Case Law Details
Balmer Lawrie & Co. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Introduction: In a significant case involving Balmer Lawrie & Co., the Commissioner of GST & Central Excise, CESTAT Chennai has made a ruling concerning central excise duty payable on metal containers returned to the factory and subsequently cleared as scrap without undergoing any further manufacturing process. This decision has far-reaching implications for businesses dealing with returned goods and central excise duty.
Detailed Analysis:
Background: The case revolves around Balmer Lawrie & Co., which is engaged in the manufacturing of metal containers, including drums and barrels, falling under Chapter 73 of the Schedule to the CETA, 1985. The company encountered issues related to availing credit on rejected and returned metal containers and the subsequent clearance of these containers as scrap.
Key Points of the Case:
1. Procedural Lapse: The appellant, Balmer Lawrie & Co., availed credit on all rejected and returned metal containers (final products) as per Rule 16 of the Central Excise Rules, 2002. However, it was noted that the company did not follow the procedure specified in sub-rule (2) of Rule 16 for paying duty equivalent to the CENVAT credit taken during the subsequent clearance of these containers.
2. Show Cause Notice: In response to this procedural lapse, a Show Cause Notice was issued to the appellant, demanding differential duty of Rs. 2,20,756/- along with interest. Additionally, a penalty was imposed under Rule 11AC of the Central Excise Rules, 2002, and Rule 26 of the same Rules. The original authority confirmed the demand of duty, interest, and the imposed penalty.
3. Appeal to Commissioner (Appeals): Aggrieved by the adjudication order, Balmer Lawrie & Co. filed an appeal before the Commissioner (Appeals). However, the Commissioner (Appeals) upheld the order passed by the original authority, rejecting the appeal.
4. Appeal to CESTAT Chennai: In light of the adverse rulings, Balmer Lawrie & Co. brought the case before the CESTAT Chennai, seeking resolution and relief.
CESTAT Chennai’s Ruling:
In the CESTAT Chennai’s hearing, both the appellant and the Revenue presented their arguments:
- The appellant contended that the defective metal containers were returned to their factory under Rule 16(1) of the Central Excise Rules, 2002, and CENVAT credit had been legitimately taken on them. Later, these goods were found to be unsuitable for use and were cleared as scrap. Since they had not undergone any manufacturing process, the appellant asserted that the first part of Rule 16(2) applied, requiring the payment of duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the determined value under the Act. The appellant argued that there was no intention to evade duty, and thus, interest and penalty should not be levied.
- The Revenue, represented by the Additional Commissioner, contended that there was no requirement for a pre-existing manufacturing process before the second clearance of the goods, as per sub-rule (2) of Rule 16 of the Central Excise Rules, 2002. The Revenue emphasized that the appellant should have reversed the CENVAT credit since the defective metal containers had not been subjected to any process. Therefore, the first part of Rule 16(2) was applicable.
CESTAT Chennai’s Decision: The CESTAT Chennai closely examined Rule 16 of the Central Excise Rules, 2002, which comprises two distinct situations: one involving a manufacturing process and the other termed “in any other case.” The decision hinged on whether the goods had undergone a process amounting to manufacture before the second clearance.
The CESTAT Chennai concurred with the Revenue’s position, concluding that as no manufacturing process had occurred, the first part of Rule 16(2) applied. This meant that the appellant should have cleared the goods after paying an amount of duty equal to the CENVAT credit taken.
Regarding the question of intent to evade duty, the CESTAT Chennai found that there was no clear evidence of positive suppression by the appellant. Hence, the demand was limited to the normal period, and the imposition of penalties under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2002, was deemed unnecessary.
Conclusion: The ruling by CESTAT Chennai in the case of Balmer Lawrie & Co. vs. Commissioner of GST & Central Excise provides clarity on the applicability of central excise duty in situations where goods are returned to the factory and cleared as scrap without undergoing a manufacturing process. It underscores the importance of interpreting central excise rules accurately and highlights the need for clear evidence of intent to evade duty before imposing penalties. This decision serves as a reference point for businesses dealing with similar circumstances in the future.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is filed by the appellant against Order in Appeal No. 8/2014 (M-I) dated 6.1.2014 passed by the Commissioner of Central Excise (Appeals), Chennai.
