Nagesh Knitwears Pvt. Ltd vs Cce-Ludhiana

[Arising out of Order-in-Original No. 08/Ldh/06 dt. 29.03.06 passed by Commissioner Central Excise- Ludhiana]

1. Whether Press Reporter may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would 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 of the order?

4. Whether order is to be circulated to the Department Authorities?

Nagesh Knitwears Pvt. Ltd. Appellant

Vs.

CCE-Ludhiana Respondent

Appearance: Shri Vikrant Kackria, Advoate for the appellant.

Shri Yashpal Sharma, DR for the respondent.

Coram: Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri S.K. Mohanty, Member (Judicial)

Final Order No. 51599/2015

Per: Rakesh Kumar

The appellant in their factory have two sections. In one section, they manufacture spun yarn and in the other section, they manufacture hosiery products. The spun yarn manufactured is entirely used for captive consumption. The hosiery unit besides using spun yarn manufactured within the factory also purchased yarn from outside. The period of dispute in this case is from September, 2000 to March, 2003. During this period, the appellant were paying duty on clearances of spun yarn for captive consumption on the value determined under Rule 8 of the Central Excise Valuation Rules, 2000, that is, on the basis of 115% of the cost of production. The department, subsequently, raised the objection that since the appellant were also selling certain quantity of the yarn to independent buyers from the hosiery section, the clearances of the yarn for captive consumption within the factory should be valued on the basis of the sale price to independent buyers. Another objection of the department is that in respect of receipt of capital goods the appellant had taken capital goods CENVAT Credit of the entire amount on excise duty at a time, while in terms of the provisions of the CENVAT Credit Rules, 1944, at the time of receipt of the capital goods, the assessee was entitled to avail the CENVAT Credit of only 50 % of the Central Excise Duty and the balance CENVAT Credit could be taken only in the next financial year. Since by the time, this irregularity was detected, the appellant had become entitled for the balance 50 % of the capital goods CENVAT Credit also, the Department is of the view that interest on the wrongly taken CENVAT Credit would be payable.

2. It is on this above facts that show cause notice dated 4/10/2005 was issued to the appellant for  (a) demand of differential duty of Rs. 47,61,675/- in respect of clearances of yarn for captive consumption during period from September, 2000 to March, 2003 along with interest thereon under section 11AB and also for imposition of penalty on the appellant company under section 11AC of Central Excise Act, 1944, (b) recovery of interest on wrongly taken CENVAT Credit of Rs. 2,89,788/- in respect of the capital goods and also for imposition of penalty on this count.

3. Show cause notice was adjudicated by the Commissioner vide order-in-original dated 29/3/2006 by which  (a) duty demand of Rs. 47,61,675/- was confirmed against the appellant along with interest thereon under section 11AB and penalty of equal amount was imposed on the appellant under section 11AC of Central Excise Act, 1944 and (b) demand of interest on the wrongly taken capital goods CENVAT Credit was confirmed.

4. Against the above order of the Commissioner, this appeal has been filed.

5. Heard both the sides.

6. Shri Vikrant Kackria, Advocate, ld. Counsel for the appellant, pleaded that while he does not contest the demand of interest on the wrongly taken capital goods CENVAT Credit, he is contesting only duty demand of Rs. 47,61,675/- confirmed against the appellant along with interest and equivalent penalty; that the entire quantity of the yarn manufactured in the appellant company was being cleared for captive consumption to their hosiery unit within the same factory; that the appellant during the period of dispute were also purchasing yarn from outside for manufacture of knitted fabrics, that there was common storage of the yarn manufactured within the factory for captive use and the yarn purchased from outside; that it is out of the such common stock that sometimes when there was excess stock, certain quantity of the yarn had been sold; that, therefore, it cannot be said that quantity of yarn sold was that which has been manufactured within the within in the factory and as such the sale price of that yarn cannot be adopted for valutation of yarn cleared for use within the factory; that during the period of dispute, the appellant, in view of the Boards Circular no. 354/81/2000-TRU dated 30/6/2000, were under bonafide belief that when a manufacturer clears part of the goods manufactured by him for captive use and sells the remaining quantity to independent buyers, in respect of the goods cleared for captive use, the duty would be required to be paid on the value determined under Rule 8 of the Central Excise Violation Rules, i.e., 115% per cent of the cost of production; that there were conflicting judgments of the Tribunal on this issue and for this reason, this matter had been referred to Larger Bench of the Tribunal in the case of Ispat Industries Limited and Larger Bench of the Tribunal vide judgment dated 2/2/2007 reported in 2007 (209) ELT 185 tri-LB held that the Rule 8 of the Central Excise Valuation Rules, 2000 would be applicable only when the entire quantity of the goods manufactured is cleared for captive consumption and in cases where part of the goods manufactured are sold to independent buyers and remaining quantity is cleared for captive use, goods cleared for captive use would be valued at the price at which the goods had been sold to independent buyers; that when in view of the Boards Circular dated 30/6/2000 and conflicting judgments on this issue, there were scope for doubt as to how the goods cleared for captive consumption are to be valued, when part of the goods are also sold to independent buyers, the allegation of deliberate violation of the provisions of Central Excise Act, 1944 or of the Rules made thereunder would not sustain and hence, longer limitation period under proviso to section 11A(1) would not be applicable; that in this regard he relies upon the Apex Courts judgment in the case of Continental Foundation Joint Venture Vs. CCE-Chandigarh reported in 2007 (216) ELT 177 SC and that in view of this, the impugned order confirming the duty demand of Rs. 47,61,675/- against the appellant by involving provision of Section 11A (1) and imposed equivalent penalty under section 11AC is not sustainable.

