Case Law Details
Mohata Coal Company Pvt. Ltd Vs Commissioner of CGST (CESTAT Kolkata)
CESTAT Kolkata held that duty cannot be levied in absence of evidence proving that semi-finished products is sent to the hired premises with mala fide intention of the appellant.
Facts- Tender was allowed to the appellant for removing the goods for machining to other job workers and the appellant qualified for the Tender. M/s Durgapur Steel Plant (DSP) obtained the approval from the Commissioner of Central Excise for getting the job work of machining through the appellant and accordingly, had given declaration that they would be clearing the goods without payment of duty to the job worker and had also undertaken to pay the duty on receiving the returned goods at the time of clearance from their factory.
The Appellant, M/s Mohata Coal Company Pvt. Ltd. was undertaking the job work of receiving the goods under Annexure II Challan and returning the same to M/s DSP. The Appellant was finding it difficult to undertake the entire job work through their infrastructure within the time frame given and intimated to the DSP that they may be allowed to take the help of approved vendors for the machining of Wheels & Axles.
M/s Mohata Coal Company Pvt. Ltd., entered into a Hire Agreement dated 24.09.2015 with M/s Vardhaman Products (the Appellant No. 2 herein) for getting the machining job done. It paid hire charges to the tune of Rs.30,000/- per month for use of machines and other charges, such as wages of labourers and maintenance of machine and tools and electricity bills.
The Officers of the Department detained and seized the goods. The Department was of the view that sending of goods to M/s Vardhaman Products by M/s Mohata Coal Company Pvt. Ltd. without giving intimation to the Department was not proper and amounts to a violation of Rule 16B of the Central Excise Rules, 2002. It was also alleged that M/s Vardhaman Products contravened the provisions of Rule 16B of the Rules,2002 since they were receiving the goods for job work purposes but they were not permitted by the Department to receive such semi-finished goods of M/s DSP.
Conclusion- Held that there is no evidence on record to show that Wheels & Axles (Semi-finished products) sent to the hired premises was with mala fide intention or the appellant was in preparation to remove the goods subsequently. If the same were to be removed subsequently, the appellant could have removed the same from its own premises and there was no reason for them to first shift the goods to the hired premises and then remove them without payment of duty. In the overall facts and circumstances of the case, the explanation given by the appellant that since there were constraints in completing shift work of machining at their own premises and the additional premise was hired, has to be accepted. As such, the benefit of doubt is required to be extended to the appellants.
For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied.
FULL TEXT OF THE KOLKATA CESTAT JUDGEMENT
Both the appeals are being disposed of by a common order as they arise out of the same impugned Order-in-Appeal No.142-144/DGP-CEX/2018 dated 14.02.2018 confirming the imposition of penalty of Rs.1,00,000/- each under Section 25(1) of the Central Excise Rules, 2002 for contravention of Rule 16B of the Central Excise Rules, 2002 as held by the Ld.Adjudicating Authority vide Order-in-Original dated 06.02.2017.
2.1 Briefly stated the facts of the case are that M/s Durgapur Steel Plant (DSP) is the manufacturer of Wheels & Axles. They were having facility to carry out machining of Wheels & Axles within their factory premises. However, they were also removing the goods for machining to other job workers. Tender was allowed for this purpose and M/s Mohata Coal Company Pvt. Ltd.(the Appellant herein) qualified for the Tender. M/s DSP obtained the approval from the Commissioner of Central Excise for getting the job work of machining through the appellant and accordingly, had given declaration that they would be clearing the goods without payment of duty to the job worker and had also undertaken to pay the duty on receiving the returned goods at the time of clearance from their factory. The Appellant, M/s Mohata Coal Company Pvt. Ltd. was undertaking the job work on receiving the goods under Annexure II Challan and returning the same to M/s DSP. However, the Appellant was finding it difficult to undertake the entire job work through their infrastructure within the time frame given. Accordingly, vide letter dated 24.09.2015, M/s Mohata Coal Company Pvt. Ltd. intimated the principal manufacturer, M/s DSP regarding the problems they were facing while executing the work of DSP and further intimated the DSP that they may be allowed to take the help of approved vendors for machining of Wheels & Axles. M/s Mohata Coal Company Pvt. Ltd., thereafter, entered into a Hire Agreement dated 24.09.2015 with M/s Vardhaman Products (the Appellant No.2 herein) for getting the machining job done from them since M/s Vardhaman Products was having suitable workshop with machine for undertaking machining of Wheels & Axles. M/s Mohata Coal Company Pvt. Ltd. was paying hire charges to the tune of Rs.30,000/- per month for use of machines and other charges, such as, wages of labourers and maintenance of machine and tools and electricity bills. M/s Mohata Coal Company Pvt. Ltd. was clearing the goods under Annexure III Challan and after receiving the returned goods, the same was supplied to the DSP.
