Virlon Textile Mills Ltd vs Commissioner Of Central Excise, ...

(Arising out of Order-in-Appeal No. BR/169 to 171/Th-II/2005 dated 31.5.2005 passed by Commissioner of Central Excise (Appeals), Mumbai-IV)

For approval and signature:

Honble Mr. P.K. Jain, Member (Technical) and Honble Mr. S.S. Garg, 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?

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Virlon Textile Mills Ltd. Appellant A.V. Jain Mahavir Textile Industries

Vs. Commissioner of Central Excise, Thane-II Respondent

Appearance: Shri A.K. Chatterjee, Advocate, for appellant Shri V.K. Shastri, Assistant Commissioner (AR), for respondent

CORAM: Honble Mr. P.K. Jain, Member (Technical) Honble Mr. S.S. Garg, Member (Judicial)

Date of Hearing: 10.9.2015 Date of Decision: 29.9.2015

ORDER NO

Per: P.K. Jain

Brief facts of the case are that the main appellant was a 100% EOU. On 24.7.2003 they decided to convert into a DTA unit and for this purpose, made an application to the Development Commissioner, SEEPZ. The Development Commissioner, SEEPZ on 29.8.2003 agreed in principle for conversion of the unit from 100% EOU to DTA. However, before conversion, the appellant is required to pay customs and excise duty liability etc. which was done some time in 2004. In between during the period 15.9.2003 to 25.9.2003, the appellant manufactured certain goods and cleared in DTA. While clearing the goods in DTA, the appellant paid the duty as per the main provision of Section 3 of the Central Excise Act, i.e. they paid duty as is applicable to a normal DTA unit. The Revenue was of the view that since the EOU has not been converted into DTA as yet, they are required to pay the duty as per clause (ii) to proviso to Section 3(1) of the Central Excise Act, i.e. the duty which is normally applicable for clearance by 100% EOU to DTA. The appellant was informed by the range Superintendent in writing. However, the appellant did not agree and continued to clear consignments on payment of the duty applicable to DTA units. Thereafter, the Revenue official seized certain goods in Bangalore from appellant No.3 who is one of the customers of the main appellant. It appears that the goods seized were not the same as were originally manufactured but had already undergone the processing. Thereafter a show cause notice was issued demanding duty of Rs.1,79,086/-, proposing penalty under Section 11AC of the Central Excise Act/under Section 114A of the Customs Act, interest under Section 11AB. Further, the goods seized were proposed to be confiscated under Rule 25 of the Central Excise Rules. A penalty on appellant No.2 and 3 also is proposed. The case was adjudicated by the original authority who confirmed the demand (Rs.1,79,086/-), interest, penalty (Rs.1,79,086/-), confiscated the goods with an option to release the same on payment of redemption fine of Rs.10,000/-, a penalty of Rs.5,000/- imposed on appellant No.2 under Rule 26. Further, a penalty of Rs.19,702/- was imposed on appellant No.3 under Rule 13 of the Cenvat Credit Rules, 2002.

2. Learned counsel for the appellant submitted that as far as the duty payment on the goods cleared is concerned, he agrees that the duty is required to be paid under clause (ii) of the proviso to Section 3(1) of the Central Excise Act. However, since the invoices are available, the amount collected from the customer should be considered as cum duty price of the value and the goods should be worked out backwards and the duty on that count be charged and not on the value shown in the invoices issued by them. The learned counsels second submission was that the penalty on appellant No.1 has been imposed under Section 114A. In this particular case, the demand is under Section 11A(1) and therefore there is no question of penalty under other Act and in support of the said contention, he quoted the judgment of this Tribunal in the case of Saheli Synthetics Pvt. Ltd. vs. CCE reported in 2002 (139) ELT 594 (Tri-Mum.). It was also submitted that the said decision of the Tribunal has already been upheld by the Honble Supreme Court as reported in 2015 ELT A29. The learned AR further submitted that similarly, there is no justification for the penalty imposed under Rule 26 of the Central Excise Rules on appellant No.2. As far as appellant No.3 is concerned, the learned counsel submitted that the goods seized in Bangalore were duty paid goods and were purchased by appellant No.3 on the invoices of appellant No.1. Further, he has taken the credit on the basis of the invoices issued by appellant No.1. The said goods were already processed and it was not correct on the part of the Revenue to seize such goods under Rule 25 of the Central Excise Rules or Rule 13 of the Cenvat Credit Rules. He further submitted that in the impugned order, the Commissioner (Appeals) has made out a new case and has spoken of altogether different section i.e. Section 120 of the Customs Act, 1962, which had no application whatsoever in the locally cleared goods. He submitted that the confiscation of the goods is bad in law. Further, they have not redeemed the goods so far and the goods have already become bad and the department should be asked to compensate for the same. It was submitted that no penalty is imposable on appellant No.3 as he has done no wrong.