7. Shri Yashpal Sharma, the learned DR, defended the impugned order by reiterating the findings of the Commissioner and pleaded that while yarn manufactured in the spinning section was being cleared 100 per cent to the hosiery section, about 60 % of such yarn was being sold and in these circumstances when major portion of the yarn manufactured was being sold to independent buyers, the goods cleared for captive use must be valued at the sale price to independent buyers. He pleaded that the appellant have suppressed the relevant facts from the department and hence, longer limitation period of 5 years under proviso to section11A (1) has been correctly invoked and penalty on the appellant under section 11AC has been correctly imposed.

8. We have considered the submissions from both the sides and perused the records.

9. As regards the issue of interest on the wrongly availed capital goods CENVAT Credit of Rs. 2,89,788/- this is conceded by the appellant and hence, the Commissioners order on the point of interest demand is upheld.

10. As regards the main point of dispute, in this case regarding duty demand of Rs. 47,61,675/- in respect of the clearances of yarn manufactured by the appellant for captive use within the factory during period from September, 2000 to March, 2003, the show cause notice for duty demand had been issued on 4/10/2005 and the same would survive only if the circumstances exist for invoking the longer limitation period of five years under proviso to section 11A(1). The appellant in respect of the clearances of the yarn manufactured and cleared for captive use, were paying duty on the basis of value determined under Rule 8of the Central Excise Valuation Rules, 2000, that is, on 115% per cent of the cost of production. There is no dispute that yarn manufactured in the spinning section was being transferred to the hosiery for captive use and hosiery section was also purchasing certain quantity of yarn from outside. There is also no dispute that substantial quantity of yarn was being sold from Hosiery section to independent buyers. The appellants contention is that there was common storage in the hosiery section of the yarn manufactured within the factory and the yarn purchased from outside and, therefore, it cannot be said as to whether the yarn which was sold was that which had been manufactured within the factory.

Be that as it may, we are of the view that even if it is held that the yarn sold to independent buyers was that which had been manufactured by the appellant in their factory and accordingly in terms of the Larger Bench judgment of the Tribunal in the case of Ispat Industries Limited Vs. CCE (Supra), it is held that the yarn cleared for captive use must be valued at the price at which the same was being sold to independent buyers, the duty demand would not survive as in the circumstances of the case, the longer limitation period of 5 years under proviso to section 11A(1) is not invokable, as during the period of dispute not only there was conflicting judgments of the Tribunal on the issues, till this issue was resolved by the Larger Bench of the Tribunal in the case of Ispat Industries Limited (supra), even the Boards Circular dated 30/06/2000 clarified that in the cases where the goods manufactured by an assessee are cleared for captive use as well as are sold to independent buyers, in respect of the goods cleared for the captive use, the value would be determined under Rule 8 of the Central Excise Valuation Rules, 2000. Apex Court in the case of Continental Foundation Joint Venture Vs. CCE-Chandigarh (Supra) has held that when on account of various circulars operating at different point of time there was scope for doubt for an assessee in respect of the some issue, the longer limitation period of 5 years under section 11A(1) would not be invokable.

In view of this, we hold that the entire duty demand for the period from September, 2000 to March, 2003 raised vide show cause notice dated 4/10/2005 is time barred. The impugned order confirming the duty demand of Rs. 47,61,675/- along with interest and imposed equivalent penalty under section 11AC is therefore, not sustainable and is set aside and to this extent the appeal is allowed.

11. Thus, while the Commissioners order confirming the demand of interest on wrongly availed CENVAT Credit is upheld, the remaining part of the impugned order is set aside. The appeal stands disposed off in the above terms.

(Rakesh Kumar) (S.K. Mohanty)

Member (Technical) Member (Judicial)

Ritu