Full Judgment
2. Briefly stated the facts of the case are that the appellant M/s.
K.C.P. Ltd., Tiruvottiyur, Madras are manufacturers of Heavy Industrial Machines. On the basis of specific intelligence gathered that they have raised invoice for escalation charges and collected the same from the customers but have not paid the duty thereon to the Government the officers of Headquarters Preventive, Chennai visited the said factory and office premises on 6-11-92 and found that no records were available at their corporate office at No, 2, Victorial Crescent Road, Madras-105, At the time of the Officer's visit to the factory situated at P.B. No. 2278, Tiruvottiyur, Madras-19, S/Shri V. Narayanaswamy, Sr.
Accounts Officer and K. Rajagopalan, Assistant Manager, Sugar Sales Department, were present. The officers searched the premises and recovered certain documents for further verification. The officers also recorded the statement of Shri V. Narayanaswamy, Sr. Acctts. Officer.
On verification, the department came to a conclusion that KCP Ltd. have been raising price variation claims from their customers and were paying the excise duty only after realisation of the said bills. There is no provision in Central Excise law permitting deferment of duty till the realisation of the sale proceeds. Price variation claims were being made by KCP, as per the contract according to I.S.M.A. Price Index, prevailing on the date of clearance. Hence KCP were required to pay the duty at the time when such claims against their buyers were made. From the perusal of the documents recovered, it appeared to the department that KCP had with the intention to evade payment of duty, suppressed several facts and cleared the dutiable goods without following the prescribed procedures and without payment of appropriate duty due thereon and thereby attracted invocation of proviso to Sub-section
(1) of Section 11A of Central Excise Act, 1944. On verification of the records seized, it was found that
(1) M/s. KCP Limited have raised 12 Nos. of proforma invoices on price variation claims to different customers;
(2) they have received an ad hoc payment of Rs. 1.2 crores out of Rs. 1.84 crores against the invoice No. PR/1009/RE dated 17-10-88 towards price escalation;
(3) they have paid duty of Rs. 3,54,804.90 on the value of Rs. 29,57,207.57 only;
(4) they have also received an ad hoc payment of Rs. 22,00,000/- against Rs. 44,41,190/- for bill dated 3-9-92 (job No. 2235) in respect of M/s. Majal Goan SSK Ltd., and Rs. 34,803.79 for the PVC bill dated 5-3-92 for job No.424902 in respect of M/s. MF Ltd., Madras-68;
(5) they have cleared certain Modvat/manufactured goods under inter-unit transfer invoices to their sister units without payment of excise duty and
(6) they have wrongly availed the exemption under Notification No. 184/86-C.E. dated 1-3-86 for the supplies made to M/s. HAL. Hence, a show cause notice C.No. V/84/15/10/93-CX./Adj./SCN No. 51/93 was issued on 24-9-93 invoking proviso to Section 11A
(1) of C.E. Act, 1944 read with Rule 9(2), Rule 57-1(2) of C.E. Rules, 1944 asking the appellant company to show cause as to why (i) the excise duty of Rs. 5,28,467.24 payable on the goods cleared under Inter Unit Transfer Invoice, without payment of duty should not be demanded; (ii) excise duty of Rs. 1,62,056.96 payable on Modvat inputs cleared without payment of duty should not be demanded; (iii) excise duty of Rs. 33,08,213.09 (as per Annexure E to SCN) payable on the price escalation charges charged/collected from the customers should not be demanded; (iv) excise duty of Rs. 54,285.05 payable on rear flanges manufactured and cleared to M/s. HAL without payment of duty by incorrectly availing exemption Notification No.184/86-C.E. dated 1-3-86 should not be demanded; (v) excise duty of Rs. 12,37,022.76 (as per Annexure G to SCN) already paid by them should not be confirmed and adjusted and (vi) a penalty should not be imposed on the appellant under Rule 173Q of Central Excise Rule, 1944. The appellant submitted their reply on 2-11-93 in which they contended that there was no suppression of facts and that they were fully complying with all Central Excise Rules; that their sister unit at Vuyyuru had all along been following Chapter X procedure and enjoying exemption under Notification No. 281/86; that they have not discharged duty on the inter-unit transferred goods; that when the department pointed out, they verified and found that their sister unit had not renewed Chapter X procedure and that the fact that they have paid duty instantly would prove their bona fides in dealing with excise matters. The appellant had furnished a detailed reply by which they have denied the charges made in the Show cause notice. Shri V. Narayanaswamy, Sr. Accounts Officer of the appellant firm appeared before the Superintendent of Central Excise, HPU, Madras-34 on 27-11-92 as per the summon dated 18-11-92 and his statements were also recorded.
3. Thereafter, a personal hearing was fixed on 24-10-94. The counsel and Shri V. Narayanaswamy, Sr. Acctts. Officer appeared during the personal hearing and reiterated the pleas already raised in their written submission dated 2-11-93 to the Show cause notice issued on 24-9-93. After hearing the party, the Commissioner has passed the following order vide Order-in-Original No. 10/95 dated 9-2-95.
