The issue involved in this case is that whether the appellant is liable to pay compounded levy scheme on manufactured goods on clearance?

Prepared By: CA PREKSHA JAIN AND RISHABH BHANSALI

M/S PRATIK METALS(P) LTD. (FINAL ORDER NO. A/53224/2018-EX(DB) dated 29/10/2018

Introduction:-The compendious of the case is that , M/S. PRATIK METALS (P) LTD., (hereinafter referred to as the appellant) is engaged in manufacture of Stainless Steel Cold Rolled Patta/Patti falling under chapter 72 of the First Schedule to the Central Excise Tariff Act,1985.
The Department issued Show Cause Notice no. V (72) Adj./JPR-II/245/2014/681 dated 13.03.2015 alleging that they have cleared 105002.450 Kgs of Finished goods valued at Rs. 94,74,955/- without payment of Central Excise Duty amounting to Rs. 11,71,104/- (including cesses) in the guise of compounded levy scheme. The said quantity was the finished goods stock as on the date of switching from Cenvat scheme to Compound Levy scheme. The duty demand of Rs. 11,71,104/- along with interest and equal penalty under section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002.

Aggrieved by the impugned order in appeal (hereinafter referred as impugned order) confirming the clearance of the said goods under compounded levy scheme payments are proper and appropriate. No merits are found in the Revenue’s stand to further demand the differential duty.

Relevant Legal Provisions:

Chapter 72 of the First Schedule to the Central Excise Tariff Act,1985
Notification No.17/2007-CE dated 01-03-2007
Rule 3 of CENVAT Credit Rules,2004
Section 3 of Central Excise Act,1944
Rule 8 of the Central Excise Rules ,2002
Rule 11 of the Central Excise Rules ,2002
Section 11A of the Central Excise Act,1944

Issue Involved: The issue involved in this case is that whether the appellant is liable to pay tax under compounded levy scheme on manufactured goods on clearance?

Brief Facts:The compendious of the case is that ,M/S. PRATIK METALS (P) LTD., (hereinafter referred to as the appellant) is engaged in manufacture of Stainless Steel Cold Rolled Patta/Patti falling under chapter 72 of the First Schedule to the Central Excise Tariff Act,1985.
The Department issued Show Cause Notice no. V (72) Adj./JPR-II/245/2014/681 dated 13.03.2015 alleging that they have cleared 105002.450 Kgs of Finished goods valued at Rs. 94,74,955/- without payment of Central Excise Duty amounting to Rs. 11,71,104/- (including cesses) in the guise of compounded levy scheme. The said quantity was the finished goods stock as on the date of switching from Cenvat scheme to Compound Levy scheme. The duty demand of Rs. 11,71,104/- alongwith interest and equal penalty under section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002.
The appellant replied to the SCN vide letter no. PJ/SCN/P-73/15-16 dated 13.04.2015. Thereafter, personal hearing in the matter was attended and submissions were made.
The submissions of the appellant were not adhered to and an impugned order in original no. 38/CE/JDR/2015 dated 09.12.2015 was passed. The duty demand of Rs. 11,71,104/- was confirmed along with interest and equal amount of penalty under Section 11AC.
The appellant contended before the Commissioner(Appeals) and impugned order in appeal no. 14(SJ)CE/JDR/2018 dated 19.01.2018 was passed rejecting the appeal filed. However, the penalty amount was reduced from Rs. 11,71,104/- to Rs. 5,00,000/-. The appeallant preferred appeal to CESTAT and thereafter the appeal was allowed in our favour.

Assessee’s Contention:

The appellant submits that the impugned order is alleging that inspite of making them aware of provisions the appellant had deliberately removed the said stock of final product of Rs. 105002.450 kg manufactured before 1.3.2014 without payment of any duty of excise. It is also being alleged that the invoices issued by them were also not as per rule 11 of the Central Excise Rules, 2002. In this regard, it is submitted that the clearance of finished goods was well within the provisions of Central Excise Act, 1944 and rules framed thereunder. In this respect, it is submitted that in the Central Excise Law, the levy of excise duty is being governed by the charging section 3 which says that excise duty is levied on the excisable goods manufactured in India and the same is collected in the manner as may be prescribed. It is further submitted that the concept of collection of excise duty determines the rate at which excise duty is payable and the excise duty is collected at the time of clearance of goods. Accordingly, once the excisable goods have been manufactured, their levy is confirmed but the rate at which excise duty is to be paid will be determined as per the rate prevalent at the time of clearance. Due to this reason, although the appellant had manufactured the finished goods prior to 01.03.2014, but as the said excisable goods were being cleared after 01.03.2014, the rate of excise duty prevalent as per the option exercised by them would be applicable. Therefore, once the duty under compounded levy scheme is paid for the month, there is no need of paying any further duty on removal of any goods during that particular month. Further, with respect to the allegation of impugned order that the invoices issued by the appellant were not in accordance with rule 11, it is submitted that the manufacturer operating under compound levy scheme is not bound by provisions contained in rule 11 of the Central Excise Rules, 2002 since no credit is passed on by him. Therefore the allegation of impugned order is not tenable and is liable to be quashed.
The appellant submits that the impugned order has reproduced the para 3(1) of the Notification no. 17/2007-CE and has held that the duty paid under this notification is in respect of goods manufactured during the month and it cannot be attributed to goods already produced before they applied for special procedure. It is alleged that the notification vide the above para has stipulated that any applicant under this scheme is required to pay sum calculated at the rate specified in this notification which shall be in full discharge of his duty liability on the goods manufactured during that period only for which the sum is being paid. The notification does not in any way stipulate that the scheme is available for goods produced prior to the date of opting into the scheme by the assessee. Moreover, the law requires the assessee to follow the necessary set of conditions of any notification whenever they opt to avail the benefit under any scheme. It is not the free will of the applicant to interpret the statue in a manner that suits them the best. Had the applicant had the freedom to do so, he would build a huge stock of finished goods and not pay duty at the relevant time and pay the sum after shifting to the compounded levy scheme.

