CESTAT, MUMBAI BENCH
Saurabh Organics (P.) Ltd.
Commissioner of Central Excise, Thane
FINAL ORDER NOS. A/639-641/2011-WZB/C-II(EB)
appeal nos. E/442, 477 & 478 of 2004
JUNE 30, 2011
P.R. Chandrasekharan, Technical Member
There are three appeals, two filed by the appellants M/s. Saurabh Organics Pvt. Ltd., and third one filed by the Commissioner of Central Excise, Thane, against the order No. PD/135/Th-II/2003 dated 30-10-2003 passed by Commissioner of Central Excise (Appeals), Thane-II. As the issues involved in all these appeals are the same, we take up all the appeals together for disposal.
2. Briefly stated the facts of the case are as follows :
2.1 The appellants are engaged in the manufacture of Para Nitro Aniline (PNA) falling under Chapter 29 of the CETA, 1985. The appellants manufactured the above products either out of their own raw materials and sold the same to the customers or manufactured the said product on job work basis out of the raw materials supplied by their customers. The jurisdictional Central Excise officers visited the factory premises of the appellants on 3-12-1998 and verified the records. The officers found that during the period from August to November 1998, the appellants had manufactured PNA for M/s. Ambuja Intermediates Pvt. Ltd., (AIPL in short) for which AIPL had supplied the main raw materials viz. Para Nitro Chloro Benzene (PNCB in short). The appellant had used other raw materials and packing materials such as Ammonia, LDO, HDPE Bags, etc. from their own stock and they had discharged duty liability on a value of Rs. 34/- per kg. on PNA cleared to AIPL on job-work basis. In respect of the same product manufactured and sold on their own account, they had discharged duty liability on a value of Rs. 69/- per kg. Therefore, the officers were of the opinion that in the case of PNA manufactured by the appellants on job work basis for AIPL, they did not include the value of their own raw materials and packing materials used by them in the manufacture of said products and cleared to AIPL. The officers further held the view that the goods manufactured by the appellants on job work basis should have been valued on the basis of comparable prices under Rule 6(b) (i) of the Central Excise Valuation Rules, 1975. The officers further noticed that the appellants were receiving PNCB from Bansal Organics Pvt. Ltd., Ambuja Intermediates Pvt. Ltd., and Nirav Dyes and Chemicals under Rule 57F(4) of the Central Excise Rules during the period from April, 97 to June 98. The appellants were also using their own material namely, Ammonia, LDO, HDPE Bags, etc. on which they had taken modvat credit. The department was of the view that since Ammonia, LDO and HDPE Bags were being used by the appellants in the manufacture of both dutiable final products as well as products manufactured under Rule 57F(4) and since they were not maintaining separate accounts under Rule 57CC, they were required under the said Rule to pay 8% of the value of the said products manufactured by them under Rule 57F(4). Accordingly, the departmental officers worked out the amounts payable by the appellants under Rule 57CC at Rs. 2,69,376/-.
2.2 A show-cause notice dated 4-4-2002 was issued to the appellants proposing to recover a duty amount of Rs. 1,83,133/-, on PNA manufactured on job work basis for AIPL, under section 11A of the Central Excise Act, 1944 and also proposing to recover an amount of Rs. 2,69,376/- under Rule 57CC at 8% of the value of the PNA manufactured and cleared without payment of duty under Rule 57F(4) procedure. It was also proposed in the said show-cause notice to recover interest on the above amounts under section 11AB of the Central Excise Act and to impose a penalty under Rule 173Q of Central Excise Rules, 1944/Rule 25 of Central Excise Rules, 2001 and section 11AC of the Central Excise Act. The case was adjudicated by the jurisdictional Additional Commissioner, who confirmed the duty demands as mentioned above and also imposed equivalent penalty under section 11AC of the Act. Further, a penalty of Rs. 50,000/- was imposed on Shri Kiran Atmaram Patil, Director of the appellant company under Rule 209A of the Central Excise Rules, 1944. The adjudicating authority further ordered that interest at the appropriate rates on the amounts charged be also recovered under section 11AB of the Central Excise Act.
2.3 The Additional Commissioner, while confirming the duty demand, came to the conclusion that the appellant was manufacturing PNA for AIPL on job work basis wherein the major raw material, PNCB, was supplied by the AIPL and other raw materials were being used by the appellant from their own account; however, while supplying the PNA to AIPL, the cost of the main raw material, PNCB, supplied by them was not being included and, hence, the goods were supplied by much lower rate than the rate charged to independent buyers, who are not supplying the raw materials. Therefore, he ordered that the assessable value should be arrived at by resorting to the section 4(1)(b) of the Central Excise Act, 1944 read with Rule 7 of the Valuation Rules, 1975.
