[Order per : M.V. Ravindran, Member (J)]. - These two appeals are directed against the Order-in-Original No. 01/COMMR/VDR-II/MP/2007-08, dated 22-6-2007 and 02/COMMR/VDR-II/MP/2007-08, dated 22-6-2007. Appeal No. E/875/2007 is filed by M/s. Darshak Ltd. (Now known as Alembic Ltd.) while Appeal No. E/876/2007 is filed by M/s. Nirayu Pvt. Ltd.

2. Since in both the appeals the issue is common, they are being disposed of by a common order.

3. The brief facts that arise for consideration are as under :

3.1 That the Appellant companies are engaged in manufacture of pharmaceutical products falling under Chapters 28 and 29 of the schedule to the Central Excise Tariff Act, 1985.

3.2 During the period 1-7-1997 to 31-8-2001 M/s. Darshak had sent various inputs and partially processed inputs to M/s. Nirayu and M/s. Paushak which are their sister concern on returnable gate pass. Further M/s. Nirayu had issued invoice for duty amounting to Rs. 13,50,294/- for Platinum material cleared to M/s. Darshak Ltd. in the past and M/s. Darshak availed credit of the same. M/s. Darshak was issued show cause notice dated 28-10-2002 proposing demand of duty of Rs. 34,77,285/- on clearance of input as such alleging that the said inputs were not received back by M/s. Darshak. It was also proposed to recover Cenvat credit amounting to Rs. 8,80,184/- on clearances of input as such for job work not received back by said M/s. Darshak. A duty of Rs. 13,50,294/- was further proposed to recover on account of wrong availment of Cenvat credit alleging that the said goods were not received by M/s. Darshak. It was proposed to appropriate the amounts paid by M/s. Darshak against the demand. Penalties were also proposed against M/s. Darshak in terms of Section 11AC of the Central Excise Act, 1944 read with Rule 173Q and Rule 57-I/57AH of Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules (No. 2), 2001 & Rule 13(2) of the Cenvat Credit Rules, 2001. Further proposed to charge interest under Section 11AB of CE Act, 1944 read with Rule 57-I/57AH of the erstwhile Central Excise Rules, 1944.

3.3 M/s. Nirayu was issued show cause notice F. No. V (CH. 28)15-1/OA/2002/5493, dated 30-12-2002, wherein it was proposed to recover an amount of Rs. 2,02,71,180/- not reversed/paid during the period December, 1997 to August, 2001 on goods cleared to their sister concern on Returnable gate pass and to appropriate an amount of Rs. 4,34,256/- so paid by the Appellant against the said demand. An amount of Rs. 3,53,268/- was also proposed to be recovered on account of finished goods found to have been excess produced in internal records than the statutory records and it was proposed to adjust the amount of Rs. 3,53,268/- so paid by the Appellant against the demand. It was also proposed to impose penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 173Q and Rule 57I/57AH of Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules (No. 2), 2001 & Rule 13(2) of the Cenvat Credit Rules, 2001. Further proposed to charge interest under Section 11AB of Central Excise Act, 1944 read with Rule 57I/57AH of the erstwhile Central Excise Rules, 1944.

3.4 The Show Cause Notices were adjudicated vide separate Adjudication Orders dated 25-6-2004. In case of SCN issued to M/s. Darshak the demand of Rs. 50,03,165/- was confirmed whereas in case of SCN related to demand on M/s. Nirayu a demand of Rs. 1,20,99,486/- was confirmed. The adjudicating authority in both the cases also ordered for interest to be charged as per the provisions of Section 11AB of the Central Excise Act, 1944 read with Rule 57AH of the Central Excise Rules, 1944 and Rule 12 of Cenvat Credit Rules, 2000. He also imposed equivalent amount of penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 57I, 57AH, Rule 13 of Central Excise Rules, 1944 and Cenvat Credit Rules, 2001/2002. The Adjudicating authority also imposed penalty of Rs. 1,00,000/- each on M/s. Nirayu and M/s. Paushak under Rule 209A of the Central Excise Rules, 1944/Rule 26 of the Central Excise Rules, 2001 in case of show cause notice issued to M/s. Darshak Ltd. In case of SCN issued to M/s. Nirayu, a penalty of Rs. 1,00,000/- each was imposed on M/s. Darshak, M/s. Alembic and M/s. Paushak under Rule 209A of the Central Excise Rules, 1944/Rule 26 of the Central Excise Rules, 2001/2002.

