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TMI Blog2006 (12) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... ist was filed in view of their imminent production of dutiable goods. The appellants did not have any intention of using the subject capital goods in the manufacture of dutiable final products which they had intimated to the department as in Kailash Auto Builders case [ 2001 (10) TMI 164 - CEGAT, BANGALORE] . Similarly, the department was not informed that the appellants had a project for setting up a composite mill for manufacture of excisable goods chargeable to duty as in the case of Bhasker Industries Ltd. (supra). Therefore, the ratio of those two decisions is not relevant to the subject case. The Suryaroshini decision was upheld by the Supreme Court. A similar ratio laid down by the Tribunal in Grasim Industries Ltd. case [ 2004 (3) TMI 277 - CESTAT, CHENNAI] also was upheld by the Apex Court. Therefore, the demand as regards the capital goods credit taken in the impugned order is unassailable. We find that the appellants had intimated the jurisdictional Dy. Commissioner, the details of the goods cleared by the unit and the fact of import of capital goods and the CVD paid, of which they were entitled to take Cenvat credit. The Dy. Commissioner in his letter, approved t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1985. They had taken Modvat credit/Cenvat credit of a total of Rs. 57,94,586/- being duty paid on capital goods under Rule 57AB of Central Excise Rules, 1944, (CER) for the period 1-3-2001 to 30-6-2001 and under Rule 3 of the Cenvat Credit Rules, 2001 (CCR) for the period 1-7-2001 to 28-2-2002. It was observed that the capital goods had been used exclusively for the manufacture of exempted goods, grey/unprocessed woven fabrics of cotton. As the assessee had manufactured exempted final product using the credit availed capital goods and appeared to have withheld the fact of exclusive use of those goods in the manufacture of exempted goods, a show cause notice was issued to the assessee proposing to recover Rs. 57,94,586/- under Rule 57AH of the Central Excise Rules, 1944 and Rule 12 of the Cenvat Credit Rules, 2001 read with the provisions of Section 11A of the Central Excise Act, 1944 (the Act). It was also proposed to demand interest on the above amount under Rule 57AH of the Central Excise Rules and Rule 12 of the Cenvat Credit Rules, 2001 read with Section 11AB of the Central Excise Act. Notice proposed also to penalize the assessee under Rules 57AH(2) and 173Q of Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be cleared on payment of duty from their factory as per the Notification No. 1/01-C.E., dated 1-3-2001. They also submitted that the Deputy Commissioner had confirmed the proposed procedure. The appellants further submitted that they had filed a declaration under Rule 173(B) of Central Excise Rules, 1944 under cover of their letter dated 18-5-2001, wherein manufacture of both dutiable and exempted cotton fabrics had been declared. The declaration also indicated the procedure under Rule 57AC(5) followed by them for getting grey fabrics processed by the job workers. The assessee argued that the Modvat credit could not be denied on the capital goods for the reason that they would also be used in the manufacture of dutiable goods over the life span of the factory, though initially they had been deployed in the manufacture only the exempted goods. 3. In the proceedings before the Commissioner, they had contested the allegation that they had not disclosed that credit availed capital goods had been exclusively used in the manufacture of exempted product and the same had been with an intention to evade payment of duty. They had informed the department about the range of manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observation in the impugned order that the assessee had not manufactured dutiable final product was contrary to the facts. As per the Board s Circular No. 665/56/02-C.E., dated 25-9-2002, the fact that the appellants had discharged the duty on the processed fabrics as well as on the articles of apparel had clearly established that the unprocessed fabric was further used captively in the manufacture of the processed fabrics. Therefore, the benefit of impugned credit was admissible. The observation in the impugned order that no dutiable final product was manufactured within the premises was not based on facts, as was obvious from the ER1 returns filed by them. The grey fabric used in the manufacture of processed fabric and articles of apparel were intermediate products manufactured by the appellants using the impugned capital goods. The Assistant Commissioner of Central Excise, Pollachi Division, Coimbatore Commissionerate had referred to the following directions contained in the Board s Circular No. 267/94/99-Cx.-8 dated 30-9-2002, in his Order-in-Original No. 49/2004 dated 4-4-2003, in a similar case pertaining to them, dealing with balance credit on same capital goods taken in 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not exist in the subject case and penalty imposed was not based on a conclusion supported by facts. 6. The operative part of the order imposing penalty reads as under : I impose a penalty of Rs. 57,94,586/- on PML under Section 11AC of CEA, 1944 read with Rules 57AH(2) and 173Q of CER, 1944 Rule 13(2) of CCR, 2001 and Section 38A of CEA, 1944 . The appellants submitted that the imposition of penalty without apportionment between Section 11AC of the Act read with Rule 57AH(2) and Rule 173Q of CER, 1944/Rule 13(2) of the CCR, 2001 was unsustainable in view of the ratio of the decision in the case of Agarwal Pharmaceuticals - 2002 (146) E.L.T. 190 (Tri. - Del.), which was as under : Penalty not sustainable for want of apportionment of Section 11AC of the Central Excise Act, 1944 and Rule 173Q of erstwhile Central Excise Rules, 1944 . 7. The appellants further submitted that the credit had not been utilized and the question of penalty did not arise as there was no revenue loss to the Government. In Bata India Limited - 2001 (131) E.L.T. 62, it was decided as under : Penalty - remedy for loss of revenue - where no such loss caused imposition is not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacture of dutiable goods. It was decided that bar under Rule 57R(1) of CER, 44 was not attracted in such a case and credit was admissible. They also cited the ratio of Kailash Auto Builders Ltd. v. CCE - 2002 (140) E.L.T. 148, to buttress their claim. In that case it was decided that credit could not be denied in respect of goods received between May 1995 to August 1995 on the ground that appellant had not cleared any dutiable product in August 1995. It was decided further that there was no time limit for utilizing the credit taken on capital goods . It was alleged that the Commissioner had failed to notice that the capital goods referred in the Show Cause Notice had been received simultaneously along with processing machines except to the extent of Rs. 32.81 lakhs. He had also failed to observe that the appellants had discharged the duty of excise on the articles of apparel of Chapter 61 and processed fabric of Chapter 52 since February, 2002. Hence, the impugned goods had not been exclusively used in the manufacture of exempted final product. The Commissioner had erred in entering a finding that grey fabric was a final product and could not be considered as an intermedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that the same had been used exclusively in the manufacture of exempted goods namely grey fabric though confirmed by the Assistant Commissioner, was dropped by the Commissioner (Appeals) on the ground that the appellants had started clearing both dutiable and non-dutiable goods i.e. processed fabrics and grey fabrics from March, 2002. 10. During hearing the ld. Counsel submitted that the impugned order covered a demand of Rs. 57.94 lakhs on preparatory machinery and processing machines received during the period 3/2001 to 2/2002. A similar SCN issued to demand Rs. 31.42 lakhs being capital goods credit taken on same goods as covered by the impugned order during 1-3-2002 to 28-2-2003 was dropped by the order of the Commissioner (Appeals), Coimbatore vide OIA No. 16/05-C.E., dated 11-2-2005 finding that the appellants had manufactured both dutiable and exempted final products from 3/02. It was further explained that the appellants had not suppressed any relevant fact. There was no mis-declaration. They had kept the department informed of their activities and had filed classification list on 18-5-2001. Therefore no penalty was imposable. They relied on Apex Court s decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be found in the show cause notice . (c) Rajbahadur Narain Singh Sugar Mills Ltd v. UOI, 1996 (88) E.L.T. 24 (S.C.). The show cause notice in question specifically speaks of an erroneously granted credit only. There is no mention in it of any collusion, wilful misstatement or suppression of fact by the appellants for the purposes of availing of the larger period of 5 years. For the issuance of a notice under Rule 10, the party to whom a show cause notice under Rule 10 is issued must be made aware that the allegation against him is of collusion or wilful misstatement or suppression of fact. This is a requirement of natural justice. Unless the assessees put to notice, the assessee would have no opportunity to meet the case of the authorities . (d) Avdel (I) Pvt. Ltd. v. CC, Mumbai, 2004 (171) E.L.T. 201 (Tri.-Mum) it was decided that composite penalty under Section 11AC and Rule 173Q was not permissible. (e) Freezair (I) Pvt. Ltd. v. CCE, Delhi, 2003 (152) E.L.T. 321 (Tri. - Del.) It was held that Section 11AC and Rule 173Q were independent provisions standing on different footings. One could not be read with the other. The Commissioner had not given bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilders case is not applicable to the facts of the present matter as the appellants therein have made their intention clear that they would be using the said capital goods in the manufacture of excisable final products once the factory starts working to its full capacity . Further, the facts are also different in the case of Bhaskar Industries Ltd. inasmuch as in the said matter the respondents had a project to set a composite mill for spinning, weaving and processing meaning thereby for manufacture of excisable goods which are chargeable to duty. We observe that the respondents therein kept the option availing the Modvat credit on capital goods abeyance for about a year, till implementation of the third phase, namely, the fabric processing. The assessee submitted the required declaration under Rule 57T of the Central Excise Rules with a clear intention that he shall be availing the credit on implementation of the third phase, as the final product of the third phase was dutiable. Vide Surya Roshini Ltd. v. Commissioner, 2003 (158) E.L.T. A273 (S.C.), the Apex Court dismissed the assessee s appeal as not maintainable. (2) Binani Cement Ltd. v. CCE, Jaipur II, 2002 (143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Sections 11A, 11AA and 11AB of the Act, shall mutatis mutandis for effecting such recoveries. Rule 12 of Cenvat Credit Rules, 2001, (prevalent during the period from 1-7-2001 to 28-2-2002) read as under: Where the Cenvat credit has been taken or utilized wrongly, the same along with interest shall be recovered from the manufacturer and the provisions of Section 11A and 11AB of the Act, shall apply mutatis mutandis for effecting such recoveries. 14. The appeal seeks to modify the impugned order to demand interest as per the above statutory provisions. The learned SDR reiterated the grounds taken in the Revenue s appeal. 15. We have carefully considered the facts of the case and the rival submissions. The machinery in respect of which the capital goods credit had been taken were not used to manufacture any dutiable goods during the period of dispute. After the machinery was received in 2001, during the period 1-3-2001 to 28-2-2002 they were put to use only to manufacture grey woven fabrics of cotton on which no duty was paid. In terms of Rule 57AD(3) of CER, 1944 and Rule 6(4) of CCR, 2001 (which was in force since 1-7-2001), no credit of duty paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isable goods chargeable to duty as in the case of Bhasker Industries Ltd. (supra). Therefore, the ratio of those two decisions is not relevant to the subject case. The Suryaroshini decision was upheld by the Supreme Court. A similar ratio laid down by the Tribunal in Grasim Industries Ltd. case (supra) also was upheld by the Apex Court. Therefore, the demand as regards the capital goods credit taken in the impugned order is unassailable. 16. In their written submissions, the appellants have claimed that the impugned credit on machinery not eligible for capital goods credit was only 32.81 lakhs. It is also stated that a SCN had been issued to recover Rs. 31,41,843/- being the balance 50% taken in the subsequent financial year. This demand was since decided to be not payable by the appellants vide OIA 16/05 dated 11-2-2005, as the appellants had cleared dutiable goods during the material time. As the claim regarding a lower liability compared to the amount proposed in the SCN and confirmed in the impugned order had not been raised before the Commissioner, this aspect is remanded for a fresh decision by the Commissioner. 17. As regards the penalty imposed, it is seen that a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument of the appellant that levy of penalty is discretionary . In Madhur Hosiery Inds. v. CCE, Meerut - 2006 (200) E.L.T. 147 (Tri. - Del.), the Tribunal made the following observation : It was, therefore, necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of the 173Q . On a perusal of the SCN we find that the assessee was put on notice as to their liability to penalty on account of the undisputed contravention of rules with perceived intention to evade payment of duty. The Commissioner had felt that the assessee had taken the credit knowing fully well that they had not been eligible for the same in view of the legal provisions. We find that the appellants had intimated the jurisdictional Dy. Commissioner, vide its letter dated 10-5-2001, the details of the goods cleared by the unit and the fact of import of capital goods and the CVD paid, of which they were entitled to take Cenvat credit. The Dy. Commissioner in his letter dated 31-5-2001, approved the procedure followed by the appellants and specifically informed them that in the event of clearing the processed fabric wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturer and the provisions of Sections 11A and 11AB of the Act shall apply mutatis mutandis for effecting such recoveries . 21. In refraining from demanding interest under Section 11AB on the credit taken by the appellants, the Commissioner relied on a case law relating to interpretation of provisions of Sections 139 and 215 of the Income-tax Act. In Central Provinces Manganese Ore Co. Ltd v. CIT, 1986 (160) ITR 961, the Hon ble Apex Court had read the above provisions and ruled that levy of interest was in the nature of compensation as the revenue was deprived of the benefit of tax for the period during which it had remained unpaid. As the credit involved in the instant case was not utilized by the appellants, the Commissioner decided that interest was not payable by the appellants in view of the ratio of the above judgment. 22. It is seen that the case law dealt with provisions in the Income-tax Act, which are not similar to the provisions in the Central Excise Rules prescribing recovery of interest for ineligible credit taken. In the provisions of the Income-tax Act interpreted by the Apex Court, the income-tax authority is conferred discretion to waive the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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