Whether duty paid on transaction value proper when inputs written off as obsolete sold?

Case:-PANASONIC AVC NERWORKS INDIA CO.LTD. VERSUS COMMR. OF C.EX., MEERUT

Citation:-2014(301) E.L.T. 625(Tri.-Del.)

Brief Facts:-The appellant are manufacturers of Television sets. The period of dispute is from August, and September, 2002. An audit of the Central Excise records maintained by the appellant was carried out by the audit party of C&AG. On 24th January, 2003, the Range Superintendent under letter dated 24-1-2003 addressed to the appellant pointed out that during recent audit by C&AG team it was noticed that in the balance sheet ending 31-3-2000, they have written of some raw material valued at Rs. 1,58,92,000/- involving excise duty of Rs. 25,42,720/-, that it appears that these inputs were not used for the manufacture of final product and were cleared as waste and scrap. The Superintendent under this letter wanted the details of these inputs in respect of which Cenvat credit had been taken, but which had been written off and not used for manufacture. The appellant under letter dated 20 March, 2003 and subsequently under their letter 17th June, 2003 provided the details according to which the Cenvat credit availed material valued at Rs. 1,29,07,905/- involving Cenvat credit of Rs. 22,20,259/- was sold as-obsolete parts/ waste in Rs. 15,28,213/- during August, 2002 and September, 2002 and material valued at Rs. 31,711/- found short due to theft, has been written off. The appellant also informed that on the material originally valued at Rs. 1,29,07,905/- and which was sold as waste/obsolete material in Rs. 15,28,213/- they have paid the duty of Rs. 2,44,515/-. The Cenvat credit involved on the goods found short due to theft was Rs. 5,074/-. The department issued a show cause notice dated 24-8-2004 on the basis that in respect of the Cenvat credit availed inputs valued at Rs. 1,29,07,905/-, the Cenvat credit of Rs. 22,20,259/-originally taken should have been reversed as against the duty on transaction value of Rs. 2,44,515/, which had been paid. Similarly, the department was also of the view that in respect of inputs valued at Rs. 31,711/- found short the Cenvat credit of Rs. 5,074/- was required to be reversed. Accordingly, the show cause notice demanded total amount of Rs. 22,20,259/- on the inputs written off as waste and scrap and an amount of Rs. 5,074/ on inputs found short due to theft along with interest on these amounts and also sought imposition of penalty. The show cause notice was issued by invoking extended period under proviso to Section 11A (1). The show cause notice was adjudicated by Additional Commissioner, vide Order-in-Original dated 30-3-2005 by which the above amount of Cenvat credit demand was confirmed along with interest, penalty of equal amount was imposed under Section 11AC and the duty of Rs. 2,44,515/- paid on the clearances of the obsolete parts as waste and scrap and the duty of Rs. 5,074/-paid on the inputs found short was appropriated. On appeal being filed against this order of the Additional Commissioner, the same was dismissed vide Order-in-Appeal dated 29-11-2005 against which this appeal has been filed.