The analysis of above para from the impugned order makes it clear that in this para, following allegations have been raised:-

That the duty paid by assessee under this scheme is attributable only to the goods production done during the month. It does not apply to the stock of finished goods in hand at the time of shifting from Cenvat Scheme to Compound levy scheme.

That there is no embargo in the Central Excise law that the assessee cannot pay duty on stock of finished goods under Cenvat Scheme when he has already opted for compounded levy scheme.

That if the contention of assessee is accepted it can lead to huge duty evasion by building huge stock of finished goods and not paying duty on that in the guise of already shifted to the compounded levy scheme.”

The above referred three allegations are discussed one by one in the following paras.

The appellant herein submit their reply to the first allegation referred to in para 2 hereabove. In this contention no. (i), the impugned order is alleging that the duty paid by assessee under this scheme is attributable only to the goods production done during the month. It does not apply to the stock of finished goods in hand at the time of shifting from Cenvat Scheme to Compound levy scheme. To this, the appellant submits that there is no clear cut provision neither in the Central Excise Law nor in the notification no. 17/2007-CE regarding the stock of finished/semi finished goods available with assessee at the time of switching from Cenvat Scheme to Compound Levy and vice versa. Also, no circular has been issued to clarify the situation. Even nothing is mentioned on this aspect in the Supplementary instructions. If law is silent on some point, the general practice in the industry as approved by the department is considered as correct. Till the date of issue of impugned show cause notice to the appellant, all the patta patti units were following the same practice, i.e. once a unit has opted for compound levy scheme, it began to clear the excisable goods under this scheme right from the beginning of the month, irrespective of the fact whether it is clearing the old stock of finished goods or goods manufactured during the month. Thus, all the units in such cases had been treating the stock in hand at par with production during the month in case of switch over from Cenvat scheme to compound levy scheme. Similarly, when any unit opted for Cenvat Scheme from Compound levy scheme, it started paying the excise duty at ad valorem rates right from the beginning. In other words, the assessees which have switched over to Cenvat Scheme had been paying the ad valorem duty even on the finished goods manufactured during the period when the unit was in compound levy scheme. If the contention of the department is accepted for the sake of argument then in this case, no excise duty is payable on the clearances of finished goods stock when any unit switch over to Cenvat scheme as the said stock was manufactured when the unit was operating under compounded levy scheme. But department never objected on the payment of duty on such opening stock in this case. Thus, both of the practices were duly approved and accepted by the department till the date of issuance of impugned show cause notice to the appellant. Thus, now raising the demand by taking a totally new stand which is altogether different from existing practices is not tenable and is liable to be dropped.

Aligning with above submission, it is submitted that the issue in current demand pertains to goods manufactured upto 28.2.2014 when the appellant switched to compounded levy scheme. It is worthwhile to mention here that the same appellant have opted for Cenvat Scheme as from 01.04.2013, i.e. just before the period in instant issue. Prior to this date they were operating under compounded levy scheme. The permission to operate under cenvat scheme was taken vide letter dated 01.04.2013. In the said letter of permission, the stock of finished goods manufactured under the compounded levy scheme was disclosed as 5514 Kgs. This stock was manufactured under compounded levy scheme but it was cleared after they opted for Cenvat scheme w.e.f. 1.4.2013. Since they had opted for Cenvat scheme, they cleared it on payment of ad valorem duty at the rate of 12%. To substantiate this submission, copy of the ER-1 return for the month of April, 2013 and the RG-1 Daily Stock Account was enclosed with the reply to show cause notice. Thus, the payment of excise duty on ad valorem basis had been accepted by the department in respect of the finished goods stock manufactured under compounded levy scheme (but cleared after the appellant opted for Cenvat scheme). This act of appellant was in affirmation with the Supreme Court decisions given in the case of Vazir Sultan Tobacco and Wallace Flour Mills which says that the rate/ manner of payment of duty applicable at the time of clearance of goods will be applicable. Also, the payment of duty on ad valorem on the stock manufactured under compounded levy scheme but cleared after opting for Cenvat scheme was duly accepted by department However, now it is contradicting the stand earlier taken on the same issue. This is not permissible as the revenue department cannot take dubious stand for the same issue according to its own benefit. When the duty payment on ad-valorem basis is not objected by the revenue department on the goods manufactured under compounded levy scheme but cleared under Cenvat scheme; then it cannot change its stand and demand the duty on goods manufactured under Cenvat scheme but cleared under compounded levy scheme. Thus, once the department has accepted the practice followed by the appellant and other similarly placed units, it cannot now change its stand merely to confirm the duty demand.

