The Commissioner of Central Excise Vs. M/S Federal Mogul Tpr India Limited - Court Judgment

SooperKanoon Citationsooperkanoon.com/1195684
CourtKarnataka High Court
Decided OnApr-01-2015
Case NumberCEA 25/2012
JudgeVINEET SARAN AND S.SUJATHA
AppellantThe Commissioner of Central Excise
RespondentM/S Federal Mogul Tpr India Limited
Excerpt:
1 in the high court of karnataka at bengaluru dated this the1t day of april, 2015 r present the hon’ble mr.justice vineet saran and the hon’ble mrs.justice s sujatha cea no.25/2012 and cea nos.26-28/2012 .. appellant between: the commissioner of central excise bangalore – ii, commissionerate central revenue building queens road bangalore – 560 001. (by sri y hariprasad, sr.cgsc) and: m/s federal mogul tpr india limited doddaballapur road yelahanka bangalore – 560064. (by sri g shivadass, adv. and sri siddartha, adv.for m/s lakshmi kumaran & sridharan, adv.) these appeals are filed under section35 of the central excise act, 1944 arising out of order dated1201.2012 passed in final order nos.20 to232012 in appeal no.e-1086, 1087, 1159 and11602009 praying to set-aside the final order nos.20 to232012 dated1201.2012 in appeal no.e-1086, 1087,1159 and ..respondent21160/2009 passed by the cestat, bangalore, in the interest of justice and equity. these appeals having been heard and reserved for judgment on12h march2015 coming on pronouncement of judgment this day, sujatha j., delivered the following: for judgment these appeals are filed by the department challenging the common order passed by the cestat, south zonal bench at bangalore, dated 12.01.2012, wherein the tribunal has held that the notification no.8/2005-st dated 01.03.2005 is a conditional notification and the demand raised against the assessee has been set aside.2. the brief facts are that : m/s.federal mogul tpr (india) ltd. (fmtpr) holders of central excise registration certificate is engaged in the manufacture of piston rings etc., falling under chapter 84 of central excise tariff, 1985. it is the case of the department that on information gathered from the intelligence during the period between april 2007 to january 2008, fmtpr3had availed inadmissible cenvat credit of service tax paid on the activity of chrome plating done by their sister concern on job work basis under cover of material movement challans, without reversing the cenvat credit availed thereon. fmgil had returned the goods after completion of process of chrome plating to fmtpr under cover of an invoice on payment of service tax on the value of job work charges and further, the said goods received from fmtpr undergo various manufacturing processes and then gets cleared on payment of duty.3. the activity of chrome plating was covered under the category of ‘business auxiliary service’ and liable for payment of service tax. however, in view of the notification no.8/2005-st dated 01.03.2005, the job work, which does not amount to manufacture was exempted from payment of service tax provided the job worked goods are further used in the manufacture of final products on which appropriate duty of excise is discharged by the principal manufacturer. fmgil, job worker, without availing 4 this notification had paid the service tax and passed on the benefit of cenvat credit to fmtpr. on gathering this information, the authorities issued show cause notices demanding inadmissible cenvat credit of service tax of rs.2,02,00,725/- availed by the fmtpr for the period from april 2007 to june 2008 and proposing to demand rs.6,11,96,239/- from fmgil. these show cause notices were adjudicated by the commissioner of central excise and then order in original dated 25.09.2009 was passed confirming the demand on fmtpr and fmgil, and also levied a penalty of rs.2,00,000/- on sri subramani, managing director (shipping) of the fmtpr-company. against which, appeals were filed by the assessees and sri subramani, before the cestat. the cestat vide common order dated 12.01.2012 allowed all the appeals setting aside the demand made by the authorities. this order passed by the cestat dated 12.01.2012 is impugned in these appeals by the department. the questions of law raised in these appeals are as follows:5. 1. whether the tribunal is correct in allowing the appeal filed by the assessee without appreciating the fact that m/s.federal mogul goetze india ltd., the job worker, has irregularly availed cenvat credit and wrongly paid central excise duty/service tax, so as to enable their sister concern i.e., m/s.federal mogul tpr india ltd., to avail inadmissible credit thereby giving undue benefit for the company as a whole?.2. whether the cestat has erred in holding that the obligation or condition in the notification is applicable to the manufacturer of the final product and thereby it is a conditional notification. it is to be seen whether the obligation for availing benefit of exemption under a conditional notification is to be on the person availing the benefit of exemption and should not be extended to the person not availing the benefit?.3. whether the action of the respondent in paying central excise duty/service tax on wholly excepted goods, with an intention to pass on the unintended benefit of the credit to their principal manufacturer, is a 6 violation of section 5a(1a) of central excise act or not?.4. learned counsel shri hariprasad appearing for the revenue contended that fmtpr had sent cenvat credit availed goods viz., piston rings in coil form to their sister concern for chrome plating on job work basis under cover to material movement challans without reversing the cenvat credit availed thereon and after completion of the process of chrome plating, the sister concern fmgil had returned the same to the assessee under cover of an invoice on payment of service tax on the value of job work charges and subsequently on receipt of such job worked goods, fmtpr had availed cenvat credit of the service tax so passed on by the fmgil, the job work goods thereafter undergoes various manufacturing processes at the fmtpr’s factory and then cleared on payment of duty.5. it was argued that the process of chrome plating does not amount to manufacture in terms of section 2(f) of the central excise act, 1944 and it is 7 an activity covered under the category of ‘business auxiliary service’ and liable for payment of service tax. however, in view of notification no.8 of 2005–st dated 1.3.2005, the job work which does not amount to manufacture was exempted from payment of service tax, provided the job worked goods are further used in the manufacture of final products on which appropriate duty of excise is discharged by the principal manufacturer, the fmgil though entitled for availment of such exemption notification, without