Non consideration of particular issue during the audit cannot be grounds to invoke extended period as all facts were known.

PJ/Case Law/2013-14/1988

Case:- SDL AUTO PVT. LTD. Vs COMMISSIONER OF CENTRAL EXCISE, DELHI-IV

Citation:- 2013 (294) E.L.T. 577 (Tri. - Del.)

Brief facts:- These appeals had been filed by M/s SDL Auto (main appellant) and Sh. Deepak Adlakha, Head (Operations) against the Order-in-Original No. 1/KKJ/Adj/2006-07, dated 21-4-2006 passed by Commissioner, Central Excise, Delhi-IV. Brief facts of the case were that the appellants were manufacturer of sheet metal component and frames falling under Chapter Heading 94 of the Central Excise Tariff. As a result of investigation by the department it was found that they were indulging in suppression of assessable value by not adding the value of inputs received free of cost from their buyer and also amortization cost on tooling in the assessable value of the final product. The appellants were manufacturing sheet metal components and frames and supplying to M/s. Lear Sheeting Pvt. Ltd. (LSPL) on payment of duty without adding value of items supplied free of cost by their buyer. Accordingly, a show cause notice was issued by the Additional Director General, DGCEI, New Delhi vide F. No. 4/INT/DGCEI/HQ/04/73 dated 4-1-2005 demanding the duty amounting to Rs. 65,55,811/- (Rs. 63,97,441/- on components received free of cost and Rs. 1,58,371/- on account of amortization) for the period 1-12-1999 to 30-11-2004 under Section 11A of the Central Excise Act and also proposing imposition of interest and penalty under Section 11AC of the Act, Rule 173Q of the erstwhile Central Excise Rules read with Rule 25 of the Central Excise Rules, 2001. Shri Deepak Adlakha, Head Operation was also issued show cause notice for imposition of penalty under Rule 209A of the erstwhile Central Excise Rules read with Rule 26 of the Central Excise Rules, 2001 for master minding the evasion of the duty by the manufacturer. The show cause notices were contested by the noticees and the Commissioner vide the impugned order had confirmed the demand against the main appellant holding that the value of items supplied free of cost and cost on account of amortization was to be added in the assessable value and penalty equal to the duty amount was also imposed on the appellant and penalty of Rs. 10,000/- was imposed on Sh. Deepak Adlakha under Rule 209A of the Central Excise Rules.

Appellant’s contentions:- Ld. Advocate appearing for the appellants submitted that there was no case of any duty liability arising against them as they were covered by the provision of Rule 4(5)(a) of the Cenvat Credit Rules and Rule 57F/57AC(5)A. Under these provisions the goods could be supplied to job worker for further processing activity and could be received back by them from the job worker for further use in the manufacture of final product. He submitted that from April, 2000 Rule 57AC (5A) of Central Excise Rules and Rule 4(5)(a) of the Cenvat Credit Rules dealt with provisions for sending the inputs for getting intermediate goods manufactured from a job worker and the provision under Rule 57AC(5A)/Rule 4(5)(a) were similar to the erstwhile Rule 57F(4) with regard to sending of material for further processing to the job worker and to receive it back within 180 days. He submitted that in the present case a principal manufacturer had followed the job work procedure under Rule 57F/57AC/Rule 4(5) for sending the inputs to the appellants under different challans for getting the intermediate products manufactured. Since the entire transactions were covered under provision of Rule 4(5)(a)/57AC and 57F, no duty demand could survive against the appellants. In support of his contention he relied upon the decision of Hon’ble Supreme Court in case of International Auto Ltd. reported in 2005 (183)E.L.T.239 (S.C.)wherein it was held by the Hon’ble Court that the job worker was not liable to pay the duty on inputs supplied by the final product manufacturer as it had not taken credit for Modvat in respect of inputs. He submitted that their case was squarely covered by the International Auto and therefore, their appeals need to be allowed.
He also submitted that demand in this case had been raised on 4-1-2005 demanding the duty from the financial year 1999 to 2004 on the ground of suppression of fact and as a matter of fact there was not any suppression on the part of the appellant. He submitted that entire facts were well within the knowledge of the department and their central excise records had been audited by the Central Excise Officer from time to time and therefore the charge of suppression was unsustainable in law. Moreover, the appellants had worked under the bona fide belief that goods produced by them on job work basis under the provision of Rule 57AC (5) and Rule 4(5)(a) were not liable to duty, therefore, the extended period was not invokable.

