Non submission of the CAS-4 certificate does not attract penal action

PJ/Case Study/2010-11/46

CASE STUDY

Prepared By:
Parag Ghate (B.Com)
Rajani Thanvi(CA)

Introduction: -

If any document required by the revenue or audit party and assessee does not possess the same. Further, it is not statutorily required to keep that record then non submission of the same cannot be termed as non furnishing of required information/documents. CAS-4 is also not statutorily mandatory document required to be kept by the manufacturer. It is procured if the same is required by the department. Hence, non submission of the same does not attract penal action under Section 22(3) of Central Excise Rules.

In the matter of M/s Uma Polymers Ltd., (Unit-ii)
[Order-In-Appeal no. 61(CB)CE/JPR-II/2011 dt. 17.03.2011

Relevant Legal Provisions:

Rule 22 (3) of Central Excise Rules, 2002:-

Every assessee, and first stage and second stage dealer shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, -

(i) the records maintained or prepared by him in terms of sub-rule (2);

(ii) the cost audit reports, if any, under section 233B of the Companies Act, 1956 ( 1 of 1956); and

(iii) the Income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 ( 43 of 1961), for the scrutiny of the officer or audit party, as the case may be.

Further, sub-rule (2) provides that

(2) Every assessee, and first stage and second stage dealer shall furnish to the officer empowered under sub-rule (1), a list in duplicate, of-

(i) all the records prepared and maintained for accounting of transaction in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods, as the case may be;

(ii) all the records prepared and maintained for accounting of transaction in regard to payment for input services and their receipt or procurement; and

(iii) all the financial records and statements including trial balance or its equivalent).

22 (2) of Central Excise Rules, 2002:-

Every assessee, and first [(2) stage and second stage dealer shall furnish to the officer empowered under sub-rule (1), a list in duplicate, of -
(i)     all the records prepared and maintained for accounting of transaction in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods, as the case may be;
(ii)    all the records prepared and maintained for accounting of transaction in regard to payment for input services and their receipt or procurement; and
(iii)   all the financial records and statements (including trial balance or its equivalent).]

Brief facts of the case: -

Appellant is registered under Central Excise and are engaged in the manufacture of Flexible Rolls & Plastic Pouches falling under schedules of the CETA 1985.

It was alleged that the appellant had not provided the CAS-4 certificate signed by the Cost Accountant when the Audit party and thereafter Range Office in writing had asked them to produce the same. Therefore, the appellant have thus rendered themselves liable for penal action in terms of the provisions of Rule 27 of Central Excise Rules 2002 for contravening Rule 12 (4) and Rule 22 (3).

Therefore, show cause notice was issued to the appellant proposing penalty under rule 27 of Central Excise Rule, 2002. The Adjudicating authority imposed penalty vide the impugned order.

Appellants’s Contentions: -

The Appellant submit that the learned Deputy Commissioner in the impugned order has relied upon the decision given in Dharampal Satyapal v/s CCE, New Delhi and held that the issue of Revenue neutrality is different from availment of cenvat credit. In this regard appellant submit that in relied upon case, the facts and circumstances were totally different from the facts and circumstances of the case of appellant. In above case, the issue was regarding marketability, exciseability of their product and invocation of extended period of limitation in view of clear evidence of deliberate suppression of facts with intention to evade payment of duty. However, in the case of appellant there cannot be said to be any deliberate suppression. There was no suppression and the appellant had not deliberately acted in non-production of CAS-4 certificate before the proper officer. They have in fact diligently pursued the matter with the impugned order the bonafides of the appellant were not challenged.

The appellant submit that in the impugned order, the learned Deputy Commissioner has not agreed to the contention of the appellant that the delay in submitting the CAS-4 certificate was due to the fact that there was only one ICWS working in the city of Jodhpur who was issuing the CAS-4 certificate and was handling a lot of work and was not available readily. The learned Deputy Commissioner has held that the appellant had submitted the certificate after a lapse of one and a half year and the appellant has provided the said certificate after issuance of show cause notice. In this regard the appellant submits that the issuance of CAS-4 certificate was not in their hands. That they have also been pursuing the matter with the ICWA since the demand for it was raised by the Department. The appellant have not acted negligently but have been actively involved in getting the CAS-4 certificate from the only practicing ICWA in the city who was not readily available. There was not deliberate intention to ignore the demand for the certificate by the Department. The appellant was not at fault. They have acted as expeditiously as possible. And they have diligently pursued the matter with ICWA and as soon as the CAS-a certificate was issued to them, they have submitted the same in the Range office. Thus, it cannot be said that the appellant acted dishonestly or negligently.

The appellant submit that in the impugned order it has been held that in CBEC Circular no. 692/08/2003-CX dated 13.02.2003 it has been clarified that for valuing goods which are captively consumed the general principles of costing would be adopted for applying Rule 8 and cost of production of captively consumed goods henceforth be done strictly in accordance with CAS-4. SO it is alleged by the learned Deputy Commissioner that they have correctly imposed penalty for non submission of this certificate. In this regard the appellant reiterate that the sub rule 2 and 3 to rule 22 does not says that CAS 4 is required to be maintained by the assessees. However, as per allegation of the department, this certificate is required so as to raise the demand under rule 8 of the Central Excise Valuation Rules; due to this inspite of the fact that they are not required to maintain the CAS 4, they have fully co operated with the department to obtain and furnish this certificate. But since the issuance of certificate was not in their hand, there was delay in the submission. But submitting the CAS 4 in order to honour the demand of department would not alter the legal position that the CAS 4 is statutorily not required to be maintained as per provisions of rule 22 (2) and 22 (3) of the Central Excise Rule, 2002. It is once again reminded that penalty under rule 27 of the Rules is imposable only in case of non furnishing of records/documents as prescribed under rule 22(2) and 22(3) of the Central Excise Rule, 2002 and the CAS 4 is not prescribed under these rules.