(a) Demanded duty of Rs. 18,03,273/- being the Central Excise duty payable on the price variation/escalation claims made and realised under the provisions of Section 11A(2) read with Section 11A(1) of the C.E. Act, 1944. He has adjusted an amount of Rs. 3,57,936/- already paid by them against this demand.
(b) Demanded an amount of Rs. 5,28,467.74 being the Central Excise duty payable on the excisable goods cleared under unit invoices under Rule 9(2) of the C.E. Rules, 1944 read with proviso to Section 11A(1) of the C.E. Act, 1944.
(c) Demanded an amount of Rs. 1,62,056.96 being the duty payable on the Modvat inputs cleared under Rule 57-1(2) of the C.E. Rules, 1944. He has adjusted a sum of Rs. 6,90,524.70 already paid by the appellants against this demand.
(d) He has dropped proceedings with regard to the demand of duty of Rs. 54,285,05 and extended the benefit of Notification No. 184/C.E., dated 1-3-86 in respect of Rear flanges cleaned to M/s HAL.
(e) Imposed penalty of Rs. 1,50,000/- on the appellants under Rule 173Q of the C.E. Rules, 1944.
4. Against the above order of the Commissioner, the assessee filed appeal before the Tribunal in Appeal No. E/SB/5326/95 together with E/SB/Stay/3367/95/MAS and the stay was allowed by granting waiver of pre-deposit of the amount involved and order-in-original was set aside and the appeal was remanded to the Commissioner vide order No. 49/1995 dated 16-6-1995 without expressing any opinion on the merits of the case for reconsideration of the issue in accordance with law. The Tribunal while remanding held that "it would be open to the adjudicating authority to take into consideration all the terms of the contract and also give his finding in regard to the plea of limitation urged before the Tribunal" as the Tribunal was left with no other alternative except to remand the matter in the absence of clear finding by the adjudicating authority on certain evidence".
5. This is the second round of appeal before the Tribunal. The adjudicating authority, on de novo consideration, granted personal hearing to the appellants on 19-2-97 and 15-3-97, and after taking into consideration all the facts, evidences and submissions made before him, has passed the following order: 37.1 I demand from M/s The K.C.P. Ltd., Chennai, an amount of Rs. 12,77,934/- (Rupees twelve lakhs seventy seven thousand nine hundred and thirty four only) being the Central Excise duty payable (as per the revised worksheet in the Annexure) on the price variation/escalation claims made and realised (as referred to under Sl. No. 1 and 2 of Annexure 'E' to SCN) under Section 11A(2) read with proviso to Section 11A(1) of Central Excise Act.
37.2 I confirm and adjust an amount of Rs. 3,57,936/- (Rupees three lakhs fifty seven thousand nine hundred and thirty six only) already paid by them against the aforesaid demand.
37.3 I demand an amount of Rs. 5,28,467.74 (Rupees five lakhs twenty eight thousand four hundred and sixty seven and paise seventy four only) being the Central Excise duty payable on the excisable goods cleared (inter-unit transfer) as detailed under Annexure C and D to Show Cause Notice under Rule 9(2) of Central Excise Rules, 1944, read with proviso to Section 11A(1) of Central Excise Act.
37.4 I also demand an amount of Rs. 1,62,056.96 (Rupees one lakh sixty two thousand and fifty six and paise ninety six only) being the duty payable on the Modvat inputs cleared as detailed in the Annexure B) under Rule 57-I(2) of Central Excise Rules, 1944 read with proviso to Section 11A(1) of Central Excise Act.
37.5 I confirm and adjust an amount of Rs. 6,90,524.70 (Rupees six lakhs ninety thousand five hundred and twenty four and paise seventy only) already paid by them against the aforesaid demands (at para 37.3 and 37.4).
37.6 I drop further proceedings with regard to the demand of duty of Rs. 54,285.05 (Rupees fifty four thousand two hundred and eighty five and paise five only) detailed in Annexure F to show cause notice and extend the benefit of Notification No. 184/86-CE., dated 1-3-86 in respect of rear flanges cleared to M/s HAL.
37.7 I impose a penalty of Rs. 1,00,000/- (Rupees one lakh only) on M/s The K.C.P. Ltd., Chennai under Rule 173Q ibid.
The findings recorded by the learned Commissioner in support of the above order are reproduced herein below: 25. I have carefully gone through the written and oral submissions made by the KCP through their Counsel.
