C.L. Mahar, Member (T)
1. The brief facts of the matter are that the appellant is engaged in the manufacture of motor vehicles falling under chapter 87 of the First Schedule of the Central Excise Tariff 1985.The appellant and is getting their power unit assembly manufactured from M/s. AVTEC for the manufacturer of which they supplied free of cost components to M/s. AVTEC. As the appellant is availing cenvat credit on the purchase of the components supplied to M/s. AVTEC, they clear such components on payment of duty byissuing the invoices in terms of Rule 3(5) of the Cenvat Credit Rules, 2004 (in short CCR). M/s. AVTEC was working out the value of the power units supplied to the appellants on the basis of cost of FOC materials supplied by the appellant , cost of own raw materials used by them and job charges.
2. During the course of audit of M/s. AVTEC it was noticed that the value of power units supplied by M/s. AVTEC to the appellant was undervalued which was due to the reason that the appellant had undervalued the components supplied by them to M/s. AVTEC. When the matter of undervaluation came to light, the appellant issued a supplementary invoice dated 29.06.2006 to M/s. AVTEC for Rs. 2,67,64,913/- and deposited differential duty by debiting the same in their PLA on 14.07.2006 along with the other payments while filing their monthly excise return. M/S AVTEC availed the Cenvat credit on the basis of supplementary invoice which was also disputed by the jurisdictional central excise authorities of M/s. AVTEC at their end.
2.2 The jurisdictional central excise Superintendent vide letter dated 6.6.2007, enquired the reasons from the appellants to clarify the circumstances under which the supplementary invoice for Rs. 2,67,64,913/-was issued by them when a duty equivalent to Cenvat credit taken was required to be deposited on clearance made by them under Rule 3(5) of CCR. The appellant replied vide letter dated 7.6.2007 that due to a clerical error they did not reverse exactly the same amount equivalent to the cenvat credit taken which they have rectified of their own by payment of differential duty by raising the excise invoice.
2.3 Further, complete details of clearance of inputs/components were called for by the jurisdictional central excise superintendent and the Assistant Commissioner, Preventive, CE Vadodara-II by issue of various letters and reminders to the appellants during the period July 2007 to June 2010 to ascertain the actual quantum of duty payable on the inputs but the appellant failed to furnish the complete information. On 6.7.2010, Officers of CE Commissionerate, Vadodara visited the factory where they observed that the appellant did not pay the interest on the amount of Rs. 2,67,64,913/-already deposited by them. On persuasion by the officers, the appellant paid interest amounting to Rs. 42,95,616/- vide e-payment dated 9.7.2010.An additional interest of Rs. 2,86,326/- was paid on 23.06.2011. On further correspondence with the department the appellant supplied only some invoices/documents vide letters dated 2.8.2010, 18.8.2010 & 7.3.2011.
2.4 The appellant in their letter dated 7.3.2011 stated that they had worked the interest on the following basis :-
(a) They used the part-wise detail which was base statement for working out differential duty.
(b) The total quantity of each part was divided into month-wise by applying a logical formula based on number of vehicles sold in each month. The formula was:
Total No. of parts removed during the specific No. of parts removed period
in a month= x No. of vehicles sold during the month.
Total no. of vehicles sold during the specific month
(c) Arrived no. fd days delayed for payment of Excise duty.
