1
V2(48)105/Ahd-III/2011
V2(48)3/EA2/Ahd-III/2012
The following two appeals have been filed against Order-in-original No.AHM-CEX-003-ADC-039-11 dated 04.10.2011 (hereinafter referred to as ‘the impugned order’ for the sake of brevity) passed by Additional Commissioner, Central Excise, Ahmedabad-III (hereinafter referred to as ‘the adjudicating authority’ for the sake of brevity) which are taken up together for decision:
(i)Appeal filed by M/s Touch Laminates Pvt. Ltd., At & Post Sonasan, Opposite Ceramic Zone, Prantij Taluka, Sabarkantha District – 383 210 (hereinafter referred to as ‘the appellants’ for the sake of brevity)
(ii)Appeal filed by Assistant Commissioner, Central Excise & Customs, Gandhinagar Division (hereinafter referred to as ‘Revenue’ for the sake of brevity.
2.The facts of the case, stated briefly, are that the appellants who are manufacturers of High Pressure Laminated Sheets and availing the benefit of CENVAT credit under the Cenvat Credit Rules, 2004 had cleared goods valued at `49,34,499/- without payment of Central Excise duty amounting to `7,11,555/- on the ground that the impugned goods were ‘returned goods’ cleared in terms of Rule 16 of the Central Excise Rules, 2002. A Show Cause Notice F.No.V.48/15-218/Dem/OA/2009 dated 18.5.2010 was issued to the appellants demanding `7,11,555/- under Section 11A of the Central Excise Act, 1944, invoking extended period; demanding interest under Section 11AB of the Central Excise Act, 1944 and proposing penalties under Rule 25 & Rule 26 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944.
3.The adjudicating authority has held in the impugned order that CENVAT credit amounting to `1,37,453.00 is inadmissible as there was no evidence showing return of 4335 pieces of Laminated Sheets. He hasconfirmed the demand amounting to `1,43,829.00 under Section 11A of the Central Excise Act, 1944 by invoking the extended period of limitation along with interest under Section 11AB of the Act ibid. He has imposed a penalty of `1,43,829.00 on the appellants under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 with the option pay 25% of this amount if the duty confirmed, interest and 25% of the penalty amount imposed are paid up within 30 days of the communication of the impugned order.
4.In their grounds of appeal, the appellants have submitted that the adjudicating authority had erred in holding that they had received back only 985 pieces of Laminated Sheets from M/s Rajasthan Laminates whereas they had actually received back 2535 pieces as reflected in their returned goods register;that they had followed the procedure laid down under Rule 16 of Central Excise Rules, 2002 which permits them to bring the duty paid goods back for being remade, refined, reconditioned or for any other reason and on recording such receipts they become entitled to take CENVAT credit of the duty paid on returned goods under the Cenvat Credit Rules, 2004 and utilize this credit; that the said Rule nowhere prescribes that intimation of the returned goods should be given; that the rule says that the goods should be accounted for in the records and particulars of such receipts should be mentioned in the records; that the department has nowhere denied that the particular of the returned goods were not mentioned and the credit of `71,588/- has been availed correctly and should be allowed. The appellants have further submitted in their grounds of appeal that the adjudicating authority had erred in holding that 2785 pieces of laminated sheets has not been received as returned goods from M/s Lovely Enterprises; that the demand had been confirmed only on the ground that no intimation was given to the Range officers and that the return of goods can be verified from the documents available. The appellants have contended that the adjudicating authority had erred in holding suppression of facts as they had maintained required records. The appellants have also contended in their grounds of appeal that there is no evidence to prove the allegation against them and the credit availed by them was in order and hence the confirmation of interest and penalty were also liable to be set aside.