Appellant Contentions:-The learned Counsel for the appellant, pleaded that during August, and September, 2002 certain components of television sets in respect of which the Cenvat credit had been taken and which had earlier been written off in the books of accounts were cleared as obsolete inputs waste, that in respect of these clearances of Cenvat credit availed components of television sets which had become obsolete, duty on the transaction value was paid as per the provisions of sub-rule (4) of Rule 3 of Cenvat Credit Rules, which were in force at that time, that during the period of dispute in terms of the provisions of Rule 3(4) of Cenvat Credit Rules, 2002, when the inputs and capital goods are removed, as such, an amount equal to the duty on the transaction value at the rate of duty in force on the date of clearance and on the value determined under Section 4 or Section 4A, as the case may be, is required to be paid, that at the time of removal of the Cenvat credit availed obsolete inputs as waste, the amount has been paid strictly in accordance with the provisions of Rule 3(4), that in respect of these obsolete inputs, the appellant are not required to reverse the credit originally taken, that same view has been taken by the Tribunal in the case of National Engg. India Ltd. v. CCE, Jaipur-I reported in 2010 (258) E.L.T. 97 (Tri. - Del.), wherein the Tribunal held that when NEI Ltd. was clearing Cenvat credit availed inputs to its sister concern and that sister concern were selling those Inputs to other buyers at higher price, the appellant were required to pay an amount equal to the duty on the transaction value in terms of Rule 3(4) of the Cenvat Credit Rules, 2002 in force at that time and the amount to be paid was not restricted to Cenvat credit originally taken, that the ratio of this judgment of the Tribunal is squarely applicable to the facts of this case, that in the Board's Circular No. 643/34/2002-CX., dated 1-7-2002 (SI. No. 14) it has been clarified that where the inputs or capital goods on which the Cenvat credit had been taken are removed, as such on sale, the value is to be determined under Section 4(1) read-with the Valuation Rules, that the Board in its subsequent Circular dated 16-6-05 has further clarified that in case the inputs or capital goods are removed, as such, the provisions of Rule 3(5) of Cenvat Credit Rules, 2004 shall be applicable and that the situation prior to 1-3-2003 when Rule 57AB(1)(c) of Central Excise Rules, 1944/Rule 3(4) of Cenvat Credit Rules, 2001/2002 were in force, shall continue to be governed by the rules in force at the relevant time, that in view of this, the appellant have correctly paid the duly on the transaction value, that the duty demand is also time-barred as the entire information regarding the value of the Cenvat credit availed as inputs written off and disposed off as waste had been given under letter dated 17-6-2003 while the show cause notice has been issued on 24-8-2004, more than a year after the Department had received all the information, that Apex Court in the case of Tamil Nadu Housing Board v. CCE, Madras reported in 1994 (74) E.L.T. 9 (S.C.), has held that when the law requires an intention to evade the payment of duty, then it is not mere failure to pay the duty, it must be something more, that is, the assessee must be aware that the duty was leviable and he deliberately avoided paying it, that in this case there is nothing to indicate that the alleged short payment was on account of intention to evade on the part of the appellant and that in view of the above submissions, the impugned order upholding the duty demand is not sustainable either on merit or on limitation.

Respondent Contentions:-The learned Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner (Appeals) and cited the judgment of the Larger Bench of the Tribunal in the case of CCE, Vadodara v. Asia Brown Boveri Ltd. reported in 2000 (120) E.L.T. 228 (Tribunal - LB), wherein with regard to the provisions of Rule 57F(1)(ii) of Central Excise Rules, 1944 which are similar to the provisions of Rule 3(4) of Cenvat Credit Rules, 2002, during period prior to 1-3-2003, the Tribunal held that in case of removal of inputs as such by an assessee, his liability is to restore the credit originally taken, that in this case the obsolete inputs in respect of which Cenvat credit had been availed were sold as waste without being used in the manufacture and, hence, at the time of removal of the inputs, the Cenvat credit originally taken should have been reversed, that in terms of the provisions of Rule 3(1) of the Cenvat Credit Rules, Cenvat credit in respect of any inputs is available only when the inputs are used in or in relation to the manufacture of final product, that when in this case the inputs cleared as obsolete/waste had not been used in or in relation to the production of final product, Cenvat credit would not be available and, hence, credit originally taken should have been reversed and, as such, the provisions of Rule 3(4) of the Cenvat Credit Rules, would not be applicable, that as regards limitation, since the appellant did not intimate the department during August, 2002 and September, 2002 regarding the clearance of written off inputs as waste on payment of duty on transaction value, they have suppressed the relevant fact from the department and hence extended period for recovery of Cenvat credit has been correctly applied. He, therefore, pleads that there is no infirmity in the impugned order.