2.2 On 02.06.2016, the Officers of the Department visited the premises of M/s Mohata Coal Company Pvt. Ltd. and found shortages of stock of Wheels & Axles. M/s Mohata Coal Company Pvt. Ltd. disclosed the fact that they had sent the said goods to their hired premises i.e. at the premises of M/s Vardhaman Products for undertaking the machining since M/s Vardhaman Products was having the facility of machining of Wheels & Axles. The goods were detained and subsequently seized. The seized goods were subsequently released to M/s DSP. The Department was of the view that sending of goods to M/s Vardhaman Products by M/s Mohata Coal Company Pvt. Ltd. without giving intimation to the Department was not proper and amounts to violation of Rule 16B of the Central Excise Rules, 2002. It was also alleged that M/s Vardhaman Products contravened the provisions of Rule 16B of the Rules,2002 since they were receiving the goods for job work purposes but they were not permitted by the Department to receive such semi-finished goods of M/s DSP.
2.3 Statement of Shri Shyamal Kanti Dey of M/s Vardhaman Products was recorded. In his statement, he stated that M/s Mohata Coal Company Pvt. Ltd. was using their premises on payment of hire charges. He also submitted a statement of incoming Black Forged Wheels & Axles and return after machining of Wheels & Axles to M/s Mohata Coal Company Pvt. Ltd..
2.4 Statement of Shri S.R.Das, Manager of M/s Mohata Coal Company Pvt. Ltd. was also recorded. He stated the same facts and also stated that it may be their lapse for not intimating the same to the Department.
2.5 Show-cause notice dated 09.09.2016 was issued to the Appellants proposing to impose penalty under Rule 25 (1) of Central Excise Rules, 2002. It was alleged in the show-cause notice that without getting prior permission/authority from the Principal manufacturer, the appellant, M/s Mohata Coal Company Pvt. Ltd., had cleared the raw materials to another unauthorized job worker i.e. M/s Vardhaman Products, which amount to contravention of Rule 26B of the Central Excise Rules, 2002. 2.6 M/s Mohata Coal Company Pvt. Ltd., denied the said allegation made in the show cause notice and contended that they were undertaking the job work of DSP in their hired premises i.e. at the premises of M/s Vardhaman Products. Proper documentations of the goods were maintained and after receiving the goods, the same were returned to DSP, which has been stated by Shri S.R.Das, Manager of M/s Mohata Coal Company Pvt. Ltd. in his statement. There was no break of chain of manufacturing process in the system of job work.
2.7 The Ld.Adjudicating Authority imposed penalty of Rs.1,00,000/-each on the Appellants under Rule 25(1) of the Central Excise Rules, 2002 in contravention of Rule 26B of the Central Excise Rules, 2002.
2.8 On appeal, the Ld.Commissioner (Appeals) upheld the imposition of penalty on the appellants. Hence the present appeals before this Tribunal.
3.1 The Ld.Advocate appearing on behalf of the Appellants, submitted that there was no evasion of duty and there was no contravention of Rule 26B of the Rules since M/s Mohata Coal Company Pvt. Ltd. was a job worker and Rule 26B is applicable to the Principal manufacturer only and this fact has been admitted in the show-cause notice. He further submitted that the goods found in the premises of M/s Vardhaman Products cannot be said to be un-authorised since it was the hired premises of M/s Mohata Coal Company Pvt. Ltd., who were using Challan No.III for removing and receiving the machined goods. He also stated that the requirement of intimation was not there in Rule 26B of Central Excise Rules, 2002 or in Rule 4(5)(a) of Cenvat Credit Rules, 2004. He vehemently argued that failure on the part of the Appellant in filing an intimation to the Department, can at best be considered as procedural lapse, for which, imposition of penalty under Rule 25 (1) of the Central Excise Rules, 2002, is not justified.