availing the same, wrongly paid service tax under the activity of chrome plating with an intention to pass on the undue benefit of cenvat credit to fmtpr and also to avoid reversing the cenvat credit availed by them on the input/input services.6. it is the contention of the learned counsel that the notification no.8/2005 is an unconditional notification and the provisions of section 5a(1a) of the central excise act are applicable to the facts of the case, the tribunal without considering the same, 8 had wrongly allowed the appeals filed by the assessee.7. learned counsel shri shivadass, appearing for the respondent contended that the exemption notification no.8 of 2005 dated 1.3.2005 is a conditional notification and the provisions of section 5a(1a) of the central excise act, are not applicable to the facts of the present case. there is no compulsion on the assessee or the job worker to avail the exemption notification unlike the notifications issued under section 5a(1a) of the central excise act. the bone of contention of the learned counsel is that department cannot force the assessee to opt for an exemption notification unless it is mandatorily to be availed as in section 5a(1a) of the central excise act. in the absence of such mandatory requirement to avail the benefit of exemption notification, the job worker, fmgil need not compulsorily opt for availing the exemption notification. in such circumstances, the tribunal has rightly concluded that the said notification no.8 of 2005 dated 01.03.2005 is a 9 conditional notification, not falling under section 5a(1a) of central excise tax act and there is no compulsion on the assessee i.e., the job worker, fmgil to avail the benefit of the exemption notification.8. after hearing the learned counsel for the parties and perusing the records, it is clear that the entire issue involved in this case revolves round the interpretation of the notification no.8 of 2005 dated 1.3.2005. the said notification reads as under: “in exercise of the powers conferred by sub- section (1) of section 93 of the finance act, 1994 (32 of 1994) (hereinafter referred to as the finance act), the central government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of production of goods on behalf of the client referred in sub-clause (v) of clause (19) of section 65 of the said finance act, from the whole of service tax leviable thereon under section 66 of the said finance act:10. provided that the said exemption shall apply only in cases where such goods are produced using raw materials or semi-finished goods supplied by the client and goods so produced are returned back to the said client for use in or in relation to manufacture of any other goods falling under the first schedule to the central excise tariff act, 1985 (5 of 1986), as amended by the central excise tariff (amendment) act, 2004 (5 of 2005), on which appropriate duty of excise is payable. explanation – for the purpose of this notification, - (i) the expression “production of goods” means working upon raw materials or semi- finished goods so as to complete part or whole of production, subject to the condition that such production does not amount to “manufacture” within the meaning of clause (f) of section 2 of the central excise act, 1944 (1 of 1944); (ii) “appropriate duty of excise” shall not include ‘nil’ rate of duty or duty of excise wholly exempt.” 9. a bare reading of this notification denotes that this notification is issued under section 93(1) of 11 the finance act, 1994 which exempts the taxable services of production of goods on behalf of the principal manufacturer from the whole of service tax leviable under section 66 of the finance act. however, this exemption notification is subject to the condition that the said exemption shall apply only in cases where such goods are produced using raw materials or semi finished goods supplied by the client i.e., the principal manufacturer and goods so produced are returned back to the said client for use in or in relation to the manufacture of other goods on which appropriate duty of excise is payable.10. thus, this notification is condition precedent. the applicability of this notification shall be subject to the condition stipulated therein i.e., the principal manufacturer discharging the liability of appropriate duty of excise on these manufactured goods. any job worker who undertakes services of processing is not free to avail the benefit of the said notification unless the recipient of the services pays 12 appropriate duty of excise on the goods returned back by the job worker. this condition of payment of appropriate duty of excise by the recipient i.e., the principal manufacturer is sine qua non for availing the benefit of the notification by the job worker. thus, the condition stipulated in the notification establishes that it is a conditional notification.11. section 5a(1a) of the central excise act provides for power to grant exemption from duty of excise. section 5a(1a) of the central excise act specifically provides that “for the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods”.12. the words “shall not pay” enumerated in the said provision specifically denotes that it is the 13 mandatory requirement on the manufacturer of such excisable goods not to pay the duty of excise on such goods in respect of which an exemption under section 5a(1a) has been granted absolutely. such a mandatory requirement of “not to pay” the duty of excise on goods exempted under sub-section (1) of section 5(a) is not found in section 93 of the service tax act. section 83 of the service tax act provides for application of certain provisions of central excise act, 1944 in relation to service tax under finance act, 1994. absence of section 5a of central excise act, in section 83 of the finance act, 1994, indicates that the provisions of section 5a of central excise act, is not applicable to the finance act, 1994.13. the contention urged on behalf of the department that the fmgil having wrongly paid service tax has consequently passed an inadmissible cenvat credit amounting to rs.2,02,00,275/- to the principal manufacturer i.e., fmtpr much against the 14 exemption notification no.8 of 2005 is not worthy of acceptance. as we have already discussed, the notification no.8 of 2005 is a conditional notification and section 5a(1a) of central excise act, 1944, is not applicable to the present case.14. for the foregoing reasons, we are of the view that no interference is called for with the well reasoned order of the tribunal. in the result, the appeals stand dismissed and the substantial questions of law raised are answered in favour of the assessee and against the revenue. brn/jt sd/- judge sd/- judge
Judgment:

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE1t DAY OF APRIL, 2015 R PRESENT THE HON’BLE MR.JUSTICE VINEET SARAN AND THE HON’BLE MRS.JUSTICE S SUJATHA CEA NO.25/2012 AND CEA NOS.26-28/2012 .. APPELLANT BETWEEN: THE COMMISSIONER OF CENTRAL EXCISE BANGALORE – II, COMMISSIONERATE CENTRAL REVENUE BUILDING QUEENS ROAD BANGALORE – 560 001. (BY SRI Y HARIPRASAD, SR.CGSC) AND: M/S FEDERAL MOGUL TPR INDIA LIMITED DODDABALLAPUR ROAD YELAHANKA BANGALORE – 560064. (BY SRI G SHIVADASS, ADV. AND SRI SIDDARTHA, ADV.FOR M/S LAKSHMI KUMARAN & SRIDHARAN, ADV.) THESE APPEALS ARE FILED UNDER SECTION35 OF THE CENTRAL EXCISE ACT, 1944 ARISING OUT OF ORDER

DATED1201.2012 PASSED IN FINAL ORDER

NOS.20 TO232012 IN APPEAL NO.E-1086, 1087, 1159 AND11602009 PRAYING TO SET-ASIDE THE FINAL ORDER

NOS.20 TO232012 DATED1201.2012 IN APPEAL NO.E-1086, 1087,1159 AND ..RESPONDENT21160/2009 PASSED BY THE CESTAT, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THESE APPEALS HAVING BEEN HEARD AND RESERVED FOR JUDGMENT

ON12H MARCH2015 COMING ON PRONOUNCEMENT OF JUDGMENT

THIS DAY, SUJATHA J., DELIVERED THE FOLLOWING: FOR JUDGMENT

These appeals are filed by the Department challenging the common order passed by the CESTAT, South Zonal Bench at Bangalore, dated 12.01.2012, wherein the Tribunal has held that the notification No.8/2005-ST dated 01.03.2005 is a conditional notification and the demand raised against the assessee has been set aside.

2. The brief facts are that : M/s.Federal Mogul TPR (India) Ltd. (FMTPR) holders of Central Excise Registration Certificate is engaged in the manufacture of piston rings etc., falling under Chapter 84 of Central Excise Tariff, 1985. It is the case of the Department that on information gathered from the Intelligence during the period between April 2007 to January 2008, FMTPR3had availed inadmissible CENVAT credit of service tax paid on the activity of chrome plating done by their sister concern on job work basis under cover of material movement challans, without reversing the CENVAT credit availed thereon. FMGIL had returned the goods after completion of process of chrome plating to FMTPR under cover of an invoice on payment of service tax on the value of job work charges and further, the said goods received from FMTPR undergo various manufacturing processes and then gets cleared on payment of duty.