The appellant would now give their submissions with respect to allegation no. (ii) detailed in para 2 hereabove which says that there is no embargo in the Central Excise law that the assessee cannot pay duty on stock of finished goods under Cenvat Scheme when he has already opted for compounded levy scheme. This allegation is an outcome of an incomplete knowledge of section 3(1) and 3A of Central Excise Act, 1944. In this regard, it is submitted that section 3(1) of the Central Excise Act, 1944 is the charging section which reads as follows:-

“Section 3. Duties specified in First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied. -
(1) There shall be levied and collected in such manner as may be prescribed, -
(a) a duty of excise to be called the Central Value Added Tax (CENVAT)] on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);”

Thus, section 3(1) states that the duty of excise, namely Cenvat, shall be levied and collected in such manner as may be prescribed.

Further, section 3A of the Central Excise Act, 1944 prescribes that central government is empowered to charge excise duty on the basis of production capacity by issuing a notification. This section reads as follows:-

“Section 3A. Power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goods:

(1) Notwithstanding anything contained in section 3, where the Central government, having regard to the nature of the process of manufacture or production of excisable goods of any specified description, the extent of evasion of duty in regard to such goods or such other factors as may be relevant, is of the opinion that is necessary to safeguard the interest of revenue, specify, by notification in the Official Gazette, such goods as notified goods and there shall be levied and collected duty of excise on such goods in accordance with the provisions of this section.”

The analysis of above section 3A makes it ample clear that this section starts with the word “NOTWITHSTANDING” which means it will have overriding affect on the remaining provisions mentioned with this word. This word “notwithstanding” is followed by “anything contained in section 3” which means section 3A has overriding effect on section 3. In other words, once section 3A becomes applicable, the provisions of section 3 will not apply in that case. It is worthwhile to mention here that this section 3A empowers Centre to form Rules and issue notifications to activate the provisions of this section. Rule 15 of the Central Excise Rules, 2002 has been formulated to work upon the section 3A. Further, Notification no. 17/2007-CE is issued by Central Government under rule 15 of the Central Excise Rules, 2002 which governs the compound levy scheme for patta patti units. Since compound levy scheme is formed under section 3A, it has overriding effect on the provisions of Section 3 of the Central Excise Act, 1944. Therefore, once an assessee opts for compound levy scheme, the normal provisions of Central Excise Act, 1944 including charging section 3 are not applicable. Hence the contention of the impugned order that there is no embargo in the Central Excise law that the assessee cannot pay duty on stock of finished goods under Cenvat Scheme when he has already opted for compounded levy scheme is not sustainable as once the assessee opts for compound levy scheme, the Cenvat scheme which is implemented vide section 3 of the Central Excise Act, 1944 goes out of play. It is further submitted that the contention of the impugned order that there is no embargo in the Central Excise law that the assessee cannot pay duty on stock of finished goods under Cenvat Scheme when he has already opted for compounded levy scheme is not tenable on the grounds that two charging sections namely 3 and 3A cannot be made applicable simultaneously. This is substantiated by the fact that section 3A has non obstante clause which means in case of conflict, provisions of section 3A (i.e. compound levy scheme) will apply. Thus, the contention that assessee can pay duty on stock of finished goods under Cenvat scheme even while operating under compounded levy scheme misplaced.

The appellant now wishes to give submissions on the allegation no. (iii) referred at para 2 hereabove which states that if the contention of assessee is accepted it can lead to building huge stock of finished goods and not paying duty on that in the guise of already shifted to the compounded levy scheme. By making this allegation, department has simply shown its suspicion in general. Merely doubting assessee and making allegatory statements are not sufficient to raise any demand. Rather department is supposed to substantiate the allegations with cogent and corroborative evidences which should clearly depict that the act of assessee has resulted into huge duty evasion by adopting the said practice. Without proving with cogent and corroborative evidences, the duty demand cannot be confirmed. Reliance is placed on the following decisions in this regard:-

GHODAVAT PAN MASALA PRODUCTS LTD. VERSUS COMMISSIONER OF C. EX., PUNE [2004 (175) E.L.T. 182 (TRI. - MUMBAI)]

“…………Besides, we find that when the department has based his case on the statement of certain parties and when the statements were retracted in writing by them, it was imperative on the department to have brought corroborative evidence to substantiate the allegation of clandestine removal. The department having not done so, has lost their right to raise the demand merely on presumption/assumption. In a case of its kind the department was duty bound to have brought direct, tangible, corroborative and strict evidence to prove the clandestine removal beyond reasonable doubt. We do agree with the contention of the ld. SDR that mathematical accuracy cannot be expected in such a matter. However, it does not mean that the Department is absolved of its responsibility to bring on record the tangible, strict, positive, direct and corroborative evidence to prove clandestine removal beyond reasonable doubt as there is no evidence of actual excess production, removal of such excess production, transport of such excess production, confirmation from buyers and receipt of unaccounted cash towards sale of such unaccounted clearances. We find that the department has not done so………”.

