M/S. Tata Cummins Ltd vs Cce, Jsr

(Arising out of Order-in-Original No.16-19/COMMR/2005 dated 30.09.2005 passed by the Commissioner of Central Excise, Jamshedpur.)

FOR APPROVAL AND SIGNATURE

HONBLE DR. D.M. MISRA, MEMBER(JUDICIAL) HONBLE SHRI H.K.THAKUR, MEMBER(TECHNICAL)

1. Whether Press Reporters may be allowed to see 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 Authorative report or not?

3. Whether Their Lordship wishes to see the fair copy of the Order?

4. Whether Order is to be circulated to the Departmental Authorities?

M/s. Tata Cummins Ltd. Applicant (s)/Appellant (s)

Vs.

CCE, JSR. Respondent (s)

Appearance:

Shri R.Raghavan, Advocate for the Appellant(s)

Shri A.Roy, Supdt.(AR) for the Revenue

CORAM:

Honble Dr. D.M. Misra, Member(Judicial) Honble Shri H.K.Thakur, Member(Technical)

Date of Hearing :- 15.09.2015 Date of Pronouncement :- 15.09.2015

ORDER NO.FO/A/75503/2015

Per Shri H.K.Thakur.

Appellant M/s.TATA Cummins Limited, Jamshedpur filed this appeal against Order-in-Original No.16-19/COMMR/2005 dated 30.09.2005 issued on 21.10.2005. Under this Adjudication Order Commissioner, Central Excise, Jamshedpur confirmed demands of Rs.8,65,408/- & Rs.1,08,88,453/- regarding inadmissible CENVAT Credit, alongwith interest. Penalties were also imposed upon the appellant under Section 11AC of the Central Excise Act, 1944; read with Rule 57AH(2) of the Central Excise Rules, 1944 & Rule 13(2) of the CENVAT Credit Rules, 2001/2002 and Rule 173Q of Central Excise Rules, 1944 & Rule 13(1) of Central Excise Rules, 1001/2002.

2. Shri Ravi Raghavan (Advocate) appearing on behalf of the appellant argued that the period of demand is from 2000-01 to March 2005 and pertain to four show cause notices dt.26.4.2005, 6.5.2005, 8.7.2005 & 2.8.2005. That out of total demand of Rs.1,17,53,861/- an amount of Rs.8,65,408/- is demanded for the inputs found short during physical verification of stock which was reversed by the appellant, along with interest of Rs.2,76,476/- before the issue of show cause notice. That remaining credit of Rs.1,08,88,453/- is denied by the Adjudicating authority on the ground that certain inputs are scrapped during the manufacturing process and that the same are not used in or in relation to the manufacture of the finished goods. It was strongly argued by the learned Advocate that appellant follows an internal audit procedure by which if inputs are found defective at the time of receipt or during quality check then such inputs are sent back to the vendors and equivalent credit taken is also reversed. That these inputs after passing their audit test are sent to the online assembly. It was his case that during online assembly of finished goods some of the parts/inputs are not picked up by the assembly line or get damaged. That such inputs cleared for on line assembly has to be considered at scrap generated during the course of manufacture. That such inputs are cut into pieces & sold as scrap on payment of appropriate amount of Central Excise duty. Learned Advocate made the Bench go through the table given in the end of para-11 of the Order-in-Original dated 30.09.2005 that such waste comes to only 0.28 to 0.49% of the total value of the inputs/parts. Learned Advocate relied upon the following case laws/circular in support of his arguments.:-

(i) Asahi India Safety Glass Ltd. v. UOI [2005 (180) ELT 5 (Del.) affirmed by Apex Court as report at 2015-

TIOL-129-SC-CX

(ii) CCE, Bangalore-I v. Geltec Ltd.

[2012 (281) ELT 170 (Kar.) affirmed by Apex Court as reported at [2014-(304) ELT A-85 (SC)]

(iii) Monika Electronics Ltd. v. CCE, Delhi [2006 (204) ELT 468 (Tri.)] affirmed by Allahabad High Court 2013 (293) ELT A-26 (All)]

iv) CBEC Circular F.No.B-4/7/200-TRU dt.03.04.2000.

