Back
2010 Supreme(Kar) 238
High Court of Karnataka
THE HONOURABLE MR. JUSTICE K.L. MANJUNATH & THE HONOURABLE MR. JUSTICE ARAVIND KUMAR
M/s. Karnataka Soaps and Detergents Ltd. Sandalwood Oil Division & Another
Versus
Commissioner of Central Excise & Another
CEA.No.11 of 2006 C/w 23 of 2005
Decided On : 26-02-2010
For the Appellants:G. Shivadas for Lakshmi Kumaran & Sridharan, Advocates.
For the Respondents:Raghavendra B. Anaji for N.R. Bhaskar, Advocates.
Headnote:CENTRAL EXCISE ACT, 1944 - Sections 11 (1), 11AA , 11AAB & Section 11AC & Rule 25/26: [K.L. Manjunath & Aravind Kumar, JJ ] Demand for Central Excise duty with interest and penalty - Reply by the Assessee - Confirmation of amounts demanded with interest rate and dropping of penalty proceedings - Appealed against - Tribunal confirming the Order in Original Number dated 10.12.2004 and setting aside the order in Original Number dated 25.2.2005 of the Commissioner of Central Excise - Appealed there against by the Assessee and the Revenue - Finding of the Tribunal that prohibition under Rule 7(1)(b) / Now Rule 9 (1)(b) of the Cenvat Credit Rules will not be applicable to the facts of the case. Held, Rule 6 of Central Excise Rules requires an assessee to assess the duty payable on any excisable goods before its removal from factory of manufacture. The assessment of excisable goods is dependant on provisions of Section 4(1)(a) or Section 4(1)(b) of the Central Excise Act, 1944, as the case may be. In case an assessee does not sell that excisable goods but indulges in captive consumption either in his own factory or elsewhere, Section 4(1)(b) of the Act contemplates that assessable value shall be determined as may be prescribed. The prescription can be traced in the provisions of Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000. Rule 8 states that where the excisable goods are not sold by the assessee, but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be 115% of the cost of production or manufacture of such goods. The methodology for determining the cost of production in respect of such capitively consumed goods are governed by the guidelines prescribed under the different Board Circulars. In the instant case it is seen that assessee was fully aware that it was adopting self removing procedure and was assessing the same by adopting by the Valuation Rules, 2000, by adopting the cost construction method and the price of the product sold would be the determining factor and knowingly fully about this, it did not chose to inform the department by giving the cost analysis when there was escalation in the price of Sandalwood oil. In the instant case the assessee being under as removable procedure was aware about the applicability of Section 4(2)(b) of the Act and also the Valuation Rules. It having adopted the cost construction method and being fully aware of the determination of the cost analysis did not chose to sell the same for a higher rate to other customers and in respect of stock transfer raised journal vouchers as found in the balance sheet, which amounted to suppression and wilful mis-statement. Further, Rule 7 is illustrative in nature and it cannot place any fetters on Rule 3. The additional duty has been paid under re-assessment or on being defected by the department and such duty paid is available as Credit under Rule 3 of CENVAT Credit Rules to the assessee and it cannot be allowed to be whittled down by Rule 7(1)(b). Thus, principles enunciated in Ballarpur Industries would be inapplicable to the facts of the case. The Commissioner while passing the Order in Original has accepted that there has been no loss of revenue to the Government. Hence, question of law formulated will have to be answered in favour of assessee and against revenue. The Tribunal was right in coming to a conclusion that prohibition under Rule 7 (1)(b) would not be applicable in the facts of the case. Prohibition under Rule 7(1)(b) of CENVAT Credit Rules is not applicable to the facts of the case. Tribunal, in the facts of the case was right in upholding the order of the lower authority invoking the longer period of limitation under Section 11A(1) of the Central Excise Act 1944.
Aravind Kumar, J. CEA. 11/2006 c/w. CEA 23/2005:-
The order dated. 01/06/2005 passed in Appeal No.E/248/2005 and Appeal No.E/277/2005 by the Customs, Excise, Service Tax Appellate Tribunal, Bangalore (hereinafter referred to as CESTAT), is under challenge by the Assessee and Revenue respectively. In these two appeals one by the Karnataka Soaps and Detergents Limited (Sandalwood oil Division Mysore) (herein after referred to as the Assessee, Mysore Unit) is filed against Commissioner of Central Excise Mysore (referred to as Revenue) and Other by Commissioner of Central Excise, Bangalore-III, Commissionerate, (hereinafter referred to as Revenue) filed against Karnataka Soaps & Detergents Ltd., (hereinafter referred to as Assessee, Bangalore Unit) is under challenge.
2. The facts in nutshell common to both the appeals are as follows: The Assessee, Bangalore Unit is manufacturer of Soaps, Detergents, Perfumery compounds, Sandalwood oil and is registered under the Central Excise, Act (hereinafter referred to as Act) and availed the benefit of Cenvat credit on inputs used in the manufacture of said goods. The Assessee is having its units at Mysore and Bangalore. The Assessee at Mysore Unit manufactures sandalwood oil classifiable under chapter heading 33.01 of the Central Excise Tariff Act 1985 (herein after referred to as CETA-1985). The manufactured sandalwood oil at Mysore unit is also transferred to their Bangalore unit for manufacture of soaps and other items (excisable goods) apart from selling to others at Mysore. The internal audit wing of the Department of Central Excise conducted inspection of the financial records of the Respondent unit for the period from March 2001 to August 2003. It was found during the course of the audit that sandalwood oil of following variety had been cleared by the Mysore Unit to Bangalore Unit under stock transfer for captive use for the production of soap, oil and Talcum powder etc. Description 2001-02 2002-03 2003-04 Value adopted Sandalwood Oil (Indian) 5690.80 kgs 5081.20 kgs 731.30 kgs Rs.6859/kg Sandalwood Oil (Australian) - 697.10 121.20 Rs.6859/kg Sandalwood Oil (Fraction) 304.40 197.50 39.80 Rs.5021/kg Aurential (H.S. 29.42) 34.40 64.00 -Rs.884/kg.
3. The Audit wing found that assessee Mysore Unit had worked out the manufacturing cost of the sandalwood oil at different prices and had raised journal vouchers by debiting the amount in the Bangalore unit account and it adopted lower value continuously though there was a steep hike in the manufacturing cost of sandalwood oil and similar goods were being cleared to independent buyers at a higher cost which necessitated the authorities to claim differential duty by its letter dtd. 16/10/2003. The facts in respect of 2 appeals i.e., CEA 11/2006 filed by “Assessee” and CEA 23/2005 filed by “Revenue” are analysed independently as follows:
4. RE CEA No.11/2006: The assessee manufactures sandalwood oil and other goods falling under chapter 33 and 29 of CETA, 1985. The marketing pattern of the assessee company includes inter unit transfer to Bangalore complex, where the said sandalwood oil is used capitively to manufacture of soaps. During the course of the verification of records by the internal audit party of revenue it was found that assessee was clearing sandalwood oil adopting lower assessable value for inter unit transfer while adopting a different and higher price for sale to independent buyers at the factory gate. Further verification of the records revealed that assessee had determined the assessable value as Rs.6,859/- per kg. on cost construction basis in the year 2000-01 and continued to adopt the same for subsequent years. Even though the said goods were being sold at much higher prices regularly to other buyers and on conducting of investigation and recording of the statement of the Officers of Assessee Company, the Department found that assessee had failed to determine the correct assessable value of sandalwood oil before b
