P.R. Chandrasekharan, Member (T)

1. This appeal is directed against the order-in-original No. 02/CEX/09, dated 30-1-2009 passed by the Commissioner of Central Excise, Pune. Briefly stated the facts are as follows :-

1.1 The appellants M/s. Mahindra Ugine Steel Co. Ltd., (MUSCO in short), Pune, are manufacturers of motor vehicle parts and they undertake the said activity on job work basis, out of the raw materials supplied by M/s. Mahindra & Mahindra Ltd. The scrap generated during the process of manufacture is retained by the appellants and the cost of scrap has been reduced from the assessable value of the motor vehicle parts. The department issued a show-cause notice to the appellants alleging that they have suppressed the fact of reducing the value of scrap from the assessable value of motor vehicle parts and has mis-declared the price of the finished goods manufactured and returned to M/s. Mahindra & Mahindra Ltd. The said show-cause notice was adjudicated by the Commissioner, who confirmed a duty demand of Rs. 1,90,70,826/- and also imposed penalty of Rs. 1,82,54,355/- on the appellant apart from penalizing the employees of the appellant company. The Commissioner also ordered for recovery of interest on the duty confirmed under Section 11AB of the Central Excise Act, 1944. The appeal filed against the said order was allowed by this Tribunal vide order No. C-f/2005 to 2008/WZB/2003, dated 2-9-2003 [: 2003 (157) E.L.T. 435(Tri.-Mum.)].

1.2 Aggrieved by the said order, the Revenue filed a civil appeal before the Honble Supreme Court and the Honble Apex Court vide order dated 26-6-2006 [2003 (203) E.L.T. A184 (S.C.)] remanded the matter back to the Tribunal to rehear the matter on the basis of the report of the cost auditor, who had been appointed by the Court to submit his report thereon. The Tribunal vide its order No. A/62-63/07 dated 23-1-2007 [2007 (211) E.L.T. 73 (Tri. - Mum.)] upheld the duty demand and penalty imposed on the appellant company and allowed the appeals of the employees of the company. The appellant approached the Honble High Court of Bombay vide Appeal No. 130/2007 and the Honble High Court remanded the matter back to the Tribunal to decide the issue afresh after hearing both the parties [2007 (218) E.L.T. 358 (Bom.)]. The Tribunal heard the matter and remanded the matter back to the original adjudicating authority vide Order No. A/623-626/2007/C-II(EB), dated 7-9-2007. While remanding the matter, the following directions were given by the Tribunal, which are reproduced below :-

Accordingly, we find that the matter has to be remitted back to the original adjudicating authority to reconsider the claim of the appellant regarding excess duty paid by them on the ground that the cost auditor, as appointed on the direction of the Honble Supreme Court, has come to the conclusion that the assessable value of the components manufactured by the appellant is much lower than the assessable value on which the appellant has discharged the duty liability. Leaving all issues open, i.e. merits as well as of limitation, we allow the appeals filed by the appellants and remit back to the adjudicating authority the matters to reconsider the issue afresh after considering the report of the cost auditors and after granting an opportunity of personal hearing to the appellants. Since the issue involved in this case is very old, we direct the adjudicating authority to come to a conclusion within six weeks from the date of receipt of the order and we also direct the appellant to co-operate with the authorities as and when they are called for the personal hearing. Accordingly, all the appeals are allowed by way of remand to the original adjudicating authority.

1.3 The Commissioner afforded an opportunity to the appellants to make their submissions. The appellants submitted that they had filed detailed written submissions before the Honble CESTAT, wherein it was mentioned that even after taking into account the principles laid down by the Supreme Court in M/s. General Engineerings case [2007 (212) E.L.T. 295 (S.C.)] and taking the cost as calculated by the Cost Auditor for each component, there was excess payment of duty. Therefore, the said Cost Auditors report may be sent to the Cost Auditor for his comments or otherwise the said Cost Auditor may be made available for cross examination.