2.1 Learned Advocate further argued that the fact of scrap emerging during the manufacturing process and the clearance of such scrap on payment of duty was brought to the notice of the Adjudicating authority but the same has been conveniently avoided when this fact is not otherwise disputed in the Adjudication order. He made the Bench go through para-11 (iii), (iv) & (v) of the Order-in-Original dated 30.09.2005 passed by the Adjudicating authority. That scrap generated during the course of manufacture cannot disentitle CENVAT Credit on these inputs from which such scrap has been generated during assembly of engines.

2.2 Learned Advocate also argued that the entire demand is time barred as extended period is not invokable. It was his case that as per Rule-173B declaration filed with the department where component waste/scrap arising during manufacture of engines during assembly has been specifically declared and the quantity of such scrap is also reflected in the monthly returns filed with the field formation. That there was no suppression on the part of the appellant and extended period of 5 years canot be invoked. Learned Advocate relied upon the case law K.P.Pouches (P) Ltd. v. UOI [2008-TIOL-240-HC-DEL-CX] to argue that 25% option under Section 11AC was not extended to the appellant.

3. Shri A.Roy, Supdt.(AR) appearing on behalf of the Revenue argued that the defective nature of the inputs is known to the appellant at the time of receipt itself as observed by adjudicating authority in para 15(iii) of the order and hence credit has been correctly denied. With respect to credit of Rs.8,65,408/- on shortage of inputs it was argued by learned AR that appellant was aware of these shortages as per the physical verification of their own auditors but appellant did not reverse the same till it was pointed out by the department. That penalties have been correctly imposed upon the appellants.

4. Heard both sides and perused the case records. Major amount of demand of Rs.1,08,88,453/- pertain to CENVAT Credit availed by the appellant with respect to inputs which according to appellant were found defective or got damaged during the course of assembly of the finished goods manufactured by the appellants. Adjudicating authority has gone by the logic that inputs are known to be defective on receipt and cannot be taken to have been used in the manufacture of the appellants. Appellant has taken following arguments before the Adjudicating authority, as per para 11(iii), (iv) & (v) of the Order-in-Original dated 30.09.2005, which are reproduced below:-

(iii) The manufacturing process of their plant is as under :

The manufacturing of engines consists of assembling and up-liftment of multiple components (ranging from 350 to 500 components). During the process of assembly at different stages, whenever the inputs are found to be not in conformity with the required specification or damaged at the time of handling/fitment in engines are kept aside in a separate location. These components are inspected, examined and analyzed by the Quality Assurance Department to Judge whether thedefects in the components are due to fault on the part of supplier because of non conformity with required specification or on TCL because of mis-handling of the components during assembly.

(iv) However, in case it is found that the components got damaged at the time of handling/fitment in engines during assembly then the same are scrapped by generation of Scrap Ticket No.(STN). Then these components are destroyed/cut to pieces and sent to specified scrap yard. Thereafter, the same is removed as waste and scrap on payment of Excise duty on assessable value of the same in accordance with Sec.4 through proper excise invoice under Rule 11 of the Central Excise Rules, 2002.

(v) The demand on components scrapped during the process of assembly should be treated as normal loss of inputs used in or in relation to the manufacture of the final product. Scrap had emerged during the process of manufacture i.e. before the finished goods came into existence.

4.1 It is clearly coming out from the above submissions made by the appellant before the Adjudicating Authority that when inputs are defective on account of suppliers fault then the same are rejected and sent back to the supplier by reversing the CENVAT Credit. The remaining inputs have to be treated as inputs cleared for manufacture of the finished goods a negligible part of which become damaged during the course of assembly of finished goods. Percentage of such loss is only 0.28 to 0.49% of the total value of the inputs/parts utilized by the appellant. The same is also converted into scrap by the appellant and sold on payment of duty.

