Judgment:
1. This is an appeal at the instance of the assessee challenging the order passed by the Commissioner of Central Excise, Jaipur dated 12.10.2000. Under the impugned order the Commissioner confirmed the duty demand of Rs. 64,81,078 (Modvat credit), Rs. 22,64,168.70 (debit already appropriated and imposed penalty of Rs. 20,67,200 under Rule 571(4) and a further penalty of Rs. 20,00,000 under Rule 173-Q(1)(bb).
There is also a demand of interest under Rule 57-1(5). The period involved is from August 1994 to September 1997. The show cause notice is dated 4.8.99.
2. The appellant is a manufacturer of motor vehicles falling under Chapter 87. They have a factory at Alwar in Rajasthan and another one at Ennore, Madras. The components are manufactured at Ennore, Madras and are supplied to Alwar Factory where assembly of motor vehicles takes effect. Some of the components are purchased from outside by the Ennore factory and sent to Alwar. Under the show cause notice dated 4.8.99 issued by the Commissioner of Central Excise, Jaipur, it is alleged that the appellant had availed ineligible credit to the extent of Rs. 1.44 crores during the period from August 1994 to September 1997 under Rule 57-1 of the Central Excise Rules, 1944. It is further alleged that on examination of the records by the officers of Anti Evasion Department who visited the appellant's premises in October 1997 it was found that the appellant had been receiving various inputs and component from Ennore factory under invoice-cum-Knocked Down Despatch Advice (KDDA), that on receipt of the goods, a document known as Shortage/Excess Intimation Note (SEIN) was being prepared at Alwar factory. The above document showed the details of the goods as per the KDDA and the actual quantity received differed. But the appellant had taken modvat credit of the duty mentioned on the invoices, that no adjustment had been made in respect of shortage or non-receipt in the RG 23A Part II and that the actual quantity of inputs received nor the duly on such inputs had been correctly declared. The show cause notice proposed to recover en excess modvat credit under Rule 57-1 by applying the extended period of limitation.
3. The appellants filed a detailed reply to the show cause notice pointing out that no duty could be demanded as alleged in the show cause notice both on merits as well as on the ground of limitation.
Earlier two show cause notices dated 28.10.94 and 30.10.95 had been issued to the appellant on the very same issue for the period from 6.11.89 to 30.6.94. Detailed replies were filed to the above show cause notices. Thereafter the Additional Commissioner passed an order dated 5.1.98 sustaining the demand against which an appeal had been preferred by the assessee before the Commissioner of Central Excise, Jaipur. It was contended that there was no suppression of facts which would enable the Revenue to take recourse to the larger period of limitation of the department was fully aware of the nature of the transactions which were identical to that obtained during the period from 6,11.89 to 30.6.94 covered by the earlier show cause notices. The department was fully aware of the manner of receipt of the goods in Alwar factory and taking of modvat credit on the same by the appellant even when the earlier show cause notice were issued in 1994 and 1995. The appellant pointed out that as per earlier two show cause notices the department had asked the appellant to reverse modvat credit of Rs. 33 lakhs (approx.) for the period from 1989 to 1994 working out pro rata on the same basis, the department had then arrived at a figure of Rs. 59,583 per month.
This amount was being reversed every month during the relevant period from August 1994 to September 1997. Thus in all, during this period an amount of Rs. 22 lakhs (approx.) had been reversed in the RT-12 Returns cumulatively. Under these circumstances, it cannot be contended that the department was not aware of the procedure followed by the assessee and that there was no suppression of facts. Hence, the appellant contended that the present show cause notice dated 4.8.99 is barred by limitation.
4. On merit, the appellant contended in his reply to the show cause notice that the department has considered the excess receipt of the components recorded in SEIN and did not appreciate that the excesses are set off by shortages.
5. The Commissioner of Central Excise under the impugned order did not accept the contentions raised by the appellant on the ground of limitation. The Commissioner took the view that since the appellant had not intimated the department that they were still continuing with the same practice, they are guilty of suppression of facts and therefore, the larger period of limitation is liable to be applied. On merits, it was held that a credit of Rs. 70,10,288 pertaining to inputs where discrepancy is only with reference to part No. and the goods are of the same generic name, description and value and duty amount is admissible to them. Remaining amount of modvat credit of Rs. 64,881,078 out of the total amount recalculated at Rs. 1,34,91,399 which had been availed by the assessee on the inputs which have not been received along with the invoice is not admissible to them and therefore, to be disallowed. In the present appeal before this Tribunal detailed contentions have been taken on the merits of the case and arguments were addressed on those points by the learned Counsel for the appellant. The appellant would submit that large number of components were being transferred from Ennore factory to Alwar daily. All the items were duly entered in RG-23 Part I & II record. The department has no case that any item had been sent from Ennore factory to Alwar factory without payment of duty. No credit has been taken in respect of any item without payment of duty on its transfer from Ennore to Alwar factory. There appeared shortages/excesses of items received at Ennore Unit on account of various reasons like despatch errors, accounting errors, wrong identification of items concerned (discrepancies relating to left hand/right hand items). Whenever the materials were received at Alwar, physical accounting of the components were done and excesses/shortages were noticed in SEIN. If there were shortages of a particular item on a particular date there would be corresponding excess receipt of the same item on the same day or in the immediate future. Even when wrong code No. is given to an item it is noted in SEIN. All these aspects had been explained by the appellant in its representation dated 3.3.99 to the Commissioner of Central Excise after the order dated 5.1.98 was received.
6. Since we are of the view that the appellant has made out a case in its favour on the ground of limitation about which we will presently discuss, we do not propose to go into the detailed contention raised by the appellant on the merits of the demand. Admittedly, on the very same issue show cause notices were issued to the appellant on 29.10.94 and 30.10.95. The above proceeding had ended in an order dated 5.1.96 issued by the Additional Commissioner of Central Excise sustaining the demand in the show cause notice. The present show cause notice for the period from August 1994 to September 1997 was issued only on 4.8.99.
The appellant is fully justified in contending that the department is fully aware of the system followed by the appellant in the matter of transferring the components from Ennore to Alwar unit and taking modvat credit on the same. We find no merit in the reason given by the learned Commissioner for rejecting this contention, namely that the appellant had failed to intimate the department that they were continuing the same procedure in the matter of taking modvat credit. It is relevant to note that a detailed representation had been submitted by the appellant before the Commissioner of Central Excise on 3.3.99. A reference to the above representation which is an annexure to the reply of the appellant to the show cause notice would clearly show that they had explained the entire procedure followed by them in the matter of transfer of the components/assemblies between the two units and how they were taking the modvat credit. It is the case of the Revenue that the officers of the department visited the appellant's factory on 26.8.94 and after going through the records kept in the factory the show cause notices for the period from 1989 to 1994 were issued on 28.10.94 and 30.10.95.
Thus the department was well aware of the practice followed by the appellant. Apart from the above, on the basis of the demand for the period from 1989 to 1994 a pro rata was arrived at as Rs. 59,583 per month and this amount was being reversed every month during the relevant period. A total amount of Rs. 22 lakhs (approx.) had been reversed cumulatively. It is not denied that such amount was being reversed every month even though there is a contention put forward on behalf of the Revenue that there was no specific direction by the department to reverse an amount of Rs. 59,583 per month, Even if this objection is sustained, it has to be taken that the department was aware of the fact that the assessee had not changed its pattern from the earlier period of demand, namely from 6.11.89 to 30.6.94. We find no merit in the contention put forward on behalf of the Revenue that since the amounts were paid under protest, there was no necessity to issue a show cause notice. In the light of the above discussion, we hold that the demand under the show cause notice dated 4.8.99 is barred by limitation.
7. The learned Counsel for the appellant pointed out that so long as the assessment of Ennore factory on the basis of duty paid on the different components transferred from there to Alwar has not been reopened, it is not permissible to have a different assessment at the receiving end. In support of the submission he placed reliance on the following decisions: We do not think that it is necessary for us to go into this contention also in the light of our finding that demand is barred by limitation.
8. In the result, we set aside the impugned order and allow the appeal.
The appellant will be entitled to all consequential reliefs.