5. In the grounds of appeal filed by Revenue it has been submitted that as per Rule 16 of Central Excise Rules, 2002, an assessee is required to maintain sufficient private records to show (i) the details of receipt of duty paid goods, (ii) the person from whom the goods are received, (iii) the reasons for receipt, (iv) value of goods received, (v) duty involved etc along with details of removal of such goods; that these records are to be produced to the Central Excise officers as and when asked for, however the appellants neither produced such records before auditors nor answered the query memo issued by the auditors in respect of returned goods which proved that the appellants were not following procedures laid down under Rule 16 of the Central Excise Rules, 2002. Revenue has further submitted in the grounds of appeal that during the course of adjudication proceedings, the appellants had produced a sheet titled ‘Return goods Register’ which shows that the disputed goods were received from eight suppliers viz. M/s M. Marketing, M/s Patel Traders, M/s Premier Plywood, M/s Parth Ply Lam, M/s Shree Sainath Ply Agency, M/s Lovely Enterprise, M/s Rajasthan Laminates and M/s Darshil Traders; that out of these, duty in respect of six consignments from M/s Lovely Enterprises and four consignments from M/s Rajasthan Laminates have been confirmed by the adjudicating authority and to check the authenticity of the appellant’s submissions, scrutiny of remaining documents was carried out. The details of scrutiny carried out by Revenue have been submitted in the grounds of appeal as follows:
M/s Premier Plywood was issued Credit Note/07-08/14 dated 30.6.2008 as they had returned 3184 Nos of Laminated sheets of different series on 10.06.2008. As per credit note, the details of the returned goods were as under:-
Description / Thickness / Quantity / RateGolden / 1.0mm / 1896 / 495
Litmus / 0.8mm / 1173 / 237
Ordinary / 3.0mm / 50 / 720
TE / 6.0mm / 65 / 1435
Total / 3184
As per the return goods register and the invoices mentioned therein, they had cleared the goods as returned-
Invoice / Description / Thickness / Quantity / Rate881 / Golden / 197 / 578
1062 / Golden / 1.0mm / 72 / 650
1205 / Golden / 1.0mm / 181 / 522
097 / Golden / 1.0mm / 85 / 539
460 / Golden / 1.0mm / 18 / 601
466 / Golden / 1.0mm / 6 / 601
958 / Premium / 1.0mm / 161 / 584
949 / Premium / 1.0mm / 135 / 563
1042 / Premium / 1.0mm / 138 / 579
1055 / Premium / 1.0mm / 101 / 588
1136 / Premium / 1.0mm / 498 / 498
1207 / Premium / 1.0mm / 141 / 568
1215 / Premium / 1.0mm / 173 / 606
686 / Litmus / 0.8mm / 1000 / 321
725 / Litmus / 0.8mm / 163 / 237
811 / Ordinary / 4.5 MM TS / 50 / 1022
1170 / Ordinary / 5.5MM / 42 / 1221
1260 / Ordinary / 5.5MM / 23 / 1243
TOTAL / 3184
The two worksheets as above clearly reveals that the goods received were entirely different from what was declared to be returned back. The glaring differences are as under:-
(a)Goods returned were of thickness of 3.MM and 6.MM while the invoices in which the goods were cleared are shown to be of size 4.5 and 5.5.MM.
(b)Out of these 1896 Nos were of Golden Series, the price at which credit allowed is at the rate of Rs.495/- which shows that the same were identical in nature and had the same unit price.
(c)Further, clearance of 1896 nos of sheets have been shown to be made vide following invoices as tabulated below:
Invoice No. / Date / Quantity / Rate881 / 24.12.2008 / 197 / 578
1062 / 22.02.2009 / 72 / 650
1205 / 30.03.2009 / 181 / 522
97 / 30.04.2009 / 85 / 539
460 / 9.7.2009 / 18 / 601
466 / 8.9.2009 / 6 / 601
949 / 10.1.2010 / 135 / 563
958 / 1.10.2010 / 161 / 584
1042 / 31.01.2010 / 138 / 579
1055 / 4.2.2010 / 101 / 588
1136 / 27.2.2010 / 498 / 498
1207 / 22.03.2010 / 141 / 568
1215 / 26.03.2010 / 163 / 606
1896
Scrutiny of two invoices under which goods were cleared like under invoice No. 1207 and 1205, the total quantity cleared is 46Nos. and 38 only and not 141 and 163 as mentioned in the above table, this shows that register of return goods produced at the time of adjudication was incorrect.
(d) It is also observed that 1896 nos of Laminated sheets received was of Golden series while the goods cleared were of either ordinary series or premium series. This also proves that the goods cleared were some other goods and the goods on which credit has been taken were some other goods. It is thus established that there is no correlation between what the appellants is submitting and what is revealed from the records. This analysis also clearly shows that the submission made by the appellants was just to mislead the adjudicating authority, that they have followed procedure as laid down under Rule 16 of Central Excise Rules, 2002.
Revenue has further contended in the grounds of appeal that perusal of the invoices under which the appellants cleared returned goods nowhere shows that the goods were duty paid goods which were received under Rule 16 of Central Excise Rules, 2002 which was required to be mentioned in light of the fact that no process was undertaken on such goods; that details of remaining consignments received back also show that there are differences in the quantity returned and cleared after availing CENVAT credit; that as admitted by the Chairman of the company in his statement dated 12.8.2009 that no process was carried out on returned goods, this difference proves that no duty has been paid when the goods were cleared back by the appellants; the findings of the auditors that the statements given by the appellants at the time of audit was based on assumption and presumption is established by this fact and the same has been ignored by the adjudicating authority and he should have confirmed entire duty demanded in the Show Cause Notice. It has reiterated in the grounds of appeal filed by Revenue that the adjudicating authority had failed to appreciate the fact that the appellants did not mention any reason in intimation filed for receipt back of goods before jurisdictional office as required as per provisions of Rule 16 of Central Excise Rules, 2002; that no records were maintained and shown to Audit despite query memo being issued; that the fact that goods brought back and cleared on payment of duty were different has not been considered by the adjudicating authority while passing the impugned order; that it has been clearly brought out by Revenue that there was no correlation between receipt and despatch and that due to lack of co-relation, the impugned order appears to be not proper and legal.
6.Personal hearing in the appeal filed by the appellants was held on 06.01.2012. Shri M.H. Raval, Consultant appeared for personal hearing and reiterated their grounds of appeal. He stated that they have accounted for the returned goods in the ‘Returned Goods register’. There is no mandatory requirement in Rule 16 of Central Excise Rules. Since the receipt of the goods was not in question, they are entitled to avail the credit.
7.Personal hearing in the appeal filed by Revenue was conducted on 03.2.2012. Shri M.H. Raval, Consultant appeared before me for personal hearing. He also filed written cross-objections. He stated that the adjudicating authority has allowed the credit to the extent of Rs.5,57,726/- after due verification of receipt of the goods into the factory by the departmental officers. Hence, there is no merit in the department’s appeal and he requested to reject the department’s appeal. Regarding the balance amount of Rs.1,43,829/- confirmed by the adjudicating authority, he stated that Rule 16 does not provide for intimation. As they have received the returned goods into the factory, they are entitled for the credit under Rule 16. Hence, he requested to allow the credit. The appeal filed by the department is time barred as it was filed beyond 90 days. In the written cross-objections filed during personal hearing, the appellants have reiterated their grounds of appeal and emphasised the point that the demand dropped by the adjudicating authority on the basis of the report of the jurisdictional Assistant Commissioner had to be upheld. The appellants have also reiterated that as per Section 35 of the Central Excise Act, 1944, the appeal filed by Revenue was time-barred.