1.4 The submissions made by the appellants before the CESTAT were that the calculation of actual cost in the Cost Auditors report for each component showed that even if the value of scrap is included, there was no short-payment of duty by them. The calculation in the cost audit report dated 25-11-2006 also showed that there is excess payment of duty as evidenced from the details given below :-

(A) Assessable value = Landed cost + value of scrap actually realized + conversion charges

Year

Duty short paid (as per charts annexed by Cost Auditor)

Excess duty paid (as per charts annexed by Cost Auditor)

Net short paid/(excess paid) (excess payment is shown in brackets)

1996-97

20,16,394

37,83,862

(17,67,468)

1997-98

8,11,504

60,89,109

(52,77,605)

1998-99

8,64,956

7,57,625

1,07,331

1999-2000

18,96,730

92,39,595

(73,42,865)

Total

55,89,584

1,98,70,191

(1,42,80,607)

(B) Assessable value = Landed cost + value of scrap at agreed fixed rate of Rs. 7.50 per kg. + conversion charges charged.

Year

Duty short paid (as per charts annexed)

Excess duty paid (as per charts annexed)

Net short paid/(excess paid) (excess payment is shown in brackets)

1996-97

14,64,922

40,84,042

(26,19,120)

1997-98

4,58,081

67,05,705

(62,47,624)

1998-99

7,81,413

7,96,164

(14,751)

1999-2000

17,82,147

95,65,109

(77,82,062)

Total

44,86,563

2,11,51,020

(1,66,64,457)

1.5 They also submitted that they had filed price list/price declaration declaring the assessable value on the basis of cost of raw materials + processing charges as per the contract entered into with M/s. Mahindra & Mahindra Ltd. (M&M) from time to time. When the appellant had taken over the division of Mahindra & Mahindra Ltd., they had applied for fresh registration certificate and filed monthly returns informing the details of clearances made to M&M and the assessable value of the goods cleared to M & M had been declared in the invoices issued, which were verified by the department for the purpose of the assessment of the goods and hence, it cannot be alleged that they have suppressed the facts.

1.6 The Commissioner sent a copy of the submissions made by MUSCO, to Shri Sanjay Bhargave for his comments and Shri Sanjay Bhargave vide his letter dated 6-10-2008 gave the comments wherein he reiterated the facts mentioned in his earlier report dated 27-7-2006. The summary of his comments are given below :-

Material cost was calculated on the gross weight of the input raw material and not on the basis of weight of the final product.

Realizable value of the scrap was deducted from the material cost calculated as per above.

Since the scrap was sold at higher rate, the actual value of sale of scrap was added to the labour charges.

This assessable value was compared with the assessable value provided by M&M, in their purchase order and difference in the value considered for payment of excise duty and value so calculated by MUSCO was worked out.

The differential rate then was applied to the quantity of final products cleared by MUSCO to M&M after payment of applicable excise duty during the relevant period and differential assessable value was derived.

(B) Re-quantification as per letter F. No. LC/CIVIL-65/2006, dated 14-7-2003.

Vide letter F. No. LC/CIVIL-65/2006, dated 14-7-2003, he had been directed to work out revised duty calculation by including the realizable value of scrap in the landed cost of raw material.

Accordingly, he submitted calculations by including the realizable value of scrap in the landed cost of raw material. The inclusion of the scrap realizable value was not in conformity with the generally accepted principles of costing but was in conformity with the Hon. Supreme Courts order dated 10-6-2005 in the case of General Engineering Works, Bharatpur v. C.C.E., Jaipur (CA No. 3852-3855/1999).

1.7 Based on the comments given by the Cost Auditor the Commissioner adopted the values given by the Cost Auditor and came to the following conclusion and arrived at short payment as well as excess payment as indicated below :-

After taking the landed cost of raw material and adding the value of scrap actually realized by the assessee as well as the packing charges, tool amortization and other charges received by MUSCO, which have been included in the Cost Auditors report and not disputed by the assessee, the total short payment as well as excess payment is as under:-

Year

Duty excess paid

Duty short paid

1996-97

37,35,869.61

2108625.96

1997-98

45,34,842.79

2718927.40

1998-99 (upto Feb 99)

