As such Clearance of inputs to sister concern – Valuation - Whether transaction value be adopted for payment of duty on inputs cleared as such or reversal of credit taken on inputs sufficient?

PJ/Case Laws/2011-12/1247

Case: SIDDHARTH TUBES LIMITED V/S COMMISSIONER OF C. EX., INDORE

Citation: 2008(228) E.L.T. 193 (Tri.-Del.)

Issue:- As such Clearance of inputs to sister concern – Valuation - Whether transaction value be adopted for payment of duty on inputs cleared as such or reversal of credit taken on inputs sufficient?

Brief Facts:- Appellant had Unit-I situated at Shajapur and was manufacturing C.R. coils/sheets, and G.C. sheets and Galvanized steel sheets falling under chapter heading 72. It was also availing the Cenvat credit benefit on the inputs as well as the capital goods received in their factory. The main inputs of the unit-I was H.R. Coils and Zinc. There was an another unit (Unit-II) situated at Sarangpur manufacturing M.S. pipes and galvanized pipes falling under chapter sub-heading No. 7306.90, the main inputs of which was also H.R. Coils and Zinc. As and when required Unit-I had cleared its inputs as such to Unit-II after debiting the credit taken on such inputs.

Department alleged that the raw material had been cleared by he appellant Units by debiting the equal amount of credit taken on the same consignment but it was noticed that the Unit-I had collected extra amount. It was pointed out that the assessable value should be determined as per new Valuation Rules and the value should be equal to 115% of the landed cost of the goods cleared which should include freight also. Department advised Unit-I to debit the differential duty on all the clearances since 1.7.2000. Unit-I issued supplementary invoices by debiting the differential duty.

Thereafter Department issued show cause notice to Unit-II alleging that on scrutiny of ER-1 for the months of September and December 2001, it was noticed that Unit-II had taken credit in terms of Rule 7(1) (b) of Cenvat Credit Rules, 2001 on the strength of supplementary invoices issued by Unit-I for the differential duty paid on account of under-valuation of goods, as pointed out by the department. The differential duty was paid in September, 2001 vide three supplementary invoices and the respite duty was paid in December by supplementary invoices. It was alleged that the under valuation was done by Unit-I, which resulted in short payment of the Central Excise duty by reason of willful misstatement and suppression of facts. It was also alleged that the supplementary invoices issued by Unit No. I appear to be improper documents for the purpose of taking credit.

Unit-II among other grounds, contended that no SCN was issued to Unit-I and therefore no action could be taken against them. Realizing this fact, Revenue issued show cause notice to Unit-I for appropriation of differential duty already debited on account of under-valuation. It was further alleged that Unit No. I is clearing inputs as such to their sister concern i.e., Unit No. II since September, 2000 by debiting the equal amount of duty. That the cost of slitting was not added by Unit-I while paying the duty equal to credit taken on inputs cleared as such.

The Commissioner confirmed the duty demanded under Section 11A (1) of the Central Excise Act, 1944 and confirmed the duty on goods cleared after slitting. Penalty under Section 11AC of the CEA, 1944 read with Rule 25 of CER, 2002 was imposed. Cenvat credit was disallowed.

Reasoning of Judgment:- The Tribunal examined the various legal provisions. Rule 57F (3) of CER, 1944 was examined. Changed structure of modvat credit Rules after 1.4.2000 was examined. Amended Rule 57AB was perused. Cenvat Credit Rules, 2001 which replaced the Central Excise Rules, 1944 w.e.f. 1.07.2001 were perused.

It was held that from the Rules laid down in this behalf it was clear that prior to 1-4-2000, the manufacturer was liable to pay duty equal to the credit taken on the inputs and the same was again substituted since 1-3-2003.

The Tribunal then perused the Board Circular No. 643/34/2002-Cx. dated 1.7.2002 clarifying the valuation to be done of inputs/capital goods cleared as such under erstwhile sub-rule (IC) of Rule 57AB of CER, 1944 or under Rule 3(4) of CCER, 2001/2002.

It was found that no evidence was brought on record to show that Unit No. I has partly sold the inputs i.e. H.R. Coils to the independent buyers at higher price. Therefore, the action of Unit No. I to reverse the credit taken on the inputs cleared as such to the Unit No. II in terms of the high lighted portion of the Boards’ Circular dated 1-7-2002 coulnot be faulted.

The Tribunal further perused the Circular No. 813/10/2005, dt. 25-4-2005 further clarifying the points raised in earlier Circular dated 1.7.2002 wherein it was clarified that the provisions of Rule 3(5) of Cenvat Credit Rules, 2004 would apply in case of removal of inputs as such for valuation of such inputs/capital goods.

