M/S. Sulzer India Pvt Ltd. (Formerly ... vs Commissioner Of Central Excise, Pun -Iv

[Arising out of Order-in- Original No. PUN-EXCUS- 004-COM-12/14-15 dtd. 31/3/2015 passed by the Commissioner of Central Excise, Pune IV]

For approval and signature:

Honble Mr Ramesh Nair, Member(Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : seen of the Order?

4. Whether Order is to be circulated to the Departmental: Yes authorities? =======================================================

M/s. Sulzer India Pvt Ltd. (formerly knows as Sulzer India Limited) : Appellants

VS

Commissioner of Central Excise, Pun -IV : Respondent

Appearance

Shri. Harish Bindumadhavan, Advocate for the Appellant Shri. V.K. Agarwal, Addl. Commissioner(A.R.) for the Respondent

CORAM:

Honble Mr. Ramesh Nair, Member (Judicial)

Date of hearing: 28/5/2015 Date of decision: 28/5/2015

ORDER NO.

Per : Ramesh Nair

The appeal is directed against Order-in- Original No. PUN-EXCUS- 004-COM-12/14-15 dtd. 31/3/2015 passed by the Commissioner of Central Excise, Pune IV, wherein Ld. Commissioner has rejected the application for storage of finished goods outside the factory premise in terms of Rule 4(4) of Central Excise Rules, 2002.

2. The fact of the case is that appellant, M/s. Sulzer India Pvt Ltd vide their letter dated 19/1/2015 applied for extension of the permission to store finished goods outside the factory premises without payment of duty under Rule, 4(4) of Central Excise Rules, 2002 for the warehouse situated at Kondhapuri, Shirur, Pune for the period from 1/4/2015 to 31/3/2016. They have again submitted letter dated 18/3/2015 to the Jurisdictional Asstt. Commissioner explaining therein the reason for treating their case as exceptional nature. In response to their letter for extension of the permission, the Revenue has written letter F. No. VGN (30) 126/Tech/Sulzer-Rule 4(4)/13-14dated 27/3/2015 proposing rejection of their application and personal hearing was granted before the Commissioner of Central Pune-IV. In the personal hearing appellant explained their application and also made additional written submission vide their letter 30/3/2015. After considering application as well as the submission at the time of hearing Ld. Commissioner has rejected the application for extension of permission under Rule 4(4) of Central Excise Rules, 2002 beyond 31/3/2015. However grace period was allowed for three months beyond 31/3/2014. Aggrieved by the said order the appellant is before me.

3. Shri. Harish Bindumadhavan, Ld. Counsel for the appellant submits that Ld. Commissioner rejected the extension of their permission for storage of finished goods outside the factory premises without payment of duty in terms of Rule 4(4) of Central Excise Rules, 2002 with a view that the reason given by the appellant did not constitute that there is exceptional circumstances. He submits that in the said rules even as per the Ld. Commissioner, exceptional circumstances have to arise with regard to (a) nature of goods (b) shortage of storage space. In the present case even earlier also Ld. Commissioner was granting the permission considering shortage of space as an exceptional circumstances therefore in the present case when same set of facts are on record and there is no change in the circumstances it is not correct on the part of the Ld. Commissioner to hold that appellant has not made out case of exceptional circumstances. He submits that their product is capital goods used in Oil, Chemical & Petrochemical refineries which are used inside the tubular high rise distillation structure in refineries and constitute the principle technology that technology facilitates separation process.

The space of storage of such goods is not sufficient in the factory premises for the reason that since 2011 their export rose from Rs. 30 crores to average Rs. 200 crores over the year after that. Due to increase in the production the appellant has to maintain huge inventory of stock in the factory for which there is shortage of space. He further submits that appellant made all the efforts to utilize entire space and at present they are using entire space for the storage of goods in manufacturing activity therefore now no space left for storage of increased production, this itself has exceptional circumstances. He further submits that due to nature, of the goods stacking of boxes can be done upto a limited level, if goods are stacked above that level of stacking then there are all chances that due to heavy weight, boxes as well as the goods packed therein will get damaged and even stack will fall which may cause severe injuries to human. He also submits that in the matter of extension application in the present case it was granted from 2013 onwards therefore from last two years they are storing the goods outside the factory.

