ORDER
P.G. Chacko, Member (J)
1. The appellants are manufacturers of Copper Anodes, for which their raw material is copper concentrate. They imported several consignments of copper concentrate during the period March, 1996 to August, 1997. Each time, they filed into-bond bill of entry and accordingly the goods covered by the consignment was warehoused. At the time of warehousing, the goods was weighed on a weighbridge, whereupon a shortage was found vis-a-vis the weight mentioned in the corresponding bill of lading. In respect of each consignment so warehoused, ex-bond bill of entry was filed after a fairly long time ranging from one to eleven months. These bills of entry were assessed and the goods cleared against payment of Basic Customs Duty and countervailing duty. The appellants took credit of the entire amount of CVD paid by them. This was during the period February, 1997 to March, 1998. Later on, officers of the department visited their factory and conducted a scrutiny of records and made allied enquiries. The results of these enquiries revealed that the appellants had taken Modvat credit on a total quantity of 1052 MTs of copper concentrate not received in their factory. On this basis, a show-cause notice dated 16.06.1999 was issued to the party seeking to recover an amount of duty of over Rs. 16 lakhs equivalent to the credit alleged to have been taken irregularly as also to impose penalties on them under Section 11AC of the Central Excise Act and Rule 173Q of the Central Excise Rules, 1944. The demand was contested on merits as well as on limitation. In their reply to the show-cause notice, the party submitted inter alia that the difference in weight might have occurred on account of evaporation of the input during the course of transit, handling and storage. They claimed to be entitled to take credit of the entire amount of CVD paid by them. In adjudication of the dispute, the original authority confirmed the demand and imposed equal amount of penalty. It also imposed a separate penalty of Rs. 50,000/- on the appellants under Rule 173Q. The appeal preferred by the party against the decision of the said authority was rejected by the Commissioner (Appeals), who, in a reasoned order, upheld the findings of the lower authority. The present appeal is against the order of the appellate Commissioner.
2. Heard both sides. Learned Counsel for the appellants submits that it is not in dispute that no amount of input was clandestinely diverted by them and that Modvat credit was taken only of the amount of CVD actually paid by them. Learned Counsel has also cited instances of the Tribunal having allowed Modvat credit on small amounts of duty-paid inputs not received in the factory on account of evaporation or other natural causes. In the case of Commissioner of Customs and Central Excise, Bhopal v. Jaypee Rewa Plant 2004 – TIOL 1099 – CESTAT (Del), shortage to the extent of 0.12% was found of fuels on account of evaporation during transit to the factory but the manufacturer was allowed to take Cenvat credit thereon as the shortage was found to be less than 0.2% of the volatile input. In the case of Hindustan Lever Ltd. v. Commissioner of Central Excise, Mumbai 2004 (63) R.L.T.801 CESTAT (Mum), the input considered was crude glycerine. In transit, the impurity contained in it settled as insoluble residue, which was washed out of the tanker inside the factory. On the question whether Modvat credit on crude glycerine was required to be proportionately reduced, the Tribunal held in favour of the manufacturer. It was held that, since the duty had been paid on the entire consignment of crude glycerine which included the insoluble residue, the appellants were entitled to Modvat credit of the entire duty. In the case of P.K.P.N. Spinning Mills Ltd. v. Commissioner of Central Excise, Coimbantore , there was a loss in weight of input due to loss of moisture in transit to factory. It was held that the benefit of Modvat credit relatable to the weight of moisture which was lost in transit was not to be denied to the manufacturer. Learned Counsel finally relies on the Tribunal’s Larger bench decision Commissioner of Central Excise, Nagpur v. Associated Cement Companies Ltd. 2006 (72) R.L.T.403 CESTAT-LB), wherein it was held that Modvat credit was admissible in respect of the entire quantity of input (Phospho Gypsum) received in the respondent’s factory and that this benefit was not to be denied on the ground of loss of input due to evaporation of moisture content.
3. Learned SDR, on the other hand, submits that, under Rule 57A read with Rule 57G of the Central Excise Rules, 1944, Modvat credit on input was admissible only in respect of that quantity of input which was received in the factory and used in or in relation to the manufacture of final product. In the present case, 1052 MTs of copper concentrate were, admittedly, not received in the factory, but Modvat credit was taken on this quantity. It is submitted that 6 ex-bond bills of entry were filed by the appellants for clearing the warehoused goods for home consumption. After the 5th of such clearances, there was no quantity of input left and, therefore, the 6th ex-bond bill of entry was filed with intent to avail Modvat credit of duty on input not available for clearance for home consumption. According to learned SDR, this last ex-bond bill of entry, which she refers to as “empty” bill of entry, did not entitle the party to avail credit of the CVD paid thereunder for want of actual receipt of input in factory. Learned SDR goes by the rule book and submits that the denial of input duty credit to the appellants in respect of input not received in their factory is in order. Reliance is placed on the Tribunal’s decision in Singh Scrap Processing Pvt. Ltd. v. Commissioner of Central Excise, Mumbai 2005 (192) E.L.T.673 (Tri.-Mum.), wherein Modvat credit was denied to the assessee on a quantity of input found short in their factory.