2. Brief facts of the case are that the appellants are engaged in the manufacture of metal containers (drums and barrels) falling under Chapter 73 of the Schedule to the CETA, 1985. On perusal of their CENVAT invoices relating to the rejections, it appeared that the appellant had availed credit on all rejected and returned metal containers (final products) received in their factory under the provisions of Rule 16 of the Central Excise Rules, 2002. But it appeared that they had not observed the procedure laid down in sub-rule (2) of Rule 16 of the Central Excise Rules, 2002 for paying duty equivalent to the CENVAT credit taken at the time of subsequent clearance. On pointing out the same, the appellant debited the excess credit availed amounting to Rs.2,20,756/- but did not pay the interest due on the same. Hence a Show Cause Notice was issued to the appellant demanding differential duty of Rs.2,20,756/- along with interest and penalty under Rule 11AC r/w Rule 25 of the Central Excise Rules, 2002 and penalty under Rule 26 of the said Rules. After due process of law, the original authority confirmed the demand of duty amount and appropriated the amount paid by the appellant, demanded interest and imposed equal penalty. Aggrieved against the adjudication order, the appellant filed appeal before Commissioner (Appeals) who vide the order impugned upheld the order passed by the adjudicating authority and rejected the appeal filed by the appellant. Hence the present appeal before the Tribunal.
3. No cross-objections were filed by the respondent-department.
4. We have heard learned counsel Shri K.A. Parthasarathy for the appellant and learned AR Shri Rudra Pratap Singh, Additional Commissioner for the Revenue.
5. The learned counsel Shri K.A. Parthasarathy submitted that the defective metal containers were brought back to their factory under Rule 16(1) of Central Excise Rules, 2002 and CENVAT credit has been taken on them as eligible under the said Rule. Subsequently, the goods were found to be not of use and were cleared as scrap. They were not covered by the first part of Rule 16(2) which is only applicable to the goods which are subjected to ‘process not amounting to manufacture’ as they had not subjected their rejected metal containers to any process at all before they were cleared from the factory. Their case is covered by the situation ‘any other case’ of Rule 16(2) whereby they are required to pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of Section 3 or 4 or Section 4A of the Act, as the case may be. Further, there was no intention on their part to evade payment of duty as they had followed the procedure as per the Rules. Hence they were not liable to pay any interest and penalty. He prayed that the impugned order may be set aside and the appeal allowed.
6. Shri Rudra Pratap Singh, learned Additional Commissioner (AR) appeared on behalf of the Revenue. He stated that as per sub-rule (2) of Rule 16 of Central Excise Rules, 2002, there was no requirement to presuppose any process before the removal of the defective goods for the second time. As per Rule 3(5) of CENVAT Credit Rules, 2004, any input or capital goods cleared ‘as such’, then the assessee have to compulsorily reverse the CENVAT credit. Since the appellant has not subjected their defective metal containers to any process, their case will fall into first part of sub-rule (2) of Rule 16 of Central Excise Rules, 2002 and they had to reverse the CENVAT credit availed at the time of bringing back the said goods to their premises. Hence he prayed that the impugned order may be upheld and the appeal rejected.
7. We have heard both sides and perused the records. Rule 16 of Central Excise Rules, 2002 on which the whole issue revolves is reproduced below for quick reference.
“Rule 16. Credit of duty on goods brought to the factory. – (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take Cenvat Credit Rules, 2002 and utilize this credit according to the said rules.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the Cenvat credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of Section 3 or 4 or Section 4A of the Act, as the case may be.
Explanation. – The amount paid under this sub-rule shall be allowed as Cenvat credit as if it was a duty paid by the manufacturer who removes the goods.
(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being remade, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner”.
Rule 16(2) hence consists of two separate situations as below:
(1) when the process to which the goods are subjected before being removed does not amount to manufacture.
(2) in any other case.
The treatment of the goods to duty at the time of clearance in the above two situations varies, as provided for in the said Rule, and is the root of the dispute.
7.1 The undisputed facts of the case are that the appellant is manufacturing metal containers (drums and barrels) which are cleared from their factory to their customers. As per Rule 16(1) duty paid goods can be brought back to the factory for being re-made, refined, re-conditioned or for any other reason. In this case, rejection of defective metal containers by customers is sufficient reason for the containers being brought back to the factory, being covered by the phrase ‘for any other reason’. The end process involved of the returned defective metal containers in the appellants factory is not an issue at this stage of re-entry. The appellant was accordingly entitled to take credit as per CENVAT Credit Rules, 2002 and utilize this credit as permissible by the said rules. This is not disputed by Revenue. The critical question is that before removing the goods from the factory for the second time whether the goods have been subjected to any process that amounts to manufacture or not. If not whether the goods cleared are covered by the phrase ‘any other case’.