26. The total demand that was made in the Order-in-Original which was set aside by CEGAT in respect of duty liability on such escalated value is Rs. 18,03,273/-. This amount represented duty payable on escalated value arising from two contracts as under : 27. The question that arises, among other things, for determination in this de novo adjudication is whether the demand for an amount of Rs. 18,00,000/- payable on the differential escalated value of Rs. 1.2 crores paid to the assessee by their buyers, CCI, is maintainable inasmuch as the said escalated value included the element of escalated value on bought out items which were supplied direct from the suppliers to CCI. 28. On the question whether the entire escalation price difference of Rs. 1.2 crores that KCP had received from the buyer, CCI, merit a levy of Central Excise duty @15%, in short, it is the case of KCP that Rs. 1.2 crores represented not only the escalated cost of their own manufactured products but also the escalated cost of their bought out items that were directly supplied from the suppliers of those bought out items to the site and not routed through the factory of KCP. As such, it is clear that KCP was not liable to pay any duty on those bought out items.
29. On perusal of the case records, I find that while settling the claim of not on account of price escalation for a total sum of Rs. 1,84,81,272.61, inclusive of the duty, CCI made an ad hoc payment of Rs. 1.2 crores. According to KCP, the extent of escalation cost of bought out items worked out to Rs. 94,55,117.46 out of the total payment of Rs. 1.2 crores, while the balance amount of Rs. 25,44,882.54 represented the escalated value of their own manufactured products. However, it has also been submitted by KCP that out of the said amount of Rs. 1.2 crores, they disbursed Rs. 35,02,257/- only to the four suppliers of bought out items, namely Siemens Ltd., Space Age, Larsen & Toubro and Andrew Yule. In respect of other two suppliers, OTIS Elevator and Elecon, there was no escalation clause in the contract and no amount was made by KCP. As regards the balance amount of Rs. 84,97,743/- it was adjusted towards the escalation cost of their own manufactured products and trading profit. Further, KCP has not been able to produce any evidence with reference to their claim from other buyers on account of escalation clause. In other words, neither the claim letter from KCP to the buyers had spelt out their claim on account of bought out items and their own manufactured products, nor did the letter from the buyers specify the claim of KCP on account of bought out items vis-a-vis their own manufactured products. In view of the above, it is not possible to apportion the escalation cost of the bought out items in the total payment of Rs. 1.2 crores received by KCP. It is, however, a fact as submitted by KCP, that out of the amount received, they have disbursed Rs. 35,02,257/- to four of their suppliers. It will, therefore, be reasonable to hold that the above said amount represented the escalation cost of the bought out items supplied directly by the supplier to the site without routing through the factory of KCP and hence, the same should not be subjected to levy of Central Excise duty. Thus, it will be reasonable to deduct Rs. 35,02,257/- from the total amount of Rs. 1.2 crores for the purpose of levying Central Excise duty.
30. KCP has produced 136 invoices, which according to them would account to Rs. 4,49,46,521/- towards their own manufactured products which have been supplied to CCI. It has also been submitted that the total value of the bought out items works out to Rs. 18,75,23,479/-.
They have not been able to produce all the invoices. However, they have produced at random some invoices pertaining to bought out items during the personal hearing. As it has been pointed out, it is not possible to apportion the escalation cost of bought out items and that of their manufactured products from the payment of Rs. 1.2 crores, it is for KCP to show separately the escalation cost of their own manufactured products in their claim bill/letter which they have not done. It is by now established that out of the amount of Rs. 1.2 crores received by them, they have disbursed a total amount of Rs. 35,02,257/- only. Further, the balance amount was evidently absorbed by KCP and there is no reason why they should not be liable to pay the Central Excise duty on the balance amount.
31. I hold that the balance amount of Rs. 84,97,743/- should be subjected to Central Excise duty. The amount of Central Excise duty already paid by KCP should be adjusted with the amount that is payable and the balance amount shall be payable by KCP. 32. As regards the duty liability of Rs. 3,273/- on escalation cost in respect of the contract pertaining to L & T, KCP had not disputed this claim and liability to pay duty, therefore, stands established.
The amount of Central Excise duty of Rs. 3,070.55 already paid by KCP stands adjusted against this demand and the balance shall be payable by KCP. 33. Regarding the other issues in the Show Cause Notice-cum-Demand Notice, viz., (i) Demand of Rs. 5,28,467.74 being the Central Excise duty payable on the goods transferred inter-unit without payment of duty, (ii) Demand of Rs. 1,62,056.96 being the duty payable on the MODVAT inputs cleared to the inter-unit without payment of duty.
there is no dispute and the claims of the department are conceded and accepted by KCP. Therefore, I hold that the charges are established and the amount of duty of Rs. 6,90,524.70 already paid on this score be adjusted against these demands.
34. As regards the proceedings that relate to the demand of duty of Rs. 54,285.05 in respect of rear flanges cleared to HAL, further proceedings were dropped in the Order-in-Original that now stands set aside for the purpose of de nova examination and order. I uphold that the rear flanges cleared to HAL were entitled to exemption under notification No. 184/86-CE., dated 1-3-86 and hence, I am inclined to drop further proceedings on this score.
