Whether ignorance that clearances under brand name of others leads to denial of SSI exemption become hurdle in claiming SSI for other clearances without brand name?

PJ/Case Study/2012-13/72

Prepared by:CA Neetu Sukhwani &
Prayushi Jain

Case study

Introduction:-

The appellant M/s Sunil Kumar & co. were engaged in the manufacture of Herbal Heena powder and Heena powder hair dye under the brand name of “Pushp”. In pursuant of the investigation and the search proceedings initiated against them it was alleged that the assessee had clandestinely cleared the excisable goods under the brand name “pushp” and had evaded the payment of central excise duty. Thus they were demanded to pay Rs. 4,51,411/- as central excise duty along with interest and penalty. Aggrieved with the order in original of the adjudicating authority, assessee filed the appeal to the Commissioner Appeals.

M/S Sunil Kumar & Co.[OIA 126(OPD)CE/JPR-11/2013 DATED 30.08.2013]

Relevant legal provisions
·         Notification no. 8/2003-CE dated 1.3.2003 relating to SSI Exemption.
·         Rule 4,6,8,9,10,11,12(1) of Central Excise Rules, 2002
·         Section 6 of Central Excise Act, 1944
·         Section 11 A of Central Excise Act, 1944

Issue Involved:-

The following issue was made before the Commissioner Appeals:-
Whether ignorance that clearances under brand name of others leads to denial of SSI exemption become hurdle in claiming SSI for other clearances without brand name?

Brief facts:-

M/s Sunil Kumar & Co. is engaged in the manufacturing of Herbal Heena powder and Heena hair dye falling under Chapter 3305 of central excise tariff act, 1985. As per department, they had evaded payment of Central Excise Duty amounting to Rs. 4,51,411/- (Central Excise Duty Rs 4,38,263 + Edu. cess Rs. 8675/- + S&HE Rs 4,383/-) during the period September, 2011 to 15.5.2012. It appeared that the unit had neither obtained the central excise registration nor filed any periodical returns with intent to evade payment of central excise duty and thus contravened the provisions of rule 4,6,8,9,10,11,12(1) of Central Excise Rules, 2002 read with the Central Excise Act, 1944.
After receipt of intelligence, a search was carried out at the premises of assessee by the officers of anti evasion branch (Hqrs) on 15.05.2012 in compliance of search warrant No. 05/2012-13 dated 11.05.2012 issued by Additional Commissioner, Central Excise Commissionerate, Jaipur-II. During the search operation, it was found that the firm is engaged in the manufacturing of Herbal Heena powder and Heena powder dye falling under chapter heading no. 33059040 of the first schedule to the central excise tariff act, 1985 as hair dyes (natural herbal or synthetic) and cleared the same under brand name “Pushp” without obtaining central excise registration and without payment of central excise duty
On examination of documents of the unit, it was noticed that the unit was issued license no. RAJ-2421-C dated 25.07.2011 to manufacture cosmetics for sale or distribution and started production and clearance of the Heena powder hair dye/ herbal heena powder from 01.09.2011. It was also found that during the period, out of total 446760 pouches, the unit had supplied 354360 pouches to M/s Pushp enterprise and 92400 pouches to other parties. Further it was also found that M/s Pushp enterprises besides engaged in manufacturing heena powder were also engaged in marketing of heena powder and no declaration in respect of liability of payment of central excise duty has been filed by them. The officers have also drawn Panchnama on 15.5.2012 on spot.
On further investigation a summon was issued to Shri Sunil Kumar Gehlot, proprietor of M/s Sunil Kumar & co. to appear before the Superintendent (AE) Central Excise Commissionerate, Jaipur-II on 15.05.2012 (camp at Sojat city) to tender his statements about the under section 14 of central excise act, 1944 wherein he stated that his firm is engaged in manufacturing black mehandi and herbal mehandi in the name of “Pushp Heena Brand” which is marketed by M/s pushp enterprises, Sojat city, the owner of the brand since beginning i.e. 01.09.2011, they have used this brand for manufacture of Black Mehandi and Herbal Mehandi. He also said that their goods were mostly cleared to M/s Pushp enterprises and some were also sold to other firms. Further he stated that no central excise duty is leviable on the goods as they fall under the SSI exemption limit of 1.50 crore therefore they did not apply for registration.
Revenue contented that as the unit is using the brand name “Pushp heena” of other unit therefore they are not entitled to get exemption under notification no. 8/2003-CE dated 01.03.2003
As commodity falls under the purview of section 4A of central excise act, 1944, the duty was calculated as per notification no. 49/2008-CE (NT) dated 24.12.2008. The assessment of Heena powder and Heena dye powder was calculated on basis of retail sale price and as per the said notification, duty liability on heena powder and heena dye powder was calculated on 65% of the MRP value (i.e. 35% abatement is allowed). Thus the central excise duty not paid during the period came out at Rs 4,38,263/- + edu. Cess Rs. 8765/-+ S&HE cess Rs. 4383/-.
Adjudicating authority passed the verdict against the assessee stating that this case is clear cut case of clandestine removal of excisable goods. They said that it was deliberate act of assessee to suppress the information with the intent to evade payment of duty. Deputy Commissioner confirmed the demand of central excise duty amounting to Rs. 4,51,411/- along with interest as per section 11AA of Central Excise Act, 1944, and as the unit has already deposited central excise duty Rs. 3,23,352/- alongwith the interest Rs 34740/- out of the demand confirmed, the same was ordered to be appropriated in govt., account and remaining duty Rs. 126059/- was also held to be recovered with interest. He also imposed the penalty of Rs 16059/-.
Aggrieved with the impugned order, the assessee filed appeal before the Commissioner Appeals.