64,79,145.15

6101041.14

1998-99 March only

8,00,718.68

914774.28

1999-2000 (upto 31-10-2000)

73,61,402.75

2000570.04

Total

2,29,11,978.98

1,38,43,938.82

1.8 As regards the adjustment of excess duty paid towards the short payment of duty, the Ld. Commissioner observed that there is no provision in the Central Excise Act, 1944, which provides for aggregation of duties payable on the basis of adjusting excess duty payable against the short duty paid. Each job workers transaction was assessed independently by the assessee himself and duty has been discharged thereon. Since there is no provision in law, which allows excess payment to be adjusted against short payment for different spans of time either in the past or future, the Commissioner rejected the appellants claim for adjustment of duty and, accordingly, confirmed the duty short paid of Rs. 1,38,43,938.82. The Ld. Commissioner made a further observation that since the assessee had already recovered the duty excess paid from the buyers who in turn have availed the Cenvat Credit of the duty so paid, adjusting such an excess credit paid against the short duty payable would tantamount to sanction of refund claims in violation of the principles of unjust enrichment.

1.9 As regards their claim of the assessee that the demand was barred by limitation of time on the ground that, at the relevant time, there were a number of conflicting judgments with regard to inclusion or otherwise of the value of scrap retained by them in the assessable value of the finished products manufactured and hence, they could not to be alleged with the charges of suppression of facts or willful mis-statement of facts with an intent to evade duty, the Commissioner observed as follows :-

However, I find that the issue regarding the determination of the assessable value of the goods manufactured on job work basis has been the subject matter of the dispute in a number of cases and was finally resolved by the Supreme Court in the case of M/s. Ujagar Prints. The law also stood settled against the assessee, in view of the ratio of decision of the Supreme Court in respect of jay Engineering Works Ltd. There can, therefore, not be a claim of a bona fide belief as the existing case laws for the relevant time were already against the assessee. The assesses have claimed that they were led by the decision of the Asstt. Collector for the prior period However, the factual position is entirely different. The decision of the Asst. Collector for the earlier period was with reference to the costing principles as the transactions at that time were between two related parties, which is not the case here. There was no job work involved at that time. In fact even the Asstt. Collector had held that in case of sale to independent parties, the sale proceeds of scrap had to be added to the assessable value as a consideration. In the face of such clear cut directions during the relevant period, they continued to artificially depress the assessable value by adjusting the sake price of the waste and scrap in the job work charges. They have all along been declaring to the department that the invoice price was an independent price, which was not in any way affected by any other consideration. The depression of the assessable value by adjusting scrap value in the job work charges is a clear evidence of intentionally under valuing their goods and any declaration to the contrary was a clear mis-declaration. The Tribunal in the case of Gillooram Gaurishankar v. C.C.E., 2001 (136) E.L.T. 434 (Tri.) held that non-filing of classification is in respect of violation the rules and laws would invoke the longer period of limitation. The decision of the Tribunal was upheld by the Supreme Court 2006 (204) E.L.T. A88 (S.C.)

In short, the Commission confirmed a duty demand of Rs. 1,38,43,939/- under Section 11A of the Central Excise Act, 1944 along with interest thereon under Section 11AB and also imposed an equivalent penalty on the appellant under Section 11AC of the said Act. This is the order which is in challenge in the current proceedings before us.

2. The appellant contends that in Tal Manufacturing Solutions Ltd. v. C.C.E., Pune-I - : 2005 (188) E.L.T. 342 (Tri.-Mumbai), this Tribunal had held that excess excise duty paid had to be adjusted against short payment of excise duty in respect of clearances made during the period for which notices have been issued. Since no appeal has been filed against the said order of the Tribunal, the same has become final and, therefore, their case is fully covered by the ratio of the said judgment.

2.1 They further contend that taking credit by the customers of the excess duties already paid cannot be a ground to allege that the adjustment could not be allowed. The assessee is liable to pay tax only of the correct amount prescribed under the statute and the assesses liability cannot be enhanced even when the assessee has paid the duty, which is more than what is legally due from him.

