Karnataka Soaps And Detergents Ltd. v. Commissioner Of Central Excise

- (CEA No.11/2006 is filed U/S. 35(G) of the Central Excise Act, 1944, arising out of order dated 01-06-2005 passed in Appeal No.E/248/2005 in Final Order No.855-856/2005, praying to set aside the Final Order No.855-856/2005 passed by the CESTAT in Appeal No.E/248/2005.)

CEA No.23/2005 is filed U/S. 35(G) of the Central Excise Act, 1944, arising out of order dated 01-06-2005 passed in Appeal No.E/277/2005 in Final Order No.855-856/2005, praying to set aside the Final Order No.855-856/2005 passed by the CESTAT in Appeal No.E/277/2005.)

Aravind Kumar, J.

CEA. 11/2006 c/w. CEA 23/2005:-

The order dated. 01/06/2005 passed in Appeal No.E/248/2005 and Appeal No.E/277/2005 by the Customs, Excise, Service Tax Appellate Tribunal, Bangalore (hereinafter referred to as CESTAT), is under challenge by the Assessee and Revenue respectively. In these two appeals one by the Karnataka Soaps and Detergents Limited (Sandalwood oil Division Mysore) (herein after referred to as the Assessee, Mysore Unit) is filed against Commissioner of Central Excise Mysore (referred to as Revenue) and Other by Commissioner of Central Excise, Bangalore-III, Commissionerate, (hereinafter referred to as Revenue) filed against Karnataka Soaps & Detergents Ltd., (hereinafter referred to as Assessee, Bangalore Unit) is under challenge.

2. The facts in nutshell common to both the appeals are as follows:

The Assessee, Bangalore Unit is manufacturer of Soaps, Detergents, Perfumery compounds, Sandalwood oil and is registered under the Central Excise, Act (hereinafter referred to as Act) and availed the benefit of Cenvat credit on inputs used in the manufacture of said goods. The Assessee is having its units at Mysore and Bangalore. The Assessee at Mysore Unit manufactures sandalwood oil classifiable under chapter heading 33.01 of the Central Excise Tariff Act 1985 (herein after referred to as CETA-1985). The manufactured sandalwood oil at Mysore unit is also transferred to their Bangalore unit for manufacture of soaps and other items (excisable goods) apart from selling to others at Mysore. The internal audit wing of the Department of Central Excise conducted inspection of the financial records of the Respondent unit for the period from March 2001 to August 2003. It was found during the course of the audit that sandalwood oil of following variety had been cleared by the Mysore Unit to Bangalore Unit under stock transfer for captive use for the production of soap, oil and Talcum powder etc.

Description

2001-02

2002-03

2003-04

Value adopted

Sandalwood Oil (Indian)

5690.80 kgs

5081.20 kgs

731.30 kgs

Rs.6859/kg

Sandalwood Oil (Australian)

-

697.10

121.20

Rs.6859/kg

Sandalwood Oil (Fraction)

304.40

197.50

39.80

Rs.5021/kg

Aurential (H.S. 29.42)

34.40

64.00

-

Rs.884/kg.

3. The Audit wing found that assessee Mysore Unit had worked out the manufacturing cost of the sandalwood oil at different prices and had raised journal vouchers by debiting the amount in the Bangalore unit account and it adopted lower value continuously though there was a steep hike in the manufacturing cost of sandalwood oil and similar goods were being cleared to independent buyers at a higher cost which necessitated the authorities to claim differential duty by its letter dtd. 16/10/2003.

The facts in respect of 2 appeals i.e., CEA 11/2006 filed by Assessee and CEA 23/2005 filed by Revenue are analysed independently as follows:

4. RE CEA No.11/2006: The assessee manufactures sandalwood oil and other goods falling under chapter 33 and 29 of CETA, 1985. The marketing pattern of the assessee company includes inter unit transfer to Bangalore complex, where the said sandalwood oil is used capitively to manufacture of soaps. During the course of the verification of records by the internal audit party of revenue it was found that assessee was clearing sandalwood oil adopting lower assessable value for inter unit transfer while adopting a different and higher price for sale to independent buyers at the factory gate. Further verification of the records revealed that assessee had determined the assessable value as Rs.6,859/- per kg. on cost construction basis in the year 2000-01 and continued to adopt the same for subsequent years. Even though the said goods were being sold at much higher prices regularly to other buyers and on conducting of investigation and recording of the statement of the Officers of Assessee Company, the Department found that assessee had failed to determine the correct assessable value of sandalwood oil before being removed on payment of the duty to the Bangalore unit, which resulted in contravention of Rule 6 and 8 of Central Excise Rules, 2002 r/w. Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 (hereinafter referred to as Valuation Rules) and while doing so, it appeared they have intentionally adopted lower costs of production, and thus discharged duty on the lower assessable value, viz, continued to adopt value determined in 2001-01 though the actual market value had increased from time to time and differential cost was being realized through book adjustment each year by way of journal entries in the books of accounts which resulted in short payment of duty of excise. Hence, a show cause notice came to be issued by the Commissioner of the Central Excise, Mysore, calling upon the assessee to show cause as to why:

(a) Central Excise duty of Rs.2,52,45,268/- should not be demanded from them under proviso to Section 11A(1) of the Central Excise Act, 1944 and the amount of Rs.2,52,45,268/- already paid by them, vide TR6 Challans, should not be appropriated under the provisions of Section 11A(1) of the Central Excise Act, 1944;

(b) Interest at appropriate rate, as prescribed by the Government from time to time, on the duty amount of Rs.2,52,45,268/- should not be demanded from them under the provisions of Section 11AA/11AB of the Central Excise Act, 1944 and why the interest amount of Rs.51,37,513/- already paid, vide TR6 Challan dated 19.12.2003, should not be appropriated under the provisions of Section 11AA/11AB of the Central Excise Act, 1944;

(c) Penalty should not be imposed on them under the provisions of Section 11AC of the Central Excise Act, 1944; and

(d) Penalty should not be imposed on them under Rule 25/26 of the Central Excise Rules 2002.

5. On considering the reply given by the assessee, Order in Original came to be passed on 30/11/2004, whereunder the demand for payment of Central Excise duty in a sum of Rs.2,52,45,268/- as demanded in show cause notice came to be confirmed, as also the interest amount of Rs.51,37,513/-, which amounts demanded in show cause notice came to be paid. However, the penalty proceedings came to be dropped as per order date 30/11/2004 (Annexure-M).

6. Being aggrieved by the same, the assessee filed an appeal in Appeal No.E/248/2005 (Final order No.855/2005) before CESTAT.

7. RE CEA.23/2005: For the period 24/11/2003 to 10/12/2003 the assessee is said to have irregularly availed a Cenvat credit of Rs.2,52,27,074/- on the basis of supplementary invoices issued by the Mysore unit to its Bangalore unit, and as such a show cause notice came to be issued on 03/12/2004 (Annexure-B) to the assessee informing the assessee that during the course of the verification of records by the Audit wing it was found that Mysore unit of the assessee had cleared goods viz., sandalwood oil at a lesser price to the Bangalore unit when compared to clearances by way of sales effected by them to other independent buyers and for the differential amount it had raised journal vouchers being the adjustment in the value by making credit to their sales account after deducting the same from Bangalore unit account. The Commissioner of Central Excise Bangalore issued a show cause notice dtd. 03/12/2004 to the assessee proposing to disallow and recover the Cenvat credit of Rs.2,52,27,074/- availed on the basis of the supplementary invoices issued by the Mysore unit on the ground that it was irregularly availed under Rule 7(1)(b) of CENVAT Credit Rules 2002 (Annexure-P). The said show cause notice reads as under:

(i) the cenvat credit amounting to Rs.2,52,27,074/- (Rupees Two Crores Fifty Two Lakhs Twenty Seven Thousand and Seventy Four only) wrongly availed by them on the basis of supplementary invoices (as detailed in the annexure) issued by KSDL, Mysore, along with interest leviable thereon should not be demanded from them under the provisions of Rule 12 of 2002 Rules read with Section 11 A/11 AB of the Cnetral Excise Act, 1944.