4.2 Appellant has relied upon the case of Asahi India Safety Glass Ltd. vs. UOI (supra) affirmed by Honble Supreme Court. Paras 29 to 31 are relevant and are reproduced below:-

29. As indicated earlier, when the float glass in? wooden boxes is received and on opening if the glass is found broken, the same is rejected. The Commission has misdirected itself in arriving at a conclusion that the glass having defects after having been cut, beveled and washed are inspected and at that stage the goods are segregated. The applicant is not entitled to Modvat credit. It may be that from one sheet six pieces are to be manufactured as safety glass and if in a portion where bubble is noted it does not mean that five glass pieces cannot be manufactured. Before lamination the 6th piece which may be defective will be left out. From this it cannot be said that the entire sheet of glass was not under process of manufacture. Cutting, marking, breaking, grinding and washing with demineralised water, are different stages of manufacturing process. If the float glass is not found defective the same is cut into pieces of required sizes and is marked as per requirements of customer. It is thereafter extra portion or unwarranted portion or a glass piece is removed by hand or machine. Thereafter edges of glass pieces are grinded. It is thereafter scientifically at certain temperature glass piece is washed, mechanically scrubbed, soaked by sponge rollers, passed through furnace for temperature process, dried through drying blowers with heaters installed inside the dryers. Thus input has undergone certain process of manufacture.

30. If a sheet is rejected or a piece of sheet is? rejected, it does not mean that the sheet was not used in the manufacture of safety glass. It is at this juncture again we emphasise that sub-rule (4) of Rule 57A points out that credit is to be allowed on inputs used in the final product and all inputs used in or in relation to the manufacture of the final products, whether directly or indirectly and whether contained in the final product or not the department cannot deny credit of specified duty or even can vary on the ground that part of the inputs contained in any waste, refuse or by-product arising during the manufacture of final product or when the inputs have become waste during the course of manufacture of the final product whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or not specified as a final product under Rule 57A.

31. In substance, when the material? i.e. glass sheet is used for the manufacturing process and merely because at a later point of time after the glass has undergone the process of manufacture, it was found defective and rejected or part of the input being found defective and rejected is no ground in view of Rule 57A read with Rule 57D to deny the benefit. Though this order was passed with respect to erstwhile Rule 57A and Rule 57D of the CENVAT Credit Excise Rules, 1944, but the ratio laid by Delhi High Court, upheld by Apex Court, is squarely applicable to the facts of the present appeal.

4.3 Similarly CESTAT Delhi in the case of Monika Electronics Ltd. v. CCE, Delhi (supra), after relying upon the case law of Asahi Safety Glass Ltd. v. UOI (supra), also held that CENVAT Credit on the inputs rejected on line, in the manufacturing process, cannot be denied.

4.4 Appellant has also taken an argument that demand of Rs.1,08,88,453/- is time barred as they filed Rule-173B declaration of the waste & scrap of components and also included the same in their monthly returns filed with the department. On verification of the case record we find it so. Accordingly, it is held that extended period of 5 years cannot be invoked with respect to demand of Rs.1,08,88,453/-.

4.5 In view of the above observations appeal filed by the appellant with respect to confirmation of demand of Rs.1,08,88,453/- is allowed on merits as well as on time bar.

5. So far as demand of Rs.8,65,408/- is concerned it is observed from the case records that the same pertains to inputs found short. It is also observed that this shortage was as a result of verification undertaken by the Audit of the appellant much before the same was detected by the Revenue. Appellant was thus aware of such shortages and still did not reverse the credit on these shortages until detected by the department. Therefore, extended period will be applicable for the demand of Rs.8,65,408/- and penalty under Section 11AC of the Central Excise Act, 1944, read with relevant CENVAT Credit Rules, is imposable. However, no option of 25% reduced penalty was extended to the appellant by the Adjudicating authority. On this aspect appellant has relied upon K.P.Pouches (P) Ltd. vs. UOI [2008-TIOL-240-HC-DEL-CX] which is squarely applicable to this case. As the amount of confirmed demand of Rs.8,65,408/-, along with interest, was paid by the appellant before the Adjudication, therefore, they are extended the option of paying 25% reduced penalty under Section 11AC of the Central Excise Act, 1944, if 25% penalty is paid within 30 days from the receipt of this order. As penalty under Section 11AC of the Central Excise Act, 1944 has been upheld the other penalty of Rs.5,00,000/- imposed upon the appellant is set aside.

6. Appeal filed by the appellant is allowed only to the extent indicated hereinabove.

(Operative part of the order was pronounced in the open court.) SD/ SD/

(D.M.MISRA) (H.K.THAKUR) MEMBER(JUDICIAL) MEMBER(TECHNICAL) sm

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Appeal No. EA-32/06