3.2 He further submitted that undisputedly there was permission from the Department granted to DSP for undertaking the job work through M/s Mohata Coal Company Pvt. Ltd. and sending the goods under Challan II and DSP had also given declaration to the Department for paying the duty on receiving the machined goods at the time of clearance. M/s Mohata Coal Company Pvt. Ltd., undisputedly, undertook the job work in their own premises and as well as in their hired premises and removing the goods to the hired premises against Challan III and receiving the machined goods and returning the same to M/s DSP. The Ld.Advocate also submitted that there is no break of chain in the process of undertaking job work and there was no evasion of duty. Merely because intimation was not given to the Department, the same cannot be considered as violation of Rule 26B of the Central Excise Rules, 2002, more particularly, when Rule 26B has no application to the job worker.
3.3 He further argued that penalty under Rule 25(1) of the Central Excise Rules, 2002, cannot be imposed under the facts and circumstances of the present case. He submitted that Rule 25(1) is subject to Section 11AC. Intention to evade payment of duty is totally absent in their case and there was no evasion of duty. He submitted that non-submission of intimation cannot be a ground for imposition of penalty under Rule 25 (1) and for the self-same reason, penalty imposed on DSP has been dropped by the Ld.Commissioner (Appeals). It is his submission that imposition of penalty on the appellants is totally un-warranted and un-called for and more particularly, when statutory records were properly maintained and the goods were semifinished goods. He submitted that confiscation of semi-finished goods even on the ground of non-accounting, cannot be justified and or, penalty imposed under Rule 25 (1) of the Rules, 2002, needs to be set aside. In support of his contentions, he relied upon the various decisions and filed extractions of statutory provisions. For better appreciation of facts, the relied upon provisions are reproduced below :
“16B. Special procedure for removal of semi-finished goods for certain purposes
The Commissioner of Central Excise may by special order and subject to conditions as may be specified by the [Principal Commissioner of Central Excise or Commissioner of Central Excise, as the case may be] permit a manufacturer to remove excisable goods which are in the nature of semi-finished goods, for carrying out certain manufacturing processes, to some other premises and to bring back such goods to his factory, without payment of duty, or to some other registered premises and allow these goods to be removed on payment of duty or without payment of duty for export from such other registered premises.
Rule 4(5) (a) of Cenvat Credit Rules, 2004
The Cenvat Credit on inputs shall be allowed even if any inputs as such or after being partially processed are sent to a job worker and from there subsequently sent to another job worker and likewise, for further processing, testing, repairing, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or the provider of output service taking the Cenvat credit that the inputs or the products produced therefrom are received back by the manufacturer or the provider of output service, as the case may be, within one hundred and eighty days or their being sent from the factory or premises of the provider of output service, as the case may be.”
4. The Ld.D.R. for the Revenue, justified the impugned the order and prayed that the appeals be dismissed being devoid of merit.
5. Heard both sides and perused the appeal records.
6. I find that there is no evidence on record to show that Wheels & Axles (Semi-finished products) sent to the hired premises was with mala fide intention or the appellant was in preparation to remove the goods subsequently. If the same were to be removed subsequently, the appellant could have removed the same from its own premises and there was no reason for them to first shift the goods to the hired premises and then remove them without payment of duty. In the overall facts and circumstances of the case, the explanation given by the appellant that since there were constraints in completing shift work of machining at their own premises and the additional premise was hired, has to be accepted. As such, the benefit of doubt is required to be extended to the appellants.
7. It is also to be borne in mind that Rule 25 starts with the word “Subject to the provisions of Section 11AC”. Section 11AC of
the Central Excise Act deals with penalty for short levy or non-levy of duty in certain cases. It says that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under subsection (2) of Section 11AC, shall also be liable to pay a penalty equal to the duty so determined. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules.
8. It is my considered view that imposition of penalty on both the appellants is un-called for. However, I find that since Appellant No.1, had transferred the semi-finished goods for machining to the Appellant No.2, without permission from the Department, it is a procedural and technical lapse on the part of the appellants and the same requires imposition of token penalty in terms of Rule 27, which provides a maximum penalty of Rs.5,000/-. Accordingly, penalty on both the appellants is reduced to Rs.5,000/- each.
9. In view of the above, both the appeals are partly allowed and disposed of by reducing penalty to Rs.5,000/- (Rupees five thousand only) each.
(Pronounced in the open Court on 16.12.2022)
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