Appellant’s Contention:-The appellant made following submissions before the Commissioner Appeals-

The appellant submit that the impugned order has confirmed the duty demand of Rs. 4,51,411/- without accepting that the MRP taken in the show cause notice was different than the actual MRP of the goods on the allegation that the said contention is after thought and without any corroboratory evidence. It has been held that at the time of detection of the case, the officers have thoroughly checked all the invoices and correct MRP has been taken for valuation of the goods and accordingly show cause notice has been issued to the unit. The demand of Rs. 451411/- raised in the impugned order is based upon the MRP of Rs. 15/- on all the invoices of henna powder dye and MRP of Rs. 12/- for the herbal henna powder. On the other hand, MRP has varied during the period in the show cause notice. The various MRPs under which the appellant have cleared their goods are detailed in the following table:-

For Henna Powder Dye:-

Period	Invoice numbers	MRP indicated on packets
September, 2011 to December, 2011	1 to 19 and 21	Rs. 8/-
December, 2011 to February, 2012	22 to 27	Rs. 10/-
February, 2012 to May, 2012	28 to 33	Rs. 15/-

For herbal henna powder:-

For herbal henna powder, only two invoices were issued during the period in show cause notice – invoice no. 20 dated 28.11.2011 and 34 dated 11.5.2012. In both the invoices, goods bearing MRP of Rs. 12/- were cleared.

The excise duty calculation on the basis of above referred actual MRPs comes as follows:-

Central Excise Duty	315875
Education Cess	6318
Secondary & Higher Education Cess	3159
Total duty liability	325352
Interest	34740
Grand Total	360092

The above amount of Rs. 360092/- has already been deposited and this fact has been accepted by the impugned order. The impugned order has not accepted the fact of different MRPs as detailed in first table of this para on the grounds that the appellant have not produced any corroborative evidence in this regard. In this respect it was submitted that they have enclosed herewith copies of pouches used for different periods bearing the different MRPs as contended by the appellant. These pouches for different periods were enclosed herewith in Annexure-1 thatare evident of the fact that the different MRPs of Rs. 8/- and Rs. 10/- were printed on their products during the period from September, 2011 to February, 2012.

