Case Law Details
Gripsurya Re-cycling LLP Vs Commissioner of Central GST and Central Excise (CESTAT Delhi)
CESTAT Delhi held that if the audit points out some wrong assessment which was not pointed out by the officer scrutinizing the ER-1 return, the fault lies at the doorstep of the officer. Hence, invocation of extended period of limitation bad-in-law.
Facts- The appellant manufactures waste rubber granules falling under Central Excise Tariff heading 40040000 and clears them after paying excise duty. It has also been filing excise returns as required in ER-1. Its records for the period 2015-16 to 2017-18 (up to June 2017) were scrutinized by the audit team which found that the appellant had sold goods to M/s. GRP Ltd which was its parent company and hence a related party and paid duty on the invoice values. GRP, in turn, used the waste rubber granules to manufacture its final products.
Revenue felt that since it was a case of sale of goods to a related party who, in turn, consumed the goods captively, duty should have been paid under Rule 8 of Customs Valuation Rules, 2000 at the rate of 110% of the cost of production as certified in the CAS 4 certificates and not on the invoice values. Accordingly, it was felt that differential duty needs to be paid by the appellant. A memorandum was issued to the appellant asking it to pay the differential duty and the appellant by a letter dated 25.05.2020 declined to pay it on the ground of revenue neutrality. A Show Cause Notice was issued to the appellant proposing recovery of the differential excise duty invoking an extended period of limitation u/s. 11A along with interest u/s. 11AA. It was also proposed to impose a penalty u/s. 11AC.
The proposals in the SCN were confirmed by the order-in-original. On appeal, the Commissioner (Appeals) upheld the order-in-original by the impugned order.
Conclusion- Held that the assessee was required to self–assess duty and file ER-1 return, a check against such self-assessment was the scrutiny which the officers were mandated to do by Rules. Audit is the next level of check against the scrutiny by the officers. If the audit points out some wrong assessment which was not pointed out by the officer scrutinising the ER-1 return, the fault lies at the doorstep of the officer. It does not, by itself, establish that the assessee had suppressed any facts.
Since the entire demand is beyond the normal period of limitation, the demand in the impugned order or the consequential interest and penalties cannot be sustained. The impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellant.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. Gripsurya Recycling LLP1, filed this appeal assailing Order-in-Appeal2 dated 16th December, 2021 passed by the Commissioner of Central Excise & GST (Appeals)3, Indore whereby he dismissed the appeal of the appellant and upheld Order-in-Original dated February 19, 2021 passed by the Assistant Commissioner.
2. The appellant manufactures waste rubber granules falling under Central Excise Tariff heading 40040000 and clears them after paying excise duty. It has also been filing excise returns as required in ER-1. Its records for the period 2015-16 to 2017-18 (upto June 2017) were scrutinized by the audit team which found that the appellant had sold goods to M/s. GRP Ltd4. which was its parent company and hence a related party and paid duty on the invoice values. GRP, in turn, used the waste rubber granules to manufacture its final products.