35. In regard to the question of application of the proviso to Section 11A(1), I find that KCP had suppressed the clearance of manufactured products and the inputs on which Modvat credit was availed to their other unit without payment of duty which had not been disputed by KCP and also failed to inform the Department about the receipt of amounts on account of price variation claims wilfully and with intention to evade payment of duty. Invocation of proviso to Section 11A(1) is, therefore, justified.
36. As regards the allegations against KCP, I find that the allegation of clearance of their own manufactured products from one unit to another without payment of duty and the collection of escalation charges by raising invoices without paying duty due thereon are established. Similarly, on the clearance of inputs received from the customers on which the Modvat credit was availed without payment of duty or without expunging the credit taken is also established. Even though KCP have since expunged the Modvat credit and paid duly on their manufactured products transferred from one unit to another and have partly paid duty on the escalation charges, offence committed is well established. In view of the above, KCP are liable to penalty under Rule 173Q of Central Excise Rules. Considering the facts and circumstances of the case and the nature of the offence committed, I impose a penalty of Rs. 1 lakh on KCP under Rule 173Q of Central Excise Rules over and above the duty payable on the escalated cost.
6. Arguing for the appellant Ld. Advocate Shri, Venugopalan submitted that the learned Commissioner has erred in not appreciating full facts of the case before passing the order demanding Rs. 12,77,934/-. He submitted that duty demanded by the Commissioner on the bought-out goods also from the sub-suppliers, which had already suffered duty and became the second sale at the hands of the appellant is totally against the ratio given by the Apex Court in the case of Atic Industries reported in 1978 (2) E.L.T. (J 444) (S.C.), hence the impugned order is liable to be set aside. He further contended that the finding recorded by the Commissioner that the appellant had not shown separately the escalated cost of their own manufactured products in the claim bill/letter and that the appellant have not been able to produce all the invoices of the bought out item worked out to Rs. 18,75,23,479/- is totally incorrect in as much as the appellant had put up all the purchase orders of the six major sub-suppliers with escalation clause and further informed the Commissioner that they have raised nearly 600 invoices in total on the buyers. As a matter of fact, it is difficult to tender all of them and offered for inspection at their factory to the departmental officers, hence they have put up random 25 purchase orders of the sub-suppliers for verification with firm price. Besides, they have also put up all the 136 invoices totalling Rs. 4,49,46,521/- for their own manufactured goods cleared on payment of duty to the project site. Ld. Advocate contended that as long as this fact has not been disputed by the department, it is logical and established that it relates to their manufactured goods and balance relates to bought out items. He submitted that when the buyer sent an ad hoc amount of Rs. 1.2 crores for the escalated claim, excluding Excise duty and CST, the amount relates to only escalated value of the goods supplied. So far as the buyer is concerned, he does not distinguish between the bought out or the appellant's own manufactured goods. As per the contract entered into by the appellant and the buyer, the scope of supply was to supply the machinery as a whole and the buyer is not concerned with bought out items and the contractors own manufactured goods. Therefore, he submits that the contention of the department that the appellant had not shown separately escalation cost of their own manufactured products in the claim bill/letter is not at all relevant. Hence, he submitted that as long as the appellant could be able to produce documents/invoices of their own manufactured goods which was not disputed by the department, the department should accept it as such. He submitted with regard to the findings of the Commissioner that the balance amount of Rs. 84,97,743/- should be subjected to Central Excise duty is again misconceived and erroneous for the reason that this amount relates to not only the value of the goods manufactured by the appellant, but also the bought out items which had already suffered duty at the hands of the original manufacturers. Since the bought out items had already suffered duty, they cannot be subjected to further duty barring the six major original manufacturers (sub-suppliers) who claimed price escalation value for their goods which is under consideration by the appellant separately. He submitted that they cannot be subjected to any further excise duty as per the ratio in the case of Tata Robins Fraser v. CCE reported in 1990 (46) E.L.T. 562 (Trib.) and also the case law of Machine Products Pvt. Ltd., Ahmedabad v. CCE [1983 (14) E.L.T. 2480 (Trib.)] As the bought out goods were sold second time by the appellant by raising invoices separately, the original manufacturer is in no way connected to the buyer and the department cannot levy duty again on the increase value. It amounts to second sale of the bought out items by the appellant to their buyers which is a trading activity. He pointed out that as per the decision of the Apex Court in the case of Atic Industries Ltd., the department cannot levy duty second time on the increased value. It is further contended that mere raising a proforma invoice claiming escalation value should not be the criterion for payment of excise duty since it is only a demand and not realisation of the amount which is not complied with and disputed. In fact, the ad hoc amount sent by the buyer clearly mentioning that it is exclusive of excise duty and CST which would be paid subsequently, led the appellant not to pay excise duty, since they were carried away by the buyers categorical statement, and the matter was in dispute and posed to arbitration, the department can wait and always raise demand on determination of the escalation value by the Arbitration Committee and the appellant also would be ready to pay the duty thereon. In this connection ld. Advocate drew our attention to the case law of Hindustan Shipyard Ltd., Visakhapatnam v. CCE, Madras - 1987 (28) E.L.T. 586 (Tri.) = 1987 (9) ETR 455.