3. The activity of chrome plating was covered under the category of ‘business auxiliary service’ and liable for payment of service tax. However, in view of the notification No.8/2005-ST dated 01.03.2005, the job work, which does not amount to manufacture was exempted from payment of service tax provided the job worked goods are further used in the manufacture of final products on which appropriate duty of excise is discharged by the principal manufacturer. FMGIL, job worker, without availing 4 this notification had paid the service tax and passed on the benefit of CENVAT credit to FMTPR. On gathering this information, the authorities issued show cause notices demanding inadmissible CENVAT credit of service tax of Rs.2,02,00,725/- availed by the FMTPR for the period from April 2007 to June 2008 and proposing to demand Rs.6,11,96,239/- from FMGIL. These show cause notices were adjudicated by the Commissioner of Central Excise and then order in original dated 25.09.2009 was passed confirming the demand on FMTPR and FMGIL, and also levied a penalty of Rs.2,00,000/- on Sri Subramani, Managing Director (Shipping) of the FMTPR-Company. Against which, appeals were filed by the assessees and Sri Subramani, before the CESTAT. The CESTAT vide common order dated 12.01.2012 allowed all the appeals setting aside the demand made by the authorities. This order passed by the CESTAT dated 12.01.2012 is impugned in these appeals by the Department. The questions of law raised in these appeals are as follows:

5. 1. Whether the Tribunal is correct in allowing the appeal filed by the assessee without appreciating the fact that M/s.Federal Mogul Goetze India Ltd., the job worker, has irregularly availed CENVAT Credit and wrongly paid Central Excise Duty/Service Tax, so as to enable their sister concern i.e., M/s.Federal Mogul TPR India Ltd., to avail inadmissible credit thereby giving undue benefit for the company as a whole?.

2. Whether the CESTAT has erred in holding that the obligation or condition in the notification is applicable to the manufacturer of the final product and thereby it is a conditional notification. It is to be seen whether the obligation for availing benefit of exemption under a conditional notification is to be on the person availing the benefit of exemption and should not be extended to the person not availing the benefit?.

3. Whether the action of the Respondent in paying central excise duty/service tax on wholly excepted goods, with an intention to pass on the unintended benefit of the credit to their principal manufacturer, is a 6 violation of Section 5A(1A) of Central Excise Act or not?.

4. Learned Counsel Shri Hariprasad appearing for the revenue contended that FMTPR had sent CENVAT Credit availed goods viz., Piston Rings in Coil Form to their sister concern for Chrome Plating on job work basis under cover to material movement challans without reversing the CENVAT Credit availed thereon and after completion of the process of chrome plating, the sister concern FMGIL had returned the same to the assessee under cover of an invoice on payment of service tax on the value of job work charges and subsequently on receipt of such job worked goods, FMTPR had availed CENVAT credit of the service tax so passed on by the FMGIL, the job work goods thereafter undergoes various manufacturing processes at the FMTPR’s factory and then cleared on payment of duty.

5. It was argued that the process of chrome plating does not amount to manufacture in terms of Section 2(f) of the Central Excise Act, 1944 and it is 7 an activity covered under the category of ‘business auxiliary service’ and liable for payment of service tax. However, in view of notification No.8 of 2005–ST dated 1.3.2005, the job work which does not amount to manufacture was exempted from payment of service tax, provided the job worked goods are further used in the manufacture of final products on which appropriate duty of excise is discharged by the principal manufacturer, the FMGIL though entitled for availment of such exemption notification, without availing the same, wrongly paid service tax under the activity of chrome plating with an intention to pass on the undue benefit of CENVAT Credit to FMTPR and also to avoid reversing the CENVAT credit availed by them on the input/input services.

6. It is the contention of the learned counsel that the notification No.8/2005 is an unconditional notification and the provisions of Section 5A(1A) of the Central Excise Act are applicable to the facts of the case, the Tribunal without considering the same, 8 had wrongly allowed the appeals filed by the assessee.

