Whether residuary rule instead of Rule 16(1) of Central Excise Rules, 2002 is applicable in the present case?

PJ/Case Study/2012-13/45

Prepared by:- CA Neetu Sukhwani & Kavita Thanvi

CASE STUDY

Introduction:

The appellant was issued with a Show Cause notice alleging that they have availed inadmissible credit on goods returned by their customers in contravention of the provisions of Rule 16(1), (2) and (3) of Central Excise Rules, 2002 and conditions laid down in the Trade Notice No. 20/2003 dt. 6-02-2003. It was proposed to recover the Cenvat credit of Rs. 6,49,612/- along with interest and to impose the equal penalty under rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944. The assessee is contending that as there is no suppression, Collusion, etc. with an intent to evade payment of excise duty, penalty is not imposable. It was held that the extended period cannot be invoked blindly in every case. Further, in the instant case, the duty is already paid; as such, the condition of intention to evade payment of duty is not fulfilled.

M/s Anand Polymers (Unit-II) [OIA No. 22/2013(Ahd-II)CE/AK/Commr(A)/Ahd, dated 08.02.2013]

Relevant Legal Provisions:

RULE 16 of Central Excise Rules, 2002:-Credit of duty on goods brought to the factory. — (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.
(2)   If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.
Explanation. - The amount paid under this sub-rule shall be allowed as CENVAT credit as if it was a duty paid by the manufacturer who removes the goods.
(3)   If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.

Issue Involved:

The following issue was made before the Commissioner Appeals:-
Whether residuary rule instead of Rule 16(1) of Central Excise Rules, 2002 is applicable in the present case?

Brief Facts:

The appellant is engaged in the manufacture of Master Batches falling under Chapter Heading no. 32061190 of Central Excise Tariff Act, 1985. During the course of Audit it was observed that the said appellant had received back duty paid excisable goods sent by their customers as rejected. It was stated during the audit, that the rejected goods were received for reprocessing/ remanufacturing either under their invoices or invoices issued by their customers. The appellant had taken Cenvat credit of Rs. 6,32,271/- (Central Excise duty), Rs. 12,063/- (Edu. Cess) and Rs. 5,272/- (SHE Cess) for The period from 2006 to 2011; Whereas, it was noticed by the Audit that, the said appellant have neither informed the department for receipt of the goods nor kept any separate records as required. After receipt of such rejected goods, they have also not maintained any records to show as to the nature of processing done, finished goods obtained after reprocessing and details of invoices under which such goods were again cleared. The goods so received for re-processing/ remanufacturing were shown in RG 23A Pt. I register only which was later on shown as issued for manufacture. The appellant could not show as to how the goods were reprocessed and cleared on payment of duty. Intimation of return of the goods and maintenance of record is necessary in terms of instructions issued under the provisions of Rule 16(3) of the Central Excise Rules, 2002. It was observed that the said appellant have taken credit of Rs. 6,32,27I/- (including Basic, Education Cess and SHE Cess ) on the receipt of the returned goods. It was observed that the said appellant had not followed the procedures laid down in the Trade Notice no. 20/2003 of Ahmedabad-II Commissionerate, especially the provisions relating to the intimation of receipt of returned goods to the jurisdictional Range Superintendent, as laid down in Para 3(i) of the said trade notice. Thus the appellant had suppressed the material facts from the department regarding return of the duty paid goods and taking the Cenvat credit in contravention of Rule 16(1), 16(2) and 16(3) of the Central Excise Rules, 2004 read with Trade Notice No. 20/2003 dated 06.02.2003 issued by the Commissioner of Central Excise, Ahmedabad-II with intent to evade payment of duty. They have not produced any evidence which prove that, they have intimated the department and also failed to show the nature of processes carried out by them on the returned goods. Therefore, the appellant was issued SCN, proposing demand of Cenvat Credit of Rs. 6,49,612/- taken by them, under Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to Section 11A(1) of the Central Excise Act, 1944. The adjudicating authority proposed penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act with demand of interest at the appropriate rate under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of Central Excise Act, 1944. The said SCN was adjudicated vide the impugned order whereby the adjudicating authority disallowed the Cenvat credit of Rs. 6,49,612/- and imposed penalty with interest. On being aggrieved with the impugned order the appellant has filed the instant appeal along with Stay Application.