7. Ld. Advocate submitted that the appellant had no intention to evade duty which is evident from the fact that the appellant submitted to the Commissioner the list of contracts with escalated costs since 1987 and the duty paid suo-moto to the department in time. As there was a dispute and an ad hoc amount was sent excluding excise duty and CST and matter was taken to Arbitration and sub-judice, the appellant under bona fide belief thought that no duty needed to be discharged at this stage. When the Central Excise Intelligence Bureau, MF (DR) Govt. of India, New Delhi as early as 19-2-91 enquired about this payment and wanted the duty to be discharged, the appellant paid the excise duty on their own manufactured goods which was also accepted. All these clearly established that there was no intention on the part of appellant to evade duty and suppress any fact. Like-wise, the appellant were enjoying the benefit of Notification No. 120/75 and subsequently Rule 173-C proviso (ii), till the Assistant Collector instructed to file price list on 5-7-90. Therefore, the contention that there was suppression of facts with intention to evade payment of duty as held by the Adjudicating authority is totally wrong and as such, the penalty levied is also not sustainable. He also submitted that with regard to the goods supplied to the inter-unit transfer and also the Modvat goods supplied, the appellant realised the mistake and paid the duty immediately, even before the issue of show cause notice. It was also pointed out that the mistake arose due to non-renewal of L6 Licences by their sister units outside, as they were enjoying exemption from payment of duty. This clearly proved that there was no intention at all on the part of the appellant to evade duty on this count. He further pointed out that the very fact that the charge of non-duty payment of Rs. 54,285.05 on the goods supplied to HAL under exemption Notification was dropped by the Commissioner itself proved that the appellant had no intention to evade payment of duty. Even on the duty demanded on bought out items, he submitted that the correct amount worked out to Rs. 6,85,014/- and not Rs. 12,877,934/-, after adjusting the duty amount already paid, as confirmed by the Commissioner in his order. As the appellant have proved beyond doubt that there was no intention to evade duty or any suppression of facts from the department, he sought for setting aside the impugned order by allowing their appeal. In the written submission, the appellant has also prayed that the matter may be allowed to be kept pending till finalisation of Arbitration award so that appellant could pay the differential duty, if any, on their manufactured goods.
8. While reiterating and defending the order, Ld. DR submitted that the Commissioner has given a very detailed order in respect of all the aspects pertaining to this case.
9. We have considered the submissions made by both the sides and gone through the case records. We are of the considered opinion that the appellants had not shown separately the escalation cost and the duty collected on such escalated price. The appellants were supposed to have disclosed in the price list or the price declaration and they were supposed to have submitted copy of the contract. Had they so done, the department would have allowed them to clear the goods by doing provisional assessment and would have assessed the goods provisionally by taking sufficient security and bond and would have resorted to provisional assessment. The department would have then finalised the assessment in accordance with law.
Suppression of this fact from the Revenue has led to short levy. We also do not find any evidence that the balance amount of Rs. 84,97,743/- is inclusive of and also relates to not only the value of the goods manufactured by the appellants but also bought out items which according to the appellants had already suffered duty at the hands of the original manufacturers. Therefore, in the absence of any evidence the amount of Rs. 84,97,743/- also relates to not only value of the goods manufactured by the appellants but also bought out items is bereft of any evidence whatsoever. In the absence of any evidence the ratio of the decision in the case of Tata Robins Fraser v. CCE reported in 1990 (46) E.L.T. 562 (Trib.) also in the case of Machine Products Pvt. Ltd., Ahmedabad v. CCE reported in 1983 (14) E.L.T. 2480 (Trib.) are not applicable to the facts of this case. Similarly the Hon'ble Apex Court judgment in the case of ATIC Industries Ltd. is also not applicable to the facts of this case. We are also of the considered opinion that once pro forma invoice claiming escalation of the value as per contract is raised, the appellants are bound to pay Central Excise duty. The department does not wait and is not supposed to wait till the price including the escalated price is realised by the manufacturer from the buyer. Whether the matter is under arbitration or not, is not the concern of the department and the department cannot wait. The plea of the appellants that the department can always demand duty on determination of the escalated price by arbitration committee is not acceptable to us. Since this is a case of non disclosure or suppression of price from the department, the judgment rendered in the case of Hindustan Shipyard Ltd. v. CCE, Madras reported in [1987 (28) E.L.T.586 (Tri.) = 1987 (9) ETR 457] is not applicable in view of the facts and circumstances of this case. The appellants paid the duty only when the Central Excise Intelligence Bureau of the Department of Revenue, New Delhi as early as 19-10-91 investigated about this and directed them to discharge the duty and they have paid the duty only after that investigation and detection of the case by the department. Therefore, the plea that there was no intention on their part to evade payment of duty and suppression of any facts, is not acceptable to us. Therefore, mala fide intention of the appellants is clearly established. The plea of the appellants that they had been enjoying the benefit of the Notification 120/75 for non filing of the price list and subsequently under Rule 173C, proviso (ii) also does not come to their rescue since benefit of Notification No. 120/75 for non filing of any price list is available with conditions. The assessees who are not charging any extra price and some other consideration were allowed/permitted to issue only simple invoices. Thus benefit of Notification No. 120-C.E./75 dated 30-4-75 subsequently Rule 173C, proviso (ii) would be available only to such assessees, and not to assessees of the type the appellants are.