7. Learned counsel Shri Shivadass, appearing for the respondent contended that the exemption notification No.8 of 2005 dated 1.3.2005 is a conditional notification and the provisions of section 5A(1A) of the Central Excise Act, are not applicable to the facts of the present case. There is no compulsion on the assessee or the job worker to avail the exemption notification unlike the notifications issued under section 5A(1A) of the Central Excise Act. The bone of contention of the learned counsel is that department cannot force the assessee to opt for an exemption notification unless it is mandatorily to be availed as in Section 5A(1A) of the Central Excise Act. In the absence of such mandatory requirement to avail the benefit of exemption notification, the job worker, FMGIL need not compulsorily opt for availing the exemption notification. In such circumstances, the Tribunal has rightly concluded that the said Notification No.8 of 2005 dated 01.03.2005 is a 9 conditional notification, not falling under Section 5A(1A) of Central Excise Tax Act and there is no compulsion on the assessee i.e., the job worker, FMGIL to avail the benefit of the exemption notification.

8. After hearing the learned counsel for the parties and perusing the records, it is clear that the entire issue involved in this case revolves round the interpretation of the Notification No.8 of 2005 dated 1.3.2005. The said notification reads as under: “In exercise of the powers conferred by sub- section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of production of goods on behalf of the client referred in sub-clause (v) of clause (19) of section 65 of the said Finance Act, from the whole of service tax leviable thereon under section 66 of the said Finance Act:

10. Provided that the said exemption shall apply only in cases where such goods are produced using raw materials or semi-finished goods supplied by the client and goods so produced are returned back to the said client for use in or in relation to manufacture of any other goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), as amended by the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), on which appropriate duty of excise is payable. Explanation – For the purpose of this notification, - (i) the expression “production of goods” means working upon raw materials or semi- finished goods so as to complete part or whole of production, subject to the condition that such production does not amount to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944); (ii) “appropriate duty of excise” shall not include ‘Nil’ rate of duty or duty of excise wholly exempt.” 9. A bare reading of this notification denotes that this notification is issued under section 93(1) of 11 the Finance Act, 1994 which exempts the taxable services of production of goods on behalf of the principal manufacturer from the whole of service tax leviable under Section 66 of the Finance Act. However, this exemption notification is subject to the condition that the said exemption shall apply only in cases where such goods are produced using raw materials or semi finished goods supplied by the client i.e., the principal manufacturer and goods so produced are returned back to the said client for use in or in relation to the manufacture of other goods on which appropriate duty of excise is payable.

10. Thus, this notification is condition precedent. The applicability of this notification shall be subject to the condition stipulated therein i.e., the principal manufacturer discharging the liability of appropriate duty of excise on these manufactured goods. Any job worker who undertakes services of processing is not free to avail the benefit of the said notification unless the recipient of the services pays 12 appropriate duty of excise on the goods returned back by the job worker. This condition of payment of appropriate duty of excise by the recipient i.e., the principal manufacturer is sine qua non for availing the benefit of the notification by the job worker. Thus, the condition stipulated in the notification establishes that it is a conditional notification.

11. Section 5A(1A) of the Central Excise Act provides for power to grant exemption from duty of excise. Section 5A(1A) of the Central Excise Act specifically provides that “for the removal of doubts, it is hereby declared that where an exemption under Sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods”.

12. The words “shall not pay” enumerated in the said provision specifically denotes that it is the 13 mandatory requirement on the manufacturer of such excisable goods not to pay the duty of excise on such goods in respect of which an exemption under Section 5A(1A) has been granted absolutely. Such a mandatory requirement of “not to pay” the duty of excise on goods exempted under Sub-section (1) of Section 5(A) is not found in Section 93 of the Service Tax Act. Section 83 of the Service Tax Act provides for application of certain provisions of Central Excise Act, 1944 in relation to service tax under Finance Act, 1994. Absence of Section 5A of Central Excise Act, in Section 83 of the Finance Act, 1994, indicates that the provisions of Section 5A of Central Excise Act, is not applicable to the Finance Act, 1994.

13. The contention urged on behalf of the Department that the FMGIL having wrongly paid service tax has consequently passed an inadmissible CENVAT credit amounting to Rs.2,02,00,275/- to the principal manufacturer i.e., FMTPR much against the 14 exemption notification No.8 of 2005 is not worthy of acceptance. As we have already discussed, the Notification No.8 of 2005 is a conditional notification and Section 5A(1A) of Central Excise Act, 1944, is not applicable to the present case.

14. For the foregoing reasons, we are of the view that no interference is called for with the well reasoned order of the Tribunal. In the result, the appeals stand dismissed and the substantial questions of law raised are answered in favour of the assessee and against the revenue. Brn/JT Sd/- JUDGE Sd/- JUDGE