Discussion and Findings:
8.The appellantshave argued during the personal hearing as well as in their written cross-objectionsthat the appeal filed by Revenue has been filed beyond a period of 90days and therefore hit by limitation. As per the appeal memo of the appeal, the impugned order dated 04.10.2011 is shown as received on 04.10.2010 which is apparently a slip and means that the same has been received on 04.10.2011 i.e. on the samedaythat it was issued. The appeal has been filed on 06.01.2012 i.e. on the 94th day. The argument regarding limitation made by the appellants on the ground that the Revenue appeal was filed beyond 90 days is erroneous. Section 35E (2) of the Central Excise Act, 1944,empowers the Commissioner to examine an order passed by an adjudicating authority subordinate to him andissue an order giving directionsfor an application with Commissioner (Appeals)within three months of the receipt of such an order and as per Section 35E(4) ibid,the Revenue appeal has to be filed within one month of the communication of the order of the Commissioner under Section 35 E (2) ibid. Thus there is no truth in the plea of the appellants that an application with Commissioner (Appeals) by Revenue not filed within 90 days is barred by limitation. I hold that the Revenue appeal is within the stipulated time in accordance with the provisions of the Act ibid and take up the same for consideration on merits along with the appeal filed by the appellants.
9.On perusing the Show Cause Notice dated 18.5.2010, it is seen that allegation against the appellants is that they had clandestinely removed Decorative Laminated Sheets valued at `49,34,499/- involving Central Excise duty of `7,11,555/- in the guise of returned goods. The mainstay of the appeal filed by the appellants is that they had maintained the records showing the return of goods which was sufficient compliance of the provisions of Rule 16 of the Central Excise Rules, 2004. I find that the adjudicating authority in the impugned order has relied on the verification report of the jurisdictional Assistant Commissioner that verified and reported on the facts of the actual receipt of the returned goods and its entry in the appellant’s records. The quantum of demand pertaining to such goods where there was no observation or doubt raisedby the verifying officers regarding the return thereof has been dropped in the impugned order. In the instances where discrepancies were pointed out in the report, the demand for clandestine clearance has been confirmedinvoking extended period for suppression of factsalong with interest.Penalty equal to the confirmed demand has also been imposed on the appellants.
10.As per sub-rule (1) of Rule 16 of the Central Excise Rules, 2002, “where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.”Once the appellants maintained such records, they were eligible to avail corresponding CENVAT credit. However, the proof of receipt itself is not sufficient evidence to prove that the clearances were legitimate unless the details of clearances are co-related.It is necessary toconfirm the co-relation with goods returned and the goods cleared to show that the returned goods are contained in the goods cleared after being re-made, refined, re-conditioned etc because as per Rule 16(1) ibid the returned goods are to be treated at par with inputs.The statement of Shri Ramjibhai P. Patel, Chairman of the appellants dated 12.8.2009 is on record where he has deposed that no process was carried out on the returned goods and no additional cost was incurred. This fact being admitted and uncontroverted, it was inevitable that the appellants produce the corresponding documents showing that the returned goods were cleared on payment of duty equal to the CENVAT credit availed under Rule 16(1) ibid. This fact is clearly understood on the reading of sub-rule (2) of the Rule 16 ibid which stipulates that “If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.” In this context it is settled law that even if the returned goods are cleared as scrap, duty equivalent to the CENVAT credit availed on receipt of returned goods has to be paid on the clearance of the scrap as the same cannot be said to be generated during the process of manufacture. The appellants are claiming their eligibility to CENVAT credit on the returned goods and vehemently arguing that as per the departmental verification report they had actually received back the returned goods and the details of such goods had been accounted for in their records. However, in view of the fact that no process had been carried out on the returned goods, the provisions of sub-rule (2) of Rule 16 ibid are attracted in their case and the issue to be decided is whether they have fulfilled the stipulations undersub-rule (2) ibid. I rely on the decision of CESTAT, Delhi in the case of Markfed HDPE Sacks Plant Vs CCE, Ludhiana – 2011 (271) ELT 0396 Tri. Del. where the issue has been explained by Hon’ble Tribunal as follows: