Hyundai Motors India Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. the appellants, who were engaged in the manufacture of motor vehicles, had got 'exhaust systems' (automobile components) manufactured on job work basis by m/s. sharda motor industries limited ('smil' for short). the inputs required for the manufacture of exhaust systems were supplied free of cost by the appellants. the cost of these inputs was included in the assessable value of the exhaust systems for payment of duty by m/s. smil and duty was paid accordingly. cenvat credit of the duty so paid was taken by the appellants. it so happened that there were price variations in respect of the inputs supplied by the appellants to m/s. smil. where there was price increase, m/s. smil included the differential value in the assessable value of the exhaust systems and paid differential duty on the goods by raising supplementary invoices on the appellants. cenvat credit of this differential duty also was taken by the appellants on the strength of the supplementary invoices. such credit taken over a period of time (april 1999 to december 2001) amounted to over rs. 1.27 crores.2. the department issued a show-cause notice disallowing the above credit to the appellants by alleging that they were not eligible for the benefit in terms of rule 7(1)(b) of the cenvat credit rules, 2001.show-cause notice also proposed to levy interest on the above amount under section 11ab of the central excise act, apart from penalty on the noticee under rule 13 of the cenvat credit rules. these proposals were contested. in adjudication of the dispute, the commissioner confirmed the demand under rule 12 of the cenvat credit rules read with section 11a(2) of the central excise act, imposed equal amount of penalty on the party under rule 13 of the said rules read with section 11ac of the act and also held that the party was liable to pay interest under section 11ab. the present appeal is against the commissioner's decision.3. after going through the records and hearing both sides, we note that a dispute had also arisen between the department and m/s. smil in relation to the exhaust systems manufactured by the latter (making use of the inputs supplied free of cost by the appellants) and supplied to the appellants. a show-cause notice had been issued to m/s. smil invoking the proviso to section 11(1) of the central excise act to recover differential duty on the exhaust systems. that demand was based on the alleged fact that the revised value of the inputs supplied by the appellants had not been taken into account by m/s. smil for payment of duty on the exhaust systems. the party contested the demand mainly on the ground of limitation. the dispute came to be adjudicated upon by the jurisdictional commissioner, who confirmed the demand of duty against m/s. smil. the party preferred an appeal to this tribunal and the same was allowed in part by setting aside the claim for interest on duty and also the penalty vide sharda motor industries ltd v. cce, chennai-iv 4. in the present appeal, the appellant has relied on the above decision of the tribunal in smil's case. it is contended that, there having been no suppression or mis-statement of facts on the part of m/s. smil, the provisions of rule 7(1)(b) of the cenvat credit rules were not invocable against the appellant for recovery of the cenvat credit in question. ld. counsel for the appellants has reiterated this case before us. ld. jcdr has reiterated the findings of the commissioner and has submitted that a special leave petition (slp) filed by the department against the tribunal's decision in smil's case has been admitted by the apex court, a fact conceded by the counsel in his rejoinder.5. we have considered the submissions. it is not in dispute that the cenvat credit in question in the present appeal is of an amount of differential duty paid by m/s. smil on the exhaust systems manufactured by them (by making use of the inputs supplied free of cost by the appellants) and removed to the appellants. the dispute between sharda motor industries ltd. and the revenue was settled by the tribunal in the aforesaid case. para 7 of the tribunal's judgment in that case is reproduced below: 7. that apart, the fact remains that the error made by the appellant was both ways, resulting in higher valuation in some cases and lower valuation in some other cases. the appellant had no gain in the matter also inasmuch as whatever duty was paid by them was being reimbursed to them by m/s. hyundai motors india ltd. and duty paid by the appellant was available as credit to the appellant's buyer. therefore, appellant's submission that short-levy took place on account of oversight (to take note of variation in prices) appears to represent the correct factual position. there is also merit in the appellant's submission that this was not a case where 115% of the cost was required to be adopted for valuation, inasmuch as that rule (rule 8) relates to valuation of manufactured goods being captively consumed and not of goods which are purchased and supplied to job workers. revenue authorities, m/s. hyundai motors india ltd. and the appellant would appear to be proceeding under a wrong impression about what constituted the value of free supply catalyst. proviso to section 11a of the central excise act cannot be attracted to such a case. that proviso covers cases involving suppression/misstatement of facts with intent to evade duty.6. the above order was challenged by the department and their slp was admitted by the hon'ble supreme court vide 2004 (173) elt a.27 (sc).nobody has claimed to have obtained stay of operation of the tribunal's order in smil's case. hence we have no impediment in proceeding to dispose of the present case by taking into account the tribunal's decision in smil's case.7. that there was no suppression of facts or mis-statement with intent to evade payment of duty, on the part of m/s. smil, in their transactions with the appellants is a fact found in favour of m/s. smil by this tribunal. the cenvat credit in question is of the differential amount of duty paid by m/s. smil under supplementary invoices. these supplementary invoices were held to be inadmissible for the purpose of availing such credit, in the impugned order. this is on the ground that the differential amount of duty had become recoverable from m/s. smil in respect of the exhaust systems (inputs of the appellants), on account of short-levy by reason of wilful misstatement/suppression of facts (by m/s. smil) with intent to evade payment of duty. the provision invoked for the purpose is rule 7(1)(b), which reads as follows: rule 7. documents and accounts.- (1) cenvat credit shall be taken by the manufacturer on the basis of the following documents, namely: (b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of central excise (no. 2) rules, 2001 from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty of customs leviable under section 3 of customs tariff act, 1975 (51 of 1975) has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any willful misstatement or suppression of facts or contravention of any provisions of the act or of the customs act, 1962 (52 of 1962 or the rules made thereunder with intent to evade payment of duty.8. according to the appellant, their case did not fall within the mischief of the exception mentioned in the above provision inasmuch as the allegation of "suppression/wilful misstatement of facts with intent to evade payment of duty" levelled by the revenue against m/s. smil has since been rejected by the tribunal in their case. we have to accept this case of the appellant. there was no suppression or misstatement of facts by smil in relation to the exhaust systems cleared by them to the appellants, as held by this tribunal in smil's case. therefore, it was not open to the revenue to deny cenvat credit of the differential duty paid by m/s. smil, to the appellants on the ground that the former had suppressed/misstated facts with intent to evade payment of duty. in other words, this case did not attract the exception provided in rule 7(1)(b) of the cenvat credit rules.9. in the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellants.

