2005 (98) ECC 121 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(B)

Shri S.S. Kang, Member (J) and Shri V.K. Agrawal, Member (T)

Majestic Auto Ltd. & Anr.

Versus

Commissioner of Central Excise, Ghaziabad

Appeals No. E/3352-3353/2003-NB(B)

[Arising out of Order-in-Appeal No. 11/2003 dated 30.7.03 passed by the Commissioner of Central Excise (Appeals), Ghaziabad]

Final Order No. 523-524/2004-B, dt. 24.6.2004, Certified on 8.7.2004

Demand & Penalty

Limitation -- Suppression of facts -- Limitation is invocable for demanding the duty as the assessee never disclosed to the Department about leaving the capital goods, in respect of which Modvat Credit has been availed of, in the factory premises of the assessee No. 2. The approval of ground plan of the factory of the assessee does not mean that Department was aware of the said fact as the Appelant No. 1 has paid the duty in respect of certain machines. Therefore, uphold the demand of duty and interest. The penalty is upheld.

PRESENT :

Shri V.K. Arya, Adv. for the appellants.

Shri Vikas Kumar, SDR for the respondent.

Cases Cited :

1. CCE, Jaipur v. Raghuvar (India) Ltd., 2000 (70) ECC 1 (SC).............................. [Para 3]

2. Eternit Everest Ltd. v. Union of India, 1996 (56) ECC 24 (Mad)........................... [Para 3]

3. Jamna Auto Industries Ltd. v. CCE, Indore, 2001 (130) ELT 181 (Tri)................. [Para 3]

4. Madras Electro Castings Ltd. v. CCE, Chennai, 2001 (136) ELT 713 (Tri)............ [Para 3]

5. Pushpaman Forgings v. CCE, Mumbai VII, 2002 (149) ELT 490 (Tri).................. [Para 3]

Per : V.K. Agrawal

The issue involved in these two appeals, filed by M/s. Majestic Auto Ltd. and M/s. Hero Briggs & Stratton Auto Ltd. relates to the availability of Modvat Credit of the duty paid on the capital goods under Rule 57Q of the Central Excise Rules, 1944.

2. Shri S.V. Arya, learned Advocate, submitted that the Appellant No. 1, M/s. Majestic Auto Ltd. manufacture Motor vehicles and parts/accessories thereof; that they have purchased machines and equipment -- partly prior to introduction of Modvat credit scheme to capital goods and partly afterwards; that these capital goods are exclusively used by them in the manufacture of I.C. Engines, one of the parts of motor vehicles; that in respect of the Capital goods received after introduction of Modvat Credit Scheme, they had availed of Modvat Credit of the duty paid thereon; that another Hero Group company namely Hero Briggs & Stratton Auto Pvt. Ltd., Appellants No. 2, had taken on lease on 25.8.1998 a part of factory premises of the Appellants No. 1 who had also sold machines and equipment purchased prior to introduction of the Modvat Credit Scheme in respect of capital goods (i.e. prior to 1.3.1994) to Appellants No. 2 regarding which there is no dispute. He mentioned that the Appellants No. 1 have also sold other machines and equipment on which they had availed of Modvat Credit under Invoice No. 020103456 dated 28.4.1998 on payment of Central Excise duty; that some machines and equipments, in respect of which Modvat Credit had been availed of by them, had been left as such in the part of the factory leased to Appellants No. 2; that the Appellant No. 1 discontinued manufacture of I.C. engines which were now got manufactured on job work basis from the Appellants No. 2; that the Commissioner, under the impugned Order, has confirmed the demand of duty in respect of the machines and equipments left by them in the part of the factory leased to the Appellants No. 2, and imposed penalty equal to the amount of duty besides asking them to pay interest also.