The appellant further submit that the impugned order has held that their contention that five invoices have been raised to parties other than M/s Pushp Enterprises on which benefit of SSI Notification No. 8/2003-CE dated 01.03.2003 should be available to them is not acceptable because the goods have already been consumed and there is no record to prove that the pouches cleared to other parties were having no brand name. In this regard, it is submitted that the appellant has been manufacturing two types of products – one was manufactured exclusively for M/s Pushp Enterprises which was cleared with their brand name. There were also clearances to some parties other than M/s Pushp Enterprises and there were five such invoices during the period in issue. These goods were not manufactured on behalf of M/s Pushp Enterprises, so they have not cleared the same under their brand name. It is worthwhile to mention here that no party will allow the person manufacturing the goods for them to use their brand name on the goods manufactured for some other parties. Obviously, when the goods were not manufactured for M/s Pushp Enterprises, they cannot put up the “pushp brand mark” on the same. This is a genuine and well accepted business practice. The list of the invoices that were issued to parties other than M/s Pushp Enterprises was given in the reply to show cause notice also and is reproduced as follows:-

Invoice no. & date	Purchaser’s name & address	Details of goods sold	Invoice value before VAT	Total Excise duty with Cesses after abatement
1 dated 1.9.2011	Amit Traders, Hindon city	Hair dye	35000	4499
3 dated 8.9.2011	Shri Hari Trading Co., Abohar, Punjab	Powder hair dye black	70000	8998
19 dated 21.11.2011	Ekta Collection, Bhiwani, Haryana	Powder hair dye black	87500	11248
22 dated 15.12.2011	Shri Hari Trading Co., Abohar, Punjab	Powder hair dye black	105000	14060
27 dated 10.2.2012	Shri Hari Trading Co., Abohar, Punjab	Powder hair dye black	147000	16871
Total Excise Duty involved in sale to other parties				55676

The copies of these five invoices were also enclosed. An analysis of these invoices makes it clear that they have been issued to parties other than M/s Pushp Enterprises therefore the question that the goods bore the brand name of Pushp does not arise at all.
It has been contended by the adjudicating authority that for availing exemption, the appellant have to adopt proper procedure before clearance of the goods as they have been manufacturing branded excisable product and they have failed to do so and hence the benefit of SSI exemption is not available to them. In this respect, the appellant submit that during the departmental visit at their premises, the invoices were resumed from their premises. These invoices were of two types – one issued to M/s Pushp Enterprises and other to parties other than M/s Pushp Enterprises. The goods sold to M/s Pushp Enterprises were cleared under brand name and those sold to other parties were not bearing any brand name. However, until departmental visit, they were under assumption that they are well within the limits prescribed under notification no. 8/2003-CE and therefore they are not required to get themselves registered. However, as soon as the concept of brand name was brought to their notice, they have readily deposited the duty without waiting for any demand notice. This shows that they are law abiding assessees and these procedures would have been followed by them before also if they were aware of their liability. However, the mere fact that they have not followed the procedure, the benefit of SSI exemption cannot be denied to them as it is a matter of fact that the goods cleared generally without any brand name are covered under purview of SSI exemption. This is the substantial condition of allowing the benefit of SSI exemption under notification no. 8/2003-CE which has been duly satisfied by them and therefore the benefit of SSI exemption cannot be denied merely because proper procedure was not followed. There are a no. of decisions wherein it has been held that the procedural lapses cannot deny the substantial benefit to the assessees. Reliance is placed on the following decisions:-

·         FORMICA INDIA DIVISION VSCOLLECTOR OF CENTRAL EXCISE. [1995 (77) E.L.T. 511 (S.C.)]
Demand consequent upon rejection of claim for non-dutiability - Benefit of exemption notification if any, to be given - Exemption/Set-off of duty subject to following Rule 56A procedure (proforma gate procedure) - Assessee contesting dutiability of the goods produced at intermediate stage and consumed captively - Tribunal holding the assessee liable to pay duty on intermediate goods - Assessee’s claim for benefit of Notification No. 71/71-C.E. turned down on technical ground of non-compliance with the procedure of Rule 56A - Appellate Tribunal order set aside as benefit of Notification No. 71/71-C.E. cannot be denied on technical ground of non-compliance with Rule 56A procedure when the assessee contested the correctness of the classification and dutiability of the intermediate product, thus they could not have ordinarily complied with the procedure of Rule 56A - Sections 5A and 11A of the Central Excises and Salt Act, 1944.
·         C.C.E., Mangalore v/s Mangalore Refinery & Petrochemicals Ltd [2002 (150) ELT 114 (Tri-Bang)]
Non-filing of declaration is only a technical lapse and therefore should not result in denial of substantive benefit of credit particularly where duty paid character of goods is not disputed. Appeal dismissed. (Para-3, 4)
·         BENARA UDYOG PVT. LTD. Versus COLLECTOR OF C. EX., KANPUR [1998 (103)   E.L.T. 104 (Tribunal) ]

“SSI Exemption - Metal container, specific goods in notification and value of clearances within prescribed limit in terms of Notification No. 83/83-C.E. - Non-filing of declaration not to result in denial of benefit of exemption - Matter remanded to Asstt.Commissioner for extending benefit subject to verification.”

