CA Urvashi Porwal
Brief of the Case
In the case of Ran India Steels Pvt. Ltd. Versus Commissioner of Customs & Central Excise, Salem, it was held that excise amount paid on account of inter unit transfer higher than amount arrived as per CAS-4 cannot be treated as non compliance and the CENVAT credit of the same can be availed by the other unit.
Facts of the Case
The Appellant M/s.Ran India Steels Pvt. Ltd., Unit-II located in Nallur Village, Namakkal District, Tamil Nadu are engaged in the manufacture of MS Ingots falling under Chapter Heading 72061090 and registered with Central Excise. The entire M.S ingots manufactured by appellant Unit-II are cleared to their own Unit-I located in the same Nallur Village, Namakkal District for captive consumption in the manufacture of TMT bars. Appellant paid duty by adopting market value of MS ingots and obtained CAS-4 certificate for determining the value of goods cleared to their own inter-unit. The adjudicating authority issued SCN No.7/2013 dt. 7.5.2013 and another SCN No.05/14 AC dt. 12.3.2014 on the charge of passing on the excess credit to their Unit-I and proposing for penalty under Rule 26 & 27 of CER 2002. Accordingly, the adjudicating authority passed two Orders-in-Original viz. OIO No.1/2014 (AC) dt.20.3.2014 (in respect of Appeal E/42499/14) and OIO No.4/2014 (AC) dt. 17.11.2014 (in respect of Appeal 41030/15). In both the OIOs, the adjudicating authority rejected the value adopted by appellant’s Unit-II and imposed penalty under Rule 26. Since the value was not determined under Rule 8 of Central Excise Valuation Rules, he directed the jurisdictional range officer to quantify the amount and the amount of duty shall be the penalty imposed under Rule 26. He also imposed penalty of Rs.5000/- each in both the OIOs under Rule 27 of the CER 2002. Based on the adjudication order, the jurisdictional Range Superintendent in his letter dt.11.8.2014 determined the value as per CAS-4 certificate and quantified the duty of excess credit passed on to the Unit-I of Rs.3,28,78,965/- and directed the appellant to pay equal penalty under Rule 26 as held by the adjudicating authority. Similarly, the Range Superintendent in his letter dt. 19.11.2014 redetermined the value and quantified the duty demand of Rs.2,11,557/- and directed the appellant to pay duty as well as equal penalty under Rule 26. On appeal, the Commissioner (Appeals) upheld the OIOs and rejected the appeals filed by appellants. Hence the above two appeals before Tribunal.
The brief facts of the case are that the Commissioner of Central Excise, Salem issued a SCN No.27/2013 dt. 7.5.2013 to appellant’s Unit-I denying cenvat credit of Rs.3,28,78,965/- availed by them and also ordered for recovery of the credit by invoking the proviso to Section 11A and also proposing for interest and equivalent penalty under Section 11AC. The adjudicating authority in his OIO No.15/2014-CE dt.31.12.2014 ordered for recovery of ineligible credits availed by unit-I along with interest and also imposed equivalent penalty under Rule 15 (2) of CER 2004 read with Section 11AC of the Act.
Contentions of the Assessee
The assessee contended that the goods manufactured by Unit-II were not sold to DTA clearance but the entire quantity was transferred to unit-I for manufacture of TMT rods & bars. It was submitted that since there is no sale to any unrelated person they are covered under Rule 8 of Central Excise Valuation Rules and the value has to be adopted as per the CAS-4 formula. Pending receipt of CAS-4 certificate from the Cost Accountant they have paid excise duty on the goods transferred to their Unit-I based on the market value which is higher than 110% of cost of production. There was no dispute on the duty paid by the appellant on the higher value. The department alleged that higher duty was paid with intention to pass on the credit. However, there is no intention to pass on the excess credit as the duty was paid by Unit-II, they are eligible for taking credit by Unit-I by calculating excise duty on the finished goods viz. TMT bars cleared from unit-I. Therefore there is revenue-neutrality. It was further submitted that there is no provision in Section 11A for alleging contravention of payment of higher duty. The assessee further relied on the following citations :-
(1) CCE Pondicherry Vs Jeevan Diesels & Electricals Ltd.