3. The learned Advocate submitted that provisions of Section 11A of the Central Excise Act were not applicable to the Modvat Rules on 25.8.98 as the same had been applied to the recovery of credit only from 1.4.2000 onwards; that the Supreme Court has held in the case of CCE, Jaipur v. Raghuvar (India) Ltd., 2000 (70) ECC 1 (SC) : 2000 (118) ELT 311 (SC) that "Section 11A on its own terms will have no application or operation to cases covered under Rule 57-I of the Rules."; that, therefore, demand of duty confirmed under Section 11-A of the Act is not sustainable; that further the impugned capital goods were manufactured by others who had already paid duty thereon; that thus duty can not be demanded from them who are not manufacturer of the said goods. He, further, mentioned that duty can also not be demanded under Rule 57S of the Central Excise Rules, 1944 because Rule 57S provides for recovery of the credit wrongly taken whereas the demand of duty is not on the premises that the credit was taken wrongly; that the amount demanded is neither the amount of illegal or wrong Modvat Credit nor is the duty of excise and there is no recovery proceeding machinery in the Act and Rules; that in Pushpaman Forgings v. CCE, Mumbai VII, 2002 (149) ELT 490 (Tri) the Tribunal has taken the same view relying upon the judgment of the Madras High Court in Eternit Everest Ltd. v. Union of India, 1996 (56) ECC 24 (Mad) : 1997 (89) ELT 28 (Mad) and Board's Circular B-42/1/96-TRU dated 27.9.1996. He also contended that demand of duty under Rule 57U(4) is also not sustainable as the capital goods in question were not manufactured by the Appellants No. 1; that the demand of duty under Rule 57U(4) amounts to levy of duty of excise again illegally and without Authority is borne out from the fact that these provisions were amended and instead of "payment of duty leviable" it provided for "payment of an amount equal to the amount for which credit was taken" which is contained in sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2002; that further no removal has taken place as the goods were found to have been installed in their original position; that the ratio of the decision in Madras Electro Castings Ltd. v. CCE, Chennai, 2001 (136) ELT 713 (Tri) is not applicable as the facts are different as in the said case, the capital goods were removed from the factory and were given on loan whereas in the instant matter, the capital goods were neither leased nor given on loan; that the Appellant 1 continues to own these goods and even continues to avail of the depreciation thereon under the Income Tax Act; that the impugned machines continue to be used only in the manufacture of I.C. engines which in turn are used for manufacture of motor vehicles which was the case even prior to leasing out of the portion of the factory to the Appellants No. 2. He relied upon the decision in the case of Jamna Auto Industries Ltd. v. CCE, Indore, 2001 (130) ELT 181 (Tri) wherein the manufacture of some goods was transferred to newly established Division which had obtained a separate Central Excise Registration and the capital goods were also transferred to the newly established Division; that entire premises had remained as such; the Tribunal has held that for removal as envisaged under Rule 57S, there has to be physical removal.

4. Finally, he submitted that the finding of suppression is wrong as the lay out plan shows the premises leased out to Appellants No. 2 and the installation of the capital goods in question therein; that thus the fact of the existence of the capital goods in the part of the factory leased out to Appellants No. 2 was well within the knowledge of the Department; that for the same reason no penalty is imposable on the Appellants No. 1 under Section 11AC of the Central Excise Act. He also mentioned that penalty is not imposable on Appellants No. 2 under Rule 209A of the Central Excise Rules, 1944 as they had no knowledge of the Rules providing payment of duty in case of removal of the used capital goods, being a newly established unit; that the impugned goods were neither transferred nor sold to them and they did not have reasons to believe that the goods are liable for confiscation; that the finding of connivance with Appellants No. 1 is patently wrongly as had the duty been paid by Majestic Auto Ltd., the Appellants No. 2 could have taken the credit thereof; that in any case there being no proposal for confiscation of the goods, penalty under Rule 209A cannot be imposed.

5. Countering the arguments, Shri Vikas Kumar, learned Senior Departmental Representative; submitted that both the Appellants are independent entity, being limited companies having their own factory premises with separate Central Excise Registration; that the capital goods in respect of which credit has been taken may be used in the factory of the manufacturer or may be removed for home consumption or for export on payment of appropriate duty of excise leviable thereon; that provisions of Modvat Rules are very clear that the capital goods should be used in the factory of the manufacturer who has taken the credit; that as the premises wherein the impugned capital goods are installed has been leased out to the Appellants No. 2; the capital goods, in respect of which Appellants No. 1 have availed of credit, are no more with them but are installed in the factory of Appellants No. 2; that it is thus clear that the capital goods are no more with the Appellants No. 1 who have taken the Modvat Credit of the duty paid on those goods. The Senior Departmental Representative referred to the letter dated 12.3.2001 in which the Appellants No. 2 have mentioned that they had acquired running unit for the manufacture of I C engines from the Appellants No. 1 and certain machines to be used in the manufacture of IC engines had not been sold to them but these machines had remained with them (Appellants No. 2). He contended that as the Appellants No. 2 are using these machines, the same had been removed without payment of duty; that thus duty is payable by them and penalty is imposable on them; that machinery for recovery is very much provided in the Central Excise Act and the Rules, that both the provisions of Rule 57 U(4) of the Central Excise Rules and Section 11A of the Central Excise Act have been invoked in the show cause notice.

6.1 We have considered the submissions of both the sides. It is not disputed by the learned Advocate that both the appellants are separate limited companies and as such they are two different legal entity, though they may belong to same group. It is also not in dispute that the Appellant No. 1 have taken the Modvat Credit of the duty paid on the capital goods in question and the premises in which the said goods are installed had been given on lease to the Appellant No. 2. This is also very clear from the Lease Agreement that the Lessee i.e. Appellants No. 2 shall enjoy the Demised Premises during the lease period without interruption by the lessor (i.e. Appellant No. 1). In terms of the Lease Agreement, the Appellants No. 2 enjoy the said premises and, therefore, it cannot be claimed to be the part of factory premises of the Appellants No. 1.

6.2 Rule 57Q of the Central Excise Rules empower a manufacturer to take the credit of the duty paid on the capital goods used in the factory of the manufacturer of final products. Rule 57S deals with the "manner of utilization of the capital goods." As per sub-rule (1) of Rule 57S, the capital goods "may be (i) used in the factory of the manufacturer of the final products; or (ii) removed, after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory and after obtaining dated acknowledgment of the same, from the factory for home consumption or for export on payment of appropriate duty of excise leviable thereon or for export under bond, as if the capital goods have been manufactured in the said factory."

6.3 As the premises in which the capital goods are installed has now been lease to the Appellants No. 2 who are now in possession of the said premises, it cannot be claimed by the Appellants No. 1 that the capital goods are used in their factory. The capital goods are no more installed in the factory of the Appellants No. 1 and as these are now in the factory premises of another manufacturer (i.e. Appellants No. 2), the same have been removed from the factory for home consumption. In terms of provisions of clause (ii) of sub-rule (1) of Rule 57S, the same should have been removed --

(a) after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory;

(b) after obtaining dated acknowledgment of the same; and

(c) on payment of appropriate duty of excise leviable thereon as if such capital goods have been manufactured in their factory.

Thus, the Appellants No. 1 is liable to pay the duty on the impugned capital goods. A penalty is also imposable on them as they have not complied with the conditions specified in Rule 57S for the utilization of the capital goods.

6. We do not find any substance in learned Advocate's submission that the Appellants No. 1, being not manufacturer, is not liable to pay duty. The Appellants No. 1 has availed of Modvat Credit of the duty paid on goods and as such all the conditions on the Central Excise Rules in this regard would apply. The provisions of Rule 57S, as mentioned hereinbefore, are very clear and specific that duty has to be discharged by the manufacturer who has taken the Modvat Credit "as if such capital goods have been manufactured" in his factory. The decision in the case of Madras Electro Castings Ltd. is applicable to the facts of present matters. In the said case, the Appellants had lent the capital goods to the neighbouring factory on loan basis. The Tribunal has held that "The Appellants were duty bound to have paid duty on removal of goods." There is a machinery provided in Section 11A of the Central Excise Act for recovering the duty not paid/short paid, etc. In view of this the decision in the case of Pushpaman Forgings and Board's Circular dated 27.9.96 are not applicable. Further the facts in Pushpaman Forgings are entirely different as they related to the applicability of Rule 57CC of the Central Excise Rules and charging of an amount equal to 8% of the sale price of the final products if the inputs (and not capital goods) were used in the manufacture of both dutiable goods and exempted goods. The Larger period of limitation is invocable for demanding the duty as the Appellants No. 1 never disclosed to the Department about leaving the capital goods, in respect of which Modvat Credit had been availed of, in the factory premises of the Appellants No. 2. The approval of ground plan of the factory of the Appellants No. 2 does not mean that Department was aware of the said fact as the Appellants No. 1 had paid the duty in respect of certain machines. This fact of non-payment of duty in respect of other machines was known only to the Appellant No. 1 who have suppressed the same from the Department. We, therefore, uphold the demand of duty and interest from the Appellants No. 1. The penalty imposed on them, however, is on the higher side which we reduce to Rs. 2.5 lakhs. Penalty on Appellant No. 2 is set aside as there is no material on record to show that they have dealt with the capital goods knowingly that these are liable to confiscation.

7. Both the Appeals are disposed of in the above terms.

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