Appellant’s Contention:

The appellant made following submissions before the Commissioner Appeals:-
The appellant submit that the impugned order in original is alleging that the rule 16(1) of Central Excise Rules, 2002 is not applicable on them and accordingly they are governed by the provisions of rule 16(3) of the Central Excise Rules, 2002. The analysis of rule 16(1) makes it clear that this rule is applicable if the following conditions are satisfied:-
Ø The goods received back should be duty paid at the time when these were initially removed;
Ø The purpose for which these were received back should be remaking, refined, reconditioned or any other reason; and
Ø The particulars of such receipt will be recorded in their records.
If the above three conditions are satisfied, the assessee is allowed to avail the credit of duty paid goods under the provisions of Cenvat Credit Rules, 2004. However, the learned adjudicating authority is alleging that they are supposed to state the receipt of such goods in their record in a way so that it should be possible to verify, on a later date, that which lot of goods, in this case “Master Batch” was received back under which particular invoice. In this regard, it is submitted that the learned Joint Commissioner has extended the scope of above rule which explicitly states that “the assessee shall state the particulars of such receipt in his records”. This rule does not stipulate that they should make a detailed note of receipt of goods. The entry of particulars in the records should be such that it is possible to verify that the duty paid goods were received back, these were taken in the RG 23 A Part I, their issue was shown and finally these were taken to RG 1 and cleared there from on payment of appropriate duty. The interpretation taken by the learned adjudicating authority is extending the scope of above rule which is not permissible in law. It has been held by the highest court of India in the case of Truetuf Safety Glass Industries v/s Commissioner of Sales Tax, UP [2007 (215) ELT 14 (SC)] that it is a settled principle of law that the Court cannot read anything into a statutory provision which is plain and unambiguous. Similar decision has been given in the case of TATA CONSULTANCY SERVICES Versus STATE OF ANDHRA PRADESH [2004 (178) E.L.T. 22 (S.C.)] by holding the view that Courts should not be over zealous in searching ambiguities or obscurities in words which are plain. In the case of appellant also, the rule 16(1) is clear and unambiguous and it states that the relevant entries of returned goods should be made in the records. This is what done by the appellant but the learned adjudicating authority is misinterpreting this rule by saying that they should write each and every detail of the goods received back. Such an approach is not justified in the light of above decisions as the language of rule 16(1) is clear and unambiguous. Therefore, the contention of the impugned order is not sustainable and is liable to be quashed.
In continuation to above it is submitted that in the present case also they have brought duty paid goods which were rejected by the customers for reprocess/remanufacture in their factory and after taking the quantity in RG 23A Part I (meant for Cenvatable inputs), they have taken credit of duty in RG 23A Part II. They have also shown the issue of said good for remanufacture in RG23A Part I and then recorded manufactured goods in their Daily Stock Account/ RG 1 register. When the goods were cleared after remanufacture, duty was duly paid on the same. Copies of relevant pages of RG 23 A Part I were submitted during personal hearing as on 19.3.2012 but it has not been considered. Rather, it is alleged that they are not able to maintain the record of receipt and issue of the goods received back. But as clear from above, the proper entries were done in the books regarding receipt of returned goods, their issue to production and also when the goods were cleared after processing, the duty was paid on the same. Therefore, they have duly complied with the provisions of rule 16(1) and 16(2); therefore, the rule 16(3) being residual rule is not applicable here. As such, the contention of the impugned order is not justified and is liable to be quashed.
It is reiterated that they have submitted the copies of RG 23 A Part I during the personal hearing as on 19.3.2012 but this fact has not been considered in the impugned order in original. The learned Joint Commissioner was required to check the entries of receipt and issue of the returned goods in the said copies and comment thereupon. But this has not been done, rather this fact is not at all considered while issuing the impugned order in original. Such an order is a non speaking order which is not sustainable in the light of the decision given in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]