2010 (254) ELT 99 (Tri.-Che.)
(2) Super Forgings & Steel Ltd.
2007 (208) ELT 153 (Tri.-Kol.)
(3) Grauer & Weil (I) Ltd. Vs CCE & Cus. Daman
2009 (234) ELT 101 (Tri.-Ahmd.)
(4) Monga Brothers Ltd. Vs CCE Ludhiana
2013 (294) ELT 322 (Tri.-Del.)
The assessee further submitted that denial of input credit to Unit-I is not justified as they have not contravened any of the provisions of CCR as the goods were MS rods, original input for manufacture of finished goods got duty paid invoice. It was further submitted that it is not the case before transfer of any credit, the goods were received by Unit II under valid central excise invoice and availed input credit. The goods were consumed in the manufacture of finished goods. Therefore, denial of cenvat credit on the ground of passing on the excess credit from Unit II to Unit I is not within the provisions of CCR & rule 26 cannot be invoked. Rule 26 penalty is imposable where no goods involved and also only before transaction. Whereas in the present case, the goods were transferred to their Unit I for captive consumption.
Contentions of the Revenue
The Revenue submitted that determination of value under Rule 8 is not in dispute as the goods were transferred to their own Unit and the appellant knew well that valuation has to be adopted under Rule 8 and there is no concept of paying higher rate of duty. It was submitted that adjudicating authority brought out clearly the intention of appellant that they have not availed the entire credit available to Unit-II but passed on to Unit-I. Therefore higher value adopted by the appellant is not justified and is not in accordance with the rules. The Revenue relied on the following case laws :-
(1) CCE Chennai Vs Eveready Industries Ltd. –
(2) Jay Yushin Ltd. Vs CCE New Delhi –
(3) Eicher Motors Ltd. & Others Vs CCE Indore
(4) Tata Iron & Steel Co. Ltd. Vs CCE Thane-II
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that in the first place, whether the value is higher or lower will be known only after the receipt of the certificate from Cost Accountant and in this case it was received much after the clearance. If there was a shortage then it would have resulted in a demand of differential duty and if there is an excess, then it is a question of refund of duty. It is normally not possible for anybody to pay duty with mathematical precision at 110% of the cost. In all cases there may be shortage or excess payment. That will be known in the next financial year after getting a Cost Accountant certificate. Merely because there is variation, that too in favour of the Revenue, there cannot be a ground for imposing penalty under Rule 26.
Further the self assessment of the appellant has become final. The lower authority has not taken any effort for reassessment. Only after reassessment, the authority can say that there is an excess or shortage of payment of duty. There was no proposal in the notice to arrive at the correct value for the purpose of assessment. Since the correct value has not been determined, it cannot be presumed that the appellant has passed on excess credit to their own unit-I. As rightly pointed out earlier, there was no necessity to pass on excess credit to Unit I as both unit II and unit I are one and the same entity. The excess amount can be transferred as cash also. They can pass on the cash legally to Unit-I instead of credit. Hence the entire basis on which the Department proceeded against the appellant is incorrect.
If the Department feels that they will not accept any body paying more duty then the same should have been granted as refund. In the present case, no such order has been passed. No doubt the refund is subject to Section 11B.
In the instant case, there is no evasion of duty nor is there any violation of Central Excise Rules/Acts by the Appellant. In any case the entire transaction is revenue neutral as Unit-I had taken credit and paid duty on their finished product TMT Rods. Further the appellant had not merely paid duty by debiting the credit alone but also paid by way of cash. [The following decisions of the Tribunal lends support to the above view.