He further submits that their final product is meant for the project of the petroleum company and due to various factors, buyers projects get delayed which results the inventory in their factory gets accumulated. This is also one of the reason that space available in the factory is not sufficient and they are compelled to store goods outside factory. It is his submission that if the appellant is not allowed to store the goods outside factory premises then it will seriously hamper ongoing production, consequently it will affect overall business of the company. It will not only cause financial loss to the company but also to the Revenue therefore any effort/act which create hindrance in the production of the appellant will alternately tantamount to national loss. On the other hand, as regard safeguard of the Revenue there is absolutely no doubt that the there is no Revenue loss due to the permission to the appellant for storage of goods outside the factory premises for the reason that duty is payable on clearance of the goods and not otherwise. Since the outside storage is only extended premises of the factory, whether the goods stored in the factory or in the outside storage duty is not required to be paid till the goods are cleared to the customer.

Moreover, the storage is allowed by the Ld. Commissioner only against execution of bond and bank guarantee by which the revenue is absolutely safeguarded therefore there is no loss to the revenue in granting permission but if permission is not granted it will cause severe loss to the company as well as to the Revenue as less production and supply will reduce the payment of duty also. He placed reliance on the following judgments.

(a) Balkrishna Industries Ltd. Vs. Commissioner of C. Ex. Jaipur-1[2013(297) ELT 257(Tri-Del)]

(b) M/s. Laben laboratories Pvt. Ltd. Vs. CCE, Nagpur [2015-VIL-241-CESTAT-MUM-CE] In view of the above judgments, wherein facts are absolutely identical to the present case therefore application for extension of permission for storage the goods outside the factory should be allowed.

4. Shri. V.K. Agarwal, Addl. Commissioner(A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He further submits that since the appellant is seeking permission continuously for long period therefore facility of storage of the goods without payment of duty cannot be extended to the appellant . He submits that exceptional circumstances does not mean that facility is granted for unlimited period. He submits that as per the Rule 4(4) exceptional circumstances means, if any circumstances arises once in while then only the permission to store the goods outside the factory can be granted. He also submits that appellant has not brought on record that they have made any other effort to avoid storage of goods outside factory premises or to arrange storage facility in their factory premises or to extend the factory premises. In this situation it cannot be said that appellant has made out the case of exceptional circumstances. He relied upon the judgments of this Tribunal in the case of M/s. GKN Sinter Metals Pvt. Ltd. Vs. Commissioner of Central Excise, Pune-I[Order No. A/1227/15/EB dated 28/4/2015].

5. I have carefully considered the submissions made by both the sides and perused the record.

6. The short issue to be decided by me is that whether the Ld. Commissioner is right in rejecting the application for extension of permission for storage of final product outside the factory premises without payment of excise duty or otherwise. I observed from the impugned order that the Ld. Commissioner has rejected the application of the Appellant on the ground that there is no exceptional circumstances in the Appellants case. The reason for holding this view was given that the exceptional circumstances needs to be considered with reference to the nature of goods and shortage of space for storage of goods. Ld. Commissioner held that the nature of goods is not like perishable therefore the criteria of nature of goods is not satisfied. As regard shortage of space, he has given reason that the Appellant have not done any efforts to increase the space and they are storing the goods outside since 2011 onwards, therefore criteria of shortage of space is also not satisfied. I do not agree with the contention of the Ld. Commissioner. The Appellant sought the permission under Rule 4(4) of Central Excise Rules, 2002 which is reproduced below:

RULE 4. Duty payable on removal. ? (1) Every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided :

(1A) Notwithstanding anything contained in sub-rule (1), every person who gets the goods, falling under Chapter 61 or 62 or 63 of the First Schedule to the Tariff Act, produced or manufactured on his account on job work, shall pay the duty leviable on such goods, at such time and in such manner as is provided under these rules, as if such goods have been manufactured by such person :

Provided that where any person had, instead of paying duty, authorized job worker to pay the duty leviable on goods manufactured in his behalf under the provisions of sub-rule (1A) as it stood prior to the publication of this notification, he shall be allowed to obtain registration and comply with the provisions of these rules within a period of thirty days from the date of publication of this notification in the Official Gazette.].

(2) Notwithstanding anything contained in sub-rule (1), where molasses are produced in a khandsari sugar factory, the person who procures such molasses, whether directly from such factory or otherwise, for use in the manufacture of any commodity, whether or not excisable, shall pay the duty leviable on such molasses, in the same manner as if such molasses have been produced by the procurer.

(3) ?*????????????*????????????*?

(4) Notwithstanding anything contained in sub-rule (1), Principal Commissioner or Commissioner, as the case may be may, in exceptional circumstances having regard to the nature of the goods and shortage of storage space at the premises of the manufacturer where the goods are made, permit a manufacturer to store his goods in any other place outside such premises, without payment of duty subject to such conditions as he may specify.

