Per: P.G. Chacko
1. This appeal of the Revenue is against the Commissioner’s order dropping the demand of duty to the tune of Rs 1.67 crores in favour of the respondent and also dropping penalty to the same extent proposed in the relevant show-cause notice. The matter arises before us pursuant to Hon’ble High Court’s remand order dated 17.12.2008 in Central Excise Appeal No. 262/06. The Commissioner’s order was mainly against the Revenue and partly against the assessee (respondent). There were penalties imposed on the company and its Corporate Head, Indirect Taxation, by the Commissioner under Rule 173Q of the Central Excise Rules, 1944 and Rule 209A of the said Rules, respectively. Against these penalties, the company and its Corporate Head, Indirect Taxation, preferred appeals to this Tribunal, which were allowed as per Order dated 11.6.04 on the ground that the demand of duty on the company had been dropped by the Commissioner. When the Revenue’s appeal against the Commissioner’s order subsequently came up before this Bench came to be dismissed on the basis of the doctrine of merger. It was against this order of dismissal that the department went in appeal to the Hon’ble High Court (Central Excise Appeal No. 262/06). In its judgment dated 17.12.2008, the Hon’ble High Court held that the doctrine of merger was not applicable to the Revenue’s appeal before this Tribunal, and, accordingly, remanded the case for de novo consideration on merits.
2. Today there is no representation for the respondent, who has requested for adjournment through a letter dated 23.8.2010, wherein it is submitted that the respondent wants to engage an advocate and further that they received the High Court s order on 16.8.2010. On the previous occasion also (30.6.2010), there was no representation for the respondent but sought adjournment of hearing through a letter dated 28.6.2010. In that letter, they stated that they needed sometime to trace out the relevant papers relating to the case. In the present letter, they have repeated the same thing. At this stage, it is difficult to believe that the respondent received a copy of the High Court’s judgment dated 17.12.2008 only on 16.8.2010. In any case, the respondent was aware of the open remand of the case ordered by the High Court as early as on 17.12.2008 and, therefore, it was incumbent on them to be ready with their arguments over the long period of one year and eight months since the remand of the case. In this scenario, the present request for adjournment is found to be bereft of bona fides. Accordingly, we proceed to dispose of this case on merits, as directed by the Hon’ble High Court.
3. On a perusal of the records, we find that, during the period of dispute (January 1999 to June 2001), the respondent-company had manufactured certain intermediates in their Patalganga unit, required by their sister units for the manufacture of lubricating oils, and these intermediates were transferred to such sister units on payment of duty. The Cost Construction Method was adopted for the assessments. Upon investigations by the department, it was found that, in respect of each intermediate, the same assessable value was maintained throughout the period of dispute even when higher values for the goods cleared from time to time during the said period were discernible from the accounts maintained by the party. On the basis of this finding, the department issued show-cause notice 31.5.02 to the company and its Corporate Head (Indirect Taxation), for recovery of differential duty of over Rs 1.67 crores from the company by invoking the extended period of limitation under the proviso to sub-section (1) of Section 11A of the Central Excise Act for the aforesaid period; for imposing penalty equal to duty on them under Section 11AC of the Act; for imposing a separate penalty under Rule 173Q of the Central Excise Rules, 1944; for levy of interest on duty under Section 11AB of the Act; and for imposition of a penalty on the Corporate Head (Indirect Taxation) under Rule 209A of the Central Excise Rules, 1944. This show-cause notice also proposed to appropriate the earlier deposit of Rs 1,62,52,784/- made by the respondent towards the above demand of duty. It appears from the records that the short-payment of duty was conceded by the respondent in their reply to the show-cause notice. Apparently, the party was not opposed to appropriation of the amount which had been paid during the course of investigations. Further demand of duty, however, was resisted on the ground of revenue-neutrality. In this connection, the respondent contended that they had no intention to evade payment of duty inasmuch as any amount of duty paid by them would be available as MODVAT/CENVAT Credit to their sister units. The party also objected to the proposal for imposition of penalties. The Corporate Head (Indirect Taxation) also adopted the same stand. It was in adjudication of this dispute that the Commissioner passed the impugned order setting aside the demand of duty and penalty and directing the Assistant Commissioner that ‘duty for the year 2001 shall be considered in the course of finalization of provisional assessment.’ The Commissioner further imposed a penalty of Rs 1 lakh on the assessee under Rule 173Q and a separate penalty of Rs 10,000/- on their Corporate Head under Rule 209A. These penalties on the company and its Corporate Head (Indirect Taxation) were set aside by this Tribunal and, apparently, that order attained finality.
4. What we are concerned with in the present case are the questions: (a) whether the demand of duty (with interest) as raised in the show-cause notice is liable to be confirmed against the respondent alongwith interest thereon; and (b) whether the respondent is liable to be penalized under Section 11AC of the Act and if so, to what extent?
5. In the impugned order, it was acknowledged by the Commissioner that there was no dispute between the department and the assessee regarding the latter’s duty liability. The correct method of valuation was agreed to be ‘Cost Construction Method’ for the period up to 30.6.2000 and, 115% of the cost of production for the remaining period. The learned Commissioner further noted that the short-payment of duty was accepted by the assessee. The deposit of Rs 1,62,52,684/- made by the party was reckoned as proof of their admission of the entire short-payment of duty. The Revenue has no grievance against this part of the Commissioner’s order.
6. The learned Commissioner, following certain decisions of this Tribunal, held that, as the payment of any duty on the intermediate goods by the assessee was to pass, on as benefit of input-credit, to their sister units, the assessee could not be held to have any intent to evade payment of duty and hence Section 11AC not applicable to the case. The present appeal of the Revenue is directed partly against this finding of the Commissioner. In support of the relevant grounds of appeal, the learned SDR submits that the view taken by the learned Commissioner cannot be sustained in the light of the Tribunal s Larger Bench decision in Jay Yuhshin Ltd vs Commissioner 2000 (119) ELT 718 (Tri-LB). We find that, as rightly noted by the Commissioner, the intermediate goods manufactured and cleared by the respondent were captively consumed by the sister units. In order to rule out revenue-neutrality, the learned SDR has submitted that the subject goods should be considered to have been cleared by one assessee to another assessee and should not be considered to have been cleared for captive consumption. If this argument is accepted, the method of valuation adopted by the department should also be held to be wrong. The ‘Cost Construction Method’ of assessment of excisable goods presupposes captive clearance of the goods. The learned SDR has also contended that the conduct of the respondent is decisive in the context of determining their penal liability under Section 11AC. It is submitted that the respondent maintained regular account of actual cost of production of the goods which indicated higher values for the intermediate products for different spells of the period of dispute when compared to the assessable value uniformly maintained for the entire period. This conduct of the party, according to the learned SDR, disclosed their intent to evade payment of correct amount of duty. In this manner, the learned SDR hascanvassed applicability of Section 11AC. We find that this argument was not examined by the Commissioner and the same has to be examined.
7. Yet another submission made by the learned SDR is that the learned Commissioner chose to drop the demand of duty in view of what is called the provisional character of the assessments of the final products (lubricating oils)’. On a perusal of the impugned order, we note that the learned Commissioner repeatedly noted the contention of the assessee which was to the effect that the assessments were provisional’. There is no clear indication as to whether this contention relates to the intermediate goods cleared by the respondent or the final products (lubricating oils) in the manufacture of which such intermediates were used by the sister units. The assessee appears to have taken it for granted that the plea of provisionality of assessment is in relation to the lubricating oils. If this assumption is correct, the valuation of the intermediate goods in question must not be affected by any provisional nature of the assessment of the final products. If, on the other hand, the assessments in respect of the intermediate goods, in question, were considered by the Commissioner to be provisional, then it was incumbent on the Commissioner to finalize the assessment. The Commissioner’s order states inter alia that the provisional assessments in the year 1999 were finalized on 30.3.01 by the Assistant Commissioner and that the assessments for the year 2000 were finalized by the Assistant Commissioner on 28.3.02. As regards 2001, the assessments were found to be pending for finalization. It appears from these findings of the Commissioner that, for the calendar years 1999-2000, there was finalization of provisional assessments prior to the date of the show-cause notice but there was no such finalization of provisional assessments for 2001 prior to the date of the show-cause notice. Nevertheless, the entire demand was set aside by the Commissioner even after acknowledging short-payment of duty by the assessee. There appears to be inconsistency between the findings of the learned Commissioner, which is another reason for de novo adjudication of the case.
8. Where a show-cause notice is issued demanding duty from an assessee and proposing to appropriate, towards such demand, any amount of duty earlier paid by them, the adjudicating authority which finds short-payment of duty by the assessee has to confirm the demand of duty to the extent to which short-payment has been found. Of course, it can appropriate any earlier payment towards such demand of duty. In the situation, it is not open to the adjudicating authority to drop the demand of duty proposed under show-cause notice as done by the Commissioner in the present case. Further, where a demand of differential duty is confirmed against an assessee under the proviso to Section 11A (1) of the Act, it would be legally wrong to drop a proposal for penalty under Section 11AC, where the assessee admits the duty liability. This is because the grounds for a penalty under Section 11AC are identical to the grounds for invoking the proviso ibid. In this area also, the learned Commissioner has erred.
9. For the aforesaid reasons, we are of the view that the dispute between the department and the respondent has to be adjudicated afresh. Accordingly, we set aside the impugned order to the extent challenged in the present appeal, and allow this appeal by way of remand with a direction to the learned Commissioner to undertake de novo adjudication and pass a speaking order but only after giving the assessee a reasonable opportunity of being heard.