Case Law Details

Case Name : Medisray Laboratories P. Ltd. Vs CCGST (CESTAT Mumbai)
Appeal Number : Appeal No. E/85429/2018
Date of Judgement/Order : 01/11/2018
Related Assessment Year :
Courts : All CESTAT (1060) CESTAT Mumbai (199)

Medisray Laboratories P. Ltd. Vs CCGST (CESTAT Mumbai)

Coming to the statutory audit procedure, the purpose of audit, as available in the Manual published by the Institute of Chartered Accountants of India in respect of EA audit and CERA audit under Chapter 17 is that the idea behind such conduct of verification is to reasonably ensure that no amount, which under the central excise law is chargeable as duty, escapes taxation and the process of verification is always carried out in the presence of assessee and in the process, the auditor is required to discuss the matter with the assessee and advice him to follow correct procedure in future. It is also referred in the said manual that after such submission of audit report, in cases where the disputed amount have not already been paid by the assessee at the spot, demand notices are issued by the department for their recoveries. EA 2000 audit was therefore held to be participative audit. Likewise CERA audit is conducted by the Comptroller and Auditor General of India in respect of receipt and expenditure of the Government of India. It also discharges revenue audit which covers central excise, service tax and customs laws during which time the assesses were examined by CERA audit party to point out the deficiencies, leakage of revenue and non recoveries of dues by the Central Excise Department. Therefore, it cannot be said that only because audit party had found some credit availed has inadmissible, suppression of fact is made out.

FULL TEXT OF THE CESTAT JUDGMENT

None payment of duty @ 6%/7% of the trading value for non-maintenance of separate dutiable and exempted accounts to avail CENVAT credit is the subject matter of this appeal.

2. Briefly stated, the appellant’s case is that it is engaged in the manufacturing of dutiable goods namely “PP Medicines” and during the Audit it is also observed that it has carried out sale of raw-materials by selling the same to M/s Cipla Ltd., Mumbai, on whose behalf it also undertakes manufacturing process on job work basis. As per Rule 6 of CENVAT Credit Rules, 2004, if separate account for manufacturing on such trading by way of sale is not maintained, the assessee is liable to pay 6%/7% of the value of exempted goods/services besides payment under sub-rule 3A of Rule 6 of CENVAT Credit Rules, 2004. Appellant was put to notice on the basis of such Audit report which was objected by it but ultimately resulted in imposition of such duty liability including interest and penalty covering extended period on the ground of suppression of facts etc.

3. During the course of hearing of the appeal, Learned Counsel for the appellant argued that such activity of the appellant can never be treated as trading since show cause cum demand notice itself indicated that commercial invoices for landing cost to compute Sales Tax formality only invoices were raised and it did not derive any profit out of such sales/trading activity and they have been paying Central Excise duty on the clearance of finalised product even on behalf M/s Cipla Ltd. which they carried out on job work basis. Further, he submitted that buying and selling of raw-material in relation to manufacture of excisable goods is not tantamount to trading and appellant is a manufacturer who is not engaged in any activity that can be treated as trader, but, the impugned order passed by the Commissioner (Appeals) had disregarded the judicial ruling prevalent on the point. It has also challenged invocation of extended period of limitation on the ground that the said act of appellant was well within the knowledge of the Department before whom appellant had submitted annual report and credit availed by them. It was under the bona fide belief that credit was admissible besides the fact that proportionate reversal of input credit was done to establish sufficient compliance of provision contained in Rule 6 of CENVAT Credit Rules, 2004. Further Learned Counsel for the appellant contented that the imposition of penalty is not in conformity to the law and procedure prevailing during the disputed period which should never had extended the duty demand for the extended period. He prayed for setting aside of the order of the Commissioner (Appeals). Learned Counsel for the appellant has relied upon the various judgments in his support:

(i) CCE & SERVICE TAX, Ghaziabad Vs. Mahaveer Cylinders Ltd. – 2016 (341) ELT 361 (Tri.-All.)

(ii) CCE, Ghaziabad Vs. UP Telelinks – 2015 (329) ELT 888 (Tri.-Del.)

(iii) R. Casting (P) Ltd. Vs. CCE & ST, Chandigarh – 2010 (256) ELT 420 (Tri.-Del.)

