2019 (12) TMI 1017 - AT - Central Excise

Benefit of exemption - texturized yarn - independent processor who does not have facilities of manufacture of POY in their factory - bifurcation of their existing unit into two units for implementing, product management concept policy and requested separate Registration on the basis of information provided by them and as requested the existing manufactory - N/N. 6/2000-CE dated 1.3.2000 as claimed in declaration No 1/2000-01 dated 8.5.2000 - Rejection of declaration filed u/r 173B of the Central Excise Rules, 1944 - demand of duty alongwith interest and penalty. Whether the benefit of exemption under Notification No 6/2000-CE dated 1.03.2000 is admissible to the appellant post 26.04.2000, the date from which they obtained two Central Excise Registrations by bifurcating their existing facility into two units? - HELD THAT - Coming to the phrase independent texturizer used in the Notification No 6/2000-CE, we are of the view that independent texturizer, is a person (legal or natural) who procures the partially oriented yarn from the open market and then clears the texturized yarn after texturizing the same. We are holding this view because the phrase independent texturizer used in the notification is followed by the phrase who does not have the facilities in his factory (including plant and equipment) for producing partially oriented yarn (POY) of polyesters , which implies that he has no facility to produce the partially oriented yarn. Thus procurement of the partially oriented yarn which is the raw material to start with for him can be only by way of purchase. Undisputedly KSF(PUY) and KSF (POY) are having common sales tax registration and PAN and are proprietorship concerns of M/s CEL, before and after bifurcation. The phrase interpreted was his factory i.e. the factory of manufacturer. In our view said decision is distinguishable, in view of the use of word independent to qualify the texturizer , in the notification under consideration. In our view if the phrase is considered as a whole then we find that word independent qualifies the texturizer and not the factory. So if the texturizer is procuring the partially oriented yarn from any of his factory then he will not qualify to be an independent texturizer . Thus the benefit of exemption cannot be admissible to him. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification - When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue - The benefit of the exemption notification 6/2000-CE and its successor notification will not be admissible to the appellants. Valuation of the goods cleared by the appellant - HELD THAT - We are not in agreement with the approach made by the Commissioner in rejecting the deductions claimed by the appellants for determining the assessable value from the sale value at depot. Commissioner should have considered and allowed the admissible deductions from the sale value for determination of assessable value - Hence for the determination of the correct assessable value and the quantum of duty short paid or evaded, the matter needs to be remanded back to the Commissioner. Whether appellants have mis-declared, mis-stated to wrongly avail the benefit of exemption notification? - HELD THAT - By bifurcating the existing unit, to claim the benefit of exemption notification, appellant have created a colourable instrument, a fa ade to evade the payment of legitimate central excise duty - The contents of letter are self explanatory and clearly show that appellants have in garb of the product management , sought to create a colorable instrument a fa ade in name of product management group for evading the payment of legitimate duty due. The intention of the appellant is also clear from the fact that they had been selling the said goods from their depots by charging the duty @ 36.8% ad valorem instead of the duty actually paid by them after bifurcation. They never declared the pricing mechanism to the department at the depot at the time of seeking an amendment in registration hence they had misstated the facts with the intention to evade payment of duty and hence in our view extended period of limitation has been correctly invoked against the appellants in the present order. Whether interest on the demand made can be sustained? - HELD THAT - This is a civil liability of the assessee, who has retained the amount of public exchequer with himself and which ought to have gone in the pockets of the Central Government much earlier - Upon reading Section 11AB together with Sections 11A and 11AA, the interest on the duty evaded is payable and the same is compulsory and even though the evasion of duty is not mala fide or intentional. Whether penalties are imposable on appellant? - HELD THAT - The order of Commissioner to the extent of imposing penalties under Rule 173Q of the Central Excise Rules, 1944 or Rule 25 of the Central Excise Rule 2002 as the case may be read with Section 11AC of the Central Excise Act, 1944 upheld - However the quantum of penalty needs to be redetermined after determination of actual duty evaded by the appellants. Whether penalties are imposable on four functionaries in the unit? - HELD THAT - In view of the specific finding recorded by the Commissioner, to the effect that the four functionaries were instrumental and in knowledge of the entire fa ade being created to evade payment of duty, the penalties imposed on these functionaries are upheld - However, the quantum of penalty needs to be re-determined after ascertaining the duty evaded. CENVAT/ MODVAT Credit - exemption under Notification 6/2000-CE - HELD THAT - The benefit of CENVAT/ MODVAT credit can be allowed only on establishing the claim to such credit by way of production of requisite documents before the adjudicating authority - Since the matter is being remanded for re-determination of the value and quantum of duty short paid by the appellants, appellants may make the claim towards admissible CENVAT/ MODVAT credit before the adjudicating authority in remand proceedings, who will consider the claim and allow the admissible CENVAT/ MODVAT Credit. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Admissibility of exemption benefit under Notification No. 6/2000-CE dated 1.03.2000.
2. Valuation of goods cleared by the appellant.
3. Allegation of mis-declaration and mis-statement to avail the exemption benefit.
4. Imposition of interest on the demand.
5. Imposition of penalties on the appellant.
6. Imposition of penalties on four functionaries in the unit.
7. Admissibility of CENVAT/MODVAT credit.

Detailed Analysis:

1. Admissibility of Exemption Benefit under Notification No. 6/2000-CE:
The appellants bifurcated their existing unit into two separate entities to claim exemption under Notification No. 6/2000-CE. The notification provides exemption to "independent texturizers" who do not have facilities for producing partially oriented yarn (POY) in their factory. The Tribunal examined whether the bifurcation created two independent factories. It was found that despite separate registrations, the units operated as a single composite unit with common managerial control, administrative setup, and interdependence in production processes. The Tribunal concluded that the bifurcation was a facade to evade duty and the exemption was not admissible.

2. Valuation of Goods Cleared by the Appellant:
The Commissioner rejected the deductions claimed by the appellants for determining the assessable value from the sale value at the depot. The Tribunal held that the Commissioner should have considered and allowed admissible deductions from the sale value for determining the assessable value, following the principles laid down by the Supreme Court in cases like Bombay Tyre International and Madras Rubber Factory. The matter was remanded to the Commissioner for re-determination of the correct assessable value and quantum of duty short paid or evaded.

3. Allegation of Mis-declaration and Mis-statement:
The Tribunal found that by bifurcating the existing unit, the appellants created a colorable instrument to evade payment of legitimate central excise duty. The intention was evident from their pricing mechanism, where they charged duty at 36.8% ad valorem from customers while paying duty at a specific rate after bifurcation. The Tribunal upheld the invocation of the extended period of limitation for demand of duty due to mis-declaration and mis-statement.

4. Imposition of Interest on the Demand:
The Tribunal upheld the demand for interest on the duty evaded, citing the mandatory nature of interest under Section 11AB of the Central Excise Act, 1944, as interpreted by the Bombay High Court in P.V. Vikhe Patil SSK and other cases.

5. Imposition of Penalties on the Appellant:
The Tribunal upheld the imposition of penalties under Rule 173Q of the Central Excise Rules, 1944, or Rule 25 of the Central Excise Rules, 2002, read with Section 11AC of the Central Excise Act, 1944. However, the quantum of penalty was to be re-determined after ascertaining the actual duty evaded.

6. Imposition of Penalties on Four Functionaries in the Unit:
The Tribunal upheld the penalties imposed on four functionaries who were found to be instrumental and aware of the façade created to evade duty. The quantum of penalty was to be re-determined after ascertaining the duty evaded.

7. Admissibility of CENVAT/MODVAT Credit:
The Tribunal held that the appellants were entitled to CENVAT/MODVAT credit on inputs if they had not availed the exemption under Notification No. 6/2000-CE. The appellants were allowed to claim admissible CENVAT/MODVAT credit before the adjudicating authority in the remand proceedings, who would consider the claim and allow the admissible credit.

Conclusion:
The appeals were partially allowed, and the matter was remanded back to the adjudicating authority for re-determination of assessable value, admissibility of MODVAT/CENVAT credit, quantum of duty evaded, and imposition of penalty consequent to the re-determination of the duty evaded. The adjudicating authority was directed to finalize the matter within six months from the date of receipt of the order, following the principles of natural justice.