Judgment:
1. The appellants, who were engaged in the manufacture of motor vehicles, had got 'exhaust systems' (automobile components) manufactured on job work basis by M/s. Sharda Motor Industries Limited ('SMIL' for short). The inputs required for the manufacture of exhaust systems were supplied free of cost by the appellants. The cost of these inputs was included in the assessable value of the exhaust systems for payment of duty by M/s. SMIL and duty was paid accordingly. CENVAT credit of the duty so paid was taken by the appellants. It so happened that there were price variations in respect of the inputs supplied by the appellants to M/s. SMIL. Where there was price increase, M/s. SMIL included the differential value in the assessable value of the exhaust systems and paid differential duty on the goods by raising supplementary invoices on the appellants. CENVAT credit of this differential duty also was taken by the appellants on the strength of the supplementary invoices. Such credit taken over a period of time (April 1999 to December 2001) amounted to over Rs. 1.27 crores.

2. The department issued a show-cause notice disallowing the above credit to the appellants by alleging that they were not eligible for the benefit in terms of Rule 7(1)(b) of the CENVAT credit Rules, 2001.

Show-cause notice also proposed to levy interest on the above amount under Section 11AB of the Central Excise Act, apart from penalty on the noticee under Rule 13 of the CENVAT Credit Rules. These proposals were contested. In adjudication of the dispute, the Commissioner confirmed the demand under Rule 12 of the CENVAT Credit Rules read with Section 11A(2) of the Central Excise Act, imposed equal amount of penalty on the party under Rule 13 of the said Rules read with Section 11AC of the Act and also held that the party was liable to pay interest under Section 11AB. The present appeal is against the Commissioner's decision.

3. After going through the records and hearing both sides, we note that a dispute had also arisen between the department and M/s. SMIL in relation to the exhaust systems manufactured by the latter (making use of the inputs supplied free of cost by the appellants) and supplied to the appellants. A show-cause notice had been issued to M/s. SMIL invoking the proviso to Section 11(1) of the Central Excise Act to recover differential duty on the exhaust systems. That demand was based on the alleged fact that the revised value of the inputs supplied by the appellants had not been taken into account by M/s. SMIL for payment of duty on the exhaust systems. The party contested the demand mainly on the ground of limitation. The dispute came to be adjudicated upon by the jurisdictional Commissioner, who confirmed the demand of duty against M/s. SMIL. The party preferred an appeal to this Tribunal and the same was allowed in part by setting aside the claim for interest on duty and also the penalty vide Sharda Motor Industries Ltd v. CCE, Chennai-IV 4. In the present appeal, the appellant has relied on the above decision of the Tribunal in SMIL's case. It is contended that, there having been no suppression or mis-statement of facts on the part of M/s. SMIL, the provisions of Rule 7(1)(b) of the CENVAT Credit Rules were not invocable against the appellant for recovery of the CENVAT credit in question. Ld. Counsel for the appellants has reiterated this case before us. Ld. JCDR has reiterated the findings of the Commissioner and has submitted that a Special Leave Petition (SLP) filed by the Department against the Tribunal's decision in SMIL's case has been admitted by the apex Court, a fact conceded by the Counsel in his rejoinder.