SULTAN DHARANI VERSUS COMMISSIONER OF CUS. (P), MUMBAI [2007 (220) E.L.T. 820 (TRI. - MUMBAI)]

Smuggled goods - Burden of proof - No evidence on record to establish the fact that seized goods were smuggled into India without payment of duty by misusing warehousing scheme by Delhi based importers which according to Department, is the basis of sealing of godown on 29-3-2006 - Nothing fraudulent is established beyond appellant indenting legitimately - No evidence forthcoming to establish conscious knowledge of appellant regarding modus operandi of unscrupulous importers - Burden not discharged by Department to prove that goods seized are smuggled in nature - Section 110 of Customs Act, 1962. [para 20]
Smuggled goods - Once it is established that zinc ingots were covered by Import documents, contention that local purchase was paper transaction, is of no significance as goods are found proved as duty paid and imported under proper bills of entry. [para 21]
Smuggled goods - Burden of proof - Revenue cannot first show laxity in investigations and then seek to shift the burden on Appellant to prove that goods are not smuggled, especially when there is not even any ‘presumptive evidence’ produced to show illegal importation of seized non-notified goods, and suggesting their non-duty paid nature - Section 110 of Customs Act, 1962. [para 29]
Departmental Clarifications - “Manual of Departmental Instructions on adjudication” issued by Board - Such instructions are supplemental to and should be read in conjunction with Customs Act, 1962 and Rules made thereunder, and should not be departed. [para 28]
The analysis of above cases makes it ample clear that the allegations should be proved with the help of cogent and corroborative evidences. Though the above judgments relate to the issue of clandestine removal/ smuggling, yet their ratio is clear that every allegation should be backed by the cogent and corroborative evidences. In the instant case, the impugned order has simply stated that if the interpretation of appellant is accepted, it would lead into duty evasion. However, the impugned order has not proven that there was actually any duty evasion by the act of appellant, particularly when all the assessees working in the same jurisdiction have been following the same practice. Therefore, the impugned order is based upon unproven allegations and suspicions raised by department; thus, it is not viable and deserves to be set aside.

The impugned order has rejected the reliance placed on the decision given by Hon’ble Supreme Court in the case of Wallace Flour Mills Company Ltd. Vs Collector of C.Ex. [1989 (44) E.L.T. 598 (S.C.)] & Collector of C.Ex., Hyderabad Vs Vazir Sultan Tobacco Co. Ltd. [1996 (83) E.L.T. 3 (S.C.)] wherein it was held that the rate of duty was applied as on the date of clearances and not as on the date of manufacture. It is contended that the facts of those cases were different from the facts of the present appeal as in this case, the subject matter involves availment of a scheme by the assessee that too a scheme which was specific on extending its benefit to only those goods which were manufactured during the period of availment of benefit under the scheme. It is held that since the appellant manufactured goods during a period when they were not working under the scheme, they were liable to clear them on payment of ad valorem rates of duty as applicable under Rule 8 of the Central Excise Rules under the cover of invoices as per Rule 11 of the Rules ibid. In this regard, the appellant submits that while applying any decision, its ratio is relevant and not the facts of the case. The appellant submits that the decisions relied upon by them are landmark decisions that depict the fundamentals of the Central Excise Laws that levy of excise duty is on manufacture whereas liability to pay excise duty is the rate as applicable on clearance of excisable goods. The appellant submits that these decisions represent the core principles of Central Excise Law and are applicable universally irrespective of the facts of the case. Moreover, the compounded levy scheme is also issued under Central Excise Laws and the fundamental principles will be applicable to assessees operating under the special scheme also. Hence, the rejection of reliance placed on the decisions rendered by Supreme Court is not at all tenable and the impugned order deserves to be quashed.

The appellant further submits that while interpreting any decision, ratio laid down by it has to be seen rather than going rigidly by the facts and circumstances. This is known as principle of ratio decidendi. The ratio decidendi is "the point in a case that determines the judgment" or "the principle that the case establishes". In other words, ratio decidendi is a legal rule derived from, and consistent with, those parts of legal reasoning within a judgment on which the outcome of the case depends. It has been held by the Gujarat High Court that it is the ratio decidendi that forms a binding precedent, not the entire facts and circumstances of the case. This decision has been given in the following case:-

DHRANGADHRA MUNICIPALITY, DHRANGADHRA AND OTHERS VERSUS DHRANGADHRA CHEMICAL WORKS LTD. AND OTHERS [1988 (35) E.L.T. 88 (GUJARAT)]

Precedent - Ratio decidendi constitutes a precedent and not the entire contents of a judgment.
- It is not everything said by a judge when giving judgment that constitutes a precedent. The only thing in a judge’s decision binding a party is the principle upon which the case is decided and for this reason, it is important to analyse a decision and isolate from it, the ratio decidendi. [A.I.R. 1979 S.C. 1384 cited; XXIV (1) G.L.R. 1 & A.I.R. 1987 S.C. 1073 referred]. [para 27]

From the above decision, it is ample clear that while interpreting any decision, the ratio laid down by the Court is to be observed rather than simply the facts and circumstances. If the ratio decidendi is applicable, the benefit of decision is equally extendable to the assessee. Therefore, the benefit of above discussed decision is extendable in the present case and in view of this decision; the impugned order in appeal is liable to be set aside.