2.4 The Addl. Commissioner also concluded that the appellants had not maintained separate accounts in respect of the common inputs, which were used in the manufacture of job-worked material as well as on their account and, therefore, they were required to pay an amount equal to 8% of the price of the exempted PNA supplied on job work basis under Rule 57CC of the Central Excise Rules.
2.5 The appellants preferred an appeal before the Commissioner (Appeals). The Commissioner (Appeals) vide the impugned order confirmed the duty amounting to Rs. 1,83,133/- and Rs. 2,69,376/-. Further, taking into the amount of Rs. 77,289/- already paid by the appellant, he reduced the duty demand from Rs. 1,83,133/- to Rs. 1,14,772/- and also set aside the penalty of Rs. 1,83,133/- imposed by the original adjudicating authority. Further he reduced the penalty from Rs. 2,69,376/- to Rs. 1,91,000/- by adjusting the amount of Rs. 78,289/- paid by the appellant earlier. While the appellant is in appeal against the duty demands confirmed and the penalties imposed, the department is in appeal before us against the reduction of penalty ordered by the Commissioner (Appeals).
3. The ld. Counsel for the appellant submits that the order passed by the original adjudicating authority and the consequent order-in-appeal are bad in law for the following reasons.
3.1 In the show-cause notice dated 4-4-2002, the allegation was that the appellants were manufacturing PNA for AIPL on job work basis wherein the major raw materials PNCB was being supplied by AIPL and the other raw materials such as ammonia, LDO, HDPE bags, etc. were being used by them from their own accounts and the cost of the same were not included in the assessable value. However, while confirming the order, the ld. Addl. Commissioner found that the appellants did not include the cost of the raw material, viz., PNCB, in the assessable value of PNA. Thus, the allegation in the show-cause notice and the findings given in the order-in-original are altogether on different grounds and contradictory. Therefore, the order-in-original confirming the duty demand on a ground, which is totally different from the ground raised in the show-cause notice traverses beyond the scope of show-cause notice and, therefore, is not sustainable and consequently, the order-in-appeal upholding the said order-in-original is also not sustainable.
3.2 The ld. Counsel further contends that the appellant had charged duty at different rates at different times on goods supplied to AIPL varying from Rs. 34.84 to Rs. 69/- per kg. based on the prevalent marketing conditions. However, while confirming the duty demand, a uniform price of Rs. 69/- per kg. has been taken which is incorrect. He further submits that the highest price of Rs. 69/- per kg. of PNA adopted for computation of duty demand does not even pertain to the period of demand and pertains to July 98, whereas the period of demand is from August 98 to December 98, during which period, the highest price charged was Rs. 51.56 and, therefore, they are disputing the demand of duty itself.
3.3 With regard to the demand of Rs. 2,69,376/- on the ground that common inputs have been used in the manufacture of dutiable as well as exempted goods, without maintaining any separate records, the ld. counsel contends that the appellant had received common inputs, namely, PNCB, from three parties under Rule 57F(4) and they had maintained separate records for receipt and usage of the same and the goods after job work were returned to various parties on payment of duty. Similarly, in respect of other materials, namely, ammonia, LDO, HDPE bags, etc. they had not taken any credit of modvat and they had maintained separate accounts. Therefore, the allegation that the appellant had used common inputs in both dutiable as well as exempted products without maintaining separate register is not based on any facts and the appellant’s registers maintained in this regard disproves the allegations made.
3.4 The ld. counsel also relies on the judgment of this Tribunal in the case of Sterlite Industries Ltd. v. CCE 2005 (183) ELT 353 (Tri.- Delhi)(LB) wherein it was held that job workers who received the goods from the manufacturer under Rule 57E of the erstwhile Central Excise Rules, 1944 is entitled to take credit of duty in respect of other inputs received directly and used by him in the manufacture of said goods on job work basis. In the said case, the Tribunal further held that modvat credit of duty paid on inputs used in the manufacture of final products cleared without payment of duty for further utilization of manufacture of final products, which are cleared on payment of duty by the principal manufacturer is not hit by the provisions of Rule 57C of erstwhile Central Excise Rules. The above decision of the Tribunal was upheld by the Hon’ble Bombay High Court in CCE v. Sterlite Industries Ltd. reported in 2009 (244) ELT A89 (Bom).
