Whether credit availed on modification of machines that does not amounts to manufacture proper?

PJ/Case law/2014-15/2252

Case:- COMMISSIONER OF CENTRAL EXCISE, BALGAUM Versus S.R.V. AUTOMOBILE

Citation:- 2014 (299) E.L.T. 301 (Kar.)

Brief facts:-This appeal is by the Revenue being aggrieved by the order passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Bangalore, in Final Order No. 2086/20069, dated 22-12-2006 [2007 (211) E.L.T. 346 (Tribunal)] wherein the Tribunal has held that there was no suppression of fact and therefore extended period of limitation could not be invoked by the Revenue under Section 11A of the Act and wherefore the claim was barred by limitation and allowed the appeal filed by the assessee by setting aside the order passed by the appellate authority and the adjudicating authority.

Necessary material facts to answer the above said substantial question of law are as follows:

Respondent-assessee are holders of Central Excise Registration and are engaged in manufacture of conveyors and parts thereof, industrial washing machine and parts thereof, falling under Chapter 84 of the Central Excise Tariff Act, 1985. The assessee had received 3 nos. Girija brand industrial washing machines from M/s. TVS Suzuki limited, for the purpose of refurbishing and modification. These 3 washing machines were cleared vide their invoice No. 43303, dated 1-2-2001 on payment of duty of Rs. 2,61,760/- at the rate of 16%. Since it was found that assessee is not eligible to take Cenvat credit on such goods, which are not raw material or input nor capital goods for the manufacture of the final products and in refurbishing and modification of the washing machines and assessee was not involved in the activity of manufacture, assessee could not have availed Cenvat credit on 3 washing machines and the assessee had availed Cenvat credit of Rs. 2,61,760/- on three old industrial washing machines based on the Invoice No. 43303, dated 1-2-2001 knowingly that they had received only for repair/modification and return purpose. Therefore, assessee has availed Cenvat credit wilfully by suppressing the material facts and also enabled the consignee to take irregular Cenvat credit based on their invoices bearing Nos. 48 and 49 both dated 23.8-2001 and wherefore show cause notice was issued on 28-7-2004 by the adjudicating authority - Assistant Commissioner of Central Excise, Hubli Division, Hubli to show cause as to why the said Cenvat credit of Rs. 2,61,760/- availed irregularly should not be demanded and recovered and the duty debited vide Invoice Nos. 48 and 49 both dated 23-8-2001 and differential amount of Rs. 39,472/- debited by Entry No. 187, dated 16-12.2002 in RC-23A Part-ll should not be appropriated under the proviso (1) of Section 11A of the Central Excise Act, 1944 read with Rule 12 of the Cenvat Credit Rules and duty of Rs. 56,232/- should not be demanded and recovered under the proviso to Section 11A(1) of Central Excise Act, 1944, read with Rule 8 of Central Excise Rules, 2002 proposing the preliminary actions 1 to 3.

In response to the said show cause notice, assessee filed his reply contending that there was no suppression of material facts and wherefore the Revenue could not have invoked extended period of limitation. There was manufacturing activity and there was no intention to evade payment of excess duty and they have not evaded any central excise duty and not contravened any provisions of central excise law and the issue covered under the show cause notice is one of the matters involving interpretation of law. Hence, no penalty can be imposed on them. The objections were overruled and the adjudicating authority by order dated 2-3-2005 passed the order-in-original as follows :

"1. The Modvat/Cenvat credit of Its. 2,61,760/- availed by the assessees is treated as ineligible and I demand the same under the proviso to Section 11A(1) of the Central Excise Act, 1944 read with Rule 12 of Cenvat Credit Rules, 2002.

2. I appropriate duty of Rs. 80,154/- and Rs. 1,42,134/- debited and paid vide invoice Nos. 48 and 49 both dated 23-8-2001 respectively against the demand 1 above.

3. I also appropriate the differential ineligible Modvat/Cenvat credit of Rs. 39,472/- which was paid and debited vide Cenvat account Entry No. 187, dated 16-12-2003 against demand 1 above.

4. I demand duty of Rs. 65,232/- on the total value of new spares used in the repair/refurbishing of 3 Nos. old industrial washing machines under the proviso to Section 11A(1) of the Central Excise Act, 1944.

5. I demand the interest at the appropriate rate on the demand ordered against 1 and 4 above under Section 11A8 read with Rule 12 of Cen-vat Credit Rules, 2002.

6. I impose penalty of Rs. 65,232/- under Section 11AC of the Central Excise Act, 1944 for the demand ordered against demand I and 4 above.