The appellant once again place reliance on the decision of hon’ble Supreme Court in the case of WALLACE FLOUR MILLS COMPANY LTD. VERSUSCOLLECTOR OF C. EX. [1989 (44) E.L.T. 598 (S.C.)]. It is submitted that the impugned order has been passed by misinterpreting the very basic theme of Central Excise Law. Though the central excise duty is leviable on the “manufacture” of excisable goods, yet it is collected at the prescribed rate at the time of “clearance” of those goods. The rate of duty as applicable at the time of clearance of goods is considered regardless of the fact that there was some other rate/manner of payment of excise duty at the time the goods were manufactured. This ratio has been laid down in the decision of M/s Wallace Flour Mills. The relevant para from this decision is reproduced as follows for the sake of convenience:-

Central Excise - Dutiability - Rates of duty prevalent on the date of removal applicable - Goods produced during exemption period but cleared thereafter dutiable - For excise taxable event is manufacture but duty can be levied and collected at a later stage for convenience of administration - Recovery of duty according to “date of removal” does not make removal to be the taxable event for Central Excise - Rule 9A of the Central Excise Rules, 1944.
- It is well settled by the scheme of Central Excises and Salt Act and clarified by several decisions that even though the taxable event is manufacture or production of excisable article, the duty can be levied and collected at a later stage for administrative convenience. The scheme of the Excise Act read with relevant rules particularly Excise Rule 9A reveals that the taxable event is the manufacture and the payment of duty is related to the date of removal of such article from the factory. Therefore when the goods were unconditionally exempted from duty on the date of manufacture but were dutiable on the date of their removal they would be liable to duty because on the basis of Rule 9A of the Central Excise Rules, 1944, the Excise authorities are within competence to apply the rates prevalent on the date of removal. [1978 (2)E.L.T.33(MP); 1978 (2)E.L.T.(J 690) (MP); 1981 (8)E.L.T.414 (Bom.); 1981 (8)E.L.T.920 (Bom.); 1983 (13)E.L.T.909 (Mad.) and 1978 (2)E.L.T.(J 177) (All). over-ruled. 1986 (23)E.L.T.313 (Kar.) and 1978 (2)E.L.T.(J 57) (Mad.) referred]. [paras 3, 4]

It is clear from the above cited decision that although the taxable event for levy of excise duty is manufacture of excisable goods but payment of duty is related to removal of excisable goods from the factory. In the above cited decision, the excisable goods manufactured by the appellant were eligible for the benefit of full exemption at the time the same were manufactured but at the time of removal of such excisable goods, the exemption was withdrawn. Accordingly, it was concluded that the excise duty was required to be paid on the excisable goods removed because excise duty is payable at the rate in force at the time of clearance of goods from the factory and not at the time when the excisable goods were manufactured. In the present case, at the time of manufacture, the appellant was operating under Cenvat Scheme, however, they switched to compound levy scheme before the clearance of these goods. Thus, in view of the decision of hon’ble Supreme Court, the rate/manner in which the excise duty is payable shall be as prevalent at the time of clearance. Thus, since the compound levy scheme was applicable at the time of clearance of goods, the appellant was not supposed to pay the duty on ad valorem basis. This is what has been done by the appellant. But the impugned order has not accepted their action which was in accordance with the ratio laid down by the Apex Court. Thus, the impugned order being passed in contradiction of Supreme Court decision is not tenable and is liable to be quashed.

Aligning with above it is submitted that similar decision was given in the case of COLLECTOR OF C. EX., HYDERABAD VERSUSVAZIR SULTAN TOBACCO CO. LTD. [1996 (83) E.L.T. 3 (S.C.)]wherein it was held that:-

Dutiability of goods manufactured prior to levy of duty but cleared thereafter - Such goods not liable to excise duty - Collection of duty at the stage of removal is for the sake of convenience - Entry 84 of List I of the Seventh Schedule to the Constitution of India read with Section 3 of the Central Excises and Salt Act, 1944 - Rules 9 and 9A of the Central Excise Rules, 1944.
- Once the levy is not there at the time when the goods are manufactured or produced in India, it cannot be levied at the stage of removal of the said goods. The idea of collection at the stage of removal is devised for the sake of convenience. [para 5]
Central Excise - Levy and collection - Scope of charging Section 3 of Central Excises and Salt Act, 1944 - Words “in such manner as may be prescribed” appearing in Section 3(1) qualify the word “collected” and not the word “levied” - Thus levy is created by Section 3 itself and “collection” of duty is left to be regulated by the Rules because the expression “prescribed” as defined in clause (g) of Section 2 of the Excise Act means prescribed by Rules made under the Act.
- It is evident that the words “in such manner as may be prescribed” qualify the word “collected” and not the word “levied”. While the levy is created by Section 3 itself, the collection of the duty is left to be regulated by the Rules made under the Act as the expression “prescribed” is defined in clause (g) of Section 2 to mean prescribed by Rules made under the Act. [paras 6, 7]
From the above cited decision of Apex court, an important analogy that is derived is that the language of the section 3(1) of the Central Excise Act, 1944 which reads as “There shall be levied and collected in such manner as may be prescribed…” means that while levy is created by section 3 but the collection is left to be regulated by the Rules made under this Act. This means that levy and collection are two different aspects and collection of duty is governed by the Rules made under this Act. It is further worth noting that Rule 4 of the Central Excise Rules, 2002 specifies that duty is payable on removal and Rule 5 prescribes the date for determination of duty. Furthermore, Rule 15 of the Central Excise Rules, 2002 provides special procedure for payment of duty wherein the Central Government, may, by notification, specify the goods in respect of which an assessee shall have option to pay the duty of excise on the basis of such factors as may be relevant to production of such goods and at such rate as may be specified in the said notification.Theysubmit that on harmonious reading of the above cited Central Excise Rules, 2002, it is found that the excise duty is collected at the time of removal of goods and the assessee may also pay excise duty on the basis of rate specified in notification issued under Rule 15 of the Central Excise Rules, 2002. Therefore, there is no embargo in clearing the goods manufactured by them prior to 01.03.2014 under the special procedure because the excise duty is payable at the time of clearance of goods and not at the time of manufacture of goods. Therefore, the impugned order in appeal not extending the benefit of above cited decision is not sustainable and deserves to be set aside.