3.5 The ld. Advocate further relies on the judgment of the Hon’ble Apex Court in the case of International Auto Ltd. v. CCE, 2005 (183) ELT 239 (SC). In the said case, the decision pertained to inputs supplied by the final product manufacturer to intermediate product producer, who was using his own inputs as well. The transaction between the intermediate product producer and the final product manufacturer was covered by Rule 57F(2)(b) of the Central Excise Rules, 1944. In the said case it was held that the manufacturer of final product is entitled not only to adjust the credit on inputs supplied by it to the appellant (intermediate product producer) but also to credit for duty paid by appellant on its products and the appellant was not liable to pay duty on the inputs supplied by final product manufacturer since it had not taken credit for Modvat in respect of inputs. In their case, they have not taken any credit of duty paid on the PNCB supplied to them by the principal manufacturer and also on the inputs used from their own account, namely, ammonia, LDO, HDPE bags, etc. In the said judgment it was further held that value of materials received under Rule 57F(2) by the job worker is not includible for the purpose of payment of duty when credit was not taken. The ratio of this judgment applies squarely to the facts of their case and, therefore, even if they have not included the value of PNCB supplied by the principal manufacturer as found by the original adjudicating authority, duty cannot be demanded on that value in view of the judgment of the Hon’ble Apex Court in the International Auto Ltd.’s case (supra). The ld. Advocate also placed reliance on the judgment of the Tribunal in the case of M. Tex & D.K. Processors(P.) Ltd. v. CCE 2001 (136) ELT 73 (Tri. – Delhi) wherein it was held that the job worker is not liable to pay duty when he receives material from the principal manufacturer and it is the final product manufacturer, who is liable to pay duty and not the job worker. In the instant case, they have acted as job workers as far as AIPL is concerned and, therefore, the duty liability would be on AIPL and not on them.
3.6 In the light of the above, the ld. Counsel contends that both the original as well as the lower appellate authority have made errors in their findings and, accordingly, their orders are not sustainable in law.
4. The ld. DR appearing for the revenue reiterated that the findings given in the orders of the lower authority. He submitted that the reduction of penalty by the appellate authority was not warranted at all when he has confirmed the duty demand in full and, therefore, he prays for restoration of the adjudicating authority’s order in full.
5.We have carefully considered the rival submissions.
5.1 As rightly pointed out by the Counsel for the appellants, the grounds alleged in the show-cause notice and the grounds on which demands have been confirmed in the order-in-original are at variance. While in the show-cause notice the duty demand is made on the premise that the appellants have not included the cost of materials procured and used by them in the manufacture of job-worked product, the original authority has confirmed the duty demand on a totally different ground i.e., the appellant has not included the cost of the raw material supplied by the principal manufacturer. Thus, the ground alleged in the notice and the ground on which the duty demand has been confirmed are different and, therefore, the order has traversed beyond the show-cause notice. On this ground alone, the order-in-original has to be held as unsustainable and bad in law and consequently, the impugned order which upholds the said order-in-original and we hold accordingly.
5.2 As regards the demand for payment of an amount @ 8% of the value of the exempted goods under Rule 57CC of the Central Excise Rules, 1944 made out in the show-cause notice, it has been noted that the appellants have not availed any credit of the duty paid either on the raw materials supplied by the principal manufacturer or on the raw materials used by them on their own account in the manufacture of job-worked product. When they have not availed any credit of the duty paid on the raw materials, the question of payment of duty @ 8% of the value of the exempted product under Rule 57CC will not arise at all. This point has been completely missed out by the lower authorities. Further as has been held by the Hon’ble Apex Court in the case of International Auto Ltd. (supra) the job worker is not liable to pay duty on inputs supplied by the final product manufacturer since they have not taken the modvat credit in respect of inputs, when they are operating under Rule 57F(2). In the instant case also, it is seen from the records that the job work transaction was undertaken under Rule 57F(2) and, therefore, there is no responsibility on the job worker to discharge any duty liability. This position was also reaffirmed by this Tribunal in the case of M. Tex & D.K. Processors (P.) Ltd. (supra).
5.3. In the light of the above discussion and the judicial pronouncements cited above, we find that the duty demands confirmed by the original and lower appellate authorities have no legal basis and therefore, they have to be set aside. Consequently, the demand for interest and imposition of penalty also do not sustain.
6. In sum, the appeals filed by the appellants are allowed with consequential relief, if any, and the appeal filed by the department is rejected as devoid of merits.