2.2 It is their submission that their case is covered by the decision of the Honble Apex Court in the case of International Auto Ltd. v. C.C.E. - 2005 (183) E.L.T. 239 (S.C), wherein the Apex Court has set aside the demand for differential duty even in those cases where the components were supplied by the final product manufacturer free of cost and the job worker had not taken any credit under the Modvat Rules. In their case, since whatever duty is paid by them is availed as Cenvat Credit by the buyer Mahindra and Mahindra, the demand of differential duty on the basis of alleged suppression of facts cannot be upheld.

2.3 They further argue that as per the principles laid down in Lawkim Ltd. v. C.C.E., Pune-II - 2007 (218) E.L.T. 142 (Tri.- Mum), had they opted for the procedure under Rule 4(5)(a) of Cenvat Credit Rules, 2004, there would not have been any necessity to make any payment of duty and taking Cenvat Credit subsequently and the goods could have been moved without payment of duty in which eventuality the question of determination of assessable value and demand for differential duty would not have arisen and, therefore, applying the ratio of the judgment, they are not liable to pay any differential duty. They further rely on the decision of the Tribunal in the case of P.R. Rolling Mills Pvt. Ltd. v. C.C.E., : 2010 (249) E.L.T. 232 (T), which has been affirmed by the Honble Apex Court reported in 2010 (260) E.L.T. A84 (S.C).

2.4 It is their submission that the demand beyond normal period is not maintainable as in their own case, this Tribunal in 2003 had accepted the method adopted by the appellants in arriving at the assessable value, which itself shows that when the appellants had adopted the aforesaid method, they were under the bona fide belief that the said method was correct and, therefore, the charges of suppression or willful mis-statement would not arise. Further, the Tribunal in the appellants own case relating to their factory at Nasik, reported in 2009 (234) E.L.T. 668 (T) had held that the demand for the subsequent period was barred by time when on identical set of facts, a decision was given in their favour for an earlier period. Further, the method adopted by the appellants had been approved by the jurisdictional Assistant Commissioner as early as in 1986 vide order dated 28-6-96 and the department was aware that the scrap value was deducted from the cost of the materials to arrive at the assessable value. In the light of these submissions, they have contended that the demand is not sustainable.

3. The Ld. DR on the other hand would reiterate the findings given by the Commissioner.

4. We have carefully considered the submissions made by both sides. Our findings are discussed below.

5. As regards the appellants claim on the excess duty paid in certain transactions shall be permitted to be adjusted against the short payment of duty against the some other transactions, it has to be observed that there is no specific provision in the excise law to make such adjustments except where the assessments are provisional. In the instant case, it is seen that the appellant had not opted for provisional assessment but instead chose to pay duty on individual transactions by determining the value of each transaction and discharging duty liability thereon. Further, whatever duty was paid by the appellants would have been taken as Cenvat Credit by the buyer of the goods and, therefore, such adjustment will also be hit by the principles of unjust enrichment. In the absence of any specific provision in law and also in view of the fact that the principles of unjust enrichment apply in matters relating to refund of excess duty paid, we do not find any merit in the argument of the appellant that whatever excess duty payments they had made should be allowed to be set off against the short duty payments made in some other transactions especially, when such excess and short payments relates to different periods of time. Therefore, the Commissioner is right in coming to the conclusion that such adjustments are not provided for in the law. The appellant has relied on the Tal Manufacturing case cited (supra). On a perusal of the said judgement, it is clear that the facts of the said case were completely different. In that case the issue related to rejection of transaction value on the ground that the buyer and the seller were related. The assessee in that case discharged duty liability on the transaction value whereas the department held that the assessee and the buyer were related and hence transaction value was not acceptable and sought to demand duty on cost construction basis. In that particular situation, the Tribunal held that short payments and excess payments have to be adjusted together unit wise and duty be demanded accordingly. The appellant has not shown how the facts of the said case are identical to the present one and, hence, we do not find how this judgement can be applied to the present case.