From the plain reading of the above Rule 4(4), it is observed that permission for storage of goods can be granted on the following conditions:

(a) Nature of the goods should be such that it requires storage outside the factory premises.

(b) If the space in the factory is not sufficient for storage of goods.

(c) The assessee is prepared to comply the conditions as may be specified by the Commissioner.

From the undisputed facts of the case, it is clear that the goods manufactured by the Appellant is in the nature that during storage, it can not be stacked above a limit due to the reason that it is very heavy and packed in the wooden boxes. If the height of stacking of boxes is increased, it is obvious that due to heavy weight, the boxes as well as the goods packed therein will get broken and dmaged. Therefore the nature of the goods in the present case is such that it can not be stored above a limited height of the space. It is very important to note that in the above rule as regard nature of the goods, it is not specified what should be nature of the goods. Therefore the nature of the goods has to be seen on case to case basis. In the present case, in my view, since the nature of the goods is such that it can not be stored more than a particular quantity in the available space, this reason is sufficient to hold that the nature of goods in the present case is such that the same can not be stored more than a particular quantity of stock. The rule does not specify only the perishable nature of the goods, therefore the Ld.

Commissioners reasoning on this counts is misleading and without any basis. As regard the shortage of space, I find that the Appellant has demonstrated that the entire space available in their factory is being used either for manufacturing activity or for storage of the goods and no extra space left for the storage of increased manufactured goods. The Ld. Commissioners contention that the Appellant could not show that they are making efforts to expand the space to avoid the storage of goods outside, is not found satisfactory for the reason that when the Appellant has made optimum use of space available in the factory and therefore due to shortage of space, they require to store the goods outside the factory premises, the department has no locus standi to insist the assessee for the expansion of the space. If this contention is accepted then it applies to each and every industry and the provision of Rule 4(4) will become redundant. Expansion of factory is not every time possible due to various factors like availability of finance to buy the extra land and building, availability of land and building for purchase etc. particularly adjacent to existing factory premises.

Therefore the decision of expansion of the factory is the sole discretion of the assessee and department can not insist for that. For consideration of the Assessees request for permission under Rule 4(4), the existing circumstances has to be seen. It is fact on record that when at earlier occasion while granting the permission, the Ld. Commissioner had found the circumstances are exceptional then how at present the same circumstances become unexceptional, particularly when at present no space is available and production and export of goods has increased multifold. In my considered view rather the circumstances at present time is more exceptional than the past because earlier some space was lying unused but now as shown by the Appellant entire space is being used. The appellants case is squarely covered by the judgments relied upon by the Ld. Counsel. The orders in the said judgments are extracted below:

Balkrishna Industries Ltd.

5.?The Revenues plea is that such outside storage facility under sub-rule (4) of Rule 4 continuously for several years amounts to enjoying the warehousing facility under Rule 20 of the Central Excise Rules. However, I find that this ground has not been taken in the show cause notice, as the show cause notice has been issued on the basis that the permission under Rule 4(4) can be granted only under the exceptional circumstances and the said circumstances cannot be sort of perpetual and cannot continue beyond reasonable period. In view of this, at the adjudication stage, the Commissioner cannot travel beyond the show cause notice and invoke Rule 20 of the Central Excise Rules, 2002, for denying the permission. Moreover outside storage under Rule 4(4) under the circumstance of exceptional nature having regard to the nature of the goods and shortage of storage space in the factory, is different from the warehousing facility under Rule 20. The outside storage place under sub-rule (4) of Rule 4, as clarified in the Boards Circular dated 1-5-1996, is an extension of the factory premises while the bonded warehousing under Rule 20 is not an extension of factory premises and for that purpose, separate registration has to be obtained. The Revenues plea that outside storage of non-duty paid goods under Rule 4(4) means deferment in duty collection for which there is no provision under Central Excise Law except under the warehousing provisions of Rule 20, is also not correct, as the outside storage premises under sub-rule (4) of Rule 4, is an extension of the factory and within the factory the goods can be kept without payment of duty and as such, there is no time limit prescribed in this regard the duty becomes payable only at the time of removal of the goods. Therefore, the Revenues plea that there is deferment of collection of duty in cases of outside storage of the goods under Rule 4(4) without payment of duty, is not correct.

