M/s Flextronics Technologies (India) Pvt. Ltd. Vs. Commissioner of Central Excise (CESTAT Bangalore)- On a conjoint reading of Section 11AB of the Act and that of Rules 3 and 4 of the Credit Rules, we hold that interest cannot be claimed from the date of wrong availment of CENVAT credit. The interest shall be payable from the date CENVAT credit is wrongly utilised.
The appellants had not utilised the Cenvat credit taken by it erroneously. When the Cenvat credit taken remained an entry in their account, the assessee did not incur any liability on account of such credit. Interest is compensatory in character and is imposed on an assessee when payment of any tax due and payable is withheld.
Please Note This Judgement has no Significance now as Supreme Court has held in the case of Union of India & Ors. Vs. M/s. Ind-Swift Laboratories Ltd. Civil Appeal No. 1976 of 2011, decided on 21-2-2011 that interest in case of wrong availment of cenvat credit has to be paid from the date of availment of credit and not from the date of utilisation.
IN THE, CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL SOUTH ZONAL BENCH,
FKCCI COMPLEX, K.G. ROAD, BANGALORE – 56009.
Central Excise Appeal No. 395 of 2007
[Arising out of Order-in-Original No. 04/2007 dated 12.03.2007 passed by the Commissioner of Central Excise, Bangalore]
M/s Flextronics Technologies (India) Pvt. Ltd., Bangalore – Appellant
Commissioner of Central Excise, Bangalore. – Respondent
Present for the Appellant: Shri Keyur Shah, Advocate
Present for the Respondent: Shri D. P. Nagendra Kumar, Jt.CDR
Coram : Shri M. V. Ravindran, Member (Judicial) and Shri P. Karthikeyan, Member (Technical)
Date of Order: 20/07/2010
O R D E R
PER: P. KARTHIKEYAN
This appeal filed by M/s Flextronics Technologies (I) Pvt. Ltd. seeks to vacate penalty of Rs. 6,00,000/- imposed on them under Rule 13 of Cenvat Credit Rules, 2002 (CCR) read with Section 11AC of the Central Excise Act, 1944 (the Act) and applicable interest demanded from them under Rule 12 of the CCR read with Section 11AB of the Act on amounts of Cenvat Credit found to have been availed by them irregularly during the years 2002-03 and 2003-04. The facts of the case are that during audit of records of the assessee, the following discrepancies/irregularities were noticed :-
(a) Irregular availment of Cenvat credit on sales returns without any invoices during December 2002 & February 2003 involving duty amount of Rs. 3,37,041.00;
(b) Availed Cenvat credit on Bills of Entry pertaining to the import of inputs used in the manufacture of exempted products involving duty amount of Rs. 1,14,477.00 during November 2003;
(c) Non payment of duty on the debit notes raised to the customers with respect to the sale of stencils used in the designing & drawing on which Cenvat credit has been availed amounting to Rs. 1,14,286.00 during July 2002;
(d) Irregular availment of excess Cenvat credit on two invoices issued by a 100% EOU to the assessee under DTA clearances amounting to Rs. 4,852.00 during March 2003;
(e) Irregular availment of Cenvat credit under capital goods on pre-fabricated construction falling under CETH 9406 amounting to Rs. 7445.00 during July 2002;
(f) Excess availment of Cenvat credit on an invoice than what was actually eligible amounting to Rs. 526.00 during March 2003;
(g) Non payment of interest amounting to Rs. 1,54,798.00 (for the period from June 2003 to September 2003) on the credit on Rs. 1,50,31,300.00 reversed voluntarily in September 2003 on the inputs meant for the manufacture of non-dutiable products after the same became exempted in June 2003 itself vide Notification No. 55/2003-CE dated 24.6.2003;
(h) Irregular availment of Cenvat credit on invoices pertaining to Aluminium tables under capital goods after showing them under Furniture in the Fixed asset schedule for depreciation purpose, amounting to Rs. 1,52,440.00 even though the said goods does not merit classification as capital goods under Chapter heading 8537 but merits classification under Chapter heading 9403 as “other furniture”.
