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TMI Blog2021 (4) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... l as cold rolled stainless steel strips falling under Chapters 82 and 72 of the Central Excise Tariff Act, 1985 (briefly "the 1985 Act" hereinafter). It is stated that petitioner has its factories at Wagle Industrial Estate, Thane-400 604; Pritesh Complex, Dapoda Road, Bhiwandi; Thane Nasik Highway, Bhiwandi; and also at Hyderabad. Apart from such factories petitioner has depots and clearing and forwarding (C & F) agents at various locations across India. 4. In the ordinary course of business petitioner had availed CENVAT credit of the excise duty/service tax paid on inputs/inputs services and utilized the same for payment of excise duty on the goods manufactured by the petitioner. Be it stated that the assessable value for payment of excise duty on the final produce, namely, safety razor blades and shaving system are determined under section 4A of the Central Excise Act, 1944 (briefly "the Central Excise Act" hereinafter) i.e. maximum retail price declared on the package less prescribed abatement. 5. Petitioner has described the process of manufacturing carried out by it in converting the raw material i.e. cold rolled stainless steel strips into the finished product i.e. safety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom payment of excise duty on the goods manufactured by it including for the job work done for the petitioner in terms of Notification Nos.49/2003 and 50/2003, both dated 10.06.2003. Those notifications being area based notifications, Tigaksha did not take credit of the duty paid by the petitioner on the goods supplied by it to Tigaksha for job work at the time of removal of the goods from the petitioner's factory at Thane as Tigaksha had claimed exemption from payment of duty on the goods manufactured by it. Tigaksha manufactured final products, namely, safety razor blades and shaving system from out of goods supplied by the petitioner on job work and cleared those goods for home consumption without payment of excise duty. Tigaksha delivered the final products to the petitioner at its depot at Garget, Una, Himachal Pradesh. The final products manufactured by Tigaksha were packaged commodity with maximum retail price affixed on the package as per the Legal Metrology Act, 2009 under which the maximum retail price was inclusive of all taxes. The final products are transferred by the petitioner from Garget, Una, Himachal Pradesh to its various depots and C & F agents across India from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as to why penalty under section 11AC of the Central Excise Act read with Rule 25 of the Central Excise Rules, 2002 should not be imposed. 12. By letter dated 27.08.2019, petitioner showed cause by making a detailed representation and requested for dropping of proceedings. 13. Vide the order in original dated 20.11.2019, respondent No.3 held that the goods in question were manufactured by Tigaksha at Himachal Pradesh which was beyond the jurisdiction of respondent No.3. Hence, the demand was not maintainable under section 11A(4) of the Central Excise Act. Further it was held that the demand notice failed to bring out any evidence to establish that any amount was collected by the noticee (petitioner) as representing duty of excise. Therefore, section 11D of the Central Excise Act was not attracted. For the aforesaid reasons, the notice to show cause-cum-demand dated 26.04.2018 was set aside. 14. In the meanwhile, excise audit was again conducted around October, 2019 in respect of the records of the petitioner for the period 2015-16 to 2017-18 (upto June 2017) whereupon objection to non-payment of duty under section 4A of the Central Excise Act on the clearance made by Tigaksha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner under section 11AC of the Central Excise Act. 17. Aggrieved by issuance of the impugned show cause-cum-demand notice, present writ petition has been filed seeking the reliefs as indicated above. 18. This Court by order dated 15.12.2020 had issued notice and passed an interim order to the effect that respondents should not take any further steps pursuant to show cause-cum-demand notice dated 26.05.2020 issued by respondent No.2. 19. An affidavit in reply has been filed by Shri. Binod Bihari Rath, Assistant Commissioner of CGST and Central Excise, Division-VI, Thane Commissionerate. It is stated that petitioner migrated as an assessee from the central excise and services tax legacy laws to Goods and Services Tax (GST) and is registered under GST with the Thane Commissionerate. Office of the Commissioner of CGST and Central Excise, Audit-Thane Commissionerate during the course of excise audit conducted on the records of the petitioner for the period from 01.04.2015 to 30.06.2017 observed that vide a job work conversion agreement dated 01.04.2015 between the petitioner (principal manufacturer) and Tragaksha, petitioner was getting excisable goods assembled and retail packe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 was issued, the department was only privy to the facts covered under the licensee agreement dated 25.07.2012 based on which the show cause-cumdemand notice dated 26.04.2018 was issued. Unknown and undeclared to the department with effect from 01.04.2015, the modalities of the operations and status of Tigaksha was converted from a licensee to that of a job work contractor. Till the conduct of the revenue audit in October 2019, the department was not privy to such significant material facts which were suppressed and never declared to the department by the petitioner. 19.3. Referring to the show cause-cum-demand notice dated 26.04.2018, it is submitted that the same was based upon loan licensee agreement dated 25.07.2012 for amounts collected by the petitioner representing its central excise duty and not central excise duty per se which is proposed to be demanded under the impugned show cause-cum demand notice. Thus, the earlier show cause-cum-demand notice and principle of res-judicata would not come into play in so far the impugned show cause-cum-demand notice is concerned. Since there is a clear, distinct and deliberate mis-statement and suppression of facts by the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the goods are manufactured by Tigaksha as the job worker and the duty is to be paid by Tigaksha; duty is not to be paid by the petitioner as Rule 10A of the Valuation Rules does not provide that the supplier of raw material i.e., the petitioner is liable to pay duty on the goods manufactured by the job worker. 