7. I impose a penalty of Rs. 2,000/- under Rule 25 of Central Excise Rules, 1944."

The said order was taken in Appeal No. 250/2005 before the Commissioner of Central Excise (Appeals), Mangalore in Appeal No. 72/2005(BM)/3079 and the appellate authority confirmed the order passed by the adjudicating authority and being aggrieved by the same, assessee has preferred an appeal in Appeal No. Excise/1091/2005 before the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench. Bangalore (hereinafter referred to as "CESTAT") and the Tribunal by order dated 22-12-2006 held that since there was no suppression of facts, they availed Cenvat credit and cleared the goods on payment of duty and the same was disclosed to the department. The internal audit party had checked the records during 2002 and they did not find any discrepancy. Therefore reopening the issue after a lapse of three years on the ground that the clearances are to be reassessed at the higher rate is clearly barred by time. There was no intention to evade payment of duty and wherefore, the appeal was allowed by holding that since there was no suppression of fact, confirmation of value addition is not sustainable and the same is barred by time and accordingly allowed the appeal with consequential relief. Being aggrieved by the order passed by the CESTAT, this appeal is filed by the Revenue which has been admitted for consideration of the above substantial question of law.

Appellant’s contention:- Learned counsel appearing for the appellant-Revenue submitted that there was suppression of facts on which there is concurrent finding by the adjudicating and appellate authority. The material on record would clearly show that though no manufacturing activity was involved in refurbishing and modification of the washing machines, Cenvat credit was availed and though excess duty has been collected the same is suppressed. Raised excess duty has been credited and wherefore, the Tribunal was not justified in setting aside the concurrent finding by holding that the invoking of Section 11A is barred by time and therefore the order passed by the Tribunal is liable to be set aside.

Reasoning of judgment:-Having heard the learned counsel appearing for the appellant, learned counsel appearing for the respondent has not appeared though the matter was adjourned from time to time to give an opportunity to the counsel appearing for the respondent to argue the matter and by order dated 20th April, 2011 since the counsel for the respondent was absent, as a last chance the matter was adjourned to 25-7-2011 and thereafter matter was again adjourned to 29-7-2011 and thereafter it is posted for 11-8-2011 for final hearing and the counsel appearing for the respondent is not present.

Having given careful consideration to the contentions of the learned counsel for the appellant, it is concluded that the material on record would clearly show that there is suppression of fact as it clear from the order passed by the adjudicating authority and the appellate authority that there was no manufacturing activity involved in refurbishing and modification of the washing machines, despite the same, Cenvat credit was claimed and though duty of Rs. 2,61,760/- was collected, the said fact was suppressed and therefore availed extended period of limitation. In view of the decision of the Hon'ble Supreme Court in Mysore Rolling Mills Private Limited v. Collector of Central Excise, Belgaum - 1987 (28) E.L.T. 50 (S.C.), wherein it has been clearly held that non-disclosure of receipt of such amount at the time of assessment extended period of 5 years applicable and Rule 10(1)(C) of the Central Excise Rules, 1944, corresponding to Section 11A of the Central Excises and Salt Act, 1944. Thus extended period was applicable. Hence, the show cause notice issued after one year was not barred by limitation under Central Excises and Salt Rules wherein provision is identical to the provisions under the Central Excise Act.

The Tribunal has not at all considered the reasoning assigned by the adjudicating authority and the appellate authority in holding that there is no suppression of material facts and thus has proceeded to set aside the order passed by the appellate authority and by holding that there is no suppression of fact which is baseless and based on conjuncture and surmises and not based up-on the material on record, the High Court answered the substantial question of law in favour of the Revenue and pass the following order : The appeal is allowed. The order dated 22-12-2006 passed by the CESTAT in Appeal No. Excise 1091/2005 is set aside and the matter is remitted to CESTAT for consideration of the appeal on merits and in accordance with law.

Decision:- Appeal allowed.

Comment:-The crux of the case is that when assessee has done only modification in the machines and it is known that such an activity does not amounts to manufacture and even then the credit is being availed on the washing machines at the time of their receipt, then it is clear case of suppression of fact and in this case extended period of 5 years will be applicable to issue the show cause notice as per Section 11A (4) of the Central Excise Act,1944. Accordingly, it was concluded by the High Court that there was suppression of facts and the extended period of limitation was invokable because credit was availed even when there was no manufacturing activity done by the assessee.

Prepared by: Kushal Shah

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PJ/Case law/2014-15/2252

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