·         VIKRAM LAMINATORS PVT. LTD. Versus COLLECTOR OF C. EXCISE, AURANGABAD [1995(79)E.L.T.147 (Tribunal)]
S.S.I. Exemption - Unit not having S.S.I. registration certificate - Assessee claiming exemption under Notification No. 175/86-C.E. [now 1/93-C.E.] for the years 1989-90 and 1990-91 on the plea of availing benefit of said notification in the preceding year - No declaration or classification list filed claiming such exemption in the preceding year - Value of clearances in the preceding year within exemption limit and not disputed by the department - Department alleging that the assessee though eligible for exemption but did not avail the same as department’s approval not obtained for availment of the exemption - HELD that non-filing of declaration does not affect availment of exemption notification - Assessee eligible for exemption during the years 1989-90 and 1990-91 as they availed the exemption under Notification No. 175/86-C.E. during preceding year - Department’s stand that the appellants were not availing the exemption although they were entitled to exemption turned down.

·         TECHNOCRATS ENGINEERING CO. Versus COMMISSIONER OF C. EX., MUMBAI-II [2001(137) E.L.T. 459 (Tri.- Mumbai)]
SSI Exemption- Non-filing of the declaration would not deny the benefit of the exemption Notification No. 175/86-C.E. [para 3]
·         DELHI PAPER PRODUCTS CO.Versus COLLECTOR OF C. EX., NEW DELHI [2000(125)E.L.T. 661(Tribunal)].

SSI Exemptionnot affected by non-filing of declaration for exemption from licensing/registration control - Section 5A(1) of Central Excise Act, 1944 - Rule 174 of Central Excise Rules, 1944. [para 4]

In the above decisions, it was held that the non filing of declaration or other procedural lapses cannot be a ground to deny the substantial benefit of SSI exemption. Though most of these decisions pertain to erstwhile notification no. 175/96-CE, yet their ratio is clearly applicable in present circumstances also. Therefore, in view of these judgments, the benefit of SSI exemption cannot be denied for not following the proper procedure.

The impugned order has also held that the appellant have knowingly and willfully suppressed the facts and cleared the excisable goods without payment of appropriate Central Excise Duty, therefore, the appellant is liable for penalty under section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002, for reasons of fraud, collusion or willful suppression of facts and for contravention of the provisions of Rule 4,6,8,9,10,11,12(1) of the Central Excise Rules, 2002 read with Section 6 of the Central Excise Act, 1944 with intend to evade payment of duty. In this respect, the appellant submit that there was no suppression of facts from their side as they were under presumption that they were well below the limit of 400 Lakhs and were eligible to avail the SSI exemption given under notification no. 8/2003-CE dated 1.3.2003. However, when the Central Excise Officers brought to their notice that the SSI exemption is not available when goods are cleared under the brand name, they accepted their liability and made payment in this regard along with interest which shows their bonafides. It is worth mentioning that the appellant have accepted their liability on the goods cleared under brand name and they have intimated the Central Excise Department that they were going to deposit the duty demand along with interest vide their letter dated 07.08.2012. Moreover, within a week of this letter, they have deposited the duty demand along with interest on 13.08.2012 and the intimation of duty deposit was filed vide their letter no. PJ/S.TAX/S-/12-13/1764 dated 14.08.2012. However, show cause notice was issued to them even after the filing of intimation letter dated 07.08.2012 as it seen that the show cause notice is dated as 09.08.2012 (which is after the date of their letter 07.08.2012 whereby they have intimated that they are going to deposit the duty). The said show cause notice was received by them on 23.08.2012. From perusal of the above facts, it is found that the appellant had no malafide intention and rather department is determined to prepare a case against the appellant even when the demand along with interest had been deposited by them. It is submitted that the appellant have already deposited the duty much before they have actually received the show cause notice. Since the department was already informed of the fact that the duty liability has been accepted by them and they are going to deposit the duty; it should not have issued them the show cause notice in terms of section 11A(2). But inspite of this fact, the impugned show cause notice has been issued to them. Recently hon’ble Karnataka High Court has held that where the assessee had paid the service tax alongwith interest before issue of show cause notice, the department should not initiate any proceedings against them, if it is done, the departmental authorities are wasting their time in doing so. This has been decided in the following case:-