The appellant reiterate that the impugned demand is discriminatory. In this connection it was submitted that the no assessee pays excise duty on ad-valorem basis on the finished goods stock on the date of conversion from cenvat scheme to compounded levy scheme. In contrast, all assessees pay excise duty on the finished goods stock manufactured under the compounded levy scheme on the date of conversion to cenvat scheme on ad-valorem basis and it has never been objected that the goods manufactured under the compounded levy scheme are not liable to excise duty payment on ad-valorem basis. Also, initiation of proceedings for recovery of excise duty on ad-valorem basis on the stock of finished goods on the date of conversion have been initiated against the appellant only; while no such proceedings are initiated against other similar assessees opting for conversion. This is against the principles of equality and tantamounts to discrimination amongst the similarly placed assessees. It is submitted that there were more than 100 assessees working under same jurisdiction as of the appellant and they also shift from Cenvat scheme to the compounded levy scheme but never any such excise duty demand has been raised against them for the stock of finished goods to be paid on ad-valorem basis on the date of conversion from cenvat scheme to compound levy scheme. The excise law is a central law that is uniform for all the assessees throughout India. When no such objection is raised against other similar assessees, then raising of present excise duty demand against the appellant amounts to partial treatment on the part of the revenue department. This is discrimination and gross violation of natural justice which is not sustainable. Such a discriminatory approach is not justified in the light of decision of hon’ble Calcutta High Court in the case of FITWELL FASTNER (INDIA) PVT. LTD. VERSUS COLLECTOR OF CUSTOMS [1993 (68) E.L.T. 50 (CAL.)]. In this case it is held that the discrimination as between two assessees located in two different cities is unfair and improper and violative of Article 14 of Constitution of India. There cannot be discrimination between the assessee who are similarly placed and Department cannot take a different stand for different assessee. Reliance is placed on the following case laws:-

DAMODAR J. MALPANI V. CCE [2002 (146) ELT 483 (SC)]
MALLUR SIDDESWARE SPINNING MILLS (P) LTD. VS. CCE [2004 (166) ELT 154 (SC)]
QUINN INDIA LTD. VS. CCE [2006 (198) ELT 326 (SC)]
SPL SIDDHARTHA LTD. VS CCE [2006 (204) ELT 135 (TRI.-DEL.)]
JAYASWALS NECO LTD. VS. CCE [2006 (195) ELT 142 (SC)]
FITWELL FASTNER (INDIA) PVT. LTD. VS CC [1993 (68) ELT 50 (CAL.)]
CCE VS. AMAR BITUMEN & ALLIED PRODUCTS PVT. LTD. [2006 (202)ELT 213(SC)]
INDIAN OIL CORPORATION LTD. VS CCE [2006 (202) ELT 37 (SC)]
CCE VS. TATA ENGINEERING & LOCOMOTIVES CO. LTD. [2003(158) ELT 130 (SC)]
BIRLA CORPORATION LTD. VS. CCE [2005 (186) ELT 266 (SC)]

Similar views has been held by the Hon’ble CESTAT in the case of COLLECTOR OF CENTRAL EXCISE, BANGLORE AND OTHERS VERSUS UNITED GLASS AND OTHERS [1987 (31) ELT 786 (Tribunal)] as follows:-
“Excise is an indirect tax, uniformity in valuation and assessment of the goods ought to be ensured so that different manufacturers producing similar goods in the country are not discriminated. With this object in view, it has been the practice of the Tribunal to respectfully follow the Judgment delivered by a High Court on particular issue so long as there is no contrary Judgment by another High court on the same issue. [para 10]”
In the light of above decisions, no discrimination is required to be made between the assessees placed under similar circumstances. As such, when no action is being initiated against other assessees opting for conversion from cenvat credit scheme to the compounded levy scheme, the proceedings initiated against the appellant on discriminatory basis are liable to be set aside in the light of above decisions. This discussion was done in depth in the reply to show cause notice. However, the decisions cited therein and reproduced hereabove have not been discussed and distinguished while passing the impugned order in original. Such a non speaking order deserves to be quashed.