It is further submitted that the impugned order in original is alleging that they have not followed the instructions given in trade notice no. 20/2003 (basic 11/2003) issued on 06/02/2003 of Ahmedabad-II Commissionerate. In this regard, it is submitted that this notice is specifically issued under the provisions of rule 16(3) of the Central Excise Rules, 2002. However, the present case is governed by rule 16(1) of these rules, as such, the above trade notice is not applicable on them. Without prejudice to this, it is submitted that even if it is accepted for the sake of argument also that the appellant was required to give the intimation of the receipt of returned goods as per this trade notice, then too, the non filing of intimation is a procedural lapse for which credit cannot be denied to them. In this respect, it is submitted that the substantial condition for availing credit in such cases is that the returned goods should be duty paid and the required process should be carried on these goods and these should be removed on payment of appropriate duty. In the instant case, no doubt has been raised regarding the fact that the goods received back were duty paid, required processing was done upon them and these were finally cleared on payment of appropriate duty. The issue raised in the show cause notice is that they had not filed the intimation of receipt of such goods. When the substantial conditions as stated above are satisfied, the credit cannot be denied merely on account of procedural lapse of filing the intimation. This has been decided by the hon’ble Supreme Court in the case of MANGALORE CHEMICALS & FERTILIZERS LTD. Versus DEPUTY COMMISSIONER [1991 (55) E.L.T. 437 (S.C.)] wherein it is held that the procedural conditions should not be so rigidly interpreted that they deny the intended benefit to the beneficiaries. Similar decision was given in the following cases:-
Ø FORMICA INDIA DIVISION v/s COLLECTOR OF CENTRAL EXCISE. [1995 (77) E.L.T. 511 (S.C.)]

Ø M/s Madhav Steel v/s UOI [2010-TIOL-575-HC-MUM-CX]
Ø COMMISSIONER OF CENTRAL EXCISE, CHENNAI Versus ITC LTD. [2008(224)E.L.T. 226 (Mad.)]
Ø VIVEK RE-ROLLING MILLS Versus COLLECTOR OF CENTRAL EXCISE, CHANDIGARH [1994 (73) E.L.T. 660 (Tribunal)]
Ø APEX STEELS (P) LTD. Versus COLLECTOR OF CENTRAL EXCISE, CHANDIGARH [1995 (80) E.L.T. 368 (Tribunal)]

In the above decisions, it was ruled that the procedural lapses should not be the reason to deny the credit where the substantial conditions are satisfied. In the instant case, the substantial conditions of duty paid goods, the carrying out of intended process thereupon and duty paid on them at the time of removal are satisfied. As such, the filing of intimation being a condition procedural in nature should be condoned and the impugned order should be quashed. The appellant submit that the impugned order has confirmed a time barred demand. Thus, in the light of above decisions, extended period cannot be invoked blindly in every case. Similar decision is given in the following case:-
Ø Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )

Thus, in the above case it was clearly held that the extended period is invokable only if there is deliberate suppression of facts with an intention to evade payment of duty. In the instant case, the duty is already paid; as such, the condition of intention to evade payment of duty is not fulfilled. Hence, in the light of above two decisions, the extended period is not invokable and the impugned order confirming the time barred demand is not sustainable.
It is further submitted that the impugned order in original is imposing the penalty under rule 15 of the Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944. In this regard, it is submitted that the penalty under section 11AC is imposable if there is any fraud, suppression, willful misstatement with an intention to evade payment of excise duty. There is no such element present here which states there was intention to evade payment of excise duty. In fact, the duty was duly paid when the goods were finally removed. This fact is not disputed. Thus, when there was no intention to evade any duty, the penalty under this section is not imposable as it is specifically prescribed for the cases covering the fraud, suppression, etc. with an intention to evade payment of duty. Reliance is placed on the following judgments:
·         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
In the above cases it was held that where there is no suppression, collusion, etc. with intent to evade payment of excise duty, penalty is not imposable. Thus, in the light of above decisions, the impugned order is liable to be quashed and the penalty should be set aside. On the basis of these submissions it is crystal clear the impugned Order is not viable and it should be quashed and the appeal should be allowed.