(d) Calculated interest @ 13% by applying the formula as under:
(e) Interest = Assessable Value x Quantity for the month x No. of days delayed x 13/365x100
2.5 The department informed the appellant that the formula worked out for calculating the interest was not correct and it should be based from the date of clearances of the parts and again asked to provide the remaining invoices. However, in a statement dated 22.06.2011, Dy. GM of the appellant informed that they could not locate the remaining invoices against which the parts were originally cleared. He further stated that M/S AVTEC take app. 10-15 days to supply the power unit after clearance of the parts to them. In support he supplied their store inventory record for some parts as evidence. He further stated that in the absence of availability of all the invoices, working out of interest on the basis of inventory report was most reasonable method. The appellant paid an additional interest of Rs. 2,86,326/- on 23.06.2011.However, the inventory report was not accepted as a valid document by the department for calculation of interest. Accordingly, a show cause notice dated 18.01.2012 was issued wherein total interest payable was calculated to be Rs. 70,54,947/- instead of Rs. 45,81,942/- which was already paid by the appellants. In the show cause notice, the interest has been worked on the basis of figures shown in the supplementary invoice which were divided into three parts (i) from start of production 1.9.2003 to 31.03.2005 (diff. duty paid Rs.1,58,08,382/-) (ii) 1.4.2005 to 30.09.2005 (Diff. duty paid 57,05,830/-) and 1.10.2005 to 31.03.2006 Rs. 47,25,898/-). For calculation of interest, whole of the differential duty paid in these respective three parts was taken be pertaining to the first month only i.e. Sep. 2003, April 2005 and Oct. 2005 and the period of delayed payment was taken to be from the due date of payment of i.e. 6th of the following month for these three respective parts till 5.7.2006. Accordingly, a show cause notice dated 18.01.2012 proposed to demand a total interest of Rs. 70,54,947/- and to appropriate the interest of Rs. 45,81,942/ already deposited by the appellant. Further, penalty under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002 was also proposed. Initially, the impugned show cause notice was adjudicated vide Order-in-Original dated 13.03.2014 which was remanded back to the original adjudicating authority vide CESTAT order dated 23.09.2014 to consider the reply filed by the appellants on merits and also on limitation. In the denovo proceedings Ld. Principal Commissioner, vide the impugned Order-in-Original dated 9.12.2015 confirmed the demand of Rs. 70,54,947/- and appropriated the interest of Rs. 45,81,942/- already paid by the appellant. A penalty of Rs. 2,67,64,913/- has also been under Section 11Ac of the Central Excise Act, 1944. While confirming, the demand Ld. Pr. Commissioner has held that the appellant was well aware of the undervaluation made by them when issuing the invoices under Rule 3(5) which provided reversal of the equal amount to the Cenvat credit taken at the time of clearance. Further, he has taken the basis for calculation of interest from Sept. 2003 relying upon the show cause notice issued by the jurisdictional authorities to M/s. AVTEC for taking the date of clearance from Sept. 2003 for undervaluation of the goods supplied to the appellants. The appellant is in appeal before us against the impugned order dated 9.12.2015
3. Ld. Counsel Shri Harish Bindu Madhavan appeared on behalf of the appellant. He vehemently contested the impugned order on the grounds that on the first instance the differential duty of Rs. 2,67,64,913/- paid by the appellant was not payable at all as the appellants were entitled to clear the inputs without payment of duty in terms of Rule 4(5) of CCR for getting the intermediate goods manufactured on job-work basis. He further stated that demand of interest in the present case was not valid in terms of section 11 AB of the Central Excise Act 1944 Section 11AB during the period in question provided that where the duty of Excise has not be levied or paid for has been short levered or short paid or erroneously refunded, the person liable to pay duty as determined under sub-section (2) of section 11 A shall in addition to the duty be liable to pay interest as per the provision of section 11 AB if and only there is determination of duty short levied or short period by the central excise officer as per provisions of section 11A(2) or the Central Excise Act 1944 duty has been paid under subsection 2B of section 11A. He further argued that demand of interest is barred by limitation as the present show cause notice is dated 18.01.2012 whereas the duty has been paid on 29.06.2006. Thus the interest has been demanded after a period of 5 years and 6 months. Therefore, the entire demand of interest and penalty is barred by limitation. He further stated that demand of interest has not been made in the prescribed time period and therefore the period of limitation for interest shall also be applicable as is applicable in case of demand duty as held by the Apex Court in the case of Commissioner vs. TVS Whirlpool Ltd. -2000 (119) E.L.T. A177 (S.C.). He also relied upon the case law of Kwality Ice Cream Company vs. Union of India -2012 (281) ELT 507 (Del.) where the Hon’ble High Court has held as under :-
“5. It is, therefore, clear that the principle adopted by the Supreme Court was that the period of limitation, unless otherwise stipulated by the statute, which applies to a claim for the principal amount should also apply to the claim for interest thereon. If that be the position, the period of limitation prescribed for demand of duty under Section 11A is normally one year and, in exceptional circumstance of a case falling under the proviso to Section 11A(1), the period of limitation is five years. But that would be applicable only in case of misstatement, fraud, concealment etc., which is not the case here. As such, in the present case, the period of limitation for the demand for duty would be one year. By the same logic, the period of limitation for demand of interest thereon would be one year. Inasmuch as the demand for interest has been made beyond a period of one year, the demand would be clearly hit by the principle of limitation as laid down by the Supreme Court. Even if, we take the letter dated 25-10-2004 as the first demand of interest, although that letter was in respect of a demand for differential duty, the demand would still be beyond a period of three years.”