3.5 Aggrieved with the orders dated 25-6-2004 both the Appellants filed appeal before the Tribunal who vide order 12-7-2005 in respect of M/s. Darshak Ltd: confirmed demand of Rs. 50,03,165/-, however allowed credit of such duty to the recipient units namely M/s. Nirayu and M/s. Paushak in respect of inputs received by them. The Tribunal also ruled that the penalty of Rs. 50,03,165/- imposed upon M/s. Darshak and of Rs. 1,00,000/- each imposed upon M/s. Nirayu and M/s. Paushak are unduly harsh in view of the fact that removal of duty-paid inputs are accounted for in the private records of the concerned units though not in accordance with the rules. The Tribunal considering the clearance of the goods in contravention of rules thus reduced the penalty amount of M/s. Darshak to Rs. 2,00,000/- and on M/s. Nirayu and M/s. Paushak on Rs. 20,000/- each.

3.6 In respect of case related to M/s. Nirayu, the Tribunal while upholding demand also allowed credit of such duty to the recipient units. The Tribunal also ruled that the penalty of Rs. 1,20,99,486/- imposed upon M/s. Nirayu and of Rs. 1,00,000/- each imposed upon M/s. Darshak, M/s. Alembic are excessive and considering the clearance of the goods in contravention of rules thus reduced the penalty amount of M/s. Nirayu to Rs. 5,00,000/- and of M/s. Darshak, M/s. Alembic and M/s. Paushak on Rs. 20,000/- each.

3.7 The Appellants filed miscellaneous applications dated 28-9-2005 before the Tribunal for modification of order dated 12-7-2005 on the ground that in the said order, the Tribunal considered it to be too harsh to impose penalty upon them and also allowed the credit to the recipient units thus clearly indicating that the issue was revenue neutral. That it is clear that the bona fide of the Appellant was not disputed by the Tribunal still demand for extended period was confirmed. That the material period involved is from December 97 to August 2001 and interest under Section 11AB in such case can be demanded only for the period after 11-5-2001.

3.8 The Tribunal vide order dated 12-2-2007 agreeing with the Appellants that the order has not dealt with the interest issue held that inasmuch as the demands stands confirmed and the penalties stands reduced by the order of the Tribunal, directed the adjudicating authority to confirm the interest amount in accordance with law.

3.9 The Commissioner vide Order-in-Original No. 01/COMMR/VDR-II/MP/2007-08, dated 22-6-2007 & Order-in-Original No. 02/COMMR/VDR-II/MP/2007-08, dated 22-6-2007 confirmed the interest liability under Section 11AB on the ground that the demand was confirmed against the appellants under proviso to Section 11A(1) upholding the charges of willful suppression of facts and contraventions of provisions of central excise rules with intention to evade payment of duty and keeping in view this legal position the interest is legally chargeable for the period up to 11-5-2001 in terms of Section 11AB.

3.10 Both the Appellants aggrieved with the aforesaid orders have filed the present appeals.

3.11 The Tribunal vide Stay Order dated 23-8-2007 ordered for pre-deposit of 50% amount of the interest liability. The Appellants filed application for modification of the stay order on the basis of new/additional grounds. The Appellants sought permission for introduction of following new grounds :

(a)     Rule 57-I/57AH were not in existence in the statute book when the show cause notices were issued as the said rules have been substituted by Rules 57AA to 57AK w.e.f. 31-3-2000.

(b)     Section 37 of the Central Excise Act does not vest any power to levy interest in case of denial of Modvat credit.

(c)     Whatever payment made by the applicants as duty earned as credit simultaneously and immediately by the receiving units of M/s. Alembic group and hence the entire exercise is a revenue neutral one.