(i) CCE, Pondicherry Vs Jeevan Diesels & Electricals Ltd -(Supra)
(ii) Grauer & Weil (I) Ltd Vs CCE, Daman – (Supra)
(iii) Monga Brothers Ltd. Vs- CCE, Ludhiana (Supra)
The above decisions would apply with greater force in the present case and the orders of the lower authorities are liable to be set aside on this ground also.]
Further a perusal of Rule 26 of the Central Excise Rules, 2002 would show that it has no applicability to the appellant . Rule 26(2)(i) applies only where there is no delivery of goods by the manufacturer of inputs. In the present case there is no dispute with regard to the fact that the goods were supplied to Unit I. The goods which are cleared in the instant case falls within the definition of input as found under Rule 2(k) of the CENVAT Credit Rules, 2004. They have been used in the manufacture of goods by the receiving Unit I of the appellant. Thus, the present issue is not a case of “ineligibility”, also and therefore Rule 26(2)(ii) will not operate. The appellant has not enabled the receiving unit to take credit without payment of duty. Hence the lower authorities have wrongly applied Rule 26 for imposing penalty. Similarly, imposition of penalty under Rule 27 is also not correct.
Further, there was no dispute raised by the department during the disputed period about the higher value adopted at the time of clearance from Unit II. Further for the reasons stated supra it cannot be said that there was excess or shortage of payment of duty by the appellant. Hence on this ground alone this appeal has to be allowed. However, in the light of these facts, the credit taken by Unit I based on actual duty paid by Unit II is in order. In Brakes India Ltd v. CCE, Delhi III – 2008 (230) ELT 621 (T) the Tribunal held that whatever duty was paid was taken as credit, hence, entire exercise being revenue neutral and does not involve any fraud or manipulation etc and therefore, credit is not deniable. Hence, the demand is not sustainable and the impugned order is liable to be set aside.
The Hon’ble CESTAT further stated that Rule 3 of the CCR, 2004 provides for taking credit of the duty paid on the inputs and capital goods received in the factory on the strength of documents specified in Rule 9 (1) thereof. Rule 9 (1) of the Cenvat Credit Rules, 2004 specifies the documents on which Cenvat credit can be taken and one such document is invoice issued by a manufacturer from his factory or depot or from the premises of the consignment agents or any other premises from where such goods are sold.
The invoices on which Cenvat credit was taken were issued by the manufacturer namely, M/s Ran India Steels Pvt. Ltd., Unit II from their factory from where the said goods were cleared. The receipt of goods covered by the invoices showing payment of duty is not disputed either in the SCN or in the impugned order. The eligibility of the goods for credit, their receipt and use in the factory are also not in dispute. Similarly, the fact that the Appellant has paid the price and the duty as shown in the invoices to the supplier is also not in dispute. As per Rule 11 of the Central Excise Rules, 2002, an invoice shall necessarily contain the registration number, name of the consignee, description, classification, time and date of removal, mode of transport, vehicle number (if any), rate of duty, quantity and value of goods and the duty payable thereon. The invoices issued by Unit II contain all the particulars as stipulated under Rule 11 (2) of the Central Excise Rules, 2002. As long as amount of duty as indicated in the duty paying documents (i.e. excise invoice) has been paid and as long as inputs/capital goods which are indicated in the duty paying documents are eligible for credit and are received and used by a manufacturer in his factory there cannot be any ground for denial of credit. The manner in which the manufacturer has paid the duty on the goods so supplied is irrelevant.
It is also seen that during the period from April 2008 to March 2013, Unit II had paid substantial amount from PLA. The Appellant submits that, had Unit II followed the assessable value mentioned in the SCN, then the duty amount need not have been paid by cash by Unit II. As such, it is not the case of the department that Unit II has deliberately adopted higher assessable value to utilize accumulated Cenvat credit. If that had been the case of the department, then the payment of PLA would not have arisen at all.
In view of the above, the appeal is allowed.