The assessee paid/reversed credit of Rs. 6,05,627.00 availed in respect of Sl. No. (a) to (f) above. The assessee disputed its liability to pay interest on the above amounts and the department’s stand that they were not entitled to capital goods credit on Aluminum tables.
2. After due process of law, the Commissioner confirmed the demands of irregular Cenvat credit mentioned at Sl. No. (a) to (f) and (g) above. The assessee had already reversed the relevant credit and the same was appropriated in the impugned order. These were respectively Rs. 6,05,627/- and Rs. 1,50,31,300/-. The Commissioner found that Aluminium tables received by the appellants had been wrongly classified under Chapter heading 8537. The same was correctly classified under Chapter heading 9403 as “other furniture”. The goods falling under heading 9403 were not covered under definition of “capital goods” in CCR. She disallowed the credit of Rs. 1,52,440/- relatable to Aluminium tables received by the appellants. As regards interest liability, the Commissioner held that this liability arose due to operation of law under Rule 12 of the CCR read with Section 11AB of the Act. The appellants had taken huge amounts of Cenvat credit not due to them intentionally and reversed the same on being pointed out by the audit party in April 2004. Accordingly she imposed a penalty of Rs. 6,00,000/- on the appellants under Rule 13 of the CCR read with Section 11AC of the Act. In the appeal filed before the Tribunal the assessee has challenged the impugned order to the extent it imposed penalty of Rs. 6,00,000/- on it and confirmed the demand of interest for late reversal of irregular Cenvat credit availed. The appeal also seeks to vacate denial of Cenvat credit of Rs. 1,52,440/- relatable to Aluminium tables and demand of the same.
3. As regards the denial of credit on Aluminium tables, the appellants have contended that the Central Excise authorities having jurisdiction over the assessee which received capital goods/ inputs were not competent to reclassify the goods originating from a manufacturer subject to jurisdiction of different Central Excise officers who had classified the same. In support of this submission, the appellants relied on the following case laws :-
(i) Prem Cables Pvt. Ltd. Vs. CCE, Jaipur [2001 (127) E.L.T. 400 (Tri.-Del)]
(ii) CCE, Patna Vs. Bihar Caustic & Chemicals Ltd. [2000 (118) E.L.T. 196 (Tri.)]
(iii) CCE, Chandigarh Vs. Gontermann Peipers (India) Ltd. [186 ELT 422 9Tri.-Del.)]
(iv) Sakumbari Sugar & Allied Industries Ltd. Vs. CCE, Meerut [2006 (205) E.L.T. 1087 (Tri.-Del)]
It is argued that the rules provided for the manufacturer to avail Cenvat credit of duty paid on the goods received by it on the strength of Excise invoices issued by the manufacturer which bore the assessment of the goods. The assessee has also tried to justify the classification under Chapter heading 8537 of the impugned Aluminium tables on the basis of the classification adopted in the relevant Excise invoices.
4. As regards the penalty of Rs. 6,00,000/- imposed on them, the appellants have contested their liability to penalty imposed under Rule 13 of the CCR read with Section 11AC of the Act on the ground that these provisions applied only in a case where the Cenvat credit is taken or utilised wrongly on account of fraud, wilful mis-statement, collusion or suppression of facts or contravention of any of the provisions of the act or the rules made there under with intention to evade payment of duty. In the instant case, the appellants had no intention to evade payment of duty. The appellant was a major assessee having institutionalised regular internal audit/check to ensure that it availed Cenvat credit in accordance with law. Despite such institutional safeguards, inadvertent errors take place. As per the impugned order, the assessee had suo moto identified that it had wrongly availed credit of Rs. 1,50,31,300/- on inputs meant for the manufacture of non-dutiable products in the wake of their exemption under Notification No. 55/2003-CE dated 24.6.2003 and had reversed the same suo motu. This fact was acknowledged in the impugned order. Irregularities involving credit of Rs. 6,05,627/- were discovered during the internal audit of the records. These were errors clearly apparent from the records and they had not tried to suppress the same. These were found out on inspection by internal audit party and on account of cooperation extended by the assessee. The credit involved had not been taken by any mis-statement or suppression of facts or fraud or wilful mis-statement, collusion or contravention of any of the provisions of the act or the rules made there under with intention to evade payment of duty. Therefore, the penalty envisaged under Rule 13 of the CCR read with Section 11AC of the Act was not imposable on them. They relied on the following case laws among others :
(i) CCE, Nashik Vs. Chetna Cement Pvt. Ltd. [2007 (5) STR 25 (Tri.-Mum)]
(ii) RGR Pharmaceuticals Vs. CCE, Chandigarh [2007 (211) E.L.T. 313 (Tri.-Del.)]