(d)    Interest is an appendage or an accessory to the principal w.e.f. 1-4-2000, as per the amended Rules 57AC manufacturer has to pay an amount equal to the duty leviable on the inputs. Inasmuch as what has paid is neither duty nor Cenvat credit, the question of charging interest on such amount under 11AB does not arise.

3.12 The Tribunal vide order dated 22-10-2007 did not find merit in application for modification of stay, however allowed the applications for introduction of additional grounds.

3.13 Vide Order Nos. M/1112-1113/WZB/AHD/2008, dated 10-10-2008 [ (Tri.-Ahmd.)] the issue was referred to the Larger Bench for reference as to whether the interest on duty/Cenvat credit demanded by applying proviso to Section 11A or Section 11A read with Cenvat Credit Rules, or under Rule 57-I is payable under Section 11AB prior to 11-5-2001.

3.14 The Larger Bench [ (Tri.-LB)] relied upon the judgment of the Hon’ble Gujarat High Court in the case of Exotic Associates v. Commissioner of Central Excise - (Guj.) while answering the reference. It held that the amendment w.e.f. 11-5-2001 in Section 11AB has enlarged the scope of the coverage of recovery of interest to all cases wherein the demand has been confirmed by the authorities or has been voluntarily paid by an assessee. The amendment does not wipe out the existing liability to pay interest in respect of cases involving fraud, collusion, any wilful misstatement of facts with intent to evade payment of duty. The amended sub-section (2) of Section 11AB from 11-5-2001 only mandates that interest liability cannot be fastened under the amended Section 11AB prior to 11-5-2001.

4. The ld. Counsel appearing for the Appellants has filed written submissions along with the judgments. He would submit that in the present case the facts which need consideration is that Tribunal in its order dated 12-7-2005 while confirming the demand on the Appellant also allowed the credit of such duty to the recipient units which are sister concerns of the Appellant as well as reduced the penalties finding the same to be too harsh in view of the fact that the clearances were recorded in private records. That it held that some penalty are to be imposed for clearances of goods in contravention of rules. The order dated 12-7-2005 clearly shows that the whole issue is revenue neutral and does not falls under the category of cases of evasion of duty on account of fraud, suppression wilful misstatement so as to invite interest under Section 11AB before 11-5-2001. He would further argue that even the Tribunal in its order dated 22-10-2007 allowed the introduction of additional ground among which one was holding the entire exercise as revenue neutral which again shows that the Tribunal agreed with the grounds raised by the Appellant that the issue is revenue neutral. That it is undisputed that goods cleared to the sister concerns were used in manufacture of dutiable goods and the duty payment by the sister concern makes the whole situation revenue neutral. The ld. Counsel cites following judgments to canvass his point of revenue neutrality and states that in such case no penalty under Section 11AC and interest under Section 11AB can be demanded from them :

(i)      CC. Ex. & Cus., Vad. v. Indeos ABS Ltd. - (Guj.)

(ii)    CCE, Chennai v. S & S Power Switchgear Ltd. - (Tri.-Chennai)

(iii)   Hindustan Zinc Ltd. v. CCE, Jaipur-II - (Tri.-Del.)

(iv)   CC Ex., Pune v. Coca-Cola India Pvt. Ltd. - (S.C.)