·         C.C.E. & S.T., LTU, BANGLORE V/S ADECCO FLEXIONE WORKFORCE SOLUTIONS LTD. [2012 (26) S.T.R. 3 (KAR)]:-

Penalty – Service tax and interest for delayed payments paid before issue of show cause notice – Authorities wasting their time in proceeding against persons who are paying Service tax with interest promptly – Authorities are paid salary to act in accordance with law and to initiate proceedings against defaulters who have not paid service tax and interest in spite of service of notice calling upon them to make payment and no to harass and initiate proceedings against persons who are paying tax with interest for delayed payment – As per section 73(3) of Finance Act, 1994, no notice shall be served against persons who have paid interest – If notices are issued contrary to section, the person to be punished is the person who has issued notice and not the person to whom it is issued. [paras 3, 4]
Strictures against Department – Authorities wasting their time in proceeding against persons who are paying Service tax with interest promptly - Authorities are paid salary to act in accordance with law and not to harass and initiate proceedings against persons who are paying tax with interest for delaying payment – Commissioner of Large Taxpayers Unit to issue proper circular to all concerned authorities not to contravene sub-section (3) of Section 73 of Finance Act, 1994. [para 5].”
Thus, in the light of above decision, it is ample clear that where the service tax has been paid alongwith interest before issue of show cause notice, the show cause notice should not be issued in terms of section 73(3) as held by the hon’ble High court. Though this decision is rendered in context of service tax, yet its ratio is equally applicable in Central excise as the provision for issue of show cause notice under both the Acts has been similarly worded.   Thus, the facts and circumstances of this case are similar to their case where they have also paid the duty alongwith interest before receipt of show cause notice. Therefore, the ratio of the above decision should have been extended to them which have not been done. Similar decision has recently been given in the following cases:-

·         CCE & ST, Bangalore v/s M/s Adecco Flexione Workforce Solutions Ltd [2011-TIOL-635-HC-KAR-ST]-

Service Tax – When tax with interest is paid under Section 73 (3), no notice to be issued. Sub-sec. (3) of Sec. 73 of the Finance Act, 1994 categorically states, after the payment of service tax and interest is made and the said information is furnished to the authorities, then the authorities shall not serve any notice under Sub-sec (1) in respect of the amount so paid. Therefore, authorities have no authority to initiate proceedings for recovery of penalty under Section 76of the Act: KARNATAKA HIGH COURT;

·         C Ahead Info Technologies India P. Ltd v/s CCE (A), Bangalore-II [2009 (14) STR 803 (Tri-Bang)] : -

Interest and penalty (Service tax) - Bona fide belief - Service tax with interest paid during investigation - Leviability not disputed by appellant - Issue covered under Section 73(3) of Finance Act, 1994 and appellant entitled to waiver of show cause notice - Records indicating absence of intent to evade - Bona fide belief on non-liability for software training - Penalties not imposable - Interest chargeable - Sections 73, 75, 76, 77 and 78 ibid. [paras 3, 4, 4.1]
Thus, in the light of above decisions, the issuance of show cause notice itself was not warranted as the appellant have accepted their liability and have duly paid the excise duty before receipt of show cause notice. But on the contrary, the demand along with interest and penalty has been confirmed by the impugned order alleging wilful suppression of facts with intent to evade payment of excise duty which is totally unjustifiable
It is further submitted that the impugned order has been confirmed by invoking extended period of limitation as provided under proviso to Section 11A(1) of the Central Excise Act, 1944 and it is stated that the aforesaid demand have been raised on the basis of information received during the search conducted by the department and the appellant had neither provided any information at any point of time on their own nor get themselves registered with the department during the period covered under the impugned show cause notice. It was alleged that the appellant would never paid duty if case was not detected by the department. In this respect, the appellant submit that merely because the demand has been confirmed on account of search conducted by the department cannot ispo facto mean that the demand is to be raised by invoking extended period and that it is on account of wilful suppression of facts. It is quite possible that the assessee is unaware of its demand liability as he bonafidely believes that no tax is required to be paid. In the instant case also, the appellant were not aware of the fact that they are not eligible for SSI exemption in respect of goods cleared under the brand name and so have not paid excise duty but this cannot mean that they have wilfully suppressed facts from the department and consequently larger period of limitation is invocable.
The appellant further submits that the impugned order has held that there has been a deliberate act on the part of the assessee to suppress the information in as much as they neither provided details in any form during the said period nor paid central excise duty. It was also held that suppression means failure to disclose full information with the intend to evade payment of duty as held by Hon’ble Supreme Court in the case of Continental Foundation Jt. Venture Vs CCE, Chandigarh-1 [2007 (216) E.L.T. 177 S.C.].

In this regard, it is submitted that entirely wrong reliance is placed upon this decision by learned adjudicating authority. In this decision, hon’ble Supreme Court has held as follows:-
Demand - Limitation - Suppression - Interpretation of - Expression “suppression” used in proviso to Section 11A of Central Excise Act, 1944 to be construed strictly - Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty - Suppression means failure to disclose full information with intent to evade payment of duty - An incorrect statement cannot be equated with a willful mis-statement - There cannot be suppression or mis-statement of fact, which is not willful and yet constitute a permissible ground for purpose of proviso to Section 11A ibid - Mis-statement of fact must be willful. - When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word ‘willful’, preceding the words “mis-statement or suppression of facts” which means with intent to evade duty. The next set of words ‘contravention of any of the provisions of this Act or Rules’ are again qualified by the immediately following words ‘with intent to evade payment of duty.’ [paras 10, 11, 12]

The analysis of this decision makes it clear that hon’ble Supreme Court has also held that suppression of facts must be with the intention to evade payment of duty. When the facts reveal that there was no suppression of facts as duty along with interest was promptly paid on pointing out by department, allegation of suppression cannot be leveled. In the case of appellant also the non-payment of excise duty was on account of genuine belief that they are eligible for availing SSI exemption and so are not liable to pay excise duty as their turnover was within the prescribed limit. Thus, in the above case, hon’ble Supreme Court has given the decision which is favouring the contention of the appellant and impugned order has placed wrong reliance on the same.

Similarly, it was stated in the impugned order that the Hon’ble CESTAT in the case of Chemfab Alkalis Ltd., Vs. CCE Pondicherry [2010(251) E.L.T. 264 (Tri.-Chennai)] has held that:

“It cannot be a case of anybody that since all the excisable units are being audited by the department from time to time, the extended period of limitation will not apply in respect of any unit. Such an interpretation would render the relevant legal provision regarding application of extended period of time totally redundant and hence cannot be accepted.”

The impugned order has also placed reliance on the decision given in the case of Union of India vs Rajasthan Spinning & Weaving Mills, reported at 2009 (238) E.L.T. 3 (S.C.), wherein the Hon’ble Supreme Court observed that

“in case the non-payment etc. of duty is intentionally and by adopting any means as indicated in the proviso then the period of notice and a priory the period for which duty can be demanded gets extended to five years. (Para 11).”

It has been further stated in the impugned order that from the principle laid down by the Apex court as well as CESTAT in the above judgements it follows that in case where non-payment of duty/tax is intentional, i.e. with intend to evade payment of tax by adopting any means as indicated in proviso of section 73 of the Finance Act, 1994 (or section 11A of the Central Excise Act, 1944) i.e., Suppression, fraud, collusion, willful misstatement or contravention of any of the provisions of the law with intend to evade, extended period is invokable. In this regard, the appellant submit that in the present case, nothing has been proved substantiating the allegation that there was suppression of facts with intend to evade payment of excise duty or any fraud or willful misstatement. Since the ingredients mentioned in section 11AC are not present, the penalty under this section is not warranted. The judgment of hon’ble Supreme Court in the case of M/s Rajasthan Spinning and Weaving Mills was relied in the impugned order also illustrate the same thing. This decision has been explained by hon’ble High court in the following decision:-