4. Both sides have also addressed the limitation issue. Learned Counsel has submitted that the department was aware of all the relevant facts inasmuch as it was in the presence of departmental officers that the raw material received in the warehouse was weighed. Hence it was not open to them to invoke the extended period of limitation against the appellants on the ground of suppression of facts by the latter. Even if it be assumed that the appellants were also aware of the relevant facts and did not disclose the same to the department, it is argued, the extended period of limitation was not invocable in view of the apex court’s decision in Pushpam Pharmaceuticals Co. v. Collector of Central Excise, Bombay . Learned SDR has reiterated the relevant findings of the lower authorities on the limitation issue.
5. We have given careful consideration to the submissions. Modvat credit of Rs. 15,38,297/- was taken by the appellants on a total quantity of 929.71 MTs of input admittedly not received in their factory. This quantity of input was a part of a larger quantity imported by the appellants and warehoused under 5 into-bond bills of entry. The said quantity of input was found short upon weighment made in the warehouse, but duties of Customs were paid thereon and credit was taken of CVD. The following tabulated data would provide a clear picture of the procedure adopted by the importer:
INELIGIBLE CREDIT TAKEN ON INPUTS SHORT RECEIVED WHERE BONDING PROCEDURE IS INVOLVED
Sl.
No.
Description
of the copper concentrates
Details
of Into Bond Bill of Entry under which the inputs were received
Quantity
mentioned as received under the Into Bond B/E * (IN WET METRIC TONS)
Qty.
actually Received, Weighed and stored in the Customs bonded warehouse inside
the factory ** (IN WET METRIC TONS)
Shorgage
of inputs at the time of receipt inside the factory *** (IN WET METRIC TONS)
Details
of the Ex-bond Bills of Entry raised in order to cover the Shortage after
exhausting the entire stock of inputs received.
RG 23
Part 1 entry details under which the non received inputs were accounted as if
received under the Ex-bond Bill of Entry referred at Col.(7).
Credit
of Duty taken on the strength of B/Es which do not cover any receipt of
inputs & issued for covering the short receipt in inputs received inside
the factory (In Rs.)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
1.
HIGHLAND
VALLEY
1538/28.03.1996
10597.570
10423.220
174.350
159/12.02.1997
18/12.02.1997
4,19,968
2.
TINTAYA-I
207/14.10.1996
11000.000
10775.605
224.395
277/12.02.1997
34/12.12.1997
3,50,043
3.
GEBROLTAR
6947/27.12.1996
8368.860
8259.950
108.910
385/29.01.1997
32/29.03.1997
1,13,332
4.
OSBORNE
1092/21.02.97
10051.000
9892.420
158.580
298/26.05.1997
5/26.05.1997
2,47,850
5.
TINTAYA-II
309/29.04.1997
11594.840
11331.365
263.475
151/06.03.1998
103/07.03.1998
4,07,114
TOTAL
929.71
15,38,297
FOOTNOTE: * The figures were based on Into Bond Bills of Entry.
** The figures were based on the Warehousing registers and Surveyor’s Certificate
*** The figures were found in the Assessee’s Inter Office Memo and were validated with the documents mentioned supra.
Credit of Rs. 1,46,148/- was also taken on a quantity of 122.985 MTs of input which was not received in the factory out of a quantity of 6111 MTs of the material directly cleared for home consumption under a bill of entry (without warehousing procedure) as evidenced by the following tabulated data:
INELIGIBLE CREDIT TAKEN ON INPUTS SHORT
RECEIVED UNDER DIRECT IMPORT
S. No.
Description
of the inputs
Details
of inputs declared as receipt in the Bill of Entry
Details
of inputs actually received
Quantity
of Inputs short Received (in WMT)
Ineligible
credit taken on the inputs short received now demanded (Rs.)
BOE
No./Date
Qty (in
WMT)
Credit
taken
(Rs.)
RG23 A
Part 1 entry
Actual
receipt (in WMT)*
Eligible
credit
1.