Reasoning of the Commissioner (Appeals): -
The Commissioner (Appeals) held that they examined the evidences garnished by the adjudicating authority to prove that the appellant had not followed the provisions of Rule 16 (3) and Trade Notice no. 20/2003 because appellant received a lot of goods in this case master batch without superscript batch no. so it is not possible to verify in a later date that which goods are received back under Rule 16 (1). Since there is a difficulty in application of rule 16 (1) so the rule 16 (3) will be apply and application of Rule 16(1) is not correct. By applying the Rule 16(1) and without following rule 16(3) appellant had wrongly availed Cenvat Credit thus same have been disallowed under rule 14 of Cenvat credit read with proviso to section 11A (1) of the Central Excise Act, 1944 with recovery of interest under section 11AB of Central Excise Act, 1944. The adjudicating authority also confirmed penalty of equal amount of wrongly availed Cenvat credit of Rs. 6,49,612/- under Rule 15(2) of Cenvat credit Rules, 2004 read with section 11 AC of Central Excise Act 1944. The adjudicating authority has corroborated their claim by producing Rule 16(3). Since goods are not recorded in a way to that it should be possible to verify on a later date that which lot of goods was received back is a difficulty under sub rule 1 of Rule 16 thus rule 16(3) will come in the force. They have not followed the instructions given in trade notice no. 20/2003 (basic 11/2003) issued on 06/02/2003 of Ahmedabad-II Commissionerate. In this regard, it is submitted that this notice is specifically issued under the provisions of rule 16(3) of the Central Excise Rules, 2002. However, the case of appellant is governed by rule 16(1) of these rules; as such the above trade notice is not applicable on them. Without prejudice to this, it is submitted that even if it is accepted for the sake of argument also that the appellant was required to give the intimation the receipt of returned goods as per this trade notice, then too, the non filing of intimation is a procedural lapse for which credit cannot be denied to them. Further they have gone through on reliance placed by appellant in case of Truetuf Safety Glass Industries V/s Commissioner of Sales Tax UP [2007(215) ELT 14(SC)] has held "court can not read any thing into a statutory provision which is plain and unambiguous." and in case of Tata Consultancy Services Vs. State of Andhra Pradesh, [2004(178) E.L.T. 22(SC)] has held that " Court should not be over zealous in searching ambiguities or obscurities in words which are plain.'" There is extra erroneous reading have been made by department of Rule 16(3). As regard to the contention of the said appellant they have brought duty paid goods which were rejected by the customers for reprocess/ remanufacture in the appellant's factory and after taking the quantity in RG 23A Part I (meant for Cenvatable inputs), the appellant had taken credit of duty in RG 23A Part II. The appellant had also shown the issue of said good for remanufacture in RG23A Part I and then recorded manufactured goods in appellant's Daily Stock Account/ RG 1 register. When the goods were cleared after remanufacturing, duty was duly paid on the same. Copies of relevant pages of RG 23 A Part I were submitted during personal hearing as on 19.3.2012 but it has pot been considered. Rather, it is alleged that the appellant is not able to maintain the record of receipt and issue of the goods received back. But as clear from above, the proper entries were done in the books regarding receipt of returned goods, their issue to production and also when the goods were cleared after processing, the duty was paid on the same. Therefore, the appellant have duly complied with the provisions of rule 16(1) and 16(2); therefore, the rule 16(3) being residual rule is not applicable here. As regard to the contention of the said appellant that the impugned order has confirmed a time barred demand thus, in the light of the decision, extended period cannot be invoked blindly in every case. They find the Hon’ble Apex Court in the case of M/s Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-T1OL-235- SC- CX ) in which it was held that the extended period is unavoidable only if there is deliberate suppression of facts with an intention to evade payment of duty. In the instant case, the duty is already paid; as such, the condition of intention to evade payment of duty is not fulfilled. Thus, in the light of above decisions, the impugned order is liable to he quashed and the penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC; interest at the appropriate rate under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11 AB of Central Excise Act, 1944 hereby set aside.
Decision:-Assessee’s appeal was allowed.

Conclusion:- The essence of this decision is that when substantial conditions are satisfied by the assessee and it can be very well established by the documentary evidences produced by the assessee that the duty paid goods were received and reprocessed and subsequently cleared on payment of duty in terms of Rule 16(1) of the Central Excise Rules then residuary rule should not be invoked unnecessarily to deny correctly eligible cenvat credit to the assessee.

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PJ/CASE STUDY/2012-13/45
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