(iii) Flex Industries Ltd. Vs. CCE [2003 (151) E.L.T. 198]
(iv) Aurobindo Pharma Ltd. Vs. CCE [2002 (52) RLT 943]
(v) Jamna Auto Industries Ltd. Vs. CCE [2001 (130) ELT 181]
(vi) Nahar Spinning Mills Ltd. Vs. CCE [2000 (121) ELT 400]
More judicial authorities are cited to challenge the penalty on the ground that penalty could not be imposed as a matter of course without establishing cogent and reliable evidence that proved beyond reasonable doubt the existence of ‘culpable mental state’. The impugned order sought to impose penalty merely because the law empowered such imposition. One of the relied upon judgements is Hindustan Steel Ltd. Vs. State of Orissa [1978 ELT J159 (S.C.)].
5. They had reversed the impugned credit before issue of show cause notice. In the judgement of the Apex Court in the case of Commissioner Vs. Rashtriya Ispat Nigam Ltd. [2004 (163) ELT A53 (S.C.)] the Apex Court had upheld the decision of the Tribunal in the case of Rashtriya spat Nigam Ltd. Vs. CCE, Visakhapatnam [2003 (161) ELT 285 (Tri.-Bang.)] where the Tribunal had vacated the penalty imposed on the appellants considering the fact that it had deposited the duty due to the department prior to issue of show cause notice.
5.1 During the material period, all through, the appellants had sufficient Cenvat credit in their account. Therefore, there could not have been any intention in taking undue credit as found in the impugned order.
6. The assessee challenged the demand of interest on the ground that the impugned credit had not been utilised by them; there was sufficient balance in their Cenvat credit account all along. In support of the claim that in the circumstances no interest is leviable on them, they relied on the following judicial authorities :-
(i) Gupta Steel Vs. CCE, Rajkot [182 ELT 323 (Tri.-Mum.)]
(ii) CCE, Pondicherry Vs. Nexus Computers Ltd. [2004 (176) ELT 504 (Tri.-Chennai)]
(iii) CCE, Lucknow Vs. Oudh Sugar Mills Ltd. [2003 (56) ELT 993 (Tri.-Del.)]
7. The show cause notice is barred by limitation as the same was issued beyond one year from the relevant date. The larger period of five years could be invoked validly only in cases where fraud, wilful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the act or the rules made there under with intention to evade payment of duty existed. This situation was absent in the instant case. The material period is Financial Year 2002-03 and the show cause notice was issued on March 3, 2006.
8. During hearing, ld. Counsel for the appellants submitted a copy of the judgement of the Honourable High Court of Punjab & Haryana in the case of Ind-Swift Laboratories Ltd. Vs. Union of India [204 ELT 328]. He submitted that their Lordships of the High Court of Punjab & Haryana held that liability of interest on Cenvat credit taken wrongly did not arise till the same was utilised.
