2005 (6) TMI 182 - AT - Central Excise

Cenvat credit - Demand duty - Limitation - stock transfer - fraud, suppression of facts - supplementary invoices - value of Sandalwood Oil - HELD THAT - A very careful reading of the above rules shows that the bar for availment of credit on supplementary invoices would operate only when the additional amount of duty becomes recoverable from the manufacturer on account of non-levy or short levy by reason of fraud, collusion or any wilful misstatement or suppression of facts etc. Further, the prohibition to avail credit on supplementary invoices will operate only in the case of sale. In other words the receiver of the input should have purchased the goods from the manufacturer who had to pay the additional amount of duty after detection of suppression of facts, fraud, etc., on his part. Therefore, when there is simply a stock transfer the prohibition under Rule 7(1)(b) will not be applicable. In other words, when there are two units A and B, and if goods are stock transferred from unit A to unit B and even if the additional amount of duty becomes recoverable from A on account of fraud, suppression of facts, etc., the unit B can take credit. The case laws relied on by the learned advocate are squarely applicable. We are in agreement with the above contentions of the appellant that Rule 7(1)(b) of Cenvat credit rules cannot debar availment of Cenvat credit at Bangalore factory for the simple reason that the transaction between the two factories is not one of sale. It should also be borne in mind that both the factories belong to the Government of Karnataka. Although the irregularity committed in Mysore resulted in Revenue loss to the Mysore Commissionerate, looking into the totality of the circumstances, there was no revenue loss to the exchequer at all. This fact has been recorded by both the Adjudicating authorities. Whatever duty is paid at Mysore on Sandalwood oil, the same is taken as Cenvat credit at Bangalore. The duty on the finished products namely, toilet soaps is discharged u/s 4A on the basis of MRP. Since the value of soap takes into account the escalated cost of the sandalwood oil there cannot be any short payment of duty on the toilet soaps at Bangalore. In effect, the Government did not suffer any loss. thus, there is absolutely no justification to deny Cenvat credit taken by Bangalore factory based on supplementary invoices issued by Mysore factory. Hence, the OIO passed by Commissioner of Central Excise Bangalore, has no merits. The same is set aside. Hence, we allow the appeal.

Summary

Issues:
1. Assessment of excise duty on sandalwood oil manufactured at Mysore factory and transferred to Bangalore factory.
2. Disallowance of Cenvat credit by the Commissioner of Central Excise, Bangalore, on the additional duty paid by the Mysore factory.

Analysis:

Issue 1: Assessment of excise duty on sandalwood oil:
The appeals were filed against the Orders-in-Original (OIO) passed by the Commissioner of Central Excise, Mysore, and Bangalore-III Commissionerate. The dispute arose from the appellants' method of assessing excise duty on sandalwood oil manufactured at the Mysore factory and transferred to the Bangalore factory for soap production. The Mysore factory paid duty based on the cost construction method without any sale to Bangalore. The Revenue alleged that the appellants did not revise the assessable value of sandalwood oil for subsequent years, leading to a demand for differential duty. The Mysore factory paid the differential duty, leading to supplementary invoices issued to the Bangalore factory for Cenvat credit. The Mysore Commissioner confirmed the demand, while the Bangalore Commissioner disallowed the Cenvat credit, prompting the appeals.

The appellants argued that there was no loss of revenue as the duty paid at Mysore was credited at Bangalore, and the final product duty was based on Maximum Retail Price (MRP). They cited various case laws to support their contentions. The Mysore OIO found an intention to evade duty due to the non-revision of sandalwood oil value, leading to a sustained demand for duty and interest. The Bangalore OIO concerned the denial of Cenvat credit on supplementary invoices from Mysore, alleging fraud. The appellants argued that Rule 7(1)(b) did not apply as there was no sale between the factories.

The Tribunal upheld the Mysore OIO, finding the appellants' lapse in revising the sandalwood oil value as a serious violation, leading to a sustained demand and interest. The Tribunal agreed with the Bangalore OIO's denial of Cenvat credit, citing fraud. However, upon detailed analysis of Rule 7(1)(b) and case laws, the Tribunal overturned the Bangalore OIO, allowing the Cenvat credit as the transaction was a stock transfer, not a sale, between the Government-owned factories, ensuring no revenue loss.

In conclusion, the Tribunal dismissed the Mysore appeal but allowed the Bangalore appeal, emphasizing the distinction between stock transfers and sales under Rule 7(1)(b) for Cenvat credit eligibility.

End of Analysis