Without prejudice the above, they are reproducing the details of some similarly placed assessees as follows:-

Name of unit	Date of shifting from Cenvat to Compound Levy	Finished Goods Stock as on date of shifting
M/s Rounak Steel	01.01.2014	174197.11 kg
M/s Arihant Steel	31.01.2009	1046.8 kg

The above are the details of the assessees who have earlier shifted from Cenvat scheme to compound levy scheme. In the case of M/s Rounak Steel, no show cause notice was ever issued to demand the duty on ad valorem basis on the above stated stock as on the date of shifting. In the case of M/s Arihant Steel referred above, show cause notice Ref. no. V(72)Adj.II/JPR-II/470/09/5001 Dt. 01.01.2010 was issued which was adjudicated vide order in original no. 48/ADC/ 2012/ MRM dt. 20.07.2012 passed by Additional Commissioner, Central Excise Commissionerate (JP-II), Jaipur in favour of assessee. No appeal has been filed against this order by Revenue. Thus, this order has become final and binding on department. They submit that the department is required to maintain consistency in the decisions taken by it and it cannot change its stand on its sweet will. In this regard, they submit that it is a set rule of every law that consistency should be maintained by the departmental officers under same facts and circumstances. It has been held by the hon’ble Supreme Court that where the facts and circumstances are identical, the consistency should be maintained while deciding the case. It has been decided in the following cases:-

GOVERNMENT OF ANDHRA PRADESH & OTHRS V/S A. P. JAISWAL & ORS [2001 AIR SCW 101]:-

“Consistency is the cornerstone of the administration of justice. It is consistency which creates confidence in the system and this consistency can never be achieved without respect to the rule of finality. It is with a view to achieve consistency in judicial pronouncements, the Courts have evolved the rule of precedents, principle of stare decisis etc. These rules and principles are based on public policy and if these are not followed by Courts then there will be chaos in the administration of justice……”

COMMISSIONER OF C. EX., VADODARA V/S ADARSH RE-ROLLING MILLS [2002 (143) ELT 533 (TRI. - LB)] :-

“Certainty about law and uniformity in its implementation are central in ensuring rule of law. Therein lies the necessity to follow precedent and subordination of adjudicating authorities to their appellant authorities. Uniformity in tax administration is even more important than legal correctness.”

Thus, in the light of above decisions, it is clear that the uniformity in the decisions under similar facts and circumstances is the essence of administration of justice. In the instant case, there are a no. of assessees who had switched from Cenvat scheme to Compound levy scheme, but no proceedings have been initiated against them for recovery of ad valorem duty on finished goods stock manufactured in Cenvat scheme and cleared in compound levy scheme. Thus, the impugned order confirming the duty on discriminatory approach is not tenable and is liable to be quashed.

The appellant submits that the impugned order is contending that the demand is not time barred. The reason given for the same is that the time limit shall be counted from 5.4.2014, i.e. the actual date of filing of ER-1 showing the details of clearance of stock of finished goods manufactured in Cenvat scheme. It is therefore alleged that the show cause notice could be issued upto 4.4.2015 while the impugned show cause notice in issue has been issued on 13.3.2015 which is well within the normal time period. In this regard, the appellant reiterate that the demand pertains to the stock of finished goods as on 28.2.2014 which were duly reflected in the ER-1 filed for the month of February, 2014 on 5.3.2015. It is worthwhile to note here that the permission had also been granted on 26.2.2014 to operate under compound levy scheme. When the permission was granted, the department was well aware of the fact that now the unit will be operating under compound levy scheme w.e.f. 1.3.2014 and thus, no excise duty on ad valorem basis shall be paid by it as not a single unit in Jodhpur is doing so. Further, the details of finished goods stock as on 28.2.2014 was also reflected in the ER-1 for the month of February, 2014 and since the unit had already opted for compound levy scheme, it was sure that no ad valorem duty shall be paid by it as it is not permissible to opt for different practices with respect to opening stock and fresh manufacture. Further, when the closing stock was there at the time of shifting from Cenvat scheme to Compound levy scheme as reflected by the ER-1 return at the time of switch over; it was obvious that the same shall be cleared in the subsequent month. Since no similarly placed unit was opting different practices for the clearance of opening stock (after switch over) and fresh manufacture; the relevant date shall be the date of filing of ER-1 just after the shifting from Cenvat Scheme to compound levy scheme, i.e. 5.3.2014. Therefore, when the details of finished goods stock were already given in the ER 1 of February, 2014 filed on 5.3.2014; the relevant date shall be this date and contention of impugned order holding it as incorrect is not tenable. Thus, the impugned demand is barred by the clause of limitation and is liable to be quashed.

