ORDER
M. Veeraiyan, Member (T)
1. This appeal is against the order of the Commissioner No. 09/MP/VAPI/2006 dt.20/6/2006.
2. Heard both sides.
3. The relevant facts, in brief, are as follows:
i. Appellant manufactures copper cathodes, rods etc. the main raw materials namely the copper anode is received from their Tuticorin unit. It is claimed that, as per the industry practice, their final products are being priced based on the average London Metal Exchange price of copper prevailing during the month when the goods are cleared. At the time of clearance of its finished products, appellant was provisionally determining the assessable value of these goods @ 95% of the previous month’s average LME price. Thereafter, at the month end (when it became possible for the appellant to determine the average price for the current month), appellant issued supplementary invoices in cases where the average LME price for the month was higher than the price at which the goods have been initially assessed; while in cases where the average LME price for the month was less than the value at which duty was paid, appellant issued credit notes to their customers for the difference in value, excluding the excise duty component. Appellant also used to issue credit notes for cash/slab discounts, which were not considered while determining the assessable value.
ii. The appellant is making substantial exports under bond which had lead to the huge credit balance in their cenvat account.
iii. During the period from June, 2001 to May, 2003, the appellant have adopted the provisional prices as mentioned above and paid duty accordingly; the duty assessed was paid using cenvat credit accumulated.
iv. An amount of Rs. 42,99,90,453/- has been recovered from their buyers/customers during the period from 1/6/2001 to 30/9/2003, which involved duty amount of Rs. 6,87,98,472/-.
v. Commissioner held that under Section-4, the transaction value was the price paid or actually payable; since, excess value has been adopted and excess duty has been paid by debiting cenvat credit, the excess amount initially paid was with a view to incorrectly encash the cenvat credit that had been accumulated which would have otherwise lapsed. He held that excess duty paid by them was “NOT IN THE NATURE OF DUTY” and such excess amount collected in the name of duty has to be credited to the Government in terms of Section 11D of the Central Excise Act, 1944. He also held that the initial payment was only a deposit. Accordingly he confirmed the demand of Rs. 6,87,98,472/- as amount payable under Section 11D(3) and also ordered recovery of interest under Section 11DD of the Central Excise Act, 1944.
4.1. Ld. Advocate submitted that the price of imported raw material is subject to variation; therefore price of their final products are also subject to variation. They have adopted a provisional value based on 95% of the previous month’s average LME price for their finished products. This is the practice in the industry. This leads to a final price of the finished products sometime being higher and some time being lower. The issue of credit notes is a necessary consequence on this compulsion.
4.2. The accumulation of the credit is attributable to substantial exports made by them under bond. If this credit was not utilized by them towards payment of duty on domestic clearances, the cenvat rules provide for refund of the same. Therefore that they adopted a method to encash illegally the accumulated cenvat credit is not correct.
4.3. It was submitted that whatever duty was collected from the buyers has been deposited to the Government and therefore violation of provisions of Section 11D warranting recovery of amount from the appellant does not arise.
4.4. It was also submitted that in respect of money credit which was applicable to manufacturers of vanaspathi, Board has given a clarification in their circular No. 651/42/2002-CS dt.7/8/2002 and the relevant portion are as follows:
2. The matter has been examined. Board is of the view that Section 11D of Central Excise Act, 1944 requires a person liable to pay duty to deposit any amount collected in excess of the duty assessed or determined and paid on any excisable goods from the buyer of the goods in any manner as representing duty of excise. Therefore, in cases where duty collected has been deposited with the Government, Section 11D shall not apply. This position shall not undergo any change if the money credit available with the manufacturer is utilized to pay duty on any finished excisable product and this duty is collected from the buyer. Pending cases may be finalized accordingly.
4.5. He also submitted that the demand under 11D shall be subject to time limit prescribed under Section 11A as held in the following cases:
1. GOI v. Citadel Fine Pharmaceuticals
2. Siddeshwar SSK Ltd. v. CCE
3. Gem Cables and Conductors Ltd. v. CCE
4. Thandava Co-op Sugars Ltd. v. CCE 2006 (132) ECR 0472 (T)
5. Ld. SDR reiterates the findings of the Commissioner.
6.1. We have carefully considered the rival submissions. We note that the appellant had claimed that they adopted provisional price for the finished goods cleared by them as per the industrial practice which has not been disputed. Therefore it cannot be said that they had adopted intentionally a higher price for their finished products. They had adopted the value of the goods which was based on 95% of the month’s average LME price.
6.2. It is also not in dispute that they had substantial exports and therefore the credit balance stands accumulated. It is also not disputed that such accumulated credit can be claimed by them as refund. The ld. Advocate also submitted that there have been cases where the prices adopted by them at the time of clearance were found to be lower compared to the final prices in which case, the differential duty has been paid by them. Therefore no malafide can be attributed for adopting the pricing mechanism as they have done.
6.3. From the accumulated credit, the assessee has debited the duty amount due as assessed by them on the goods cleared. The amount debited from the cenvat account is undoubtedly duty paid on the consignments. If debit in the cenvat account is not treated as payment of duty, it would be lead to an incorrect conclusion that the consignment is non-duty paid. The Commissioner’s finding that when the final value becomes less, the differential value should not be treated as part of transaction value under Section-4 and the credit relatable to that portion of the value should be separately treated as only an amount and not as duty is not logical.
6.4. The above findings of the commissioner is not in consonance with the overall scheme under the Central Excise law. Duty becomes payable at the time of removal of goods; the duty has to be assessed by the assessee and cleared. define assessment as follows:
“assessment” includes self-assessment of duty made by the assessee and provisional assessment under Rule 7;
6.5. Since the sale value adopted was not final the assessee has chosen to provisionally adopt the value and pay the duty. Payment of duty could be either by cash tendered through TR 6 challans or through PLA or cenvat credit. There is no dispute about the genuineness or correctness of the cenvat credit taken; there is no dispute that the duty on the finished products can be paid through cenvat credit available with the assessee. The duty paid by debit in the cenvat account at the time of clearance of the consignments are very much duties and that duties have gone back to the account of the Central Government. To artificially bifurcate the duty paid through cenvat credit and to hold that only a part of the amount should be treated as duty and the rest as collected as if not duty but an amount collected from buyers would be erroneous and not warranted.
7. Relevant portions of Section 11D is reproduced below:
11D. Duties of excise collected from the buyer to be deposited with the Central Government:
(1) Notwithstanding anything to the contrary in any order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder, [every person who is liable to pay duty under this Act or the rules made thereunder, and has collected any amount in excess of the duty assessed or determined and paid on any excisable goods under this Act or the rule made thereunder from the buyer of such goods] in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government.
8. In the present case duty assessed by the assessee stands paid (irrespective of the fact that the same has been paid through cenvat credit). Therefore there is no reason to hold that there is violation of provisions of Section 11D(1) and to proceed to recover the amount in terms of Section 11D(2). The appellant relies on the clarification issued by the Board in their circular No. 651/42/2002-CX dt.7/8/2002 relating to money credit applicable to vanaspathy, wherein it has been clarified that in case, where duty has been deposited with the Government Section 11D shall not apply. This principle contained in the said clarification is applicable to the present case and the situation as well.
9. In the light of the above, we hold that no case has been made out to show that the credit taken was wrong; that debiting the cenvat account at the time of clearance of goods is anything other than payment of excise duty; that the amount so debited from the cenvat account goes back to the Central Government account and that there is no violation of provisions of 11D(1).
10. Appeal is, therefore, allowed with consequential relief.
(Pronounced in Court on 26/9/07)