5. We have considered the submissions. It is not in dispute that the CENVAT credit in question in the present appeal is of an amount of differential duty paid by M/s. SMIL on the exhaust systems manufactured by them (by making use of the inputs supplied free of cost by the appellants) and removed to the appellants. The dispute between Sharda Motor Industries Ltd. and the Revenue was settled by the Tribunal in the aforesaid case. Para 7 of the Tribunal's judgment in that case is reproduced below: 7. That apart, the fact remains that the error made by the appellant was both ways, resulting in higher valuation in some cases and lower valuation in some other cases. The appellant had no gain in the matter also inasmuch as whatever duty was paid by them was being reimbursed to them by M/s. Hyundai Motors India Ltd. and duty paid by the appellant was available as credit to the appellant's buyer.

Therefore, appellant's submission that short-levy took place on account of oversight (to take note of variation in prices) appears to represent the correct factual position. There is also merit in the appellant's submission that this was not a case where 115% of the cost was required to be adopted for valuation, inasmuch as that Rule (Rule 8) relates to valuation of manufactured goods being captively consumed and not of goods which are purchased and supplied to job workers. Revenue authorities, M/s. Hyundai Motors India Ltd. and the appellant would appear to be proceeding under a wrong impression about what constituted the value of free supply catalyst.

Proviso to Section 11A of the Central Excise Act cannot be attracted to such a case. That proviso covers cases involving suppression/misstatement of facts with intent to evade duty.

6. The above order was challenged by the department and their SLP was admitted by the Hon'ble Supreme Court vide 2004 (173) ELT A.27 (SC).

Nobody has claimed to have obtained stay of operation of the Tribunal's order in SMIL's case. Hence we have no impediment in proceeding to dispose of the present case by taking into account the Tribunal's decision in SMIL's case.

7. That there was no suppression of facts or mis-statement with intent to evade payment of duty, on the part of M/s. SMIL, in their transactions with the appellants is a fact found in favour of M/s. SMIL by this Tribunal. The CENVAT credit in question is of the differential amount of duty paid by M/s. SMIL under supplementary invoices. These supplementary invoices were held to be inadmissible for the purpose of availing such credit, in the impugned order. This is on the ground that the differential amount of duty had become recoverable from M/s. SMIL in respect of the exhaust systems (inputs of the appellants), on account of short-levy by reason of wilful misstatement/suppression of facts (by M/s. SMIL) with intent to evade payment of duty. The provision invoked for the purpose is Rule 7(1)(b), which reads as follows: Rule 7. Documents and accounts.- (1) CENVAT credit shall be taken by the manufacturer on the basis of the following documents, namely: (b) A supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise (No. 2) Rules, 2001 from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty of customs leviable under Section 3 of Customs Tariff Act, 1975 (51 of 1975) has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any willful misstatement or suppression of facts or contravention of any provisions of the Act or of the Customs Act, 1962 (52 of 1962 or the rules made thereunder with intent to evade payment of duty.

8. According to the appellant, their case did not fall within the mischief of the exception mentioned in the above provision inasmuch as the allegation of "suppression/wilful misstatement of facts with intent to evade payment of duty" levelled by the Revenue against M/s. SMIL has since been rejected by the Tribunal in their case. We have to accept this case of the appellant. There was no suppression or misstatement of facts by SMIL in relation to the exhaust systems cleared by them to the appellants, as held by this Tribunal in SMIL's case. Therefore, it was not open to the Revenue to deny CENVAT credit of the differential duty paid by M/s. SMIL, to the appellants on the ground that the former had suppressed/misstated facts with intent to evade payment of duty. In other words, this case did not attract the exception provided in Rule 7(1)(b) of the CENVAT Credit Rules.

9. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellants.