After following the due process, the ld. Adjudicating Authority vide Order-in-Original dated 30.12.2019 confirmed the demand along as proposed in the show cause notice and imposed a penalty on the director. Feeling aggrieved by the Order-in-Original, the appellant filed appeal before the Commissioner (Appeals) and the ld. Commissioner (Appeals) vide the impugned order, rejected the appeal of the appellant and confirmed the demand. Hence, the present appeal.
3. Heard both the parties and perused the material on record.
4.1 The learned Counsel for the appellant submits that the impugned order is not sustainable in law and is liable to be set aside as the same has been passed contrary to the facts and the law; and binding judicial precedents on the identical issue. He further submits that the issue involved in all these appeals is identical as was involved in the case of Mahesh Chemicals Allied Industries (in appeal no. E/60272/2020), which has been decided by this Tribunal vide Final Order No. 60450-60451/2024 dated 30.07.2024, wherein the Tribunal after considering all the facts and circumstances and the legal positions, has allowed the appeal of the appellant-assessee. He further submits that this issue is no more res integra as the same has been settled by this Tribunal in the case of Mahesh Chemicals Allied Industries (cited supra).
5. On the other hand, the learned Authorized Representative for the department reiterates the findings of the impugned order.
6. We have considered the submissions made by both the parties and perused the material on record. We find that this Tribunal in the case of Mahesh Chemicals Allied Industries (cited supra) has considered the same issue in details and after considering the same, this Tribunal has allowed the appeal of the appellant-assessee. It is pertinent to reproduce the relevant findings of the Tribunal in the case of Mahesh Chemicals Allied Industries (cited supra), which are reproduced herein below:
“6. After considering the submissions made by both the parties and perusal of the material on record, we find that the entire proceedings in this case was initiated on the investigation conducted by the DGGI and the same was based on the judgment of Hon’ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd (supra) and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016, wherein it has been clarified that the products including bagasse, dross and skimming are non-excisable goods. Further, as per the explanations 1 & 2 inserted w.e.f. 01.03.2015, exempted goods shall include non-excisable goods cleared for consideration from the factory. As per the Circular dated 25.04.2016, it was provided that Zinc Ash and Skimming are non-excisable goods and need to be treated as exempted goods for the purpose of reversal of the credit of inputs or input services in terms of the Rule 6 of the CCR, 2004. As per the department, the appellant did not avail the option under Rule 6(2) and under Rule 6(3) and further did not maintain separate register for quantity of Zinc Ash used in the manufacture of their dutiable products and their exempted products.
7. Further, we find that the department has confirmed the demand solely relied upon the judgment of Hon’ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd (supra) and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016. We also note that subsequently the same issue came up before the Hon’ble Supreme Court in the case of Union of India Vs. Indian Sucrose Limited (supra) wherein the Hon’ble Supreme Court vide its order dated 04.03.2022 has held that Circular dated 25.04.2016 is unsustainable in law as bagasse is non-excisable goods to which cenvat credit has no application. It is pertinent to note that subsequent to the decision of the Hon’ble Supreme Court in the case of Union of India Vs. Indian Sucrose Limited (supra), the Board has issued fresh Circular No. 1084/05/2022-CX dated 07.07.2022 and has rescinded the Circular dated 25.04.2016 on the basis of which, the entire demand was created. Here, it is pertinent to reproduce the Circular dated 07.07.2022, which is reproduced herein below:
“Circular No. 1084/05/2022-CX dated 07-07-2022
F.No. CBIC-110267/33/2022-CX-VIII SECTION-CBIC
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Tax & Customs, New Delhi
Subject: Excisability of waste/residue arising during the process of manufacture – Withdrawal of Circular No. 1027/15/2016-CX dated 25.04.2016 – Reg.
Excisability of bagasse and similar other by-products or waste arising during the course of manufacture of an excisable product has been brought to the attention of the Board.
2. It may be recalled that Rule 6 of the CENVAT Credit Rules, 2004 was amended with effect from 1.03.2015 by inserting Explanation 1 and 2 in sub-rule (1) of Rule 6, which provides that exempted goods or final product shall include non-excisable goods cleared for consideration from the factory.
3. Accordingly, Circular No. 1027/15/2016-CX dated 25.04.2016 was issued highlighting that Bagasse, Dross and Skimmings of non-ferrous metals or any such by-product or waste, which are non-excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services, in terms of Rule 6 of the CENVAT Credit Rules, 2004. This circular was issued in the background of judgement of the Hon’ble Supreme Court in the case of Union of India Vs. M/s. DSCL Sugar Ltd [2015 (322) E.L.T. 769 (S.C.)] holding that Bagasse is only an agricultural waste and residue and it is not a result of any process which can be termed as ‘manufacture’. Similar conclusion was also drawn by the Hon’ble High Court of Bombay in the case of M/s Hindalco Industries Ltd. Vs. Union of India [(2015 (315) E.L.T.10 (Bom.)] in relation to dross and skimming of aluminium, zinc or other non-ferrous metals.
4. The issue again came before the Hon’ble Supreme court in the case of Union of India Vs. M/s. Indian Sucrose Limited [SLP(C) No. 1700/2021], wherein the Hon’ble Supreme Court vide its judgment dated 04.03.2022, referred to its observations in the Union of India vs. M/s. DSCL Sugar Ltd & Ors. (supra) holding that Bagasse is non-excisable to which the CENVAT Credit Rules have no application, and held that the Circular dated 25.04.2016 is unsustainable in law.
5. In light of the above judgment, Circular No. 1027/15/2016-CX dated 25.04.2016 has become non-est and is hereby rescinded. Cases kept in Call Book on the above issue, if any, may be taken out and adjudicated in light of the law decided by the Apex Court.
6. Difficulty experienced, if any, in implementing the circular should be brought to the notice of the Board.
7. Hindi version will follow.”
8. ………
9. Further, we also find that the identical issue was involved in the case of M/s Haryana Agro Chemicals, wherein vide Order dated 12.04.2021, the Additional Commissioner of Central Excise & GST, Chandigarh by relying upon the judgments in the cases of CCE, Surat-III vs. Creative Enterprises (supra) and CCE, Pune-III vs. Ajinkya Enterprises (supra) has dropped the proceedings initiated against the assessee and also dropped the penalty on the partner. Further, in the case of M/s Shri Ram Agro Chem Pvt Ltd, wherein vide Order dated 26.03.2024, the Assistant Commissioner, Central Excise & GST Division, Sirsa by relying upon the decision of Hon’ble Supreme Court in the case of Union of India Vs. Indian Sucrose Limited (supra) and also relying upon the Board Circular No. 1084/05/2022-CX dated 07.07.2022 has dropped the proceedings initiated against the assessee.
10. As regards the invocation of extended period of limitation, we find that the appellant has not suppressed any information from the department. Each and every fact was recorded in books of accounts and on the basis of the same records, demand has been quantified. Further, we find that the appellant has been subject to internal audit from time to time. One audit report dated 05.04.2018 for the audit conducted on 4th, 5th & 6th January 2018 is on record and in the said report, it is mentioned that prior to this audit, the appellant’s books of accounts were audited on 10.07.2014 and no such allegation of suppression was ever alleged against the appellant. For invoking the extended period of limitation, the Hon’ble Supreme Court has laid down the law from time to time. In this regard, it is pertinent to mention that:
a) The Hon’ble Supreme Court has in the case of Padmini Products v/s Collector of C. EX. cited as 1989 (43) E.L.T. 195 (S.C.) held that unless there is evidence that the manufacturer knew that goods were liable to duty or he was required to take out a licence, intention to evade payment of excise duty cannot be alleged. For invoking extended period of five years limitation duty should not had been paid, short levied or short paid or erroneously refunded because of either any fraud, collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder. These ingredients postulate a positive act, therefore, failure to pay duty or take out a licence is not necessary due to fraud or collusion or willful mis- statement or suppression of facts or contravention of any provisions of the Act.
b) The Hon’ble Supreme Court has in the case of Collector of Central Excise v/s Chemphar Drugs& Liniments cited as 1989 (40) E.L.T. 276 (S.C.) held that extended period of five years is applicable only when something positive other than mere inaction or failure on the part of manufacturer is proved. It further held that conscious or deliberate withholding of information by manufacturer is necessary for invoking extended period. If the Respondent had full knowledge or manufacturer had reasonable belief that he is not required to give particular information, only normal period of limitation is applicable.
c) The Hon’ble Supreme Court has in the case of Gopal Zarda Udyog v/s Commissioner of Central Excise, New Delhi cited as 2005 (188) E.L.T. 251 (S.C.) held that mere failure or negligence on part of manufacturer either not to take out licensee or not to pay duty in cases where there is a scope for doubt, does not attract extended period of limitation. Failure to pay duty or to take out a license, not necessarily due to fraud, collusion etc.
d) The Hon’ble Supreme Court has further in the case of Cosmic Dye Chemical v/s Collector of Central Excise, Bombay cited as 1995 (75) E.L.T. 721 (S.C.) held that for invoking extended period of limitation, there should be an intent to evade duty. The mis-statement or suppression must be wilful and it is not correct to say that there can be a suppression or misstatement, which is not wilful and yet constitutes a permissible ground for invoking the extended period of limitation. The same view was taken by Hon’ble Tribunal in the case of Mahindra & Mahindra Ltd. v/s Collector of C. Ex., Aurangabad cited as 2000 (125) E.L.T. 477 (Tribunal).
e) The Hon’ble Supreme Court has in the case of Anand Nishikawa Co. Ltd. v/s Commissioner of Central Excise, Meerut cited as 2005 (188) E.L.T. 149 (S.C.) held that “suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty, when facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression.
f) The Hon’ble Tribunal in the case of Kolety Gum Industries V/S Commissioner of Central Excise, Vapi cited as 2005 (183) E.L.T. 440 (Tri.-Mumbai) has held that invocation of extended period of limitation is not sustainable as the party has bonafide belief that goods in question are not dutiable. No suppression of facts or contravention with intent to evade payment of duty can be upheld in such case.
As the appellant has not suppressed any material fact from the department with intent to evade payment of tax and was subject to internal audit from time to time as cited above; therefore, invoking extended period of limitation is not warranted. Further, in the present case, the period involved is from March 2015 to June 2017 whereas the show cause notice was issued on 20.05.2019, which is entirely time barred.
11. In view of our discussion above and by following the ratio of the judgment of Hon’ble Apex Court in the case of Union of India Vs. Indian Sucrose Limited (supra) and further relying upon the subsequent Board Circular No. 1084/05/2022-CX dated 07.07.2022, we are of the considered opinion that the impugned order is not sustainable in law and is liable to be set aside and we do so by allowing both the appeals of the appellant with consequential relief, if any, as per law.”
7. By following the ratio of the decision of the Tribunal in the case of Mahesh Chemicals Allied Industries (cited supra), we are of the considered opinion that the impugned orders are not sustainable in law and are liable to be set aside and we do so by allowing all the four appeals of the appellants with consequential relief, if any, as per law.
(Order pronounced in the court on 16.10.2024)
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