3. Revenue felt that since it was a case of sale of goods to a related party who, in turn, consumed the goods captively, duty should have been paid under Rule 8 of Customs Valuation Rules, 20005 at the rate of 110% of the cost of production as certified in the CAS 4 certificates and not on the invoice values. Accordingly, it was felt that differential duty needs to be paid by the appellant. A memorandum dated 12.3.2020 was issued to the appellant asking it to pay the differential duty and the appellant by a letter dated 25.05.2020 declined to pay it on the ground of revenue neutrality. Thereafter, a Show Cause Notice6 dated 27.7.2020 was issued to the appellant proposing recovery of the differential excise duty invoking extended period of limitation under section 11A along with interest under Section 11AA. It was also proposed to impose penalty under section 11AC. The appellant contested the proposals in the SCN but they were confirmed by the order-in-original the operative part of which is as follows;
ORDER
i. I reject the assessable value of ‘Waste Rubber Granules (Patta) and Waste Rubber Granule (RD), declared by the noticee, M/s Gripsurya Recycling LLP in their invoices and as detailed in para 2.1 of the Show Cause Notice dated 27.07.2020 and order to determine the assessable value of the said excisable goods under the provisions of Section 4(1)(b) of the Central Excise Act, 1944 read with the provisions of Rule 10 and Rule 9 and Rule 8 of the Valuation Rules, 2000;
ii. I confirm the demand of Central Excise duty of Rs.8,29,928/- (Rupees Eight lakh twenty nine thousand nine hundred twenty eight only) (inclusive of Education Cess & Secondary and Higher Education Cess) for the period April 2016 to June 2017 as detailed in para 2.1 of the show cause notice dated 27.07.2020, under Section 11A(4) of the Central Excise Act, 1944 and order to recover the same from the noticee, M/s Gripsurya Recycling LLP, Plot No. S-4, Sector-III, Pithampur, Dhar, Madhya Pradesh;
iii. I order to recover interest on the above confirmed demand of Rs.8,29,928/- (Rupees Eight lakh twenty nine thousand nine hundred twenty eight only) from the noticee, M/s Gripsurya Recycling LLP, Plot No. S-4, Sector-III, Pithampur, Dhar, Madhya Pradesh;
iv. I impose a penalty of Rs.8,29,928/- (Rupees Eight lakh twenty nine thousand nine hundred twenty eight only) on the said noticee, under the provisions of Section 11AC(1)(c) of the Act;
However, as per clause (e) of sub-section (1) of present Section 11AC of CEA, 1944, if they pay the amount of of C.Ex. duty determined under (ii) above along with interest payable thereon as ordered under (iii) above within thirty days from the date of communication of this order, the amount of penalty shall be twenty-five percent of the C.Ex. duty confirmed above. The benefit of reduced penalty shall be available if the amount of reduced penalty is also paid within the aforesaid period of thirty days.
19. Show Cause Notice F.No.III(10)A-IND/CE/Gr.-17/30/Gripsurya/18-19/3003 dated 27.07.2020 issued to M/s Gripsurya Recycling LLP, Plot No. S-4, Sector-III, Pithampur, Dhar, Madhya Pradesh stands disposed of in the above manner.
4. On appeal, the Commissioner (Appeals) upheld the order-in-original by the impugned order. Hence, this appeal.
5. We have heard learned counsel for the appellant and learned authorized representative for the Revenue and perused the records. The appellant is not contesting that its customer M/s. GRP is its related party. It is also not contesting that GRP used the materials and had not further sold them and therefore, duty must be assessed at 110% of the cost of production certified in CAS 4 certificates. It is only contesting the demand on the grounds of limitation for two reasons:
a) It had filed the ER 1 returns and had not suppressed any information which it was required to provide and there is no evidence to establish any of the elements required to invoke extended period of limitation- fraud or collusion or wilful misstatement or suppression of facts or violation of the provisions of act or rules with an intent to evade payment of duty.
b) The entire exercise is revenue neutral because whatever duty it had paid was available as CENVAT credit to its parent company to whom it sold the goods. Therefore, there cannot be any intention to evade payment of duty.
6. The appellant is also contesting the demand of interest on the ground that the demand itself is not sustainable and therefore, interest cannot be demanded. It is also contesting the imposition of penalty under section 11AC.
7. The reasons mentioned in the SCN for invoking extended period of limitation are: (i) undervaluation of manufactured goods by the appellant resulted in short payment of duty; (ii) Even after audit pointed out, the appellant resisted the proposition by the audit and justified its method of valuation which shows its intention; and (iii) Had the audit not scrutinized the returns, the undervaluation would not have come to light.