Hus, it was held that it is clear that the Unit No. I was liable to reverse only the amount equal to the credit taken on the inputs.

In this regard, the Tribunal has relied upon the judgment given in Eicher Tractors v. CCE, Jaipur [2005 (189) ELT 0131 (Tri.-LB)].

It was further held that the Board itself was sure about the correct position as is evident from various circulars issued by it. It was noted that another Circular dated 16.6.2005 was issued in this regard. Accordingly, it was held that there was bona fide doubt as to whether the transaction value should be adopted for the payment of duty on the inputs cleared as such or the reversal of the credit taken on the inputs will suffice. It is not denying the fact that there were frequent changes in the rules coupled with the Board clarifications, which created confusion both in the Trade and the Department regarding the correct legal position in this respect. Therefore, the charge of willful suppression couldnot have been levied against Unit-I.

It was further held that whatever duty paid on H.R. Coils at Unit No. I was available as credit to the Unit No. II, who was captively using the same for manufacture of M.S. Pipes. Therefore, the exercise is revenue neutral.Reliance was placed on Jay Yuhshin Ltd. v. CCE, New Delhi [2000 (119) ELT 0718 (Tribunal-LB)]. Accordingly, on facts of the present case, it was held that the credit of the duty paid by the Unit No. I is available to the Unit No. II of the assessee. Hence, there is no intention to evade duty and the charge of willful misstatement or suppression of facts etc. does not sustain.

Further reliance was placed on judgment given in C. C. Ex, Mumbai v. Mahindra and Mahindra Ltd [2005 (179) ELT 0021 (SC)] regard the applicability of proviso to Section 11A of the Central Excise Act, 1944. On facts, it was held that there was no willful misstatement or suppression of facts etc. with intention to evade payment of duty on the part of Unit No. I so as to warrant invoking the extended period of limitation. The Unit No. I, on insistence of the Department, has paid the differential duty under protest. They are legitimately entitled to take the credit of the same in Unit No. II. Further reliance was placed on P.T.C. Industries Ltd. v. CCE, Jaipur-I [2003 (159) ELT 1046 (Tri.-Del.)]and on Kores India Ltd. Vs. CCE, Hyderabad [2004 (178) ELT 0901 (Tri.-Bang.)]

Another plea advanced by the appellants is that the prohibition to take credit on the supplementary invoices operates only in the case of sale and in the case of stock transfer, prohibition under Rule 7(1)(b) of the Cenvat Credit Rules is not applicable even if presuming that the additional amount of duty becomes recoverable from one unit on account of fraud, suppression of fact etc. They relied upon the decision of the Tribunal in the case of Karnataka Soaps and Detergents Ltd. v. CCE, in this connection. The appellant submitted that they have stock transferred the goods from Unit No. I to Unit No. II.

In this regard, the Tribunal held that on these facts the ratio of the case law in the case of Karnataka Soaps and Detergents Ltd., cited supra is squarely applicable to the present case and the Department's case does not survive. It was held that the charge of wilful misstatement or suppression of facts etc., with intention to evade payment of duty is not sustainable against the Unit No. I. Hence, the instant case is not hit by the exception provided in Rule 7 (1) (b) of the Cenvat Credit Rules.

It was held that the differential duty paid by Unit No. I on four supplementary invoices paid at the insistence of the Department is available as cenvat credit to Unit No. II for payment of duty on the finished goods manufactured there. For the same reasons, it was held that the duty is not payable on the differential freight and the trimming charges respectively by the Unit No. I. Trimming charges are otherwise also not includible in the transaction value as trimming of the H.R. Coils does not involve any manufacturing activity. In any case, if duty is paid on the differential freight and the trimming charges, the same will be available as cenvat credit to Unit No. II and the entire exercise will be purely of academic nature and revenue neutral.

The reliance placed by the Revenue on the following case laws was held to be not correction the ground that in these cases, the plea of revenue neutrality was rejected by the Tribunal and the duty demands were confirmed as the intention to evade payment of duty and suppression of facts were proved:

(i) I.F.B. Industries Ltd. v. CCE, Goa[2005 (179) ELT 0487 (Tri.-Mumbai)]
(ii) U.T. Ltd. v. CCE, Chennai [2006 (199) ELT 0658 (Tri.-Chennai)].

Hence, the ratio the case laws cited by the Revenue is not applicable to the facts of the present case. Orders of the Commissioner (Appeal) modified accordingly.

Decision:Appeals allowed.

Comments

S.L.Bansal on 22 July, 2011 wrote:

Excellent judgment but departmental oficer at grassroot level always like to take a narrow view to increase unwantd disputes. Accontability should be fixed against oficers who do not follow settled disputed settled by judicial verdicts

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PJ/Case Laws/2011-12/1247

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