· CCE, Chandigarh-II Vs M/s Sarvpriya Industries Ltd [2010-TIOL-523-HC-P&H-CX.]-
Central Excise - Supreme Court decisions in Dharmendra Textile as well as in Rajasthan Spinning & Weaving Mills do not lay down that for every short payment of duty, penalty is automatic: Dharmendra Textile as well as in Rajasthan Spinning & Weaving Mills is that mandatory penalty under Section 11AC of the Act was not applicable to every case of non-payment or short-payment of duty. Thus, even though the authorities may have no discretion once conditions stipulated under Section 11AC of the Act exist, in absence of fulfilment of such conditions, penalty could not be levied. In this view of the matter and the finding of the Tribunal that there was no allegation of suppression of facts with intent to evade the payment of duty, the penalty under Section 11AC of the Act was not warranted. No substantial question of law arises: PUNJAB AND HARYANA HIGH COURT
Thus, hon’ble High Court has ruled that penalty is not warranted in each and every case of non-payment of duty or short payment of duty. This should happen only due to suppression of facts with an intent to evade the payment of duty. But in the instant case, none of these ingredients have been proven to be present, therefore, in the light of above decision, penalty is not attracted in the instant case. In view of this discussion, the reliance placed by the impugned order on the decision of M/s Rajasthan Spinning and Weaving Mills without proving the suppression of facts is not sustainable and is liable to be set aside.
It is further submitted that the impugned order has held that the case laws cited by the appellant in their reply to show cause notice are not clearly applicable in this case as this case is clear cut case of clandestine removal of excisable goods. In this respect, it is submitted that such an approach of merely stating that the case laws cited by the appellant in their reply are not clearly applicable in this case is not proper and would not suffice. The adjudicating authority is required to discuss and distinguish the applicability or otherwise of the case laws cited. As such, the impugned order turns out to be a non-reasoned and non-speaking order in the light of decision given in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]. In view of the above cited decision, the impugned order being a non speaking and non reasoned order passed without discussing and distinguishing the case laws cited by the appellant is not tenable and is liable to be quashed.

It is also worth mentioning that the submissions made by the appellant as regards non imposition of penalty have not been considered while passing the impugned order. The submissions are reiterated as follows:

Ø It was submitted that there was no malafide intention to evade duty or to suppress facts from the department. Thus, penalty is not imposable as held in the case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. This was not their case where they have duly accepted their liability and have paid the service tax with interest before receipt of show cause notice. Thus, the penalty is not imposable on them.

Ø Further it was submitted that the penalty under section 11AC of Central Excise Act, 1944 is imposable when there is willful suppression or misstatement of facts. Thus, where the charge of willful misstatement or deliberate suppression has not been proved, the penal provisions cannot be invoked in the light of the judgment given in Commissioner of Central Excise v/s ESS ESS Engineers [2011 (23) S.T.R. 3 (P & H)] wherein it is held as follows:-

“The High Court observed that the Tribunal had held that short payment was mainly due to the appellant’s understanding that they were not liable to pay service tax on fabrication and dismantling charges. As regards penalty under Section 78 is concerned, the same is imposable in a case where service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, by reason of fraud; or collusion; or willful misstatement; or suppression of facts; or contravention of any of the provisions of this Chapter or of the rule made thereunder with intent to evade payment of service tax. It was noted that the fact of non-payment of service tax was discovered during the course of audit.

The High Court held that the submission of Revenue that appellant was guilty of mis-declaration was not acceptable as the Tribunal had given a finding of fact that assessee did no have requisite mens rea to evade payment of service tax. The assessee had duly paid the service tax with interest and also made full and true disclosure in the return. The finding of fact of Tribunal was not shown to be perverse in any manner. Hence no question of law arises.”

This decision is rendered in context of service tax law, however, the section 78 of the Finance Act, 1994 and Section 11AC of the Central Excise Act, 1944 are similarly worded, as such, the above decision will be equally applicable in their case where also the willful suppression or misstatement has not been proved. Thus, in the light of above decisions the penalty cannot be imposed. Reliance is also placed on the following cases:-
2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
2009 (238) ELT 209 (P&H) – J. R. Fabrics
2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
2008 (228) ELT 31 (Del) – K. P. Pouches
Therefore, extending the ratio of above decisions, no penalty is imposable as the impugned show cause notice has failed to prove that there was willful suppression on their part. On the other hand, their genuineness is proved by the fact that they have accepted their liability and has deposited the service tax beforehand. As such, the allegation of willful suppression has not been proved and therefore no penalty is imposable on them. The impugned show cause notice deserves to be set aside.