3.2 He further argued that when the differential duty of Rs. 2,67,64,913/-deposited by the appellant from April 2004 to march 2006 has been accepted by the department, the department cannot claim interest from September 2003. He further stated that penalty under Section 11AC cannot be imposed as there is no determination of duty under Section 11A(2).
4. On the other hand Learned Authorised Representative appearing on behalf of the department has supported the findings of the Impugned Order on the ground that the department initiated action against the appellant within one year from 29.06.2006 i.e. the date of short payment of duty and the appellant delayed payment of interest on one pretext or the other. Finally, when the interest was paid, it was paid short by Rs. 27,59,331. He also cited CESTAT judgement in the case of SKH Auto Components – 2011 (06) LCX 0145 where the case related to payment of differential duty on the basis of supplementary invoice in support that limitation would not apply to demand of interest. He also cited Apex Court judgement in the case of SKF India Ltd. 2009(07) LCX0001 where the Hon’ble Apex Court has held that interest has to be paid when supplementary invoice is issued.
5. We have carefully considered the rival submissions in the matter. As regards the submission made by the Ld. Counsel that they were not required to pay duty had they adopted the procedure provided under Rule 4(5)(a) of CCR. We are not inclined to accept the same as the appellant had themselves chosen to follow the procedure under Rule 3(5) of CCR and pay duty on clearance of inputs and instead of getting the goods manufactured on job work basis they had placed a purchase order on their suppliers. As both the provisions had their own set of conditions and manners of payment of duty to be followed, we cannot accept their claim that duty and consequently interest was not required to be paid if they had followed the procedure under Rule 4(5)(a) of CCR. As far as the recalculation of interest by the department is concerned, we find that interest recalculated will directly be a direct consequence of re-determination of duty from date of clearance from September 2003 to 31.03.2006 instead of 01.04.2004 to 31.03.2006 as determined by the appellant. Re-determination of duty for the period 01.09.2003 to 31.03.2006 will clearly be hit by the embargo of limitation period of maximum five years under Section 11A even in the case of fraud, willful misstatement etc. It is not a case of merely short payment of interest on the differential duty paid by the appellant but it amounts to re-determination of duty by the appellant which is hit by time limitation. Further, in view of the judgement in the case of Commissioner V. TVS Whirlpool Ltd. -2000 (119) E.L.T. A177 (S.C.). that period of limitation for interest shall also be applicable to the demand of interest. The Delhi High Court judgment in the case of Kwality Ice Cream Company V. Union of India -2012 (281) ELT 507 (Del.), also the demand of interest is hit by bar of limitation. Therefore, we hold that demand of interest of Rs. 70,54,947/-against an interest of Rs. 45,81,942/- already deposited by the appellant is barred by limitation. However, we uphold the appropriation of interest of Rs. 45,81,942/- determined and voluntarily deposited by the appellant.
6. As regards, the penalty of Rs. 2,67,64,913/- imposed upon the appellant under Section 11AC, the same cannot be sustained as the imposition of penalty under Section 11AC is subject to determination of duty under Section 11A. As no duty under Section 11A has been determined in the impugned order, a penalty under Section 11AC cannot be imposed and therefore we hold that imposition of penalty under Section 11AC of Central Excise Act without determination of duty is legally not sustainable. The Hon’ble Apex Court in the case law cited under 2009 (238) E.L.T. 3 (S.C.) - UNION OF INDIA Versus RAJASTHAN SPINNING & WEAVING MILLS has held that the penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.
In view of the above findings we hold as under :
(i) Demand of interest in this case of Rs. 45,81,942/-already deposited by the appellant is time barred, however since the same has been paid voluntarily by the party which was otherwise payable from the date when duty became payable, we uphold appropriation of same.
(ii) The Penalty of Rs. 2,67,64,913/- imposed under Section 11AC of the Central Excise Act, 1944 is not sustainable in view of the fact that impugned order-in-original does not determine any short payment of duty under Section 11A of Central Excise Act, 1944.
7. Thus we find merit in the appeal of the appellant and allow the same in above terms.