(ii) Penalty should not be imposed on them under Rule 13 of the 2002 Rules read with Section 11 AC of the said Act.

8. On receiving the reply to the show cause notice, matter came to be adjudicated and the demand made in the show cause notice was confirmed and the Cenvat credit availed by assessee was ordered to be recovered amounting to Rs.2,52,27,074/- together with interest by its order dated 25/02/2005 (Annexure-C).

9. The Tribunal on considering both the appeals accepted the argument of the assessee in so far as the demand made by the Commissioner of Central Excise, Bangalore and set aside the Order in Original No. dated. 25/02/2005 passed by Commissioner of Central Excise, Bangalore. However, tribunal confirmed the Order in Original of the Commissioner of Central Excise, Mysore dated 10/02/2004. CEA. 11/2006 is by the assessee assailing the order passed by the CESTAT in Appeal No. E/248/2005 (Final order 855/2005) dated 01/06/2005 and CEA 23/2005 is by the Revenue assailing the order of CESTAT passed in Appeal No.E/277/2005 (Final Order No.856/2005 dated 01/06/2005.

10. It is seen from the order sheet of CEA. 23/2005 dated. 24/03/2006 that it was ordered to be posted along with CEA. 11/2006. On 08/08/2006 both the appeals i.e., CEA 23/2005 and CEA. 11/2006 were posted and it was submitted by the appellant assessee (In CEA. 11/2006) that appeal had been filed against the finding in para 9 of the order of CESTAT. As per the order sheet in CEA. 11/2006 it is seen that both the appeals have been admitted on 07/11/2006.

11. The question of law raised in both the appeals are as follows -

CEA 23/2005:

1. Whether the Tribunal was right in coming to a conclusion that prohibition under Rule 7(1)(b) (now Rule 9(1)(b) of the CENVAT Credit Rules will not be applicable to the facts of the instant case?

2. Whether the Tribunal was right in upholding the CENVAT Credit taken by the Bangalore Unit, based on the supplementary invoice raised by the Mysore Unit, by concluding that Rule 7 (1)(b) is not applicable, especially in the view of the fact that if prohibition under Rule 7 (1)(b) is not applicable then the provisions of the Rule itself ceases to be applicable?

3. Whether the Tribunal was right in passing the impugned order by relying on decisions which are under challenge before the Hon'ble Supreme Court?

CEA. No.11/2006:

1. Whether the Tribunal was right in coming to a conclusion that the appellant would have had the intention to evade payment of duty when the entire duty paid by the appellant was available to the appellants themselves as Cenvat credit at their Bangalore factory?

2. Whether the Tribunal was right in coming to the conclusion that the non revision of the value of sandalwood oil stock transferred to Bangalore was a serious lapse indicating there is intention to evade payment of duty when the Tribunal itself has come to a conclusion that looking in the totality of the circumstances, there was no revenue loss to the exchequer especially when the entire quantity of finished products has been cleared under Section 4A on the basis of Maximum Retail Price which would have taken into account the manufacturing cost of the sandalwood oil?

3. Whether the Tribunal, in the above facts and circumstances, was right in upholding the order of the lower authority invoking the longer period of limitation under Section 11A(1) of the Central Excise Act 1944 when the law on this issue has been settled by numerous decisions of the Supreme Court?

4. Whether the Tribunal was right in passing the impugned order by ignoring the law as settled on this issue by various decisions of the Hon'ble Supreme Court?

12. We have heard Sri. G. Shivadas, learned counsel appearing for the assessee and Sri. Raghavendra, learned counsel appearing on behalf of Sri. N.R. Bhaskar (standing counsel) for the revenue.

RE: CEA 11/2006

13. As rightly pointed out by the learned counsel for the Revenue and as observed by us in preceding paragraph No.10, this appeal is filed only against finding in para 9 of CESTAT order which raises only question for our consideration in this appeal viz., regarding invoking of extended period of Limitation i.e., question No.3 formulated in CEA No11/2006 and accordingly substantial question of law No.3 formulated herein above is considered and answered by us. It is contended by Sri. Shivdas, learned counsel for Assessee that assessee is a State Government Undertaking, whose accounts are audited by Government Agencies including a statutory audit by the Accountant General. It is contended that there was no intention to evade payment of duty and it was contended that assessee was adopting cost construction method of valuation for valuing the sandalwood oil and the method of accounting by raising the journal vouchers was adopted only for accounting purpose and book adjustment each year and since the accounts was kept open for perusal by the Officers of the department and the audit parties having not observed any deficiency or suppression at any point of time till the internal audit wing noticed there has been suppression of facts relating to actual cost of production of final products and that they have not evaded duty intentionally. It is further contended by Sri. Shivadas that whatever duty was paid on the sandalwood oil in respect of such oil transferred to Bangalore factory was always available as Cenvat credit to the assessee's Bangalore factory and consequently there cannot be any intention on the part of the appellant to evade payment of duty. Even otherwise it is contended by Sri. Shivadas that the duty has been paid and hence there cannot be any intention to evade payment of duty. He also submits that, when duty paid by one factory of the manufacturer is available as credit to another factory of same manufacturer there cannot be any intention to evade payment of duty since the duty paid by one factory is subsumed in the Cenvat credit account of the other unit of the same manufacturer resulting in a nil cash outflow to the manufacturer and accordingly in such a situation there cannot be any intention to evade payment of duty. He also contends that the authorities were not justified in invoking the longer period of Limitation u/sec. 11A (1) of Central Excise Act and in support of his submissions he relies upon the following judgments.