9. Ld. Jt. CDR reiterated the reasoning and the findings in the impugned order.
10. We have carefully considered the case records and the rival submissions. The three issues arising for our consideration are discussed below :
(i) As regards the entitlement of the assessee to capital goods credit of Rs. 1,52,440/- paid on Aluminium tables received by it, we find that Aluminium tables received by the appellants were classified under Chapter heading 8537. The manufacturer had assessed the same to duly appropriate to goods falling under Chapter heading 8537. The appellants had taken credit on the strength of Central Excise invoices issued under the relevant provisions in the CCR. We find that the appellants had availed credit of duty paid on the Aluminium tables in accordance with law. The Commissioner had sought to disallow the impugned credit on the finding that Aluminium tables involved were correctly classifiable under Chapter heading 9403 and such goods were not covered by the definition of capital goods. We find that the Commissioner having jurisdiction over the recipient assessee is not competent to revise the classification and assessment of the goods reflected in the Excise invoices under cover of which the capital goods/ inputs are received by an assessee. This position is no longer res-integra. In the various case laws relied on by the appellants, the Tribunal had held that the classification of the goods cannot be changed at the receivers end by the Central Excise authority. In view of this settled position, we vacate the order of the Commissioner as regards the denial of capital goods credit to the extent of Rs. 1,52,440/- on Aluminium tables ordered in the impugned order.
(ii) The next issue relates to the appellants liability to interest for delay in reversing the inadmissible Cenvat credit. We find that the consistent claim of the assessee is that they had not utilised the impugned credit and there was sufficient balance in their Cenvat credit account at all times. Therefore, liability to interest did not arise. We find that in Ind-Swift Laboratories Ltd. case (supra) cited by the appellants, their Lordships of the High Court of Punjab & Harayana had held as follows :-
11. Reliance of respondents on Rule 14 of the Credit Rules that interest under Section 11AB of the Act is payable even if CENVAT credit has been taken. In our view, said clause has to be read down to mean that where CENVAT credit has been taken and utilised wrongly, interest should be payable on the Cenvat credit taken and utilized wrongly. Interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. On a conjoint reading of Section 11AB of the Act and that of Rules 3 and 4 of the Credit Rules, we hold that interest cannot be claimed from the date of wrong availment of CENVAT credit. The interest shall be payable from the date CENVAT credit is wrongly utilised
We find that the appellants had not utilized the Cenvat credit taken by it erroneously. When the Cenvat credit taken remained an entry in their account, the assessee did not incur any liability on account of such credit. Interest is compensatory in character and is imposed on an assessee when payment of any tax due and payable is withheld. The Honourable High Court held that interest shall be payable from the date Cenvat credit is wrongly utilised. In the light of the above judicial authority, we vacate the demand of interest confirmed in the impugned order.
(iii) The next issue is whether the penalty of Rs. 6,00,000/- imposed under Rule 13 of the CCR read with Section 11AC of the Act is sustainable. We note that the relevant Rule 13 of the CCR reads as follows :-
“In a case where the CENVAT credit has been taken or utilised wrongly on account of fraud, wilful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the act or the rules made there-under with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Act.”
We observe that these provisions can be invoked only in a case where an assessee has taken or utilised Cenvat credit wrongly on account of fraud, wilful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the act or the rules made there-under with intention to evade payment of duty. In the instant case, the assessee had taken the wrong credit in their account but did not utilise the same. The assessee had claimed that they happened to take wrong credit inadvertently despite the safeguards put in place in its organisation. They had reversed the irregular credit immediately on being pointed out by the authorities. Though the show cause notice had alleged that the appellants had taken irregular Cenvat credit by suppression of facts, the Commissioner concluded that the assessee had intentionally taken huge amount of Cenvat credit (Rs. 6,05,627/-) as it had been functioning for a long time as an assessee and the rules involved were simple and clear. They had reversed the credit of Rs. 6,05,627/- only on being pointed out by the audit party. We do not find any evidence to support a conclusion that the assessee had availed credit of Rs. 6,05,627/- with intention to evade payment of duty. The assessee had not utilized the impugned credit. This circumstance favours a conclusion in favour of the assessee that there was never any intention on their part to evade payment of duty. We accordingly find that the penalty of Rs. 6,00,000/- has not been imposed in accordance with Rule 13 of the CCR. Accordingly, this penalty is vacated.
12. In the result, the impugned order is set aside and the appeal allowed