Respondent’s contentions:- Ld. DR appearing for the Revenue reiterated the findings of the lower authority and submitted that this was a fact that some of the material was supplied free of cost by the buyer of the goods to the appellants and cost of this material was not added in the assessable value by the appellant. Therefore, the Commissioner had rightly confirmed the demand holding addition of value of those materials in the assessable value of the products manufactured by the appellants. He, therefore, submitted that their appeal needs to be rejected.

Reasons of judgment:- After hearing both the sides the Bench found that the Commissioner in the operative part of the order in para 1 had held as under :-
(i) ”I confirm the invocation of the extended period for the recovery of central excise duty under Section 11A(1) proviso of the Central Excise Act, 1944”.
They found that appellants had raised the ground of time bar against the issue of show cause notice in the present appeals. It was the contention of the appellants that they were regularly filing the RT-12 returns with the department with regard to goods manufactured by them including those manufactured on job work basis for the principal manufacturer. The goods had been brought under Rule 57F challans only and they were maintaining all the records in their factory. They also submitted that their factory was periodically audited by the Officers of the excise department in support of which they had submitted the documents confirming the audit of the unit by the officers of the department. It was the contention of the appellants that during the audit the officers had processed each and every piece of information in the instant case. Since all the facts and information were available to the officers of the department, there was no question of suppression of any information from the department and, therefore, the extended period under Section 11A was not applicable to their case.
After going through the impugned order, the Bench found that the Commissioner in Para 27 of the order had distinguished three cases cited by the appellants in support of their contention that the show cause notice was time-barred. The Commissioner in Para 27 of the order had held that these decisions were not of any help to the appellants.
In Para 28 of the impugned order the Commissioner on the plea of M/s. LSPL that the demand was time-barred as all the Returns, invoices were filed by them before the departmental officers and the factory was visited by the audit officers, held that “it was not clear whether the audit had in fact examined this issue or not and unless that point was clarified it cannot be examined whether or not the visit by the audit would indeed make a difference” and Commissioner concluded that there was willful suppression on the part of the appellants to evade the payment of excise duty.
The Bench found from the record that RT-12 returns/ER-1 returns were regularly being filed by the appellants to the department. They also took note of the fact that appellants were regularly being audited by the Central Excise officers and no objection on the issue of free supply of goods by the principal manufacturer as well as on amortization cost was raised by the audit during their visits. It was not the case of the department that the documents/RT-12 returns and other records were not submitted to the officers of the audit team by the appellants. Once the officers had audited the records they were supposed to examine each and every issue in respect of appellants for the audit period. They, therefore, did not agree with the finding of the Commissioner that it was not clear whether audit had in fact examined this issue or not. Once the officers had conducted the audit periodically during the period involved in the show cause notice and had not raised any objection on the issues involved in the appeal, they were of the view that suppression on the part of the assessee could not be invoked in the present case. Accordingly, the extended period as provided under Section 11A of the Central Excise Act would not be applicable in the present case.
They found the show cause notice in this case had been issued on 4-1-2005 and the duty had been demanded for the period 1-12-1999 to 30-11-2004. In para 19 of the show cause notice it was mentioned that details of demand were given in RUDs 18 and 19. After going through the RUDs 18 and 19 they found that these were the charts prepared by the department for the period 1999-2000 to 2003-2004. There was no mention of anything after the period 2003-2004. Therefore, the date 30-11-2004 mentioned in the show cause notice was not correct as both the RUDs 18 and 19 were upto the period 2003-2004. They also noted that in the RUDs 18 and 19 the total value was given financial year wise and there was no mention about the break-up of each financial year about the clearances made during the one financial year. In absence of which it could not be held whether there was any clearance made after 4-1-2004 by the noticees since the show cause notice was issued on 5-1-2005. They found the demand issued in the show cause notice beyond the period of one year was completely time-barred. Since they were not able to find from the RUDs 18 and 19 any clearances after 4-1-2004, they held that entire show cause notice was hit by time limitation. Accordingly, they set aside the order-in-original on the ground of time limitation only without going into the merits of the case. Since there was no duty demand on the appellants, they also set aside the penalties imposed on the appellants in the impugned order.

Decision:- Appeals allowed.

Comment:- The essence of this case is that extended period of limitation cannot be invoked blindly in every case and moreover in a case where it is clear that nothing was suppressed from the department. The plea that as the issue under consideration was not examined during the course of audit of the records of the assessee cannot be the grounds to prove the allegation of suppression by the assessee. Moreover, it can also be concluded from this case that slight discrepancy in the relied upon documents and the demand raised in the SCN can be the basis to quash the entire demand on the grounds of limitation.

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PJ/Case Law/2013-14/1988

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