Proviso (iii) and (iv) of the Notification No. 120-C.E./75 dated 30-4-75 stipulate that the manufacturer certifies that the price referred to in the invoice represents the price actually charged by him for the relevant sale and that the price is the sole consideration for the sale; and the invoice price is not influenced by any commercial, financial or other relationship; whether by contract or otherwise between the manufacturer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods. These conditions have not been fulfilled by the assessee.
Therefore, the findings that there were suppression of facts with an intention to evade payment of duty as held by the Commissioner cannot be faulted with, in view of the findings recorded by the Commissioner which are extracted above. Further, sending the goods to their sister concern not having L-6 licence without payment of duty is also suppression of facts as this fact of sending the goods without payment of duty and without any invoice etc. have not been made known to the department. The department issues CT-2 certificate if the goods are cleared from the factory of the manufacturer without payment of duty to any units or establishment who wants to use the goods for special industrial purposes after the department receives application as per the procedure mentioned under Chapter X under Rule 192 of the C.E.Rules, 1944. The sister unit of the appellants when they were using the goods for special industrial purpose had not obtained L-6 licence and have to pay duty at the appropriate rate. The finding given is that the goods were cleared without the knowledge of the department clandestinely and without payment of duty. The plea of the appellants that the mistake arose due to non renewal of L-6 licence by their sister unit is not acceptable. The units who are having L-6 licence are granted the CT-2 certificate by the Department and are only entitled to get remission of duty if the goods manufactured by them are used by the receiving units for special industrial purpose, after the unit who are enjoying duty free clearances have obtained such statutory licence. In the present case, since the clearances were made clandestinely to their sister concern without payment of duty and the sister unit did not have L-6 licence and since the department did not have knowledge about the said clearance, suppression of facts is clearly established and they have to pay duty on such clandestine clearance. Further there was escalation clause in the contract and since the escalation clause was not made known to the department, the department cannot wait nor is the department legally supposed to wait till finalization of the arbitration on the escalated price on the duty payable and hence the duty has been rightly demanded by the learned Commissioner. In view of the above facts and circumstances of the case, we do not find any infirmity in the order in original No. 8/97 dated 5-3-97 of the learned Commissioner and therefore we confirm the same and reject the appeal.
Ordered accordingly.
10. With due respect to my learned brother, I am unable to agree with the findings recorded by him for dismissal of appeal. I am of the considered opinion that the appeal is required to be allowed on time bar as well as on merits. This is the second round of litigation.
Earlier matter had been remanded by Order No. 49/95 dated 16-6-95.
11. Appellants are manufacturers of heavy industrial machines. Their office and factory were visited by the Central Excise officials on 6-11-92 and the search did not result in any incriminating document except for recovery of certain documents in the factory. On verification of records, the investigation agency found 12 Nos. of proforma invoice raised by the appellants on the price variation claims to different customers. They had received ad hoc payment of Rs. 1.2 crores out of Rs. 1.84 crores in terms of their invoice No. PR/1009/RE dated 1740-88 towards the price escalation. They had further received an amount of Rs. 22 lakhs against a sum of Rs. 44,41,190/- vide bill dated 3-9-92 in respect of Majalgaon SSK Ltd., and Rs.34,80,379/- in respect of Price Variation Clause (PVC) bill dated 5-3-92. They had also cleared modvat/manufactured goods under Inter unit transfer invoices to their sister-units without making payment of duty, availing exemption Notification No. 184/86 dated 1-3-86 for supplies made to M/s. HAL. Statement of Sri V. Narayanaswamy, Senior Accountant was recorded by the Superintendent of Central Excise on 18-11-92 with regard to details pertaining to the investigation of the case.
Appellants had filed all the contract document pertaining to the project from 1988 to 1993. During this period the price list had been accepted and they had made ad hoc payments except for the escalation clause. On this also, they made payment in 1991 pertaining to the period in question. They were quizzed by the Economic Intelligence Bureau except on the bought out items they have purchased by the customers which, according to the appellant, cannot be added to the value of clearances for seeking less short levy demand by invoking larger period. This is the plea which has been made by the appellants in reply to the SCN and also the grounds of appeal.