Reasoning of Judgment:Tribunal considered the submissions from both the sides and perused the records.
So far as the merits of the case are concerned, there is no dispute that the Cenvat credit availed components of television sets which could not be used for manufacture for the reason that the models for which the components were to be used; had become obsolete and were no longer being manufactured, had been cleared as such. Though the invoices mentioned these clearances as waste scrap, the fact remains that these are the Cenvat credit availed, inputs which had been cleared as such, without being used in manufacture for the reason the same had become obsolete. Therefore, these clearances of obsolete inputs have to be treated as the clearances of cenvated inputs, as such, and the amount payable in respect of the same would be governed by the provisions of Rule 3(4) of Cenvat Credit Rules in force at that time, which during the period of dispute, i.e. August and September, 2002 read as under :-
"when inputs or capital goods on which Cenvat credit has been taken are removed as such from the factory, the manufacturer of final products shall pay an amount equal to the duty of excise, which is leviable on such goods at the rate applicable on such goods on the date of such removal and on the value determined under sub-Rule (2) of Section 3 or Section 4 or Section 4A of the Act as the ease may be or such removal shall be made under invoice refer to in Rule 7".
This provision came up for interpretation by the Tribunal in the case of Eicher Tractors v. CCE, Jaipur reported in 2004 (175) E.L.T. 277 (Tri. - Del.). The Tribunal in this case observing that this provision is successor to Rule 57F(1)(ii) of the earlier Central Excise Rules, 1944, which was the subject matter of dispute in the judgment of the Larger Bench of the Tribunal in the case of CCE, Vadodara v. Asia Brown Boveri Ltd. reported in 2000 (120) E.L.T. 228 (Tribunal -LB), held that when an assessee removed the Cenvat credit availed input as such, what is required to be done by him is only to restore the credit which he had taken. This judgment of the Tribunal was in the background of the fact that the amount to be paid in terms of the provisions of sub-rule (4) of Rule 3 of Cenvat Credit Rules, that is the duty at the rate, applicable on the date of removal, on the transaction value of the goods determined under Section 3(2) or Section 4 or Section 4A, as the case may be, was much higher than the Cenvat credit originally taken.
The correctness of this judgment of the Tribunal was doubted in the case of Eicher Tractors v. CCE, Jaipur reported in 2005 (179) E.L.T. 67 (Tri.-Del.), as on this very issue other benches had taken a contrary decision on the ground that Rule 57F(1)(ii) of erstwhile Central Excise Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules, 2001/2002 as the same stood during period prior to 1-3-2001 are not identically worded and are not similar. Accordingly, by judgment dated 10-11-2004, the following question was referred for decision by Larger Bench "When inputs on which Cenvat credit has been taken are removed, as such from the factory, whether the duty of excise is to be paid on the basis of assessable value as has been determined by original manufacturer at the time of removal of the goods or on the basis of value on which the inputs are sold by the appellant to their customers in terms of the provisions of Rule 3(4) of the Cenvat Credit Rules".
This question was considered by another Larger Bench of the Tribunal and the Larger Bench vide judgment dated 26-9-2005 reported in 2005 (189) E.L.T. 131 (Tri. - LB) answered this reference in favour of the appellant. In other words what the Larger Bench decided was that during the period of dispute when an assessee cleared Cenvat credit availed inputs as such, he was required to reverse the credit equal to the duty of excise on the basis of assessable value as had been determined by the original manufacturer at the time of removal of the goods i.e. the credit originally taken, not the duty on the transaction value at the time of sale of the Cenvat credit availed inputs. When this is the legal position determined by the Larger Bench, the ratio of Larger Bench would apply to this case also and, therefore, in this case the liability of the assessee at the time of removal of the Cenvat credit availed inputs as obsolete inputs or waste, which are nothing but the inputs cleared as such without having been used, would be the Cenvat credit originally taken. Therefore, it was held that so far as merits of the case are concerned, the demand of Rs. 22,20,259/- is correct. As regards, the demand of credit of Rs. 5,074/- on the inputs found short, the same has also been correctly upheld on merits as these inputs have not been used in manufacture.
