M/s. Bay-Forge Ltd. Versus Commissioner of GST & Central Excise Puducherry
Central Excise
2019 (2) TMI 12 – CESTAT CHENNAI – TMI
CESTAT CHENNAI – AT
Dated:- 31-1-2019
Appeal No. E/519/2011 – Final Order No. 40200/2019
Central Excise
Ms. Sulekha Beevi C.S., Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical)
Shri M. Karthikeyan, Advocate for the Appellant
Shri A. Cletus, Addl. Commissioner (AR) for the Respondent
ORDER
Per Bench
The appellant is engaged in manufacture of steel rings, steel forgings and aluminum forgings falling under CETH 73 and 76. Pursuant to investigation, proceedings were initiated against the appellant by way of show cause notice dated 29.9.2010 proposing to deny irregular CENVAT credit availed by them. Adjudication proceedings culminated in an order dated 26.2.2011 confirming the demand / denial of CENVAT credit as under:-
S.No.
Allegations
Demand
1
Availment of the second installment of the cenvat credit on capit
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sively in the manufacture of exempted goods.
Rs.18,53,440
2. In all, the impugned order confirmed total demand of Rs. 2,32,51,011/- along with interest thereon and also imposed equal penalty under Rule 15(2) read with Section 11AC of the Central Excise Act, 1944. Hence this appeal.
3. When the matter came up for hearing ld. counsel Shri M. Karthikeyan, made oral and written submissions which can be broadly summarized as under:-
3.1 The appellant is not contesting the demand relating to Sl. No. 1 (Rs.49,15,448/-), Sl. No. 2 (Rs.4,73,544/-), Sl. No. 7 (Rs.2,71,005/-) and Sl. No.8 (Rs.18,53,440/-). However, he contends that availment of CENVAT credit in these cases had happened only due to inadvertent error / clerical mistake and not with any malafide intention. Further, the appellant had huge credit balance in the CENVAT credit account from the date of taking such credit and they had not utilized such credits taken. Hence demand of interest and also imposition of penalties are not su
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n denied on the entire 2 Mt of Steel ingot in full. In this regard, the appellant places reliance on the decision of the Hon'ble High Court of Allahabad in the case of M/s. Albert David Ltd. reported in 2013 TIOL 621 HC ALL CX wherein the majority decision of the Hon'ble Tribunal, holding that CENVAT credit is not admissible in respect of input contained in the waste and scrap generated during the manufacture of exempted final product, was reversed and it was held that CENVAT credit is admissible on the inputs contained in the waste generated during the manufacture of exempted final product. Revenue's SLP against the said decision was dismissed by the Hon'ble Supreme Court as reported in 2014 TIOL 36 SC CX and the above ratio was followed by the Hon'ble Tribunal in the very same assessee's case subsequently as reported in 2015 TIOL 1248 CESTAT Del. In view of the above, the demand confirmed in this regard is not sustainable on merits as well as on limitation.
3.4 With regard to demand
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is alleged that the entire amortized value of the plant and machinery funded by VSSC also has not been taken into account while arriving at the value of the exempted goods for the purpose of the reversal made in cases where goods were manufactured on their own. The explanation in Rule 6(3A) is effective prospectively only from 1.4.2008 onwards. Notwithstanding the same, the appellant submits that in respect of common inputs used in the exempted goods amount equivalent to CENVAT credit attributable to inputs used have to be reversed and the formula prescribed with effect from 1.4.2008 will apply only for input services and not for inputs used. Hence the demand proposed in this regard is illegal and not sustainable.
3.6 Notwithstanding the above, the plant and machinery funded by VSSC has been used by the appellant for manufacture and supply of dutiable goods to various customer for which royalty is being paid to VSSC by the appellant and hence amortization of the entire value of such
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o Rule 6 and manner in which the reversal amount is required to be calculated. Further, the entire credit taken has not been utilized and the appellant has reversed the credits during the investigation itself as and when pointed out much before the issue of the impugned SCN itself. As such, demand of interest and imposition of penalties are not sustainable.
4. On the other hand, ld. AR Shri A. Cletus supported the impugned order. In respect of the ld. counsel's reliance in the case of Albert David Ltd. (supra), he submits that the ratio thereof cannot be made applicable to the present appeal for the reason that in Albert David Ltd., the issue related to credit on inputs contained in scrap generated during manufacture of exempted goods. The Court observed that since duty is paid on plastic waste, CENVAT credit on the inputs of plastic granules proportionate to waste and scrap is eligible. The said ratio would not be applicable to the present appeal since the waste material is resulting
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7 dated 1.3.1997
Steel forgings / steel rings
Notification No.64/95 dated 16.3.95
Steel forgings / steel rings and aluminum forgings / rings
6.2 They entered into agreement with VSSC of ISRO by which VSSC had agreed to fund for the facility (providing machineries) to the tune of Rs. 56 crores required for the manufacture of final product. The appellant is engaged in manufacture of exempted as well as dutiable products. The first dispute is concerned with the common inputs used for manufacture of exempted goods as well as use of capital goods (machineries) given by VSSC.
6.3 The appellants are not contesting the issues in Sl. No. 1, 2, 7 and 8 and are confining the contest on these issues with regard to penalty only. The issue of penalty will be addressed by us later.
6.4 In Sl. No.3, the demand of Rs. 1,20,52,945/- has been raised on account of the irregular credit availed by the appellant for manufacture of exempted goods. When the appellants are engaged in manufacture of both d
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red the waste / scrap arising out of the manufacture by payment of duty, that is, they have paid duty of Rs. 25,48,822/- on the scrap arising out of manufacture of exempted products. That therefore the remaining inputs is contained in the waste / scrap and they are eligible for the credit of inputs contained in the waste and scrap and are not required to reverse the balance credit. From records it is seen that the appellants have adjusted the duty paid on scrap being Rs. 25,45,822/- and calculated the balance to be Rs. 95,07,123/- and have paid this amount. They have contended that since the inputs are contained in the waste and scrap and when such scrap is cleared on payment of duty, they are eligible for the credit of inputs contained in scrap generated during manufacture of exempted goods. The appellant has relied on the ratio laid down in the case of Albert David (supra). In the said case, the Tribunal had held that CENVAT credit is not available in the inputs contained in scrap th
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ions to work out the quantum of eligible credit when common inputs are used for exempted products as well as dutiable products. All this would go to show that credit is not eligible on inputs used for manufacture of exempted final products. The said Rule does not make any separate dispensation when the waste and scrap arising during the manufacture of such exempted final products are cleared on payment of duty. When there is an embargo to avail credit on inputs used for manufacture of exempted products, in our view, the appellant cannot contend that the credit would be eligible since the waste and scrap is cleared on payment of duty. For this reason, we find that the decision relied by the appellant is not applicable and is of no assistance to the appellant. We therefore conclude that the demand of Rs. 1,29,52,945/- on this issue is legal and proper and does not require interference. So ordered.
6.5 The issues at Sl. No. 4 and 5 are interconnected, hence are taken up for discussion to
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or VSSC and cleared under exemption, the appellants have not included the amortized cost of plant and machinery funded by VSSC. The demand has been raised by the department by including the cost of raw material supplied free by the customers of VSSC and MIDHANI and also the amortized cost of the plant and machinery which was funded by VSSC. It is seen from the records that the appellant furnished Chartered Accountant's certificate as to the funded facility of machineries. Based on the above certificate and other documents, the amortized cost and the material cost has been arrived by the department and the demand for the period September 2005 to March 2008 has been arrived to be Rs. 10,33,314/- and the demand for April 2008 to March 2010 has been arrived as Rs. 16,51,465/-. It is seen from the records as well as from the submissions made by the ld. counsel for the appellant that while arriving at the value of exempted products for the purposes of reversing the credit as per Rule 6(3), a
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e credit has not applied the correct formula. Though the formula has come into effect only from 1.4.2008, the value of the clearances has to be arrived by including the cost of free supplies as well as amortized value of funded machineries. The law after 1.4.2008 is very much clear as to how to arrive at the value of exempted goods. Even prior to 1.4.2008, when the CENVAT Credit Rules bars availing of credit on inputs used for exempted products and also lays down procedure for reversal of proportionate credit, the appellant had to arrive at the value of clearances by taking into consideration the value of free supplies as well as amortized cost. We also have taken into consideration that the appellant has used the funded machinery for dutiable goods and has paid royalty to VSSC for such use. All these aspects have to be considered while arriving at the value of exempted clearances. The authorities below have not taken into consideration all these aspects, for which reason we are of the
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m the records that the appellant had enough credit balance during the relevant period. They had reversed major part of the credit during the investigation itself and as and when pointed out by the department and this was done much before issuance of the show cause notice. We further, take note that all these issues are in the nature of interpretation of law or have resulted from mistakes and inadvertent errors on calculating the amounts to be reversed. Taking all these aspects into consideration, we are of the view that the penalties imposed on all the issues cannot sustain and require to be set aside, which we hereby do.
7. From the discussions made above, we hold that
a. The demand of Rs. 1,29,52,945/- in respect of Issue No. 3 is legal and proper and does not require interference. The appeal on this issue is dismissed.
b. The issues at Sl. No. 4, 5 and 6 are remanded for reworking of the credit as discussed above.
c. The penalties in respect of all the issues are set aside.
8.
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