12. On a careful consideration of the submissions, it is well settled law that demands cannot be raised on bought out items and therefore the short-levy raised on bought out items is required to be quashed. I order accordingly. The second plea raised is that there is short levy also on the bought out items which is under challenge. It is contended that for the period 1988-93 they have also voluntarily paid duty on escalation clause on contract price. Therefore, the department cannot claim duty on this score, as there is no flow back of funds. It is also argued that the amount of Rs. 4,45,766/- has been fixed arbitrarily and that the same cannot be levied for the reason that there cannot be duty on bought out items. They also contended that duty was cum duty price and that demands raised are barred by time.
13. On a careful consideration of the submissions, I notice that the project contracts entered into with the parties involved design, supply, manufacture, erection and commissioning and appellant manufactured goods in their unit and cleared them on payment to site directly. In regard to items of electrical machinery and mechanical parts like electrical motors, control panels, instruments, industrial valves, pumps and structurals etc., appellant purchased them from outside and sent them over to site for assembly and erection purposes.
This fact has been verified by the investigation officers and despite appellants brought this fact of purchase and producing duty paying components, yet the differential duty has been claimed adding it on the escalation charges. As the evidence on record clearly discloses that these duty paid items were purchased and sent to the site, therefore the inclusion of this in the invoice is required to be set aside and I order accordingly.
14. Further, the appellants were enjoying the benefit of notification No. 120/75 from the beginning and they were not obliged to file price lists as the deptt. also had not instructed them either to file price list or contracts since appellants were wrong in making payment of duty and difference in duty in the case of escalated price. Only in 1986 the jurisdictional Asstt. Commissioner issued order No. V/68/15/51/85-T.5 dated 10-12-85 asking them to file price lists and contracts wherever there was price variation in the contracts by way of information to department, against which the appellant preferred an appeal before Commissioner (Appeals) who vide Order No. V/68/63/86 dated 28-3-86 remanded the case to the Asst. Commissioner to examine it afresh. Only in her order dated 5-7-90, the AC had ordered appellant to file price lists and contracts under Part II effective from 6-7-90 as, since then, appellant was enjoying the benefit of Notification under Rule 173C(11) read with Notification No. 120/75 as amended. The period involved was pertaining to prior 1988 and so appellant was exempted from filing price lists/contracts before the department. The sister unit was also availing benefit of Notification No. 281/86 complying with Chapter X procedure. Appellant used to send raw materials or manufactured goods to the sister-units under GP 2 alongwith delivery challans, without payment of duty although, the sister unit has not renewed L-6 licence.
By this fact alone, demands cannot be charged to be recovered by invoking larger period by SCN, dated 24-9-93 with regard to the period 1988-1993. The department was fully aware of the facts and all the details had been supplied, time and again and therefore it cannot be said that there was wilful suppression of facts for the purpose of invocation of larger period and hence demands are required to be set aside on the ground of limitation alone. Hence, after due consideration of all the submissions made, I order for setting aside the demands raised and confirmed on the ground of limitation. For that reason stated above, the impugned order is set aside and appeal is allowed.
In view of difference of opinion between the Members, the following question arises for reference to Third Member for answering the question :- "Whether the appeal is required to be rejected by confirming the impugned order as held by Learned Member (Technical) Shri Jeet Ram Kait; that the appeal is required to be allowed both on merits as well as on time bar as held by Learned Member (Judicial) Shri S.L. Peeran in his order." Sd/- Sd/-(Jeet Ram Kait) (S.L. Peeran) Member (T) Member (J) 15. P.G. Chacko, Member (J) - Examined the records and heard both the sides. Ld. Counsel and Departmental Representative reiterated their respective arguments.
16. It appears from the record that the appellants were engaged in the manufacture of heavy industrial machines for cement/steel/sugar plants; that their activity under Project Contracts entered into with their customers, involved design, supply, manufacture, erection and commissioning of plant/machinery; that the main parts of the plant/machinery were manufactured in their own factory and cleared directly to the customer's site; that certain parts were purchased from outside and the same were dispatched by the suppliers directly to the customer's site for use in assembly and erection of the plant/machinery; that in respect of such parts, the appellants raised their own separate invoices on the customer; that, under a Project Contract, which they had executed for the Cement Corporation of India (for short, M/s. CCI), the appellants had raised proforma invoices for escalated value of Rs. 1.54 crores and claimed Rs. 23.17 Lakhs inclusive of excise duty in terms of the Price Variation Clause under the contract; that M/s, CCI made an ad hoc payment of Rs. 1.2 crores to the appellants on 5-6-86; that, out of this amount of Rs. 1.2 crores, the appellants disbursed Rs. 35,02,257/- to four of their suppliers; that the department wanted to levy central excise duty on the escalated price under the above Project Contract; and that the Commissioner of Central Excise, by the impugned order, demanded ah amount of duty of Rs. 12,77,934/- on this score after recording a finding that the appellants were liable to pay duty on the differential value of Rs. 84,97,743/- (Rs. 1.2 crores minus Rs. 35,02,257/-); the Commissioner appropriated the amount of Rs. 3,57,936/- already paid by the appellants, towards this demand of duty.