6.?On going through the impugned order, I find that nowhere in the order, the reasons given by the appellant in their letter dated 7-8-2010 compelling them to store the tyres outside the factory have been discussed. The permission for storage outside the factory premises has been denied only on the ground that this permission can be granted only under exceptional circumstances and such exceptional circumstances cannot be sort of perpetual and cannot continue beyond a reasonable period and the same amounts to enjoying warehousing facility under Rule 20 for which no permission has been granted. As discussed above, the grounds on which this permission has been denied are not correct. So long as the exceptional circumstances caused on account of nature of the goods or shortage of storage space continue, the permission under Rule 4(4) has to be given for onside storage of the goods without payment of duty after prescribing the conditions as are necessary for safeguarding the interest of the Revenue. In view of this, the impugned order is set aside and the matter is remanded back to the Commissioner for de novo decision after ascertaining as to whether the circumstances necessitating outside storage, as given in the appellants letter dated 7-8-2010, still exist or not and if these circumstances still exist, the permission under Rule 4(4) will have to be granted after prescribing the conditions as are necessary for safeguarding the interest of the Revenue. The appeal stands disposed of as above.

M/s. Laben laboratories Pvt. Ltd

11. The only issue in this case is whether the learned Commissioner was correct in rejecting the request for extension of permission to store the goods outside the factory premises. On perusal of the records, it is noticed and undisputed that the appellant was granted permission to store the goods without payment of duty outside the factory premises under the provisions of Rule 4(4) of Central Excise Rules, 2002 and in pursuance of the Boards Circular No.610/1/2002-CX dated 01.01.2002 I find that the appellant before expiry of permission on 10.12.2014 had made an application for extension. The said application was vetted by the Superintendent of Central Excise and had recommended that the permission be extended as the request seems to be genuine and the appellant had fulfilled all the conditions as laid down by the CCE Nagpur in letter No. IV(10)30-29/2011/TECH/9075 dated 25.06.2014. The said recommendation letter of the Supdt. of Central Excise, Akola was considered by the Jurisdictional Asst. Commissioner and he also recommended for the extension of permission to store the goods without payment of duty outside the factory premises.

12. In my considered view, if both the field formations i.e. Range Superintendent as well as Jurisdictional Division Office recommend the case of the appellant as has been genuine one, it should have been considered in correct perspective by the office of the Commissioner of Central Excise. On perusal of the letter dated 26.12.2014 vide which the Commissioner has not granted extension of permission to store the goods without payment of duty, is a very casually worded and does not given any reason for rejection of the request. I find strong force in the contentions raised by the learned Counsel that in an identical set of facts in the case of Balkrishna Industries Ltd. (supra) this Tribunal was considering the provisions of Rule 4(4) of the Central Excise Rules, 2002 and held as under:-

5. I have carefully considered the submissions from both the sides and perused the records. The goods produced and manufactured in a factory can be kept within the factory without payment of duty, as in terms of the provisions of Rule 4(1) of Central Excise Rules, 2002, the duty becomes payable only at the time of removal of the goods from the factory. This rule, however, also provides that the goods can be removed from the factory without payment of duty to a warehouse under Rule 20 of the Central Excise Rules and that in that case the duty would be payable at the time of removal of the goods from the bonded warehouse. However, sub-rule (4) of Rule 4 prescribes that the Commissioner in exceptional circumstances having regard to the nature of the goods and shortage of storage at the premises of the manufacture where the goods are made, permit a manufacturer to store his goods at any other place outside the factory premises without payment of duty, subject to such conditions as he may specify. In this regard, sub-rule (4) is reproduced below :-

Rule 4(4). - Notwithstanding anything contained in sub-rule (1), Commissioner may, in exceptional circumstance having regard to the nature of the goods and shortage of storage space at the premises of the manufacturer where the goods are made, permit a manufacturer to store his goods in any other place outside such premises, without payment of duty subject to such conditions as he may specify. Thus the words exceptional circumstances cannot be read in isolation but have to be read with the expression having regard to the nature of the goods and shortage of storage space at the premises of manufacturer where the goods are made. The examples of such exceptional circumstances can be the goods manufactured being of hazardous nature or there is seasonal production of such volume, which cannot be stored in the factory or due to some commitment for sale, domestic or for export, which have to be made during some period, huge quantity has to be manufactured and stored so that the assessee is able to supply the goods as soon as the orders are received. The Commissioners interpretation of sub-rule 4(4) that the exceptional circumstances cannot continue in perpetuity is not correct, as he has read this expression in isolation and if the exceptional circumstances caused by the nature of the goods or shortage of storage space continue, the permission for outside storage under this sub-rule has to be

granted subject to the conditions for safeguarding the interest of Revenue. The appellant in their letter dated 7-8-2010 have mentioned a number of circumstances which compel them to store the goods outside the factory premises. In my view, if these circumstances still exist as a result of which the appellant have no option but to store the goods outside the factory premises, the permission for outside storage has to be granted subject to the conditions as are necessary for safeguarding the interest of the Revenue. The permission under sub-rule cannot be refused just because an assessee has been enjoying the same continuously for certain number of years.