8. The order-in-original asserted that the appellant and GRP were related persons and it dismissed the plea of the appellant that the exercise is revenue neutral. It reasoned that simply because the buyer would have been eligible for CENVAT credit is not a ground to not pay Central Excise duty and if the duty has to be paid on a value it should be paid and whether the buyer will get CENVAT credit or not is irrelevant for the purpose of raising the demand. It further stated that from the periodical returns filed by the assessee, the department could not come to know about the details of the buyers to whom the goods were sold and if they were related. The assessee is required to correctly determine the duty liability and pay the duty. The appellant had failed to do so and therefore, there is an element of suppression of relevant facts and wilful misstatement. For these reasons, the order-in-original confirmed demand invoking extended period of limitation.
9. In the impugned order, the Commissioner (Appeals) identified two issues to be determined by him:
a) Extended period of limitation as per section 11A is invokable or not;
b) The principle of revenue neutrality is applicable or not;
10. On the question of invoking extended period of limitation, she held that the appellant had not accepted that they and GRP were related persons and therefore, were in denial. She further observed that the department had no way of knowing that the appellant and GRP were related persons and that the appellant failed to correctly determine the duty liability which amounted to wilful suppression of facts and therefore, extended period of limitation was correctly invoked.
11. On the question of Revenue neutrality, she held that the assessee has to pay duty as required under law and it is immaterial whether the buyer is likely to get CENVAT credit of the duty so paid and use it.
12. We have considered the submissions. We proceed to deal with the issue of limitation because the entire period of demand is beyond the normal period of limitation. It is not in dispute that Section 11A provides for a limitation of one year for issuing the SCN. This period can be extended to five years in case the duty is not paid, short paid, not levied, short levied or erroneously refunded on account of fraud or collusion or willful statement or suppression of facts or violation of the provisions of Act or Rules with an intent to evade the payment of duty. The case of the Revenue in the SCN, order-in-original and the impugned order is that the appellant had deliberately suppressed facts with intent to evade payment of duty because firstly it did not assess duty correctly and secondly, it had not accepted the contentions of the audit and thirdly because if audit had not pointed out, the undervaluation would have remained undetected. It is also the case of the Revenue that the Excise Returns do not show if the appellant had sold the goods to related persons or not and that such a relationship could be discovered only by scrutiny of records by the audit. It is further their case that Revenue neutrality does not mean that the appellant can escape paying duty when it is to be paid as per law.
13. We have considered these submissions. That the appellant had contested the observations of the audit cannot be a ground to presume wilful suppression of facts. Nothing in the law requires the assessee to accept the views of audit team or preventive team or any other team of officers. Therefore, this submission of the Revenue cannot be accepted.
14. The second contention of the Revenue is that it was for the appellant to have correctly assessed the duty and filed ER1 returns and from the returns filed by the appellant it was not clear that it had sold to related persons. This submission also cannot be accepted.
15. Firstly, there could be two or more views on the same issue and the assessee self-assesses duty as per its view and understanding.
16. Secondly, the ERI Returns are not designed by the assessee but by the department under the Rules and the obligation of the appellant is to disclose information in them. If the ER 1 returns are defectively designed and do not have columns requiring the assessee to disclose its relationship with its buyers, the assessee cannot be held responsible for it. Since the Returns are filed online, there is also no scope to modify the columns or provide extra information. The responsibility of assessee ends with filing the return in the format prescribed. Thus, the assessee was not only NOT REQUIRED to disclose the relationship but it was also not possible for it to disclose the relationship in ER1.
17. Thirdly, the Excise Rules provide not only for self-assessment of duty and filing of returns by the assessee in ER-1, but also provide for scrutiny of the returns by the officers. Duty of excise is charged on excisable goods manufactured or produced in India (Section 3) but the duty becomes payable on removal (Excise Rule 4). The assessee has to self- assess (Excise Rule 6) the duty and pay it by the fifth day or sixth day (in case of electronic payment) of the following month (Excise Rule 8) and file Returns (Excise Rule 12) as per the form. The officers have to scrutinize the returns [Excise Rule 12(3)] and can, for the purpose call for documents and records which the assessee is bound to produce [Excise Rule 12(4)]. The relevant extracts of these rules are below:
Rule 4. Duty payable on removal.-
(1) Every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided
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Rule 6. Assessment of duty.-
The assessee shall himself assess the duty payable on any excisable goods:
Provided that in case of cigarettes, the Superintendent or Inspector of Central Excise shall assess the duty payable before removal by the assessee.