1. CCE, Madras Vs. Home Ashok Leyland Ltd., 2001 (134) ELT 647 (Mad)

2. CCE, Madras Vs. Home Ashok Leyland Ltd. 2007 (210) ELT 178 (SC)

3. Ashok Leyland Ltd. Vs. State of Tamil Nadu & Another [2004] 134 STC 473 (Paras 33 to 49)

4. Section 11A of the Central Excise Act, 1944.

5. Amco Batteries Ltd., Vs. CCE, Bangalore, 2003 (153) ELT 7 (SC).

6. CCE Vs. Mahindra & Mahindra Ltd., 2004 (171) ELT 159 (SC).

7. CCE Vs. Mahindra & Mahindra Ltd., 2004 (179) ELT 21 (SC).

8. CCE Vs. Narmada Chematur Pharmaceuticals Ltd., 2005 (179) ELT 276 (SC).

9. CCE Vs. Jamshedpur Beverages 2007 (214) ELT 321 (SC).

10. Bharat Electronics Ltd., Vs. Commissioner of C.EX., Meerut, 2004 (165) E.L.T. 485 (S.C.).

11. Continental Foundation JT. Venture Vs. Commr. Of C.Ex., Chandigarh-I, 2007 (216) E.L.T. 177 (S.C.).

12. Tamil Nadu Housing Board Vs. Collector of Central Excise, Madras, 1994 (74) E.L.T. 9 (SC).

14. Per contra, Sri. Raghavendra, learned Advocate appearing on behalf of Sri. N.R. Bhasker, would contend u/sec. 4(1)(a) prescribes the assessable value would be transaction value in respect of each transaction provided the buyer and the seller being not connected. He contends that Sec.4 (1)(b) mandates that assessable value shall be determined as per Valuation Rules in respect of other transaction including the goods, which are not sold. He contends that Valuation Rules, 2000 have been introduced along with new sec. 4(1)(b) i.e., transaction value and the appropriate Rule being Rule 8, which is applicable which mandates that excisable goods on stock transfer basis for home consumption, the value shall be 115% of the cost of production or manufacture of such goods and this having not been followed by suppression has resulted in invoking extended period of limitation which is just and proper. He submits that Board has issued a circular dated 30/06/2000 explaining the interpretation of new provisions of Valuation Rules, 2000 wherein it has been clarified that in respect of computation of cost of production, CAS-4 technique formulated by the Institute of Cost and Works Accountant of India should be followed. He contends that assessee had adopted the assessable value by applying the Valuation Rules, 2000 for capitive clearance from Mysore unit to Bangalore unit at the rate of Rs.6,589/- while the actual rate was much more and the under valuation came to the notice of the department during the course of audit initiated and on detailed investigation it was found that by making book adjustment the difference in rate were being realized by Mysore unit and the procurement cost of sandalwood had increased in 2000-01 itself which suggested that the final wood cost of production too had increased and as such it was submitted that the method adopted for sale to independent buyers i.e., actual cost of production was not adopted for clearance to Bangalore unit and the trial balance of Mysore unit indicated the commercial realization of the sales and the same did not tally with the amount computed from excise invoices and as such it amounted to suppression of facts.

15. It was submitted that all registered manufacturers are under Self Removal and Self Assessment regulation and the assessee has to follow the provision of law and procedure prescribed and having adopted the said procedure it was incumbent upon assessee to declare the correct value of sandalwood oil sold by filing appropriate cost analysis sheets and the audit wing of the department having noticed during the course of investigation the anomaly came to be accepted by the assessee and was quick enough to react by remitting the amount of differential duty along with interest. Hence, this itself clearly demonstrate that there has been suppression of fact and thus the authorities were justified in exercising the extended period of limitation and demanding the differential duty with interest. Hence he submits that the order in Original passed by the Commissioner of Central Excise OIO-05/2004 dtd. 30/11/2004 as confirmed by CESTAT by order dated. 01/06/2005 in Appeal No.248/2005 (Final Order No.855/2005 is just and proper and does not call for interference.

RE: CEA NO.23/2005

16. In support of his grounds urged in Appeal No.23/2005 it is contended by learned counsel for appellant revenue, that Tribunal was not justified in allowing the appeal of the assessee by its order dated 01/06/2005 passed in Appeal No.277/2005 (Final order No.856/2005) since Rule 7 (1)(b) of Cenvat Credit Rules 2002 does not allow the assessee to claim Cenvat credit since there is prohibition to avail the Cenvat credit particularly when the Tribunal by its order has confirmed the suppression of facts by the assessee and also confirmed the action of the department of invoking of longer period of limitation, as such the prohibition under Rule 7 (1)(b) is itself inapplicable to the facts of the case and contends that the duty paid by the Mysore unit cannot be taken by the Bangalore unit under any other provision of Cenvat credit Rules, 2002. It is further contended that assessee had collected the unpaid excise amount by way of increased MRP Maximum Retail Price on the rate of soaps from the consumers and having added the price in the sandalwood oil in the MRP and having collected the same from the consumers the evasion of the duty by Mysore unit has definitely resulted in revenue loss and accordingly seeks for setting aside the order of the Tribunal. He further contends that irregularity committed by the respondent has been continued for a period of four years and this itself suggests the intention on the part of assessee for evading payment of duty and accordingly seeks for setting aside the order of the Tribunal and seeks for answering the question of law in favour of appellant Revenue.

17. Per contra, Sri Srivdas, learned Counsel appearing for the assessee would support the order of the Tribunal passed in Appeal No.E/277/2005 (Find order No.856/2005, dated 01.06.2005) whereunder CESTAT has dismissed the appeal filed by the revenue. He would submit that admittedly duty has been paid by the assessee and duty paid by one factory of the same manufacturer would be available as credit to another unit of same manufacturer which cannot be denied to the assessee. He would submit what ever duty is paid at Mysore Unit on the sandalwood oil which was transferred to Bangalore unit would always be available as CENVAT credit to the assessees' Bangalore Unit. He would elaborate his submission by contending that when Rule 7(1)(b) itself is not applicable the prohibition stipulated thereunder would also not be applicable and particularly when there is no bar to raise supplementary invoice. On these grounds he supports the order of the Tribunal and prays for dismissal of the appeal filed by the Revenue and prays that question of law be answered in favour of the assessee and against revenue.

SUMMARY OF FACTS

18. Assessee is a manufacturer of soaps, detergents, perfumery components etc., and they have factories at Mysore and Bangalore. At Mysore factory sandalwood oil which is an excisable commodity is manufactured. Major quantity of sandalwood oil manufactured at Mysore Unit is cleared to Bangalore factory for use in the manufacture of toilet soap and other products/goods. Duty is paid at the Mysore factory on the sandalwood oil and for payment of duty the assessee adopts the cost construction method as prescribed under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 as there is no sale made from Mysore factory to Bangalore factory. The duty paid at Mysore factory is taken at credit at the Bangalore factory. The toilet soaps manufactured in Bangalore factory are cleared for payment of appropriate duty u/sec. 4A of the Central Excise Act, 1944 on the basis of maximum retail price (MRP) less permissible deductions.

PROVISIONS OF LAW (Section and Rules)

19. In order to appreciate the rival contentions raised by the learned counsel for the parties and for determining the substantial questions of law framed in these two appeals, it would be necessary to extract the relevant provisions of the Central Excise Act, Central Excise Valuation (Determination of price of excisable goods) Valuation Rules, 2000, Cenvat Credit Rules, 2002 i.e., Sec.4(1)(a), 4(1)(b), Rule 8 of Valuation Rules 2000 and Rule 7(1)(b) of CENVAT Credit Rules 2002 respectively and they read as under:

Sec.4(1)(b) of the Central Excise Act, 1944 -

4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -

(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;

(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed .

Sec.11A of Central Excise Act, 1944:-

Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. - (1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or (erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder), a Central Excise Officer may, within (one year) from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any willful 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, by such person or his agent, the provisions of this sub-section shall have effect, (as if) for the words (one year), the words five years were substituted.

Explanation. - Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of (one year) or five years, as the case may be.

(1(A) When any duty of excise has not been levied or paid or has been short-levied or short paid or erroneously refunded, by reason of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty, by such person or his agent, to whom a notice is served under the proviso to sub-section (1) by the Central Excise Officer, may pay duty in full or in part as may be accepted by him, and the interest payable thereon under section 11AB and penalty equal to twenty-five percent. Of the duty specified in the notice or the duty so accepted by such person within thirty days of the receipt of the notice.)