However, the above submissions were not considered by the adjudicating authority while passing the above order. Such a non-speaking order has no relevance in the eyes of law and deserves to be quashed. This view is supported by the decision given in the following cases:-

· CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]

· State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]

Reasoning of the Commissioner (Appeals): -

After hearing from both the sides and going through the contents of appeal memorandum and additional submissions, the honorable Commissioner (Appeals) held that the issue to be decided is whether the MRP taken by the department for calculating the demand was proper and SSI benefit was available to them with respect to the goods cleared to parties other than M/s Pushp Enterprises. In support of their claim that there were different MRPs during different period they have submitted packed pouches of their product but there is no documentary evidence. The invoices were observed but they do not indicate the MRP of the product under sale. Nor can it be made out from the invoice value. Moreover, there is no evidence on record that they had raised this point at the time of investigation or produced the sample packages at that time. Therefore, at this belated stage, merely on the basis of the pouches, which is possible to be prepared at any stage, the plea of the MRPs being lower at different points of time and reduction in the demand on this account is not tenable.
The appellant have also argued that the packages cleared to buyers other than M/s Pushp Enterprises were not bearing any brand name, hence eligible for the SSI exemption. It was observed that there were only five such invoices issued to three buyers and in none of the invoices the brand name has been mentioned. In fact brand name is not mentioned even in the invoices issued to M/s Pushp Enterprises. There is not evidence with the department that these packages sold under the five invoices to the three buyers were bearing any brand name. It has been assumed that all goods manufactured and cleared by the appellants were bearing the pushp brand. It was found logic in the appellant’s argument that why the pushp brand goods would be sold to buyers other than M/s Pushp Enterprises. The department should have enquired from the buyers to ascertain the brand of the goods sold to such buyers but there is no evidence which can even suggest that these goods were bearing any brand name, that too belonging to someone else. Since it is not proved that the goods sold under these five invoices were bearing brand name of some other person, it was held that the benefit of SSI exemption under Notification no. 8/2003 was available to them. Accordingly, it was held that the demand amount was liable to be reduced to the extent of Rs. 92,792/- pertaining to the said invoices. The amended demand amounted to Rs. 3,58,619/- and as the amount of Rs. 3,25,352/- was already deposited, the amount of Rs. 33,267/- was held to be recoverable.
The appellant also raised the issue that since they had deposited the differential duty along with interest so show cause notice should not have been issued to them. But it was held that it is as per the satisfaction of the proper officer that he should not issue show cause notice. As show cause notice has already been issued therefore the applicability of provision of dispensing with the show cause notice cannot be considered at this stage.
Regarding penalty it was held that the penalty is justified as it cannot be accepted that they were not aware regarding the law. Every assessee must know the law and should comply with it. However, the penalty is not warranted with respect to 5 invoices on which duty is set aside and hence the penalty was reduced to Rs. 33,267/- which is equivalent to demand amount left for recovery.
The appeal was disposed of in above terms.

Decision:-Appeal partly allowed.

Conclusion:-In the present appeal, the appellant contested on two grounds. Firstly, the calculation was contested wherein it was submitted that a single MRP price was taken in computing the assessable value under MRP while there were different MRPs prevalent during the material time. The pouches of the product were also submitted that depicted different MRPs but the same were rejected as evidence on the grounds that the pouches could have been manipulated. It was held that no documentary evidence has been submitted and so the plea was rejected but it is not understood that when in MRP based valuation, MRP printed is to be taken then the rejection of plea even when the pouches of the relevant period were submitted was not justifiable. Secondly, the plea regarding the grant of SSI exemption was accepted in cases of clearances made without affixing the brand name of others which is appreciated. As the amount of confirmed demand payable was not huge, the appellant chose to pay the same and not appeal further so as to be cost effective.

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PJ/Case Study/2013-14/72
28 September 2013

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PJ/Case Study/2013-14/72 28 September 2013

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PJ/Case Study/2013-14/72
28 September 2013