Rule 8. Manner of payment. – The duty on the goods removed from the factory or the warehouse during a month shall be paid by the 6th day of the following month, if the duty is paid electronically through internet banking and by the 5th day of the following month, in any other case:
Provided that in case of goods removed during the month of March, the duty shall be paid by the 31st day of March:
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Rule 12 Filing of return.-
(1) Every assessee shall submit to the Superintendent of Central Excise a monthly return in the form specified by notification by the Board, of production and removal of goods and other relevant particulars, within ten days after the close of the month to which the return relates
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(3) The proper officer may on the basis of information contained in the return filed by the assessee under sub-rule (1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee on the goods removed, in the manner to e prescribed by the Board.
(4) Every assessee shall make available to the proper officer all the documents and records for verification as and when required by such officer.
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18. Thus, the scheme under the law is that although the duty is levied on manufacture of goods, it becomes payable only when they are removed and it must be paid as per self-assessment by the fifth or sixth of the following month. The assessee also has to file returns. Needless to say that the assessee may make mistakes in self-assessment and the check against such mistakes has been provided in the form of scrutiny of the returns by the officers and the officer scrutinising the returns can call for any documents and records from the assessee which it is bound to provide. In other words, the officer is mandated under the Rules to do what the audit has done much later. Had the officer, who is an expert in taxation scrutinised the returns as he was mandated to do and called for any records as he was authorised to call for, the alleged mistakes which were pointed out by the audit would have come to light and an SCN could have been issued under section 11A within the normal period of limitation. It also needs to be pointed out that the relevant date to calculate the limitation is the date on which the Return is filed by the assessee or if it is not filed, the last date by which it was required to be filed because only when the return is filed, the officer can scrutinise it and raise demands for any short paid duty and if no return is filed by due date, the officer is expected to initiate steps to call for records and determine if the duty has been paid.
19. To sum up, while the assessee was required to self–assess duty and file ER-1 return, a check against such self-assessment was the scrutiny which the officers were mandated to do by Rules. Audit is the next level of check against the scrutiny by the officers. If the audit points out some wrong assessment which was not pointed out by the officer scrutinising the ER-1 return, the fault lies at the doorstep of the officer. It does not, by itself, establish that the assessee had suppressed any facts.
20. As far as the question of Revenue neutrality is concerned, the Commissioner (Appeals) was correct in stating that even if a related person would get CENVAT credit, duty has to be paid if it is to be paid as per law. Revenue neutrality is a concept which has evolved through a series of decisions only for the limited purpose of determining if the assessee could have had an intention to evade payment of duty. This intention is an essential ingredient to invoke extended period of limitation. If it is Revenue neutral situation where, the excess duty, if paid, would have been available to the appellant itself or its another unit or a related unit as CENVAT credit, there cannot be an intention to evade because the assessee would gain nothing by evading. If the duty is chargeable or differential duty is chargeable such charge flows from the charging section- Section 3 of the Act. If such duty or differential duty is not paid, the remedy is available to the Revenue under Section 11A. This section places limitation on when a notice can be issued- within the normal period or extended period. Beyond the limitation, Revenue has no remedy although the charge remains. It is like a time-barred debt which, though owed, cannot be recovered by the creditor. If differential duty was chargeable but was not paid and it is later discovered by audit and it gets time barred under Section 11A, the responsibility for it rests squarely on the officers mandated to scrutinize the returns in time and raise a demand in time.
21. Since the entire demand is beyond the normal period of limitation, the demand in the impugned order or the consequential interest and penalties cannot be sustained. The impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellant.
(Order pronounced in the open court on 15.09.2023 )
Notes:
1 Appellant
2 Impugned order
3 Commissioner (Appeals)
4 GRP
5 Rules
6 SCN
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