20.4. Denying all allegations made by the respondents, it is submitted that there is merit in the writ petition, which should therefore be allowed with cost. 21. Mr. Prakash Shah, learned counsel for the petitioner at the outset has taken us to the earlier notice to show cause-cum-demand dated 26.04.2018 and submits that the said notice was issued on the premise that maximum retail price of the goods cleared by Tigaksha and goods cleared from other plants of the petitioner were the same. Therefore, a view was taken that the goods manufactured at Tigaksha though exempted from payment of excise duty in view of the exemption notifications and cleared without payment of duty included the duty element in the maximum retail price which were recovered from the ultimate consumers. It was held that petitioner was recovering excess excise duty without passing on the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not within the jurisdiction of its office. Further it was held that the said notice to show cause-cum-demand was premised on the notion that since the goods were covered under maximum retail price, therefore, incidence of central excise duty was included in the maximum retail price. Though exemption was claimed from payment of central excise duty by virtue of the exemption notifications, even then central excise duty was collected since the maximum retail price was not lowered. Other than this notion, there was no evidence in the demand notice to establish that any amount was collected by the petitioner as representing duty of excise. Therefore, respondent No.3 held that provisions of section 11D of the Central Excise Act would not be attracted in the present case. Consequently, the notice to show cause-cum-demand dated 26.04.2018 was set aside. 21.2. Referring to the order dated 20.11.2019, Mr. Prakash Shah submits that this order has attained finality. Though under section 35E of the Central Excise Act the committee of commissioners could have directed respondent No.3 to apply to the Central Excise and Service Tax Appellate Tribunal (CESTAT), no such exercise was carried out; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of exemption by levying appropriate central excise duty. This is being contested by Tigaksha. For the same cause of action, parallel proceedings cannot be initiated against the petitioner by the Thane commissionerate. Additionally, he submits that there is no fraud or collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of the Central Excise Act with the intent to evade payment of duty by the petitioner. Therefore, it would not be open to respondent No.2 to invoke the provisions of section 11A(4) of the Central Excise Act. 21.7. He therefore submits that the impugned notice to show cause-cum-demand being totally without jurisdiction and non est in law is liable to the set aside and quashed. 22. Mr. Pradeep S. Jely, learned senior counsel for the respondents at the outset submits that challenge made by the petitioner is to a show cause notice. He submits that petitioner should comply with the show cause notice and convince the authority that the said notice has been erroneously issued. For that invoking the writ jurisdiction of this Court under Article 226 of the Constitution of India is unwarranted. Petitioner will be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty element in the MRP was recovered from the ultimate consumers." 24.1. Thus, it was observed that maximum retail price of the goods cleared by Tigaksha which enjoys area based exemption and those cleared from other plants of the petitioner were the same. Therefore, it was apparent that goods manufactured at Tigaksha though exempted and cleared without payment of duty, included the duty element in the maximum retail price which were recovered from the ultimate consumers. From the CERA audit report, it was noted that petitioner was recovering the excess excise duty without passing on the benefit of exemption to the ultimate consumers. Though this excess recovery was required to be deposited to the central government along with the interest, the same was not done. Respondent No.3 also referred to the explanations given by the petitioner to CERA and thereafter observed that had CERA not audited the records of the petitioner all these facts would have remained unnoticed. The allegation against the petitioner in addition to what has been extracted above was summed up in the following manner :- "4. In accordance with the provisions of sub-section (1A) of Section 11D of Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The excisable goods which were manufactured at locations which were covered under area based exemption and thus cleared without payment of central excise duty were then sold by the noticee under their brand at the same MRP as that of goods manufactured and cleared by them on payment of central excise duty. These are admitted facts and there is no dispute regarding the same." 26.1. Contention of the respondents were also summed up as follows :- "8. It is the contention of the demand notice that since the goods were manufactured and cleared from factories which were availing area based on exemption, therefore, the MRP of such goods should have been less than those manufactured and cleared on payment of duty and by not reducing the MRP, the noticee had effectively collected the element of central excise duty which was included in the MRP from the customers, and hence, the same is recoverable under section 11D of the Central Excise Act, 1944. * * * * " 26.2. After examining the provisions of section 11D of the Central Excise Act, respondent No.3 found that there was nothing on record to show that the amount collected was being collected as duty of excise. The entire contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount was collected by the noticee as 'representing duty of excise'. The provisions of section 11D of the Central Excise Act, 1944 get attracted only in the event of a person collecting any amount as representing duty of excise but not deposited to the treasury. The demand notice is based on notion that since the goods were covered under MRP, therefore, incidence of central excise duty was included in the MRP and as a result of such inclusion, whenever, exemption was claimed from payment of central excise duty by virtue of exemption notification, then the incidence of central excise duty was collected since the MRP was not lowered. Besides, this notion, there is no evidence in the demand notice to establish that the amount was collected by the noticee as representing duty of excise. Hence, the provisions of section 11D of the Central Excise Act, 1944 are not attracted in the present case. The demand notice is, therefore, not maintainable for this reason alone." 27. Having noticed the above, we may now advert to the impugned show cause-cum-demand notice dated 26.05.2020 issued by respondent No.2. Referring to clause (8) of the job work conversion agreement dated 01.04.2015 betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od from the year 2013-14 to June 2017 on the basis of CERA objection which was in turn based on loan licensee agreement dated 25.07.2012 between the petitioner and Tigaksha whereas the impugned notice to show cause-cum-demand is on the basis of CERA audit objection which in turn is based on the job work conversion agreement dated 01.04.2015. Facts and circumstances leading to the issuance of the two notices are distinct and different. Alleging that there was contravention of relevant provisions of the Central Excise Act and Central Excise Rules, 2002 through willful suppression of actual facts and circumstances with an ulterior motive to evade payment of central excise duty, sub section (4) of section 11A of the Central Excise Act has been invoked to avail the extended period of limitation. Consequently, petitioner has been asked to show cause as to why central excise duty amounting to Rs. 44,87,53,889.00 being the aggregate central excise duty involved on the suppressed production and clandestine clearance of twin type blades, razor blades, shaving components etc. collectively affected by the petitioner from and at Una, Himachal Pradesh during the period from April 2015 to June 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the impugned show cause-cum-demand notice dated 26.05.2020 the value of the goods and duty liability have been worked out as under :- STATEMENT SHOWING JOB WORK CONVERSION OF MRP GOODS CLEARED FROM UNA AND SOLD FROM VARIOUS SPCPL SALES DEPOT IN INDIA WITHOUT PAYMENT OF CE DUTY U/S 4A OF CEA FY MRP (Rs.) Assessable Value ( Rs.) Total Duty @ 12.5% (Rs.) 2015-16 2,52,93,94,065 1,64,41,06,142 20,55,13,268 2016-17 2,36,17,77,388 1,53,51,55,302 19,18,94,413 2017-18 (06/17) 63,19,53,332 41,07,69,666 5,13,46,208 Total 5,52,31,24,785 3,59,00,31,110 44,87,53,889 31. From a comparison of the two statements as extracted above, a view may be taken that to enable the respondents from availing the extended period of limitation of five years under sub section (4) of section 11A of the Central Excise Act, the period covered by the impugned show cause-cum-demand notice has been curtailed by excluding the years 2013-14 and 2014-15. 32. Be that as it may, at this stage, we may briefly refer to some of the relevant provisions of the Central Excise Act. The word "factory" is defined under section 2(e) of the Central Excise Act to mean any premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odity having its own character, use and name, whether be it the result of one process or several processes "manufacture" takes place and liability to duty is attracted. The sale or the ownership of the end-product is absolutely irrelevant for the purpose of the taxable event under central excise which is manufacture. 35. The above view taken in Empire Industries Ltd. (supra) was affirmed by a constitution bench of the Supreme Court in Ujagar Prints Etc. Vs. Union of India, 1988 (38) E.L.T. 535 by holding that the view taken in Empire Industries Ltd. (supra) is an eminently plausible view and does not suffer from any fallacy. It does not call for any reconsideration. 36. Subsequently, in Collector of Central Excise, Baroda, Vs. M. M. Khambatwala, 1996 (84) ELT 161, Supreme Court while reiterating the above proposition held that even though sale proceeds may go to the respondents that would not alter the character of manufacture. In the facts of that case, it was held as under :- "7. We have considered the submissions advanced before us by the learned counsel on both the sides. We find force in the arguments of the learned counsel for the respondents : on the admitted facts which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess was beyond the jurisdiction of Thane Commissionerate have not been challenged by the respondents and thus have attained finality. As alluded to by the petitioner, Central Board of Excise and Customs has vested territorial jurisdiction upon various central excise officers vide Notification No.13/2017 dated 09.06.2017. From the said notification, it is evident that Commissioner of Central Excise, Shimla has territorial jurisdiction over the entire State of Himachal Pradesh. He in turn is under the administrative jurisdiction of Chief Commissioner, Chandigarh. On the other hand, Commissioner, Thane who is under the administrative jurisdiction of Principal Chief Commissioner, Mumbai has territorial jurisdiction over the areas falling under the following pin-codes which are in the State of Maharashtra :- "The areas falling under following pin codes: 400066, 400067, 400068, 400091, 400092, 400101, 400103, 400601, 400602, 400604, 400605, 400606, 400609, 400610, 400613, 400616, 401101, 401104 to 401107." 39. Therefore, it is evidently clear that the taxable event i.e. manufacture of the goods in question had taken place in the factory premises of Tigaksha at Una in Himachal Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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