CERO
COLORADO
361/
14.08.97
6111.00
72,61,925
7/
14.08.1997
5988.015
71,15,777
122.985
1,46,148
Foot Note: * The figure besides found at entry in the assessee’s Inter Office Memo, is also evidenced by the Surveyor M/s. SGS India Limited’s Certificate No. 5301/06/015564 and also evidenced by the Supplier PECHINEY WORLD TRADE USA’s final invoice No. 34998 dated 19.02.1998 for which quantity only the assessee settles the amount.
It is not in dispute that, as rightly pointed out by learned SDR, the last of the several ex-bond bills of entry, filed by the appellants for clearance of warehoused input relatable to each into-bond bill of entry, was an “empty” document in the sense that there was no quantity of input to be physically cleared thereunder. However, in respect of such ex-bond bill of entry also, there was an assessment followed by payment of duties of Customs including CVD and the appellants took Modvat credit of such CVD. Such credits taken without receipt of input in factory totalled to Rs. 15,38,297/- for a total quantity of 929.71 MTs not received in factory. It would appear from these facts, which are not in dispute, that Modvat credit of Rs. 15,38,297/- was taken on input admittedly not received in the appellants’ factory. In respect of the input covered under direct clearance for home consumption also, there was a shortage of 122.985 MTs of copper concentrate vis-a-vis the quantity of goods mentioned in the corresponding bill of lading and bill of entry. Admittedly, credit on this quantity of the input was also taken by the appellants. It is their case that the total shortage (1052 MTs) of input was due to evaporation which might have occurred in the course of transit, storage and handling. Some of the consignments were imported through Cochin port and transported to the appellants’ factory at Tuticorin and the remaining consignments were imported through Tuticorin port itself. However, the appellants do not seem to be distinguishing the two cases while maintaining that the entire short receipt of input in factory was due to evaporation. They have also not adduced any evidence of the alleged volatile nature of copper concentrate. In the present appeal, apart from reiterating the above contention, they have also pleaded that the difference in weight could also be attributable to usage of different weighment scales abroad and at home. These explanations of the appellants, in our view, are not convincing. It has also been stated by learned Counsel that the shortage of input is less than 2% of the total quantity imported and, therefore, as held in the cases cited by him, the Modvat credit should be allowed in respect of this quantity of input also. We find that in one of the cases cited by learned Counsel, the input was admittedly of volatile character and apparently evaporation loss to the extent of 0.2% was allowable. It was on this basis that credit was allowed on the lost quantity of fuel also. In another case cited by learned Counsel, again, the loss of weight of Phospho Gypsum was due to evaporation of moisture content. In the case considered by Larger Bench also, the input was susceptible to evaporation. As we have already indicated, in the instant case, there is not even an attempt on the part of the appellant to show that copper concentrate is volatile and that an allowance could be given to evaporation loss. It is an admitted fact that, under certain ex-bond bills of entry, there was no physical clearance of goods, but Modvat credit of CVD paid thereon was taken by the assessee. Rule 57A read with Rule 57G did not allow Modvat credit on any input not received in the manufacturer’s factory. Therefore, on merits, the appellants do not have a case against the demands raised in the impugned order.
6. However, on limitation, they seem to have a strong case. It appears from the records that the weighments at the warehouse were made in the presence of officers of Customs. All the ex-bond bills of entry were assessed to duty by the proper officer of Customs. If there was no physical clearance of goods under any of such bills of entry, that fact was known to that officer. He knew that the triplicate copy of bill of entry was a modvatable document under Rule 57G and the same will be carried by the assessee for such purpose. It would have been very well possible for the department to keep an eye on the assessee to see whether they were using the said documents for Modvat purpose. Apparently, the department did not move even their little finger. It was as late as in January, 1999 that the department came out, all of a sudden, with a show-cause notice seeking to recover duty equivalent to Modvat credit taken on 1052 MTs of copper concentrate not received in the appellants’ factory. Obviously, the relevant facts were well known to the department. The appellants were also certainly aware of the relevant facts as is evident from the fact that they lost no time in making entries of input quantities not received in factory, in the RG-23 A Part-I and in taking credit in Part-II. In this scenario, however, the apex court’s ruling in Pushpam Pharmaceuticals (supra) would come to the rescue of the appellants. Their Lordships held that, where facts were known to both parties, the omission by one to do what he might have done and not that he must have done, did not render it ‘suppression’. Hence, in the present case, where it stands established that both the assessee and the department were clearly aware of the relevant facts, there can be no case of ‘suppression’ of facts by the assessee. The extended period of limitation was not invocable against them. The demand of duty is, therefore, set aside as time-barred. Consequentially, the penalties also get set aside.
7. The impugned order is set aside and the appeal is allowed.
(Dictated and pronounced in open court)