JUDGMENT
A.C.C. Unni, Member (J)
1. This matter has come up before this Larger Bench on reference by a Two Member Bench vide Miscellaneous Order No. 26/2000-A dated 11-5-2000. The Referral Order was made while hearing an Appeal filed by M/s. Jay Yuhshin Ltd. against Order-in-Original passed by the Commissioner of Central Excise, New Delhi by which a duty demand of Rs. 55, 91, 225/- was confirmed against the assessee under Section 11A (1) of the Central Excise Act, 1944 and an equivalent amount of penalty imposed on them under Section 11AC of the Act apart from holding that interest on the aforesaid amount of excise duty will also be payable by the assessee under Section 11AB of the Act.
2.The Referral Order had noted that there was a conflict of views between different Benches of this Tribunal on the question raised before the Bench, viz., that in a case where the Department alleges intention to evade payment of duty, whether it was sufficient if the assessee shows that he had an alternative procedure available to him which, if followed, would have allowed him the benefit of set off or Modvat credit, thus making the alleged short levy/non-levy of duty, Revenue-neutral and whether that would be sufficient ground for establishing that there was no intention to evade duty.
3.On behalf of the assessee it had been argued that there was a catena of decisions of the Tribunal (mentioned in Para 3 of the Referral Order) supporting the contention that no intention to evade payment of duty can be attributed to an assessee where the situation results in Revenue-neutrality. As against this there was a decision of another coordinate Bench of the Tribunal in the case of M/s. International Auto Products (P) Ltd. v. CCE [1999 (35) RLT 58 (CEGAT)] holding that the plea of Revenue neutrality will not be sufficient to hold that there was no intention to evade duty.
4.We have heard extensive submissions made before us by S/Shri V. Lakshmi Kumaran and M.P. Dev Nath, ld. Advocates for the assessee and Shri Sanjeev Srivastava, ld. JDR for the Respondent Commissioner.
5.The brief facts which had given rise to the dispute are as under:
The appellants, inter alia, are engaged in the manufacture of lock sets, parts and accessories of goods falling under Chapters 83, 84 and 87 of the Central Excise Tariff Act, 1985. For some of the items manufactured by them, they receive components from M/s. Maruti Udyog Ltd. (MUL) under cover of invoice issued under Rule 57F (4)(i) and (ii) of the Central Excise Rules, 1944. They avail of Modvat credit of the duty paid on the said components. The components supplied by MUL were supplied free of cost and the final products manufactured by the appellants are cleared on payment of duty to MUL who, in turn take Modvat credit of the duty paid by the appellants on the said items. The appellants however, did not include the cost of the items supplied by MUL in the value of the final products cleared by them to MUL. Some time around September, 1997 the Department raised the point with them that the appellants should have included the cost of the free supply of components in the value of their final products. On being informed of the position by the Department, the appellants voluntarily debited the amount of duty payable by them on this account on 8-9-97. Thereafter on 10-7-98 the Department served a Show Cause Notice (SCN) on the appellants proposing to confirm the demand of duty and proposing to impose penalty on the appellants. On adjudication, the duty demand was confirmed. In addition, an equivalent amount of penalty under Section 11AC was imposed on them apart from ordering payment of interest under Section 11AB.
6.The main contention advanced on behalf of the appellants before us is that the demand of duty for the period beyond six months was not sustainable since there was no intention on the part of the appellants to evade payment of duty. It is contended that the appellants were under the bona fide belief that since the components were supplied free of cost by MUL and as they did not incur any expenditure towards these components, they were not required to include the said cost. This bona fide belief, the appellants claim, would be apparent from the fact that they did not recover any amount from MUL in excess of price indicated in the invoice and they had paid the duty on the price indicated in the invoice. It is further argued that the appellants cannot be accused of intention to evade payment of duty since the entire duty paid by the appellants would be available to MUL as Modvat credit and in fact the differential duty paid by the appellants had been availed of as Modvat credit by MUL. Ld. Counsel has contended that a string of decisions given by the Courts and Tribunal has clearly established that in cases where the duty demanded was available as Modvat credit and the net result was Revenue-neutral then there cannot be any intention to evade payment of duty. It was further argued that to establish intention to evade payment of duty under proviso to Section 11A(1), it was necessary to show that the assessee was aware that duty was leviable and it still deliberately avoided paying it, as was held in the Apex Court judgment in Tamilnadu Housing Board v. CCE Madras [1994 (74) E.L.T. 9 (S.C)].
In a case where there was scope for doubt about the liability to pay duty, the proviso to Section 11A(1) will not be attracted, as was held in the case of M/s. Padmini Products [1989 (43) E.L.T. 195 (S.C)]. Reliance was also placed on another Supreme Court decision [M/s. Formica India Division v. CCE – 1995 (77) E.L.T. 511 (S.C.)], wherein the dispute originally related to the duty liability of an intermediary product consumed captively but duty on the final product had been paid. The Revenue’s contention was that since the assessee had failed to pay duty on the intermediary product, Revenue was entitled to recover the same. This was resisted by the assessee. The assessee had contended that even if the Revenue was right, the assessee would be entitled to set off in respect of the excise duty payable by virtue of an Exemption Notification available to them. When the matter came up before the High Court, the Hon’ble High Court taking note of the fact that no contention for set off had been raised before the Tribunal earlier, therefore such plea could not be permitted to be raised in a Writ Petition under Article 226 of the Constitution. When the matter came up before the Supreme Court, the Apex Court observed that the High Court had taken a technical view in the matter. Nevertheless, if the assessee was entitled to take the benefit of the exemption notification, to deny the benefit on the ground of non-compliance of set off provisions under the relevant rule would be tantamount to permitting recovery of double duty on the intermediary product. The Apex Court also noted the fact that the assessee had not paid the duty on the intermediary product since he was contesting the correctness of the classification of the goods. Once it was held that they were liable to pay duty on the intermediary product and had not paid the same, but had paid the duty on the end product, they could not ordinarily have complied with the requirements of Rule 56A. The Hon’ble Court took the view that once it was held that duty was payable on the intermediary product, the assessee would have been entitled to the benefit of the exemption notification after complying with the requirements of Rule 56A. In such a situation, the proper course would have been to permit the assessee to do so rather than denying to them the benefit on the technical ground that at the point of time when they could have done so, the stage of complying with Rule 56A provisions had passed. The Apex Court therefore held that the assessee should be permitted to avail of the benefit of the notification by complying with the provisions of Rule 56A even at a later stage. Ld. Counsel contended that since the appellants had in the instant case entertained the bona fide belief that it was not necessary to include the cost of the components supplied free of cost by MUL and had later on debited the differential amount without demur, invokation of penalty provisions under Section 11AC was uncalled for.
7. As regards the raising of demand under Section 11A(1) and the issuance of SCN, ld. Counsel contended that the appellants had debited the differential duty of Rs. 55, 91, 225/- well before the issuance of SCN, and as such there existed no non-levy/short levy or non-payment, short payment of duty on the date of issue of the SCN. There was therefore no question of determination of the amount payable by the assessee under Section 11A(2). On the question of imposition of penalty under Section 11AC, it was submitted that an equal amount becomes payable by the assessee as penalty only when the amount of duty liable to be paid by the assessee is determined under Section 11A(2). Further, the ingredients of Section 11AC were identical with that of proviso to Section 11A(1). Therefore, if no wilful suppression of facts or contravention of any of the provisions of the Act or the rules “with intention to evade payment of duty” is established, neither the invoking of the extended period of limitation under the proviso to Section 11A(1) nor the imposition of penalty under Section 11AC will be legally maintainable. In this connection reliance was placed on the Tribunal’s Final Order No. A/405-406/2000-NB (DB), dated 12-5-2000 in M/s. Dhillon Kool Drinks Beverages v. CCE, New Delhi, wherein the Tribunal had held that where no notice under Section 11A(1) had been issued nor determination of the amount of duty under Section 11A(2), Section 11AC will not be attracted and no penalty can be imposed under Section 11AC. Ld. Counsel submitted that the same argument would hold good in relation to the demand for payment of interest under Section 11AB as well.
8. It was further contended that in the facts of the case the appellants who were job workers were entitled to the alternate facility of Exemption Notification No. 214/86 which they could have availed of instead of paying duty while clearing their manufactured items to MUL which had given rise to the present dispute. The decisions of the Tribunal referred to earlier would therefore fully cover the appellants’ case inasmuch as that it was open to the appellants at the relevant time to take recourse to Exemption Notfn. 214/86 and clear the goods without payment of duty and therefore, there was no question of the appellants entertaining an intention to evade payment of duty. In the light of the submissions made, ld. Counsel pleaded for upholding the view taken, by the various Benches of the Tribunal in the catena of decisions relied on by the appellants and for rejection of the view taken in International Auto Products (P) Ltd.9. In support of his contentions, ld. Counsel relied on the following decisions of the Tribunal:
1. SAIL v. CCE – 1985 (22) E.L.T. 487
2. Patson Transformers (P) Ltd. v. CCE – 1997 (93) E.L.T. 402 (T)
3. CCE v. Chloride Industries Ltd. – Final Order No. A/1018/CAL/1997, dated 13-8-1997.
4. Lakshmi Electrical Control Systems v. CCE – Final Order No. 1250/98 dated 1-7-1998.
5. Wearwell Tyre & Tubes (P) Ltd. v. CCE – 1999 (112) E.L.T. 646
6. BPL Sanyo Utilities & Appliances Ltd. v. CCE – Final Order Nos. 2407-2409/99 dated 16-9-1999.
7. Indian Rayon Industries Ltd. v. CCE – 2000 (119) E.L.T. 636 (Tribunal) = 2000 (37) RLT 154
8. Mahindra & Mahindra Ltd. v. CCE – 2000 (37) RLT 37
9. CCE v. M/s. Allied Industries – Final Order No. 191/2000-A dated 28-3-2000.
10. R.H. Industries v. CCE, Chandigarh & CCE, Chandigarh v. A.T. Engg. Works – 2000 (36) RLT 848 (CEGAT)
11. Essel Packaging Ltd. v. CCE, Mumbai-III – 2000 (117) E.L.T. 466 (Tri.)
12. Vorion Chemicals & Distilleries Ltd. v. CCE – 1999 (31) RLT 93 (CEGAT)
10.Shri Sanjeev Srivastava, ld. JDR contended that the first issue to be considered was whether the cost of components received by the appellants free of cost from MUL and used by them in the manufacture of the final products supplied to MUL should be included in the assessable value of the appellants’ final products. In terms of Section 4(1)(a) of the Central Excise Act, the assessable value of the final product on which excise duty is to be paid at the time of removal shall be based on the cost of raw material, incidental charges, taxes, freight and the element of profit. In the case of appellants, it was not in dispute that they had received free of cost certain components from MUL. The said components were used by the appellants in the manufacture of their final products and returned to MUL. However, they had deliberately chosen not to add the cost of the components in the assessable value at the time of paying duty and clearing their final products. No explanation as to why they failed to include the cost of the components received free of cost and used in the manufacture of their final products in the assessable value at the time of their removal had been shown. Ld. JDR submitted that there was no scope for entertaining any doubt about the need to include the cost of the components freely supplied in the assessable value in view of the settled legal position in the light of the Supreme Court decision in Ujagar Prints case. Further, the appellants themselves had admitted to the short payment by debiting the amount of duty subsequently after adding cost of the free components in the assessable value. In view of this, the contention of the appellants that the price charged by them from MUL was the genuine price cannot be accepted as it was clear that the cost of some of the inputs used in the manufacture of their goods viz., the components received from MUL had not been included in the assessable value and the goods had been cleared and sold to MUL on that basis. The plea of the appellants that they had not received any additional consideration as stated by them in their declaration cannot also be accepted in the admitted facts of the case where the components were supplied free of cost from MUL and the appellants had sold the said components back to MUL after carrying out manufacturing processes. The intention to evade duty is clearly established in view of the fact that there was substantial difference between the actual duty paid by the appellants at the time of clearances of the final products without including the cost of the free components received from MUL and the duty payable by them after including the same in the assessable value. This worked out to over Rs. 55 lakhs. The financial gain by way of availability of the said amount was a clear pointer as to the reason for their non-disclosure of the cost of the free components received from MUL and their intention to evade duty. As regards the contention of the appellants that they were at the relevant period entitled to operate under the Exemption Notification No. 214/86 and thereby clear the goods without payment of duty and therefore there cannot be a charge of intention to evade duty, ld. JDR submitted that the appellants were admittedly availing the facility of modvat credit under Rules 57A and 57Q at the relevant time and therefore there was no question of their simultaneously availing the benefit of Notfn. No. 214/86. Further, in the absence of any evidence to show that MUL had given an undertaking in terms of Para 2 of the said notification the said plea was merely hypothetical and not based on facts. As regards the Tribunal decisions relied on by the appellants holding that where there was an alternate option available to the assessee enabling them to clear the goods duty free by virtue of exemption notifications or availability of Modvat credit on the duty paid, resulting in a Revenue-neutral position ld. JDR pointed out that in none of the cases cited the assessee had taken credit which remained with the assessee for utilising it towards payment of duty on their various other finished products. He submitted that the cases relied upon by the Counsel for the appellants were therefore not applicable to the facts of the present case and in any event the resultant Revenue neutrality, which was a later event, cannot be a defence in a case of wilful suppression of facts resulting in non-payment/short payment of duty with intention to evade duty. He therefore supported the view taken by the Bench in the case of International Auto Products (P) Ltd. v. CCE [1999 (35) RLT 58 (CEGAT)], holding that once an assessee had chosen to pay duty, he has to take the consequences of payment of duty.
11.We have considered the rival submissions and have perused the case law. We find that in five cases in the list of cases referred to in Para 9 above and relied upon by the ld. Counsel for the appellants, viz., cases at Sl. Nos. 2, 4, 6, 7 and 8, two options were available to the assessee, one of paying the duty at the time of clearance of the goods and the other, clearing the excisable goods without payment of duty either under some Exemption Notification or under some other legal provision. It was in such circumstances that the Tribunal had taken the view that when the option of clearing the goods without payment of duty was simultaneously available to the assessee, the non-payment/short payment was not attributable to any intention to evade payment of duty. In the other seven cases viz., cases against Sl. No. 1, 3, 5, 9, 10, 11 and 12 in the list of cases mentioned in Para 9 above, the option of availing Modvat credit was available to the assessee even though he was not availing of it. In the present case, the claim of the appellants that duty free clearance under Notfn. No. 214/86 was concurrently available to them and therefore no intention to evade duty payment can be inferred does not appear to merit acceptance since it is not in dispute that the appellants were admittedly availing of modvat credit under Rule 57A and Rule 57Q. There is also no evidence on record to show that MUL had given any undertaking under Para 2 of Notfn. No. 214/86 in relation to the manufactured items sold by the appellants to MUL. The said defence cannot therefore be accepted for want of factual substantiation. As regards the contention of the appellants that the SCN issued under Section 11A(1) would apply only to a situation where a duty payment is subsisting at the time of issue of notice and where no such outstanding duty liability exists at the time of issuing the SCN, we are of the view that a careful reading of Section 11A(1) does not allow such a construction to be put on the said provision. Inasmuch as Section 11A(1) gives power to the Central Excise Officer to serve a notice within a period of six months from the ‘relevant date’ from the date when non-levy/non-payment or short levy/short payment has occurred, we are of the view that so long as it is not in doubt that there has been an occurrence of non-levy/short levy/ or non-payment/short payment on the relevant date the pre-conditions for issuance of SCN under Section 11A(1) are fully met and notice validly issued. In the instant case there is no dispute that clearance of excisable goods on short payment of duty had taken place. The fact that the differential duty was subsequently debited (albeit voluntarily) by the assessee before the issue of SCN will not debar the issuance of SCN in relation to the short payment occurring on the relevant date. Further, to the extent the appellants had stated in their price list declaration that no extra consideration had been received from the suppliers of the components despite the known fact that the said components were received free of cost, the allegation of suppression of facts in terms of the proviso to Section 11A(1) has to be held to have been established. The fact that there was a huge duty differential of an amount of over Rs. 55 lakhs between the duty paid by the appellants and debited by them later, is a strong circumstance which supports the inference of their intention to evade duty as the said amount has undeniably resulted in a financial gain for the appellants during the period and this financial gain flowed directly from the non-inclusion of the cost of the components in the assessable value. We are therefore satisfied that there will be no illegality in invoking the extended period of limitation under Section 11A(1) in a case like this.
12.As regards the demand of penalty under Section 11AC, as has been stated above the ingredients for invoking the said provision are in par materia with the ingredients to proviso to Section 11A(1). Having regard to the view we have taken above, where no legal infirmity in invoking the proviso to Section 11A(1) is shown to exist, there will also be no infirmity in invoking of penal provision under Section 11AC.
13.In the light of the above discussion, we answer the reference as under:
(a) Revenue neutrality being a question of fact, the same is to be established in the facts of each case and not merely by showing the availability of an alternate scheme;
(b) Where the scheme opted for by the assessee is found to have been misused (in contradistinction to mere deviation or failure to observe all the conditions) the existence of an alternate scheme would not be an acceptable defence;
(c) With particular reference to Modvat scheme (which has occasioned this reference) it has to be shown that the Revenue neutral situation comes about in relation to the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessee’s manufactured goods;
(d) We express our opinion in favour of the view taken in the case of M/s. International Auto Products (P) Ltd. (supra) and endorse the proposition that once an assessee has chosen to pay duty, he has to take all the consequences of payment of duty.
14. The Reference Application is answered in the above terms.