(2) (Central Excise Officer) shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined:

[Provided that if such person has paid the duty in full together with, interest and penalty under sub-section (1A), the proceedings in respect of such person and other persons to whom notice is served under sub-section (1) shall, without prejudice to the provisions of sections 9, 9a and 9a Appellate Authority, be deemed to be conclusive as to the matters stated therein:

Provided further that, if such person has paid duty in part, interest and penalty under sub-section (1A), the proceedings in respect of such person and other persons to whom notice is served under sub-section (1) shall, without prejudice to the provisions of sections, 9, 9A and 9A Appellate Authority, be deemed to be conclusive as to the matters stated therein:

Provided further that, if such person has paid duty in part, interest and penalty under sub-section (1A), the Central Excise Officer, shall determine the amount of duty or interest not being in excess of the amount partly due from such person.]

[2A Where any notice has been served on a person under sub-section (1), the Central Excise Officer, --

(a) in case any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of fraud, collusion or any willful misstatement 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, where it is possible to do so, shall determine the amount of such duty, within a period of one year; and

(b) in any other case, where it is possible to do so, shall determine the amount of duty of excise which has not been levied or paid or has been short-levied or short-paid or erroneously refunded, within a period of six months,

from the date of service of the notice on the person under sub-section (1).

(2B) Where any duty or excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person, chargeable with the duty, may pay the amount of duty (on the basis of his own ascertainment of such duty or on the basis of duty ascertained by a Central Excise Officer) before service of notice on him under sub-section (1) in respect of the duty, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the duty so paid;

Provided that the Central Excise Officer may determine the amount of short payment of duty, if any, which in his opinion has not been paid by such person and then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of one year referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation 1. - Nothing contained in this sub-section shall apply in a case where the duty was not levied or was not paid or was short-levied or was short-paid or was erroneously refunded by reason of fraud, collusion or any willful 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.

Explanation 2. - For the removal of doubts, it is hereby declared that the interest under section 11AB shall be payable on the amount paid by the person under this sub-section and also on the amount of short-payment of duty, if any, as may be determined by the Central Excise Officer, but for this sub-section.

(2C) The provisions of sub-section (2B) shall not apply to any case where the duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President.

(3) For the purpose of this section -

(i) refund includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(ii) relevant date means, --

(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid --

(A) where under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;

(B) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

(C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder;

(b) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;

(c) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.

Central Excise Valuation Rules, 2000

Central Excise Valuation Rules, 2000

RULE 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.

[Explanation 1] -

(i) xxxxxx

(ii) xxxxx

(iii) xxxxx

(iv) xxxxxx

RULE 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be [one hundred and ten per cent] of the cost of production or manufacture of such goods .

CENVAT CREDIT RULES, 2002

Rule 7. Documents and Accounts- (1) The Cenvat Credit shall be taken by the manufacturer on the basis of any of the following documents namely:-

a) xxxx

b) A supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provision of Central Excise Rules, 2002 from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by or on behalf of the said manufacturer or importer, in case additional amount of excise duties or additional duty of customs leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty become recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any provisions of the Act or of the Customs Act, 1962 or the rules made thereunder with intent to evade payment of duty.

FINDINGS

CEA.11/2006

20. The issue viz., the substantial questions of law raised in CEA. 11/2006 is taken up first since the issue regarding invoking the longer period of limitation has been raised in the said appeal. The said question reads as under;

Whether the Tribunal in the above facts and circumstances, was right in upholding the order of the lower authority invoking the longer period of limitation u/Sec. 11-A(1) of the Central Excise Act, 1944, when the law on this issue has been settled on the numerous decisions of the Supreme Court?

21. The decisions of the Hon'ble Supreme Court relied upon by the learned counsel for the assessee are as follows -

1. [2007 (216 ELT 177) (SC) -

Continental Foundation Jt. Venture Vs. Commr, of C. Ex., Chandigarh-I.

2. 2004 (165 ELT 485) (SC) -

Bharat Electronics Limited Vs. Commissioner of C. Ex. Meerut.

3. 1994 (74 ELT 9) (SC) -

Tamil Nadu Housing Board Vs. Collector of Central Excise, Madras.

4. 2005 (179 ELT 276) (SC) -

Commissioner of C. Ex. & Cus., Vadodara Vs. Narmada Chematur Pharmaceuticals Ltd.,

5. 2003 (153 ELT 3) (SC) -

Union of India Vs. Rajasthan Spinning & Weaving Mills.

6. 2005 (179 ELT 21)

Commissioner of Central Excise, Mumbai Vs. Mahindra & Mahindra Ltd.

7. 2004 (171 ELT 159) (SC) -

Commissioner of C. Ex., Mumbai Vs. Mahindra & Mahindra Ltd.

22. The learned counsel appearing for respondent-revenue has relied upon the decision in the case of Union of India Vs. Rajasthan Spinning and Weaving Mills reported in 2009 (238 ELT 3) (SC).

23. During the course of verification of records of the assessee by the Officers of internal audit party of the department it was noticed that assessee was clearing sandalwood oil manufactured by it on payment of Central Excise Duty on sandalwood oil adopting the lower assessable value for inter unit transfer while adopting different and higher price for sale to independent buyers at the factory gate. On verification from the records it was found that the assessee had determined the assessable value as Rs.6,859/- per kg. of sandalwood oil on cost construction basis in the year 2000-01 and continued to adopt the same for subsequent years, though the goods viz., the sandalwood oil was being sold at a much higher price regularly to other buyers. On further investigation and after recording the statement of certain officers of the assessee Company u/Sec. 14 of the Central Excise Act, it was noticed by revenue that Deputy General Manager of the assessee factory at Mysore had admitted that assessable value of oil was arrived on the basis of production+15% of profit and had submitted the cost construction sheet to the department on 18/08/2000 and not thereafterwards though there was escalation in the price of sandalwood oil. On the basis of the said cost construction sheet duty had been paid on the inter unit assessable value of Rs.6,859/- per kg. of sandalwood oil upto November 2003, though there was an increase in the cost of product from the year 2001 itself. In fact it was admitted by the said Officers, the increase in the cost price was not disclosed to the Department though a minor percentage of oil was sold to other customers at Mysore for a higher price.

24. Rule 6 of Central Excise Rules requires an assessee to assess the duty payable on any excisable goods before its removal from factory of manufacture. The assessment of excisable goods is dependant on provisions of Section 4(1)(a) or Section 4(1)(b) of the Central Excise Act, 1944, as the case may be. In case an assessee does not sell the excisable goods but indulges in capitive consumption either in his own factory or elsewhere, Section 4(1)(b) of the Act contemplates that assessable value shall be determined as may be prescribed. The prescription can be traced to the provisions of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. As extracted herein above Rule 8 states that where the excisable goods are not sold by the assessee, but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be 115% of the cost of production or manufacture of such goods. The methodology for determining the cost of production in respect of such capitively consumed goods are governed by the guidelines prescribed under the different Board Circulars.

25. During the year 2000-01 the Assessee-Mysore unit had undertaken to pay duty on sandalwood oil as and when removed from their factory by adopting the method of determination on the basis of cost production as per Rule 8 of Central Excise Evaluation Rules, 2000. The Assessee-Mysore unit during the course of audit and investigation by the department obtained the cost accountant certificates in accordance with the boards Circular dtd. 13/02/2003 bearing No.692/8/2003/CX. In respect of cost of production of sandalwood oil in each year from 2001-02 to 2003-04 (upto November 2003) and accordingly calculated and determined the amount of short levy based on the said revised cost sheet amounting to Rs.2,52,45,268/- and the said short levy has been paid by the Assessee. Subsequent to the payment, the assessee raised supplementary invoices indicating the payment of such differential duty. In terms of sec. 11AA and 11AB of Central Excise Act, 1944 interest on the amount calculated so determined at Rs.2,52,45,268/- in an amount of Rs.51,37,513/- was demanded which also came to be remitted by the assessee. The Board Circular dated 13-2-2003 reads as under:

Circular No.692/08/2003-CX

13th February, 2003

F.No.6/29/2002-CX.I

Government of India

Ministry of Finance and Company Affairs

Department of Revenue

Subject:- Valuation of goods captively consumed.

I am directed to say that on introduction of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, w.e.f. 1.7.2000, it was clarified by the Board vide Circular No.354/81/2000-TRU dated 30.06.2000 (para 21) that for valuing goods which are captively consumed, the general principles of costing would be adopted for applying Rule 8. The Board has interacted with the Institute of Cost & Works Accountant of India (ICWAI) for developing costing standards for costing of captively consumed goods.

(2) The Institute of Cost & Works Accountants of India [(CWAI] has since developed the Cost Accounting Standards, CAS 2, 3 and 4, on capacity determination, overheads & cost of production for captive consumption, respectively, which were released by the Chairman, CBED on 23.1.2003.

(3) It is, therefore, clarified that cost of production of captively consumed goods will henceforth be done strictly in accordance with CAS-4. Copies of CAS-4 may be obtained from the local Chapter of ICWAI.

(Emphasis supplied by us)

(4) Board's Circular No.258/92/96-CX dated 30.10.96, may be deemed to be modified accordingly so far as it relates to determination of cost of production for captively consumed goods.

(5) This Circular may be brought to the notice of the field formations.

(6) Suitable Trade Notices may be issued for the benefit of the Trade.

(7) Hindi version will follow.

(8) Receipt of these instructions may be acknowledged.

In the above circular the Revenue has clarified its earlier circular dated 30-10-1996 which reads as under:

Circular No.258/92/96-CX

Dated. 30/10/96

F.No. 6/28/94-CX.1

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs, New

Delhi

Subject: Assessable Value in the case of Goods captively consumed - Addition of Profit - Reg.

I am directed to refer to instructions contained in Board's letter F.No.6/64/80-CX.1 dated 6.12.80, Circular F.No.6/72/85-CX.1 dated 11.3.86 and Issue 'A' of Section 37B order No.24/14/93 dated 31.12.93 regarding the method to be followed for determining assessable value of goods captively consumed. The Board in its order dated 31.12.93 issued under section 37-B has clarified that for the purpose of assessment of goods captively consumed, value should be arrived at by adding previous year's gross profit, if any, of the assessee as per their audited balance sheets.

2. Subsequently, a doubt has been raised as to which profit whether Gross Profit (i.e. profit before depreciation & taxation) or Profit before tax or any other profit has to be taken into consideration for determination of assessable value of the goods captively consumed. Another doubt has also been raised whether the present method of determining profit margin as a percentage with reference to sales turnover and loading the profit margin of the preceding year to the cost of production of the present year to arrive at the assessable value are to be continued.

3. The matter has been further examined in consultation with the Cost Accounts Branch of Department of Expenditure. Board has observed that the method of calculation provided under Rule 6(b) (ii) of the Central excise (Valuation) Rules, 1975 is to ascertain the nearest equivalent of the normal price. Therefore, while determining the cost of production of captively consumed goods during the current year, all elements which are otherwise includible in Section 4(1)(a) price have to be included in the cost of production.

It is hereby clarified that for calculation of value of the goods captively consumed under rule 6 (b)(ii) the following steps are to be followed:-

(i) The cost of production of the goods has to be determined so as to include inter alia, the cost of material, labour cost and overheads including administrative cost, advertising expenses, depreciation, interest etc.

(ii) Profit before tax has to be taken from audited balance sheet of the previous year and the profit margin has to be calculated as a percentage of cost of production in the previous year as per the formula prescribed by the Cost Accounts Branch of Department of Expenditure (copy enclosed).

(iii) The profit margin of the previous year as arrived at step (ii) as a percentage of cost of production has to be loaded to the cost of production of the impugned goods derived at (I) above for the current year to arrive at the assessable value of captively consumed goods.

C.A. certificate and the loss and profit statement should be scrutinized carefully, in the light of these guidelines and should not be accepted blindly or automatically.

4. Board's earlier circular/instructions as mentioned above stand modified to this extent.

Sd/-

(S.C. Bhatia)

(Under Secretary to the Govt. Of India)

Annexure

A clarification has been sought whether gross profit or gross profit before tax has to be taken into consideration for determination of assessable-value under Rule 6(b)(ii) of Central excise Rules, 1975. It is clarified that for the purpose of assessable value, profit before tax should be considered. Profit before is, invariably, a distinct item appearing in the Profit & Loss Account of companies. Profit before tax is arrived at after providing for interest and depreciation. Therefore, cost of production of the captively consumed goods will also include applicable interest, depreciation etc.

2. As regard the methodology of determining percentage of profit with reference to sale of the previous year and applying it is to the cost of production of the present year (which presently in vogue), the existing methodology may continue.

3. It is clarified that profit before tax should be related to the net-sales (total sales minus Excise Duty). Further, profit percentage so computed should be adjusted for its application on the cost of production of the relevant year as under:-

(i) Let net sales (excluding Excise Duty)

= Rs.100

(ii) Profit before tax @ 20% on sales in previous year

= 20/-

(iii) Therefore, cost of production (Sales-profit)

= 80/-

(iv) Thus profit before tax as percentage of cost of production

= 20/80x100 or 25%

Thus profit before tax which is 20% on sale = 25% on cost of production. In the same way for any other percentage on net sales, the corresponding percentage on cost can be worked out on the above steps.

Sd/-

(A.K. Gautam)

Joint Director (Cost)

26. Though Sri. Shivadas, learned counsel appearing for the assessee would agree that while adopting the cost construction method of valuation, assessee had adopted lesser cost of production and discharged duty on the lower assessable value in as much as the value of the sandalwood oil fixed about four years back was continued for subsequent period which according to him was unintentional and by oversight till the receipt of letter from Superintendent and the cost construction method of valuation of oil was worked out for Indian variety and Australian variety only for the purpose of balance sheet: he would also vehemently submit that journal Vouchers were prepared at Mysore Unit showing the difference in values between the value adopted for payment of duty on sandalwood oil and the actual value sent to Bangalore unit and this procedure was adopted only for accounting purposes and book adjustment each year and all these records having been kept open for perusal of the officers of department and audit parties and hence, this cannot be held to be suppression of facts relating to actual cost of production of final products and they have not evaded duty intentionally.

27. Sec. 4(1) (a) of the Central Excise Act prescribes that assessable value shall be the transaction value pertaining to each transaction provided goods are sold at the time of place of removal and buyer and assessee are not related and price is the sole consideration for such sale. This situation does not arise in the instant case. In respect of other transaction, where the goods are not sold the assessable value shall be determined as per Valuation Rules, 2000, as contemplated u/Sec. 4(1) (b). In the instant case it is found that sandalwood oil is transferred to Bangalore unit, where it is used for manufacture of soaps. Thus, there is no sale of goods and thus Sec. 4(1) (b) is applicable to the facts of the present case together with Valuation Rules, 2000. The assessee has removed excisable goods on stock transfer basis for capitive consumption and the appropriate rule applicable would be Rule 8 of Valuation Rules 2000. According to which the value shall be 115% of the cost of production or manufacture of goods. The circular dtd.30/06/2002 issued by the Board makes it abundantly clear that even if identical or comparable goods have been manufactured and sold by the same assessee, the assessable value of capitively consumed goods shall be taken at 115% as the cost of manufacture of goods.

28. In the instance case the assessee first adopted assessable value at Rs.6,589/- per kg. during the year 2000-01 for capitive clearance of sandal wood oil to their Bangalore unit while the actual rate was much more. Though assessee had cleared by way of sale of sandalwood oil to third parties at a much higher rate they had not increased cost of production of Sandalwood oil so cleared to Bangalore Unit, despite the cost of production having gone up which assessee was aware and the fact of increase in cost had not been brought to the notice of department which it ought to have. Though cost of procurement of sandalwood had increased in 2001-02 itself which in effect increased the final cost of production of sandalwood oil. Thus, the assessee did not adopt the method i.e., actual cost of production for clearance to Bangalore unit by taking into account the value of Sandalwood oil, since, it adopted different value for sale to independent buyers at Mysore itself. Rule 6 of Central Excise Rules prescribes the assessee to assess the duty payable on any excisable goods before its removal from the factory of manufacture. Rule 8 of the Valuation Rules would be applicable is not being disputed. The assessable value had to be determined for the purpose of payment of duty on the basis of value of Sandalwood oil. It was found by the Assessing Officer that sandalwood oil being produced from the natural product of sandalwood and given its limited availability due to restrictions imposed by the Sate for sale there is bound to be increase in the price from year to year and even otherwise any commercial transaction tends to get costlier by specified margin from year to year.

29. It is to be noticed by us from the statements made by the Officers of the respondent, it is admitted that the assessable value adopted for purpose of payment of duty by the assessee was not in accordance with the provisions of Sec. 4(1)(b) r/w. Valuation Rules, 2000.

30. It has to be further noticed that manufacturers of Central Excisable Goods are under self removal and self-assessment regulation including the assessee. The assessee is liable at the time of manufacture and clearance of goods to pay the duty on such self declaration. Though assessee was fully conscious of the fact of adopting the cost construction method of valuation of the goods for the period March 2001 to August 2003 has accepted its lapses and without any whisper have paid the differential duty along with interest.

31. The concept of transaction value has admittedly came into effect from 01/07/2002 when correspondingly Sec. 4(1)(b) came into effect, which was brought into force to facilitate the manufacturers to correctly adopt the value, which was in the form of Valuation Rules, 2000. Though, assessee has accepted and adopted this procedure in the year 2000-01 no explanation is forthcoming as to why the asssessee did not bring it to the notice of the department about the change in the value of the sandalwood oil for the subsequent period and this burden which has been cast on the assessee has not been discharged by assigning any valid reason. However in the statement made by the Company officials before the Investigating Authority as recorded u/Sec. 14 of the Central Excise Act, particularly that of Sri. M.K. Hanumanthaiah, Deputy General Manager, Mysore Unit, it is admitted that, after submitting a cost sheet on 18/08/2000 there was revision in the value nor the assessee disclosed the increase in the value to the department nor the differential duty was paid. However, when it was detected by the officers the same came to be paid. These statements have remained uncontraverted.

32. Yet another factor to be noticed by us is that assessee raised journal vouchers at Mysore unit for the difference in stock transfer price and price element/new valuation as was evident from the vouchers which fact is not disputed. Though both Mysore unit and Bangalore unit were aware about this depicting of difference in values, the assessee did not bring it to the notice of the department and on facts it was found by the authorities that the assessee had subscribed to a wrong declaration in the returns filed at regular intervals. In this regard the proposition of law laid down by their Lordship's in the case of Madras Chem Ltd. v. CCE Madras, reported in 1999 (108) ELT 611 (SC) is required to be extracted which reads as under:

The proposition of law as laid down is not in dispute. We find in the present case as aforesaid, a clear finding was recorded that the petitioner was aware and was obliged to file RG 1 Register, gate passes and also of clearances in the RESPONDENT 12 returns by disclosing the particulars which was not done in the present case. The finding recorded in this case, especially in the background that this was a case of self removal procedure in which there is obligation cast on the assessee to make proper and correct declaration and entries in the production register RG 1. Further finding was that it was not by inadvertence. There could be no other inference if it was not by inadvertence, then deliberate, then it is not in the realm of inaction of the assessee but with the objective of a gain, which in other words would be conscious withholding of the information .

(emphasis supplied)

33. The learned counsel appearing for the assessee would contend that the decision rendered by their Lordship's in AMCO Batteries, Mahindra's and Mahindra and Narmada Chematur Pharmaceuticals Ltd. referred to supra is fairly applicable to the facts of the present case. As also the decision of Continental Foundation, Bharat Electronics and Tamil Nadu Housing Board. The propositions laid down in the said judgments cannot be disputed. However, it has to be seen whether the same would be applicable to the facts of the present case. In the decisions referred to above it has been held as follows -

(a) Amco Batteries - In the said case regular books of accounts and proper documentation was maintained.

(b) Mahindra & Mahindra's case - It has been held in para 4 to the following effect - there can be number of eventualities where extended period of limitation in terms of proviso Sec. 11A may be available to the department despite availability of MODVAT credit to an assessee. The availability of MODVAT credit to an assessee by itself is not a conclusive or decisive consideration. It may be one of the relevant consideration. How much the weight is to be attached thereto would depend upon the facts of each case.

34. In the instant case it is seen that assessee was fully aware that it was adopting self removing procedure and was assessing the same by adopting by the Valuation Rules, 2000, by adopting the cost construction method and the price of the product sold would be the determining factor and knowingly fully about this, it did not chose to inform the department by giving the cost analysis when there was escalation in the price of Sandalwood oil. Hence, the said judgments are inapplicable to the facts of the present case.

(c) Continental Foundation:- An incorrect statement cannot be equated with a willful mis-statement for invoking extended period of limitation.

In para 10 of the said judgment it has been held as follows -

When revenue invokes the extended period of limitation u/sec. 11A, the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful mis-statement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct .

As observed by us herein above in the instant case the assessee being under as removal procedure was aware about the applicability of Sec. 4(1)(b) of the Act and also the Valuation Rules. It having adopted the cost construction method and being fully aware of the determination of the cost analysis did not chose to sell the same for a higher rate to other customers and in respect of stock transfer raised journal vouchers as found in the balance sheet, which amounted to suppression and willful mis-statement. Hence, the said judgment is also inapplicable to the facts of the present case.

(d) Bharat Electronics case:- In the said case the classification list if approved by the department and subsequently the revenue took up the stand that the approval of the list was for the part of item only. This was not found in favour of the revenue on the ground that there was no willful mis-declaration.

35. The said judgment is not applicable to the facts of the case as in the instant case the assessee being aware about the determination of price ought to have filed the price classification list and as such it was accepted in the statement recorded u/Sec. 14 of the Central Excise Act, which has not been retracted. Hence, the said judgment is not applicable to the facts of the present case.

(e) Tamil Nadu Housing Board's case:-

In the said judgment the issue which was under consideration with regard to invocation of proviso u/sec. 11A in a case where there was scope for doubt whether the case of duty was made out or not and accordingly it was held that the extended period of limitation cannot be invoked.

36. In the said case there were two units of assessee viz., concrete unit and wood products unit and on the basis of the advice given by the Excise Department the license for wood products unit was not taken and license had been taken only for concrete unit and as such it was held that revenue was not justified in invoking the extended period of limitation. However, in the instant case we find that the question of any advice by the department did not arise and it has been found by the Assessing Officer that the assessee was fully aware about the modalities, procedure adopted and assessed and as such the Officers realizing their lapses admitted and paid the duty immediately after it was deleted by the officers. Hence, the said judgment is also not applicable to the facts of the case. In view of the above discussion, we are of the considered opinion that the extended period of limitation invoked in the instant case is squarely applicable to the facts of the present case. Hence, question No.3 formulated herein above in CEA No.11/2006 (which alone arises for consideration the said appeal) is to be answered in the affirmative i.e., in favour of the Revenue and against the Assessee.

RE: CEA 23 OF 2005

37. The revenue has contended that tribunal was in error in holding prohibition under Rule 7(1)(b) will not be applicable to the facts of the case. Per contra Sri. Shivdas would vehemently contend that department / revenue cannot deprive the assessee of taking Cenvat Credit of the additional duty paid. When admittedly there is no sale and it was only a stock transfer and hence assessee would not be hit by exclusion clause under Rule 7(1)(b). In order to consider this rival contention Rule 7(1)(b) is required to be extracted. It reads as under:

Rule 7. Documents and Accounts - (1) The Cenvat Credit shall be taken by the manufacturer on the basis of any of the following documents namely:-

c) xxxxx

d) A supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provision of Central Excise Rules, 2002 from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by or on behalf of the said manufacturer or importer, in case additional amount of excise duties or additional duty of customs leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty become recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any provisions of the Act or of the Customs Act, 1962 or the rules made thereunder with intent to evade payment of duty.

In order to apply the embargo provided under above rule and deprive the assessee of availing Cenvat Credit there should be sale. The documents referred to in Rule 7(1)(b) are illustrative in nature which would demonstrate that duty has been paid or evidencing paying of duty. Admittedly in the instant case TR-6 challan are produced by Mysore Unit to evidence payment of duty the Tribunal on careful examination & scrutiny of Rule 3 and Rule 7(1)(b) has held as follows:

A very careful reading of the above rules shows that the bar for availment of credit on supplementary invoices would operate only when the additional amount of duty becomes recoverable from the manufacturer on account of non-levy or short levy by reason of fraud, collusion or any willful misstatement or suppression of facts etc. Further, the prohibition to avail credit on supplementary invoices will operate only in the case of sale. In other words the receiver of the input should have purchased the goods from the manufacturer who had to pay the additional amount of duty after detection of suppression of facts fraud, etc., on his part. Therefore, when there is simply a stock transfer the prohibition under Rule 7(1)(b) will not be applicable. In other words, when there are two units A and B, and if goods are stock transferred from unit A to unit B and even if the additional amount of duty becomes recoverable from A on account of fraud, suppression of facts etc., the unit B can take credit. The case laws relied on by the learned advocate are squarely applicable. We are in agreement with the above contentions of the appellant that Rule 7(1)(b) of CENVAT Credit Rules cannot debar availment of CENVAT credit at Bangalore factory for the simple reason that the transaction between the two factories is not one of sale. It should also be borne in mind that both the factories belong to the Government of Karnataka. Although the irregularity committed in Mysore resulted in Revenue loss to the Mysore Commissionerate, looking into the totality of the circumstances, there was no revenue loss to the exchequer at all. This fact has been recorded by both the Adjudicating authorities. Whatever duty is paid at Mysore on Sandalwood oil, the same is taken as CENVAT credit at Bangalore. The duty on the finished products namely, toilet soaps is discharged under Section 4A on the basis of MRP. Since the value of soap takes into account the escalated cost of the sandalwood oil there cannot be any short payment of duty on the toilet soaps at Bangalore. In effect, the Government did not suffer any loss .

38. Learned counsel for the revenue has contended that Tribunal had relied upon the Judgment of Nagpur Tribunal in the case of Ballarpur Industries Ltd., Vs. CCE Nagpur which has been over ruled by Hon'ble Supreme Court in CCE, Nagpur Vs. Ballarpur Industries Ltd., reported in 2007 (215) ELT 489 (SC) and contends the finding of Tribunal is to be reversed. In Ballapur Industries case the Hon'ble Supreme Court held as follows:

Applying the above tests to the facts of the present case, we hold that the Department was not entitled to invoke the extended period of limitation vide the first show cause notice dated 21-5-1999. However, the second and third show cause notices dated 30-9-1999 for the period April, 1999 to June, 1999 and 18-11-1999 for the period July, 1999 to September, 1999 respectively are within time. Therefore, we strike down only the first show cause notice dated 21-5-1999. However, we hereby set aside the impugned judgment of the Tribunal which has held that rule 57cc of the 1944 rules is not applicable to this case as there was no sale . In cases where the manufacturer does not comply with Rule 57CC(9), he shall debit the presumptive sum equal to eight per cent of the value of the exempted goods at the time of clearance from the factory gate. This rule would apply to stock transfers also.

In the said judgment it has been held in paragraphs 15 and 16 by their Lordships to the following effect:

15. Under Section 4(1)(a) normal price was the basis of the assessable value. It was the price at which goods were ordinarily sold by the assessee to the buyer in the course of wholesale trade. Under Section 4(1)(b) it was provided that if the price was not ascertainable for the reason that such goods were not sold or for any other reason, the nearest equivalent thereof had to be determined in terms of the Valuation Rules, 1975. Therefore, Rule 57CC has to be read in the context of Section 4(1) of the 1944 Act, as it stood at the relevant time. Section 4(1)(a) equated value to the normal price which in turn referred to goods being ordinarily sold in the course of wholesale trade. In other words, normal price, which in turn referred to goods being ordinarily sold in the course of wholesale trade at the time of removal, constituted the basis of the assessable value. Rule 57CC(1) proceeds on the basis that the manufacturer has taken credit of the specified duty on common inputs which needs to be reversed at eight per cent (i.e. the manufacturer needs to debit an amount equal to eight per cent of the price of the exempted final product charged for the sale of such goods. This amount is a presumptive sum calculated at eight per cent of the price charged. The rate of eight percent is the measure to calculate the presumptive sum. Further, reading Rule 57CC(1) with Rule 57CC(8) one finds that entire rule is based on deemed price and recovery of presumptive amount and, therefore, in our view, the words price charged at the time of sale must be read as eight per cent of the value of the exempted goods . Our interpretation stands supported by the Instructions issued by the Central Board of Excise and Customs based on the Circular No.B-42/1/96-TRU, dated 27-09-1996. This is where Section 4 and the Valuation Rules, 1975 come into play. In the light of the above discussion, the adjudicating authority was required to adjudicate upon applicability of Rule 6(b)(I) and Rule 6(b)(ii). However, it has been held by the adjudicating authority that Rule 6(b)(I) is not applicable, hence, in our view the only issue which remains to be decided is whether all the requisite elements of costing like wages, profits etc. have been taken into account by the assessee herein as required under Rule 6(b)(ii).

16. In the case of Union of India and Ors. V. Bombay Tyre International Ltd., AIR 1984 SC 420 this Court had drawn a distinction between the nature of levy and the measure/yardstick on which the tax (duty) is determined .