5. Ld. Advocate further submits that since the issue is revenue neutral and the Tribunal did not find it a case to be of fraud, collusion, wilful misstatement, or suppression of fact or contravention with intent to evade payment of duty, therefore even if any interest under Section 11AB is leviable, the same can be levied only in respect of clearances effected after 11-5-2001 and not for the clearances effected before 11-5-2001 as held by the Hon’ble High Court of Gujarat in case of CC. Ex. & Cus., Daman v. Nirmala Dyechem - (Guj.) = (Guj.). The ld. Counsel also without prejudice to his other submissions submits that even if any interest is leviable, it shall be levied after 11-5-2001 as held by the Tribunal in the case of CC. Ex., Aurangabad v. Siddeshwar SSK Ltd. - (Tri.-Mumbai) and Ispat Industries Ltd. v. Commissioner of Central Excise, Raigad - (Tri.-Mumbai) wherein in an identical issue, it was held that that in absence of intention to evade payment of duty, penalty under Section 11AC and interest under Section 11AB cannot be imposed. He further relies upon the judgment of Tamil Nadu Newsprint & Papers Ltd. v. Commr. of C. Ex., Trichy - (Tri.-Chennai) to support his claim that even in cases where though the demand was confirmed by invoking extended period but no intention to evade payment of duty was found the Appellate Tribunal has set aside the penalty under Section 11AC and interest under Section 11AB. He states that the judgment of Hon’ble Larger Bench in the case of Ramkumar Mills Pvt. Ltd. v. Commissioner of C. Ex., Bangalore - (Tri.-LB) is squarely applicable in the present case as the Hon’ble Larger Bench while deciding the issue of valuation of goods held that the interest under Section 11AB of the C.E.A., 1944 cannot be demanded prior to the date of introduction of the date of Section and the assessee is liable to pay interest w.e.f. 11-5-2001.

6. To canvass his point the ld. Counsel further draws our attention to the fact that against the order dated 12-7-2005, the revenue had filed appeal before the Hon’ble High Court of Gujarat, Ahmedabad formulating two question of laws in which the first ground was to whether the credit is available to the recipient units and second was as to whether the penalty could have been reduced by the Appellate Tribunal. That the Hon’ble High Court admitted the appeal only on question of law pertaining to equivalent amount of penalty and did not admit the question of law as to the availability of credit to the recipient units which clearly means that the order dated 12-7-2005 of the Tribunal towards availability of credit to the recipient units is undisputed and thus the whole issue is revenue neutral. He submits that in view of the fact that the whole issue is revenue neutral, there is no reason to demand interest under Section 11AB. The ld. Counsel would further take us to the judgment of the Hon’ble Supreme Court in the case of Punjab Tractors Ltd. v. CCE, Chandigarh - (S.C.) and seeks to draw parallel between the facts of the said case and the present issue. He states that the Hon’ble Apex Court considering the situation of revenue neutrality imposed penalty under Rule 173Q of erstwhile Central Excise Rules, 1944 and Rule 25 of Central Excise Rules, 2002 and therefore the imposition of penalty in the present case by the Tribunal cannot be inferred as imposition due to any fraud or willful intention to evade payment of duty.

7. It is his submission that the reference answered by the Hon’ble Larger Bench is not related/applicable in the facts of the present case as the Larger Bench’s order is related to issue as to whether in cases involving fraud, collusion, suppression or misstatement the liability under Section 11AB for interest gets wiped out after 11-5-2001. That the Hon’ble Larger Bench held that in such nature of cases the liability arises even after 11-5-2001 and that even in the cases not involving fraud, collusion or misstatement, etc. the Section 11AB shall be applicable after 11-5-2001. He submits that the present case stands on different footing as though the demands are for the extended period were confirmed, but the Tribunal did not find it fit to impose penalty under Section 11AC and also allowed the credit of duty to the recipients of the goods of the duty, paid by the Appellant, which clearly shows that the issue being of revenue neutrality, no interest can be imposed under Section 11AB. He states that even the judgment of the Hon’ble Gujarat High Court in the case of Exotic Associates v. Commissioner of Central Excise - (Guj.) is related to issue in which the ingredients of fraud, suppression and mala fide intention were present. The Hon’ble High Court thus upheld the penalty under Section 11AC and also interest under Section 11AB whereas in the case in hand the issue being clearances to sister concern and of revenue neutrality, the provisions of un-amended Section 11AB before 11-5-2001 is not applicable to the clearances made before said date.

8. The ld. Departmental Representative would argue that since the demands has been confirmed by invoking extended period and penalty was imposed by the adjudicating authority under Section 11AC hence the interest under Section 11AB is imposable. He would take us through the order passed by the adjudicating authority to hold that the findings therein shows that the demand confined against the Appellants were on account of fraud, suppression and willful intention and therefore the interest is applicable.

9. We have considered the submissions made at length by both sides and perused the records as well as written submissions filed by the Counsel for the Appellants.