3. Learned AR, on the other hand, took us through the impugned order and submitted that in spite of repeated request by the department, appellant No.1 did not pay the duty and continued to assess the goods as per main Section 3(1). Further, appellant No.1 had also made an application to the Assistant Commissioner to execute a bank guarantee for the differential duty, which was rejected. Even then, the appellant continued to clear the goods under the main Section 3(1). Under the circumstances, it is a case of not obeying the law. Further, it was submitted that the penalty was proposed under Section 11AC of the Central Excise Act/Section 114A of the Customs Act and it is only a typographical mistake in the order that only Section 114A is mentioned. He further submitted that since appropriate duty was not paid on the goods, this was confiscable under Rule 25 and, therefore, the confiscation and penalty imposed on appellant No.3 is in order.

4. We have considered the rival submissions. In this case, the dispute has arisen about the duty chargeable on the goods which were cleared during the period when the unit had made an application for conversion from EOU to DTA and in-principle approval for the same was given but the unit had not been converted to normal DTA unit as per the procedural formalities which include payment of customs and excise duty on capital goods, raw material, work in progress etc. Since the EOU had not been debonded and converted into DTA unit, the appellant was required to pay the duty as per clause (ii) of proviso to Section 3(1) of the Central Excise Act. In fact, the learned counsel for the appellant had agreed to the fact that the duty is required to be paid as per the said clause. However, his contention was that the selling price should be taken as the cum duty value and on that basis the value should be worked out backwards and the appellant be asked to pay the duty accordingly. In respect of 100% EOU, the proviso to Section 3(1) provides as under:-

Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, -

(i) ..  .

(ii) By a hundred per cent export-oriented undertaking and brought to any other place in India, shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).

Thus in the case of DTA clearances from a 100% EOU, the value is required to be determined in accordance with the provisions of the Customs Act, 1962. Section 14 of the Customs Act deals with valuation of the goods. In the case of import, the value of the goods is CIF value and it is the transaction value between the foreign supplier and a buyer in India. Thus for clearance of goods from 100% EOU to DTA, one has to ascertain the CIF value of similar goods being imported. We find that in this particular case, the appellant has not indicated any such CIF value. They have indicated certain values and on that they have added the duty which is applicable to the normal DTA units and thus arrived at the selling price. As mentioned earlier, the correct method in the present case will be to know the CIF value of the similar goods being imported and take that as the assessable value. However, in this case the clearances were made in 2003 and it will not be practically possible either for the appellant to provide similar information or for the Revenue to find out. Under the circumstances, the only way out of the situation is to take the assessable value as declared in the invoices by the appellant as the assessable value for purpose of computation of the duty which will be equivalent to the import duty applicable on such goods.

Thus the duty demanded as per the show cause notice is upheld and the appellants plea to compute the value on the basis of the selling price and working out backwards is rejected. We also observe that in our view, an amount of penalty has been imposed under Section 114A of the Customs Act. We find that it is not a case of import but it is a case of clearance from a unit located in India. The penalty can be imposed under Section 11AC of the Central Excise Act and not under Section 114A of the Customs Act. However, we note that in the show cause notice, both the sections were invoked. Moreover, the two sections are pari materia and exactly same. In these circumstances, we do not consider that the mention of Section 114A is fatal to the case. However, we observe that the penalty under Section 11AC can only be imposed if the ingredients provided under the said section are satisfied. The ingredients provided under Section 11AC are fraud, collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or the Rules made thereunder with intent to evade payment of duty.

We find that none of these ingredients are present in the facts and circumstances of the present case. The fact that the appellant was paying duty as applicable to normal units in India was very well known to the department official, even of clearance, so there is no question of fraud or misstatement or any such thing. In fact we also note that the appellant indeed has offered to provide the bank guarantee for the differential disputed amount of duty. This only proves that the appellant genuinely believed that the duty would be applicable as is applicable to normal DTA unit. We also note that in the present case, the appellant had received the in-principle approval for debonding or conversion of unit from EOU to DTA. Under the circumstances, we do not consider it to be a fit case for imposition of penalty under Section 11AC of the Central Excise Act. Accordingly the penalty imposed is set aside. The penalty imposed on appellant No.2 is nominal and we find that he has cleared the goods in spite of the repeated written communication from the officials. We, therefore, reject the appeal filed by appellant No.2.

As far as appellant No.3 is concerned, we entirely agree with the learned counsel for the appellant that this is not a case for confiscation of the goods under Rule 25 of the Central Excise Rules, 2002 or Rule 13 of the Cenvat Credit Rules, 2002. In the present case, the goods which have been seized are not the same goods which were cleared from appellant No.1 but have already been processed. Further, the goods were not clandestinely cleared but were cleared on payment of duty. It is a separate issue that there was a dispute about the rate of duty applicable on such goods between appellant No.1 and the Revenue. We also agree with the learned counsel for the appellant that the Commissioner (Appeals) has misdirected himself into trying to invoke Section 120 of the Customs Act, 1962, which was not at all in the case, show cause notice or by the original authority. The confiscation of the goods is set aside and accordingly the redemption fine is also set aside. We also find that penalty is imposed on appellant No.3. In our considered view, there is no case for imposition of penalty on appellant No.3 as they have purchased the goods under proper invoices, received the goods and taken the credit on the basis of the invoices on which the duty had been paid.

The penalty imposed on appellant No.3 is, therefore, set aside.

5. All the three appeals are disposed of in above terms.

(Pronounced in Court on 29.9.2015)

(S.S. Garg) Member (Judicial) (P.K. Jain) Member (Technical)

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