6. The Revenues plea is that such outside storage facility under sub-rule (4) of Rule 4 continuously for several years amounts to enjoying the warehousing facility under Rule 20 of the Central Excise Rules. However, I find that this ground has not been taken in the show cause notice, as the show cause notice has been issued on the basis that the permission under Rule 4(4) can be granted only under the exceptional circumstances and the said circumstances cannot be sort of perpetual and cannot continue beyond reasonable period. In view of this, at the adjudication stage, the Commissioner cannot travel beyond the show cause notice and invoke Rule 20 of the Central Excise Rules, 2002, for denying the permission. Moreover outside storage under Rule 4(4) under the circumstance of exceptional nature having regard to the nature of the goods and shortage of storage space in the factory, is different from the warehousing facility under Rule 20. The outside storage place under sub-rule (4) of Rule 4, as clarified in the Boards Circular dated 1-5-1996, is an extension of the factory premises while the bonded warehousing under Rule 20 is not an extension of factory premises and for that purpose, separate registration has to be obtained. The Revenues plea that outside storage of non-duty paid goods under Rule 4(4) means deferment in duty collection for which there is no provision under Central Excise Law except under the warehousing provisions of Rule 20, is also not correct, as the outside storage premises under sub-rule (4) of Rule 4, is an extension of the factory and within the factory the goods can be kept without payment of duty and as such, there is no time limit prescribed in this regard the duty becomes payable only at the time of removal of the goods. Therefore, the Revenues plea that there is deferment of collection of duty in cases of outside storage of the goods under Rule 4(4) without payment of duty, is not correct.

13. In view of the foregoing and judicial pronoucements and also the facts and circumstances of this case, I find that the letter dated 26.12.2014 issued from the office of the Commissioner of Central Excise, Customs & Service Tax, Wardha is unsustainable and liable to be set aside and I do so. Impugned order is set aside with direction to the Commissioner of Central Excise, Nagpur to extend the permission for storing the finished goods outside the factory premises as per the provisions of Rule 4(4) of Central Excise Rules, 2002 upto 31st December 2015.

14. Appeal is disposed of as indicated as above.

Ratio of the above judgments are squarely applicable in the present case as the facts of above judgments are identical to the facts of the present case. As regard Revenues reliance on the judgment of this Tribunal in the case of M/s. GKN Sinter Metals Pvt. Ltd. I observed from the Ld. Counsels written submission wherein he has pointed out that the appellant in the said case could not demonstrate exceptional circumstances with regard to the nature of the goods and shortage of storage space whereas in the present case the application has elaborately explained the exceptional circumstances giving various factors. In the case of M/s. GKN Sinter Metals Pvt. Ltd tribunal has found that application did not mention the period for which permission is sought and in the present case the appellant sought permission for April,2015 to March,2016 and M/s. GKN Sinter Metals Pvt. Ltd case the Tribunal also observed that the assesse can create additional space by re-organisation of stack in which finished goods has been stored. Whereas in the present case the appellant successfully demonstrated that over and above present quantity being stored, cannot create extra space for storage likewise there are more number of differences in the facts of the M/s. GKN Sinter Metals Pvt. Ltd case and facts of the present case therefore ratio of the M/s. GKN Sinter Metals Pvt. Ltd case is not applicable and therefore same is distinguished. Keeping in view the safeguard of Revenue, I observed that in the previous period when the Ld. Commissioner granted permission it was found that the applicant has never misused the facility of outside storage. No instances in leakage of Revenue as regard to the facility of storage of goods outside factory was reported, moreover the applellant is prepared to comply the condition specified by the Commissioner such as execution of security bond alongwith bank guarantee. Therefore there is no chance of danger to the Revenue, for this reason also appellant deserve extension of permission. In view of the above discussion, I am of the considered view that appellant has established that there is exceptional circumstances with regard to nature of goods and shortage of space therefore they deserve for extension of permission up to 31/3/2016. The appeal is allowed.

(Operative order pronounced in court)

Ramesh Nair Member (Judicial) sk

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