17. It further appears that the appellants had two sister units - one at Vuyyuru and the other at Macherla, both of which used to place orders on the appellants for components and raw materials for reconditioning, repairs etc, for which they used to avail the benefit of Notification No. 281/86-CE. after complying with Chapter X Procedure; that the appellants cleared their manufactured goods without payment of duty to their Vuyyuru unit during April to October, 1992 and the central excise duty payable on the goods so cleared was Rs. 5,11,111.81; that the appellants similarly cleared manufactured goods without payment of duty to their Macherla unit during the same period and the central excise duty payable on such goods was Rs. 17,355.46; that, after visit by officers of Central Excise to their factory, the appellants realized their mistake and paid the duty of Rs. 5,28,467.74 (Rs. 5,11,111.81 + Rs. 17,355.46) by way of debit entries in their RG-23A Part-II on 27-11-92; that the Commissioner appropriated the said payment towards the demand of duty of Rs. 5,28,467.74 confirmed by him; that the appellants cleared machinery parts (modvatable goods) without payment of duty to their Vuyyuru unit during April to October 1992 and, in this case also, they paid the duty of Rs. 1,62,056.96 by way of debit in RG-23A Part-II on 27-11-92; and that the Commissioner appropriated this amount towards the confirmed demand of duty of Rs. 1,62,056.96.
18. It further appears that the appellants had cleared rear flanges to M/s. Hindustan Aeronautics Ltd. (for short, M/s. HAL) without payment of duty claiming exemption under Notification No. 184/86-C.E. dated 1-3-86; that the department contested the claim of exemption and demanded an amount of duty of Rs. 54,285.05 in respect of the rear flanges cleared to M/s. HAL; but the Commissioner accepted the appellant's claim and dropped the said demand.
19. The only surviving dispute in this case is in relation to the duty on the price escalation claim raised by the appellants on their customers through proforma invoices. It has been contended by the appellants that they were not liable to pay any duty of excise on the bought-out items which were supplied directly by their suppliers to their (appellants') customers's site. The basis for this contention is that the appellants had only done trading activity in respect of such bought-out items and, therefore, no duty of excise was chargeable on those items. They relied on the Supreme Court's decision in the case of Atic Industries Ltd. [1978 (2) E.L.T. (J 444) The adjudicating authority has found that the appellants were not able to produce evidence to support their claim that a major part of the differential amount of Rs. 84,97,743/- was the price escalation on the bought-out items. The Commissioner has further found that it is not possible to apportion the total escalation cost between bought-out items and the manufactured goods. In my view, these findings of the Commissioner do not stand the test of evidence in this case. The appellants had actually produced all the invoices covering the manufactured goods dispatched to their customer viz. M/s. CCI. In respect of the bought-out items, there were over 600 invoices, which they offered for inspection by departmental officers. It appears from the record that, when such offer was made by the appellants, they were advised to submit sample invoices after random selection, and they did accordingly. The charge of non-production of evidence, therefore, will not be justifiable. Had all the invoices been inspected by the department, it would, perhaps, have been possible for the adjudicating authority to apportion the escalation cost between manufactured goods and bought-out items. The assessee cannot be allowed to be put to injury by such departmental lapses. Therefore, on the facts and available evidence of this case, it has to be held that the Revenue did not succeed in proving their case and that the appellants were not liable to pay central excise duty on the escalation cost claimed in the invoices issued by them to M/s. CCI. Consequently, the demand confirmed by the Commissioner cannot be sustained. I also agree with the findings recorded on the issue by learned Member (Judicial).
20. It has also been pointed out by the appellants that the demand is barred by limitation. There is no dispute of the fact that, for a large part of the period during which the project contract was executed by the appellants, there was no requirement of filing price list etc. with the department. It is also an admitted fact that the appellants were filing price lists ever since they were directed to do so by the Asstt.
Collector as per Order dated 5-4-90. It is also an undisputed fact that the appellants were claiming the benefit of exemption Notifications viz. 281/86-C.E. and 184/86-CE. The Commissioner himself has allowed the exemption under Notification No. 184/86-C.E. In such facts and circumstances, it cannot be said that the appellants suppressed facts with intention to evade payment of duty. Hence the larger period of limitation under the proviso to Sub-section (1) of Section 11A of the Central Excise Act is not invocable in this case.
21. I have already held that, both on merits and on limitation, the demand of duty on the escalation cost of the goods supplied by the appellants to M/s. CCI under the project contract is not sustainable.
The appeal of the party is liable to be allowed as held by the ld.Member (J).
In terms of majority order, the impugned order is set aside and appeal is allowed.
Majority Order pronounced in open court on 3-6-2003.
Sd/- Sd/-(Jeet Ram Kait) (S.L. Peeran) Member (T) Member (J)