6. The appellant has also relied on the judgement of the Honble Apex Court in the case of Jay Yuhshin Ltd., cited (supra) wherein the Apex Court had set aside the demand for differential duty on the cost of the components not included in a job work transaction. In our view, the said judgement does not have application to the facts of the present case as in the instant case the Honble Apex Court had directed this Tribunal to go by the Cost Auditors report with regard to the inclusion of the cost of the scrap in the assessable value of the finished goods supplied on job work basis. When such a specific direction exists for consideration and decision by this Tribunal, the Tribunal has to abide by those specific directions rather than relying on the decisions given in other cases where the decision might have been given under a different set of facts and circumstances. Therefore, the reliance placed on this judgement does not help the appellants cause in any way.

7. In a recent decision of the Larger Bench of this Tribunal, a similar issue came up for consideration in the case of Excel Rubber Ltd. v. C.C.E., Hyderabad and Sangam Spinners v. CCE, Jaipur. The Larger Bench vide Misc. Order No. 251/2011-EX/2011, dated 30-3-2011 [: 2011 (268) E.L.T. 419 (Tri. - LB)] decided the matter as follows :-

50. The fall out of the above discussion is that once the authority on finalization finds any amount of money having been paid in excess of the duty liability ascertained in the final assessment, the excess amount so ascertained would become refundable to the assessee. Such excess amount can certainly be adjusted towards any other duty liability of such assessee under the Excise Act, 1944 and Rules made thereunder, however, such adjustments are subject to the applicability of the principles of unjust enrichment. Therefore, before grant of adjustment, the authority will have to ascertain whether such amount is to be actually refunded to the assessee or is liable either wholly or partly to be credited to the account of the consumer benefit fund and only thereafter make an order of adjustment to the extent the amount is found to be actually refundable and not liable to be credited to the account of consumer benefit fund. Needless to say, that the burden of proof in this regard would be upon the assessee.

In the instant case, the assessment was not provisional. Further, the assessee has not led any evidence either before the adjudicating authority or before us that they have not passed on the duty burden to any body else and have borne the incidence of duty themselves. In the absence of any such evidence, their plea for adjustment of excess payments with the short payments of duty is not legally sustainable and cannot be acceded to.

8. As regards the contention of the appellant that the demand is hit by the limitation of time, we find that in appellants own case in respect of another factory at Nasik involving identical set of facts, this Tribunal vide Order No. A/514-516/08/C-I/EB dated 24-6-2008 [2009 (234) E.L.T. 668] had held that the demands invoking extended period of time is clearly barred by limitation when the appellants had entertained a bona fide belief that the value of the scrap was not an element of inclusion in the assessable value of automobile components as was held by this Tribunal in its order reported in : 2003 (157) E.L.T. 435. The fact in that case; and the present case the facts are identical and, therefore, we are of the view that the department could not have invoked the extended period of time to demand duty in the instant case. The demand of duty of the instant case is for the period from March 96 to October 99 and the show-cause notice was issued vide notice dated 3-3-2000. Accordingly, the demand for the period prior to one year from the relevant date would be hit by the limitation of time and demand will not be sustainable on this ground. It is further seen that as early as in June, 1996, the jurisdictional Assistant Commissioner had approved the method adopted by the appellant in arriving at the assessable value wherein the value of scrap was not included in the assessable value of the components manufactured. In the order dated 28th June, 1996 in Order-in-Original No. 161/1996, the adjudicating authority, inter alia, held as follows, in para 11 of the said order.

11. For determining the material cost, the input weight is considered and the scrap value realized from sale of scrap is reduced from the cost of material. Broadly the method adopted by the assessee is correct except that they do not include the duty input duty element in the raw material cost.

Thus, the department was very much aware that the cost of scrap was not being included by the appellants in the assessable value of the goods manufactured by the appellants on job work basis. Therefore, the department cannot now take a plea that the appellant had suppressed the facts and evaded payment of duty.In the light of the foregoing discussion, we set aside the impugned order and remand the case back to the adjudicating authority to re-quantify the demand for the normal period of limitation. Consequently, the imposition of penalty in the impugned order is also set aside. Thus the appeal is allowed by way of remand.

(Pronounced in Court on 3-6-2011)