(iv) Chitrakoot Steel & Power Pvt. Ltd. Vs. CCE, Chennai- 2008 (10) STR 118 (Tri. Chennai)

(v) CCE, Chandigarh-I Vs. Punjab Steels – 2011 (21) STR 5 (P & H)

(vi) Exide Industries Ltd. Vs. CCE & ST, Raigad – 2018-TIOL-1541-CESTAT-MUM

4. Learned AR for the Department, in response to appellant’s contention, fully supported the reason and rationality of the order passed by the Commissioner (Appeals). As the appellant had availed CENVAT credit on common input services and engaged in both the manufacturing of dutiable goods and trading of its raw-material which is fully exempted product, duty liability including interest and penalty on the appellant was not in conformity to the Indirect Tax Rule and therefore, interference by the Tribunal is uncalled for.

5. Heard at length from both sides and perused the case records and provisions of law including definition of trade and the purpose of Audit.

5.1 Dispute relating to taxability on sale and levy of duty by the excise authority is not new in its origin and on many scores, matter had reached the apex court level that necessitated passing of the Constitution (Forty Sixth Amendment) Act, 1982 and going by its Statement of Objects and Reasons, it can be ascertained that in conformity to the judgment of Hon’ble Supreme Court passed in Ganon Dunkerley’s case (AIR) 1958 SC 560 whereby the sale of goods as used in entry of the 7th schedule to the constitution was treated to have carried the same meaning as in the Sale of Goods Act, 1930, coupled with subsequent decisions of the Hon’ble Supreme Court were the prelude to passage of such an amendment act that suitably amended tax on the sale or purchase of goods and included the same in Article 366 of the Constitution of India under a new Article (29A).

5.2 On the other hand “Service” as defined under 65B (44) of the Finance Act, 1994 excludes (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution.

6. From a bare reading of the definition and provision reproduced above, it is apparently clear that a pure sale, unassociated with delivery of goods and services together, is not to be considered as service. Therefore what is contained in Section 66D of the Finance Act, 1994 dealing with negative list of services concerning trading of goods and the clarificatory circular referred above as well as inclusion of the same in the explanation appended to clause 2(e) of the Cenvat Credit Rules 2004 are mere clarificatory in nature since definition of service as contained in 65B(44) and exempted service in 66D are to be read conjointly and not in exclusion of each other. This being the statutory definition, sale of goods-be it made in the high sea or within the territorial boundary of India in which Finance Act, 1994 has its force, cannot be called a service to impose tax liability or deny the credit under Rule 6 of Cenvat Credit Rules.

7. Now coming to the statutory audit procedure, the purpose of audit, as available in the Manual published by the Institute of Chartered Accountants of India in respect of EA audit and CERA audit under Chapter 17 is that the idea behind such conduct of verification is to reasonably ensure that no amount, which under the central excise law is chargeable as duty, escapes taxation and the process of verification is always carried out in the presence of assessee and in the process, the auditor is required to discuss the matter with the assessee and advice him to follow correct procedure in future. It is also referred in the said manual that after such submission of audit report, in cases where the disputed amount have not already been paid by the assessee at the spot, demand notices are issued by the department for their recoveries. EA 2000 audit was therefore held to be participative audit. Likewise CERA audit is conducted by the Comptroller and Auditor General of India in respect of receipt and expenditure of the Government of India. It also discharges revenue audit which covers central excise, service tax and customs laws during which time the assesses were examined by CERA audit party to point out the deficiencies, leakage of revenue and non recoveries of dues by the Central Excise Department. Therefore, it cannot be said that only because audit party had found some credit availed has inadmissible, suppression of fact is made out.

8. In the conclusion, I have got no hesitation to say that respondent has not brought forth any cogent evidence on record to establish the charge of wilful suppression by the appellant company to invoke extended period of service so as to justify penalty. Hence the order.

9. The appeal is allowed and the order passed by the Commissioner (Appeals) in Order-in-Appeal No. PUN-EXCUS-001-APP-623-2017-18 dated 07.11.2017 passed by the Commissioner of Central Tax (Appeals-I), Pune is hereby set aside.

(Pronounced in Court on 01.11.2018)

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