Next comes the issue of limitation. The removal of the cenvated inputs was during August and September, 2002, while the show cause notice has been issued on 28-4-2004. The fact of clearance of obsolete Cenvat credit availed inputs as waste on payment of duty on transaction value during August and September, 2002 came to the notice of the Department during audit sometime in January, 2003 and on being asked by the Department, the appellant submitted all the required information under their letter dated 17-6-2003. The extended period has been invoked by the department on the ground that the appellant were aware of different rules and procedure of availment of Cenvat credit but still chose to take the credit in spite of Board's instructions and thus it can be said that they have availed the credit knowing fully well that they were not entitled for the same and as such the extended period for demanding credit has been rightly invoked.
In terms of Rule 15(2) of Cenvat Credit Rules, 2004, read with the proviso to Section 11A(1), extended period is invocable for recovery of wrongly availed Cenvat credit only when wrong Cenvat credit availment has happened due to fraud, collusion, wilful misstatement, suppression of fact or contravention of provision of Central Excise Act, 1944 or of the rules framed thereunder with intent to evade the payment of duty. Interpreting the provisions of Section 11A(1), the Apex Court in the case of Tamil Nadu Housing Board v. CCE, Madras(supra) has held that when the law requires an intention to evade the payment of duty, then this not mere failure to pay the duty but is something more that the assessee was aware that the duty was payable and he deliberately avoided paying it. On going through the order of the original Adjudicating Authority of the 1^st Appellate Authority, it was found that there are no findings as to how the appellant had deliberately short paid the amount payable under Rule 3(4). In fact the dispute here is related to interpretation of Rule 3(4) whether during the period prior to 1-3-2003 when the terms of the wordings of this rule on removal of cenvated inputs as such, an amount equal to the duty at the rate in force on the date of removal of inputs and on the value determined under Section 4, 4A or Section 3(2) of the Central Excise Act, 1994 as the case may be, was payable or the assessee's liability was only restoring the Cenvat credit originally taken. From the facts of this case, it is clear that the appellant have paid the amount strictly going by the wordings of Rule 3(4) during the period of dispute, according to which on removal of cenvated inputs as such, an amount equal to duty on the transaction value was payable. With regard to this issue, there were conflicting decisions and for this reason, this issue had been referred to Larger Bench till it was settled by the Larger Bench in the case of Eicher Tractors v. Commissioner reported in 2005 (189) E.L.T. 131 (Tri. - LB). Apex Court in the case of Continental Foundation Joint Venture v. CCE, Chandigarh-I reported in 2007 (216) E.L.T. 177 (S.C.) has held that when there is scope for entertaining doubt on 'account of conflicting judgments of the Tribunal, extended period under proviso to Section 11A(I) cannot be invoked. Therefore, from overall facts and circumstances of the case, nothing was found from which it can be concluded that the short payment of the amount payable under Rule 3(4) of the Cenvat Credit Rules was a deliberate act on the part of the assessee. Therefore, it was held that the longer limitation period in this case is not invokable. More so, when during visit of the audit team all the information had been made available by the assessee on the basis of which only the Department had detected this short payment and subsequently all the information for quantification of the duty has been furnished by the appellant under their letter dated 17-6-2003. Therefore, it was held that the extended period is not invokable, and as such, the impugned order is not sustainable on limitation.
In view of the above discussion, the impugned order is not sustainable. The same is set aside. The appeal is allowed.

Decision:-Appeal allowed.

Comment:-The gist of this case is that although credit originally taken was required to be reversed by the assessee in terms of Rule 3(4) of the Cenvat Credit Rules, 2004 in case of inputs written off as obsolete and later on cleared by the assessee. However, as there were conflicting decisions on the issue and the matter was finally settled by the decision of larger bench, this itself indicated that the issue required interpretation of law. Moreover, as nothing was suppressed, the extended period of limitation could not be invoked. The appeal was allowed on the grounds of limitation.

Prepared by:- Hushen Ganodwala

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