39. In the said case the issue that came up for consideration was with regard to valuation of the goods itself whereas in the instant case the issue is with regard to entitlement of CENVAT Credit on the additional duty paid. The revenue is attempting to press into service prohibition envisaged in Rule 7(1)(b) to contend that assessee would not be certified to CENVAT Credit only on the basis that additional duty has been paid, because of detection made by the department of suppression by assessee and said additional duty paid cannot be taken for purposes of extending CENVAT credit. It is to be seen that CENVAT Credit in the instant case is granted under Rule 3 of CENVAT Credit Rules & it reads as under:

Rule 3. CENVAT Credit:-

(1) A manufacturer or producer of final products shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -

(i) The duty of excise specified in the First Schedule to the Tariff Act, leviable under the Act;

(ii) The duty of excise specified in the Second Schedule to the Tariff Act, leviable under the Act;

(iii) The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978);

(iv) The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);

(v) The National Calamity Contingent duty leviable under section 136 of the Finance Act 2001 (14 of 2001) as amended by section 169 of the Finance Act, 2003 (32 of 2003) which was amended by section 3 of the Finance Act, 2004 (13 of 2004);

(vi) The Education Cess on excisable goods leviable under clause 81 read with clause 83 of the Finance Bill (No.2), 2004, which by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931 (16 of 1931) has the force of law;

(vii) The additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) and (vi) above; and

(viii) The additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003).

Paid on any inputs or capital goods received in the factory on or after the first day of March, 2002, including the said duties paid on any inputs used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.214/86-Central Excise, dated the 25th March, 1986, published vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final products, on or after the first day of March, 2002.

Explanation - For the removal of doubts it is clarified that the manufacturer of the final products shall be allowed CENVAT credit of additional duty leviable under section 3 of the Customs Tariff Act on goods failing under heading 98.01 of the First Schedule to the Customs Tariff Act.

(2) Notwithstanding anything contained in sub-rule (1), the manufacturer or producer or final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any goods cease to be exempted goods cease to be exempted goods or any goods become excisable.

[(3) The CENVAT credit may be utilized for payment of -

(a) any duty of excise on any final product; or

(b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or

(c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or

(d) an amount under sub rule (2) of rule 16 of Central Excise Rules, 2002.]

Provided that while paying duty, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month for payment of duty relating to the month.

Provided further that the CENVAT credit of the duty paid on the inputs used in the manufacture of final products cleared after availing of the exemption under the notification numbers 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated the 8th July, 1999] and 33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated 8th July, 1999] shall be utilized only for payment of duty on final products cleared after availing of the exemption under the said notification numbers 32/99-Central Excise, dated 8th July, 1999 and 33/99-Central Excise, dated the 8th July, 1999.

[Provided also that the CENVAT credit of the duty paid on the inputs used in the manufacture of final products cleared after availing of the exemption under the notifications No.39/2001-Central Excise, dated the 31st July, 2001 [G.S.R. 565(E), dated the 31st July, 2001], No.56/2002-Central Excise, dated the 14th November, 2002 [G.S.R. 764(E), dated the 14th November, 2002], No.57/2002-Central Excise, dated 14th November 2002 [G.S.R. 765(E), dated the 14th November, 2002], notification of the Government of India in the Ministry of Finance (Department of Revenue) No.56/2003-Central Excise, dated the 25th June, 2003 [G.S.R. 513(E), dated the 25th June, 2003], and No.71/2003-Central Excise, dated the 9th September, 2003 [G.S.R. 717(E), dated the 9th September, 2003].

Shall respectively be utilized only for payment of duty on final products, in respect of which exemption under the said notifications No.39/2001-Central Excise, dated the 31st July, 2001, No.56/2002-Central Excise, dated the 14th November, 2002, No.57/2002-Central Excise, dated the 25th June, 2003, and No.71/2003-Central Excise, dated the 9th September, 2003, is availed of.]

[(4) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, the manufacturer of the final products shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 7.]

[(4A) Notwithstanding any thing contained in these rules, -

(a)

(b) .

(c)

(5) The amount paid under sub-rule (4) shall be eligible as CENVAT credit as if it was a duty paid by the person who removed such goods under sub-rule (4).

(6) Notwithstanding anything contained in sub-rule (1), -

(a) CENVAT credit in respect of inputs or capital goods produced or manufactured, -

[(i) by a hundred per cent. Export-oriented undertaking .. assessable value.]

(ii) ..

Explanation - Where the provisions of any other rule or notification provide for grant of partial or full exemption on condition of non-availability of credit of duty paid on any input or capital goods, the provisions of such other rule or notification shall prevail over the provisions of these rules.

40. We are of the considered opinion that Rule 7 is illustrative in nature and it cannot place any fetters on Rule 3. The additional duty has been paid under re-assessment or on being detected by the department and such duty paid is available as Credit under Rule 3 of CENVAT Credit Rules to the assessee & it cannot be allowed to be whittled down by Rule 7(1)(b). Thus, principles enunciated in Ballarpur Industries would be inapplicable to the facts of the case. The Commissioner while passing the Order in Original has accepted that there has been no loss of revenue to the Government. In paragraph 15 of the Order in Original dated 25-2-2005 it is held as follows:

However, I find some force in the defence plea that there was no loss of revenue to the department since whatever duty paid by their Mysore unit is admissible as cenvat credit, but for the reason discussed in the earlier paragraph. It is also relevant to note that there is no allegation of any suppression of any facts, made against the assessee and the credit taken on the supplementary invoices is clearly indicated by the assessee in their monthly returns. Since the credit taken on the said supplementary invoices is held to be not admissible, I observe that this in itself is sufficient punishment to the assesseee, notwithstanding the fact that they are also held liable to pay appropriate interest on the said cenvat credit so wrongly taken .

Hence, we are of the opinion that questions of law formulated will have to be answered in favour of assessee and against revenue.

41. Accordingly the questions of law as formulated in appeals CEA No.23/2005 & CEA No.11/2006 are answered as follows:

CEA 23/2005:

1

Whether the Tribunal was right in coming to a conclusion that prohibition under Rule 7(1)(b) (now Rule 9 (1)(b) of the CENVAT Credit Rules will not be applicable to the facts of the instant case?

Affirmative. Tribunal was right in coming to a conclusion that prohibition under Rule 7(1)(b) would not be applicable in the facts of the case.

2

Whether the Tribunal was right in upholding the CENVAT Credit taken by the Bangalore Unit, based on the supplementary invoice raised by the Mysore Unit, by concluding that Rule 7 (1)(b) is not applicable, especially in the view of the fact that if prohibition under Rule 7 (1)(b) is not applicable then the provisions of the Rule itself ceases to be applicable?

Affirmative.

Prohibition under Rule 7(1)(b) of CENVAT Credit Rules is not applicable to the facts of the case.

3

Whether the Tribunal was right in passing the impugned order by relying on decisions which are under challenge before the Hon'ble Supreme Court?

Does not arise. The facts of the case on hand are distinguishable to the facts of those cases.

CEA. No.11/2006:

1. Whether the Tribunal, in the above facts and circumstances, was right in upholding the order of the lower authority invoking the longer period of limitation under Section 11A(1) of the Central Excise Act 1944 when the law on this issue has been settled by numerous decisions of the Supreme Court

Affirmative. Tribunal, in the facts of the case was right in upholding the order of the lower authority invoking the longer period of limitation under Section 11A(1) of the Central Excise Act 1944.

42. In view of the above both the appeals are dismissed answering the questions of law as herein above.