The appellant submit that in the impugned order in original it was wrongfully held that the appellant is misleading the proceedings by only stressing on the words “records prepared and maintained by the assessee” by holding that as per Rule 12 and Rule 22 of the Central Excise Rules, 2002, the proper officer is empowered to ask for any document/record etc. which is necessary to safeguard the interest of revenue. In this regard the appellant submit that Rule 12 (4) of the Central Excise Rules, 2002 reads as under:

4)    Every assessee shall make available to the proper officer all the documents and records for verification as and when required by such officer.

Further, the Rule 22 (3) provides that:

Every assessee, and first stage and second stage dealer shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, -

(i) the records maintained or prepared by him in terms of sub-rule (2);

(ii) the cost audit reports, if any, under section 233B of the Companies Act, 1956 ( 1 of 1956); and

(iii) the Income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 ( 43 of 1961), for the scrutiny of the officer or audit party, as the case may be.

Further, sub-rule (2) provides that

(2) Every assessee, and first stage and second stage dealer shall furnish to the officer empowered under sub-rule (1), a list in duplicate, of-

(i)    all the records prepared and maintained for accounting of transaction in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods, as the case may be;

(ii)    all the records prepared and maintained for accounting of transaction in regard to payment for input services and their receipt or procurement; and

(iii) all the financial records and statements including trial balance or its equivalent).

A perusal of the of the above provisions clearly provide that an assessee is required to maintain only the records prescribed therein and only these records can be produced by the assessee when they are asked to be produced by the proper officer. The Proper officer can only ask for these records which are mandatorily provided to be maintained by an assessee. But since the CAS 4 certificate was not mandatorily required to be maintained as per law they have not maintained it. But as soon as the department called for this, the appellant have not refused to furnish it, but they have started trying to obtain the same from the competent authority. In spite of facing the problems in obtaining this certificate they have obtained and submitted the same. All this was done merely to co-operate with the department. But this co-operation had proven costly as penalty is imposed upon them for delay in filing the CAS 4. But legally the penalty cannot be imposed upon them under rule 27 of the Central Excise Rules, 2002 for non furnishing of the document or record that is not statutorily required to be maintained.

Appellant further submit that in the impugned order in original the penalty has been imposed on them. In this regard, the appellant submit that it is not the case where the appellant had obtained the CAS 4 certificate and had deliberately not furnished the same before the Audit party when asked for. The appellant were not having the certificate and therefore were not able to produce the same when asked for. It is submitted that the appellant had made genuine efforts to obtain the CAS 4 certificate from the ICWA but due to practical problems described in the reply to the show cause notice, the appellant were prevented from obtaining the CAS 4 certificate. However, the learned Deputy Commissioner has not taken in to consideration the practical difficulties faced by the appellant. Moreover, the appellant had been making genuine efforts to get the certificate. But these circumstances were not considered by the Commissioner while passing the order. It is worthwhile to mention here that at the time of passing the order, the CAS 4 was available with the department. As such the information for which the penalty is imposed in the impugned order was available with the learned Deputy Commissioner has erred in passing the order for imposing the penalty for non submission of the information.

Alternatively, the appellant submits that the learned Deputy Commissioner has imposed the maximum penalty prescribed under Rule 27 of the Central Excise Rules, 2002. In this regard the appellant submit that after consideration of the practical difficulties faced by the appellant and in view of the fact that the CAS 4 certificate was furnished in the Range office before the impugned order was passed, the Deputy Commissioner should have imposed lesser penalty on the appellant. Moresoever, when there was no deliberate intention on the part of the appellant to not to produce the CAS 4 certificate.

Issue Involved:

The issue involved in this case was that

Whether there was any contravention of the provisions of law on the part of appellant by not producing the CAS-4 certificate signed by the Cost Accountant to the audit party when asked for the same?

Reasoning of the Commissioner (Appeal):

The Commissioner (Appeal) noted that as per rule 22 (3) of Central Excise Rules, 2002 every assessee and first stage and second stage dealer shall, on demand make available to officer empowered under sub rule (1) or the Audit Party deputed by Commissioner or CAG of India.

The learned Commissioner (Appeal) found that on basis of Board’s Circular only no one can be penalized unless the contents of circular is confirmed or read with the rule / section requiring any act or omission leading to contravention of those rules or section. And also found that records prescribed under Rule 22 (2) of Central Excise Rules, 2002 that CAS 4 certificate is not prescribed in list of records prescribed under this rule. Further in the Financial records if the CAS 4 certificate was mandatory under rule other law or appellant were maintaining the same could be asked under rule 12(4). From the facts of the case, the appellant were not in possession of such certificate and that’s why they did not provide the same to department. Therefore, the contention of appellant is strong enough to be accepted that CAS 4 certificate is not prescribed under the list of records under rule 22 (2) ibid and they were not having the same.

Further for the penalty under rule 27 ibid imposed for contravention of any Central Excise Rules, 2002 it is held that there is no such contravention and thus penalty could not be imposed on the appellant.

Decision:
The impugned order set aside and appeal is accepted.

Conclusion:-

The Commissioner (Appeal) rightly held that the penalty cannot be imposable where there is no contravention of law. As the assessee was not in possession of the required document, he could not produce the same. Further he was not required to have that records or document and hence the same was not in possession of the assessee. Due to this factual position, the document was not produced to the audit party. Thus, there is no contravention of law. Hence the penal action is not warranted at all.

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28 March 2011

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PJ/CASE STUDY/2010-11/46
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