10. The issue which is to be decided by us in both of these appeals is whether appellants herein are required to be saddled with the interest under the provisions of un-amended Section 11AB before 11-5-2001 of the erstwhile Central Excise Act, 1944.

11. On perusal of records, written submission and appreciation of facts of the case, we find that the Appellants had cleared Modvatable/Cenvatable inputs/processed goods to their sister concern on Returnable gate passes but did not reverse the credit or paid duty. After the issue of show cause notice, the demands were confirmed against the Appellant as well as equivalent amount of penalties were imposed. The Tribunal vide order dated 12-7-2005 though upheld the demands, allowed the credit of such demands to the recipient units. Also considering the case to be of contravention of rules and holding the penalties to be too harsh in view of the fact that the entries of clearances were recorded in the private records of the Appellant reduced the penalties. The Tribunal in subsequent order dated 22-10-2007 also admitted the additional grounds introduced in the Appeal for ascertaining the revenue neutrality. On consideration of the above facts we find that as the Tribunal in its order dated 12-7-2005 had allowed the credit of the duty paid by the Appellants to the recipients units which are sister concern of the Appellants, we are of the view that the whole issue becomes revenue neutral and in such cases there is no reason to hold the non-payment of duty can be attributed to any fraud, collusion or willful misstatement. Our views are based upon the judgment of Hon’ble Supreme Court in the case of M/s. Coca Cola India Pvt. Ltd. - (S.C.) and Hon’ble Gujarat High Court’s judgment in the case of M/s. Indeos ABS Ltd. - (Guj.) on a similar issue the Hon’ble Court did not find it fit to demand duty and waived interest and penalties. Further we are also fortified in our view with the orders passed by the Tribunal in the case of S & S Power Switchgear Ltd. - and Hindustan Zinc Ltd. - wherein the demand of duty on clearances made to the sister concerns were held to be of revenue neutral nature. Our these views are also based upon a fact that the Tribunal in its order dated 12-7-2005 while allowing credit to the recipient of goods also reduced the penalties upon the Appellant and also recipient units considering the same to be too harsh. It is to be noted that against such an order of the Tribunal, Hon’ble High Court has admitted an appeal only on penalties and not extending benefit of Cenvat credit to recipient units. Coming to the core issue as to whether in such circumstances whether there is interest liability. under Section 11AB, we find that Section 11AB prior to 11-5-2001 was applicable only in cases where the duty was evaded on account of fraud, collusion or willful misstatement. However, after 11-5-2001 Section 11AB was made applicable to all cases where the duty payment was delayed whether on account of intended evasion or otherwise. We concur with the submission of the ld. Counsel that the issue before the Larger Bench was confided only to the question of applicability of Section 11AB after 11-5-2001 in cases involving fraud, collusion, suppression or misstatement and the Larger Bench held that in such nature of cases the liability stands even after 11-5-2001. The issue of applicability of Section 11AB in a revenue neutral case was not before the Larger Bench and hence the reference answered by the Larger Bench is not applicable to the facts of the present case. In the present case looking to the revenue neutrality we are of the view that the interest under Section 11AB for the clearances made before 11-5-2001 cannot be demanded from the Appellants even though the demands were confirmed by invoking extended period. Our views are also based upon the judgment of the Hon’ble High Court of Gujarat in the case of Commissioner of C. Ex. & Cus., Daman v. Nirmala Dyechem - (Guj.) wherein the Hon’ble Court held that in cases not involving fraud, collusion or willful misstatement, the interest liability under Section 11AB cannot be levied in the case of the incident which occurred prior to the said amendment.

12. We therefore hold that in respect of the demands which are arising for the clearances prior to 11-5-2001, the interest under Section 11AB shall be payable w.e.f. 11-5-2001, if the payments have been made on or after 11-5-2001 and for the clearances effected from 11-5-2001 the interest under Section 11AB shall be paid from the date of duty payable on such clearances and we hold accordingly.

13. Both the appeals are disposed of in above terms.

(Pronounced in Court on 16-7-2014)