As regards imposition of penalty under section 11AC of the Act, the impugned order has held that the adjudicating authority himself has agreed to the fact that there were no elements of fraud, collusion, wilful misstatement or suppression of facts in this case. However, he imposed equal penalty by invoking the said provision stating that there was deliberate contravention of provisions by the appellant with intend to evade payment of duty as the Superintendent Range has informed them to pay duty at appropriate rate on the said goods vide letters dated 27.03.2014 and 01.04.2014 which the appellant has chosen to ignore and cleared them in the guise of compounded levy scheme. In this regard, it is found that the demand of duty has been made under sub-section (1) of section 11 of the Act and not under sub-section (4) of the said section. However, it is also on record that the appellant has not given any heed to the letters given to him by the range officer advising him to pay appropriate duty. The impugned order has held that since the appellant has contravened the provisions, they have rendered themselves liable to penalty under section 11AC of the Central Excise Act, 1944 but the amount of penalty is reduced to Rs. 5,00,000/-. In this respect, the appellant submits that the learned Commissioner Appeals has imposed penalty ignoring the amendments made in the provisions contained in section 11AC of the Central Excise Act, 1944. The appellant submits that the impugned order in appeal has accepted the fact that the demand is being issued by invoking provisions of section 11A(1) of the Central Excise Act, 1944 which pertain to normal period of limitation and not under section 11A(4) of the Central Excise Act, 1944 which pertain to extended period of limitation. Consequently, the maximum penalty that could have been imposed under section 11AC of the Central Excise Act, 1944 was 10% of the duty demanded by the order. The appellant submits that the provisions of section 11AC have been substituted vide Finance Act, 2015 applicable w.e.f. 14.05.2015 and the relevant extracts from the amended section reads as follows:-

“11AC. (1) The amount of penalty for non-levy or short-levy or non-payment or short-payment or erroneous refund shall be as follows:—

(a) where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty not exceeding ten per cent. of the duty so determined or rupees five thousand, whichever is higher:

The appellant submits that since it has been accepted by the learned adjudicating authority and the Commissioner Appeals that the present demand is being raised under section 11A(1) of the Central Excise Act, 1944, the amount of penalty cannot exceed 10% of the duty determined, being Rs. 1,17,110/-.

It is also worth noting that the amended provisions of section 11AC are applicable for orders passed after 14.05.2015 and this fact is clear from Explanation no. 1 to the amended section 11AC which reads as follows:-

Explanation 1.— For the removal of doubts, it is hereby declared that—

any case of non-levy, short-levy, non-payment, short-payment or erroneous refund where no show cause notice has been issued before the date on which the Finance Bill, 2015 receives the assent of the President shall be governed by the provisions of section 11AC as amended by the Finance Act, 2015;
any case of non-levy, short-levy, non-payment, short-payment or erroneous refund where show cause notice has been issued but an order determining duty under sub-section (10) of section 11A has not been passed before the date on which the Finance Bill, 2015 receives the assent of the President, shall be eligible to closure of proceedings on payment of duty and interest under the proviso to clause (a) of sub-section (1) or on payment of duty, interest and penalty under clause (d) of sub-section (1), subject to the condition that the payment of duty, interest and penalty, as the case may be, is made within thirty days from the date on which the Finance Bill, 2015 receives the assent of the President;
any case of non-levy, short-levy, non-payment, short-payment or erroneous refund where an order determining duty under sub-section (10) of section 11A is passed after the date on which the Finance Bill, 2015 receives the assent of the President shall be eligible to payment of reduced penalty under clause (b) or clause (e) of sub-section (1), subject to the condition that the payment of duty, interest and penalty is made within thirty days of the communication of the order.

In light of the above cited provision, it is very clear that penalty imposed by the learned Commissioner Appeals is arbitrary and has been imposed ignoring the provisions of law. Hence, the impugned order in appeal should be set aside and the appeal should be allowed.

Lastly, the appellant submit that though the demand in the impugned order in original is not sustainable, yet even if it is confirmed anyhow; the Cenvat credit available in hand of appellant as on 28.2.2014 should be allowed to be utilized towards payment of duty so confirmed.

Reasoning adopted by the tribunal: -The authority had carefully gone through the case records, submissions made by the appellant in their appeal memo and also at the time of personal hearing. It was found that when earlier the assessee shifted from compounded levy scheme to Cenvat Credit scheme, the stock of the goods manufactured during the period of compounded levy scheme was cleared by them at the tariff rates. They have adopted the same pattern while moving back to the compounded levy scheme. Also they found that the issue is no more res integra and stands settled by the Hon’ble Supreme Court in the case of Wallace Flour Mills Company Ltd. v/s Collector of C. Ex [1989 (44) ELT 598(SC)] wherein it was held that the rate of duty applicable to the excisable products would be the rate applicable on the date of clearance of the goods.
Conclusion:- On the basis of above discussions it is now clear that the rate of duty applicable to the excisable products would be the rate applicable on the date of clearance of the goods. The said decisions were cited before learned authority who has distinguished the same on the grounds that there was no angle of compounded levy scheme involved. Thus it has been concluded that the abatement claimed by the appellant with respect to the application of rate of duty, as available on the date of clearance, would apply to all the cleared goods, whether under compounded levy scheme is correct.

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PJ/Case Study/2018-19/136
24 November 2018

“Section 3A. Power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goods:

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PJ/Case Study/2018-19/136 24 November 2018

“Section 3A. Power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goods:

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PJ/Case Study/2018-19/136
24 November 2018