7.2 It is not disputed that the rejected and returned metal containers received back in the appellants factory have not undergone any process of manufacture. The dispute has arisen when the appellant has cleared the said goods as scrap without paying an amount of duty equal to the CENVAT credit taken. The question that has arisen between the rival parties is whether duty for the second clearance should be made in terms of the first part of Rule 16(2) as demanded by the Revenue or as per the later part of Rule 16(2) as prayed for by the appellant. It is the appellants contention that the expression employed in the second part of Rule 16(2) is “in any other case”. The said expression takes into its ambit not only a case where returned goods are subjected to a process of manufacture but also cases not covered by first part of Rule 16(2). We find from a plain reading of Rule 16(2) that if the first part of Rule 16(2) is applicable the second part will not apply. The phrase “in any other case” will not cover a case where no process of manufacture has taken place. We find that a similar issue has come up for consideration before the coordinate Bench of this Tribunal at Mumbai in the case of Hindalco Industries Ltd. Vs. CCE, Belapur [2007 (215) ELT 547 (Tri. Mumbai)]. The relevant portion of the said judgment is reproduced below:-
“5. Once goods are removed from the factory promises on payment of duty, the question of them being marketable or non-marketable does not arise as duty is to be discharged all the goods on removal from the factory premises. Once such duty is paid on removal of the goods, the provisions of Central Excise Rules as regard the payment of duty are satisfied and in case, the duty paid goods are to be brought back for remaking, refining, reconditioning or for any other reason, it would be covered by Rule 16 of the Central Excise Rules, 2002.
…………..
It can be noticed from the above reproduced rule that the said rule carves out an expectation to bring back the duty paid goods to the factory premises and permits the assessee to avail credit of such duty paid goods and utilize the same according to the rules. The provisions of Rule 16(2) very clearly indicate that, if the process to which the goods are put to, does not amount to manufacture than the amount of credit availed under Sub-Rule 16(1) has to be reversed. In the case before us, it is seen that the appellant avails credit of the entire amount of the duty paid on rejected final products, seeks to pay the duty only on the waste and scrap, which at any stretch of imagination cannot be said to be arising out of a process of manufacture. We are of the view that the appellant cannot claim that the waste and scrap which arises from rejected goods, are due to the process of manufacture as there is no manufacture, involved in the process, as is explained by the appellant before us as well as before the lower authorities. Accordingly, we find that the impugned order, to the extent it confirms the demand is correct and legal and does not require any interference.”
The facts of clearance involved in the present case is also the same. Goods which were initially cleared for home consumption and later found unfit for use were brought back to the factory and were then cleared as scrap without putting them to any further process amounting to manufacture. As no process was involved the first part of Rule 16(2) would come into play and the goods were to be cleared after paying an amount of duty equal to the CENVAT credit taken. Our views concur with that of the Tribunal in ‘Hindalco Industries’ above and we find that the impugned order on merits does not require any interference on our part. However, the appellant has relied upon the judgment of a Single Member in the case of Apollo Tyres Ltd. Vs. CCE, Pune – III reported in 2011 (272) ELT 84 (Tri. Mumbai), which has only persuasive value. We find that the decision of the coordinate Bench in ‘Hindalco Industries’ states the law correctly as has also been arrived at by us. We are hence not persuaded by the judgment in ‘Apollo Tyres” (supra).
8. The appellant has stated that the lower authority had failed to see that there was no intention to evade payment of duty and the appellant had cleared the goods as rejected metal containers on payment of duty on the transaction value. Hence section 11AC of Central Excise Act, 1944 and Rule 25 of Central Excise Rules, 2002 could not have been invoked. He further stated that they are Government of India enterprise and for the reason that the difference of opinion between the department and the appellant is due to the interpretation of the said Rule and they had no intention to evade payment of duty. We find that the wordings of Rule 16 of Central Excise Rules, 2002 does give room for interpretation and there has been no positive act of suppression that has been brought out on behalf of the appellant. Hence, we feel that the demand shall be limited to the normal period.
9. Having regard to the facts discussed above, we uphold the impugned order on merits. We however feel that no grounds have been made for invocation of extended time limit. Hence the imposition of penalty under sec. 11AC of the Central Excise Act, 1944 and sec. 25 of the Central Excise Rules, 2002 does not arise. Duty shall be paid for the normal period with interest if any, as per law. The appeal is disposed of accordingly.
(Pronounced in open court on 12.09.2023)
