Central Excise Appeal No. 36 of 2005 1 In the High Court of Punjab & Haryana at Chandigarh Date of decision : 21.8.2008 1. Central Excise Appeal No. 36 of 2005 Commissioner, Central Excise Commissionerate ..... Appellant vs M/s. Zeto Engineering Private Limited and another ..... Respondents 2. Central Excise Appeal No. 70 of 2005 Commissioner, Central Excise Commissionerate ..... Appellant vs M/s. GDB, Enterprises and another ..... Respondents 3. Central Excise Appeal No. 71 of 2005 Commissioner, Central Excise Commissionerate ..... Appellant vs M/s. Silence Auto and others ..... Respondents 4. Central Excise Appeal No. 73 of 2005 Commissioner, Central Excise Commissionerate ..... Appellant vs M/s. Zeto Engineers & Fabricators and another ..... Respondents 5. Central Excise Appeal No. 149 of 2005 Commissioner, Central Excise Commissionerate ..... Appellant vs M/s. Grewal Enterprises and others ..... Respondents Coram: Hon'ble Mr. Justice Hemant Gupta Hon'ble Mr. Justice Rajesh Bindal Present: Mr. Gurpreet Singh, Central Government Standing Counsel, for the appellant. Mr. Akshay Bhan, Advocate, for the respondents. Rajesh Bindal J. This order will dispose of five appeals bearing Central Excise Appeal Nos. 36, 70, 71, 83 and 149 of 2005. The facts have been noticed from Central Excise Appeal No. 36 of 2005. Central Excise Appeal No. 36 of 2005 2 The revenue is in appeal before this court against the order passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for short, “the Tribunal”), in Appeals No. 3088 and E/3089/03-NB (SM), dated 20.11.2003, raising the following substantial questions of law:- “(i) Whether the Tribunal was justified in setting aside demand when GP Sheets are not the input for tractor parts ? (ii) Whether the findings of the Tribunal are perverse and based on no evidence especially when there was contrary and voluminous evidence to confirm that GP sheets are not the inputs for tractor parts ? (iii) Whether the Tribunal is justified in setting aside demand on the ground of time bar when the party was guilty of suppression of facts ?” Briefly, the facts are that the assessee in the present case is manufacturer of motor vehicles/tractor parts and accessories falling under sub-heading 8708.00 of the Schedule to the Central Excise Tariff Act, 1985. It is Original Equipment supplier of various tractors and motor vehicles manufacturers. In the process certain raw material is purchased which is used for manufacture of goods supplied to the OE manufacturers. Out of the duty payable on the furnished products, Modvat Credit is claimed on account of duty paid on the purchase of raw material. On the basis of intelligence report gathered by the appellant that certain manufacturers of OE parts were fraudulently availing Modvat Credit on the GP Sheets which were neither an input nor the same could be used for the manufacture of OE Parts. During preliminary investigation, it was found that modus operandi of the assessee was that though the OE manufacturers such as Punjab Tractors Limited, HMT, Rail Coach Factory and Maruti Udyog Limited required their parts to be manufactured from hot rolled/cold rolled sheets but still the assessee was purchasing GP sheets showing them to be used for OE products. In fact, the GP sheets, so purchased, were clandestinely sold in the market and HR/CR sheets were purchased without invoices and used in the manufacture of OE parts. As duty payable on GP sheets was higher, the same was claimed as Modvat Central Excise Appeal No. 36 of 2005 3 credit. A notice was issued to the assessee to show cause as to why Modvat credit to Rs. 3,44,398/- availed by it from January 1997 to May 1999 be not withdrawn on account of fraud committed by it. Inspite of number of opportunities given to the assessee, he neither appeared nor filed any reply to the show cause notice. The Adjudicating Authority vide order dated 29.4.2003 confirmed the demand of Rs. 3,44,398/-, besides imposing penalty of equal amount on the assessee in addition to the penalty of Rs. 75,000/- on Amrik Singh under Rule 209-A of the Central Excise Rules, 1944. In appeal before the Commissioner Appeals, the assessee succeeded. The Commissioner (Appeals) primarily considered the contention of the assessee that it had not been given fair opportunity of being heard before passing the order but still detailed discussion on the merit of controversy was also made and it was opined that the demand against the assessee was not sustainable. The Tribunal in appeal by the revenue against the order passed by the Commissioner (Appeals) upheld the order by further opining that the extended period of limitation as provided for under Section 11-A of the Act could not be invoked for the reason that the assessee was not at fault as it had made complete disclosure to the department. Learned counsel for the revenue submitted that it is a case of clear cut fraud played by the assessee where it was required to manufacture OE parts for various Original Equipment Manufacturers such as Punjab Tractor Limited, HMT, Rail Coach Factory and Maruti Udyog Limited. As per their requirements, the parts were to be manufactured out of HR/CR sheets but still the assessee in the present case purchased GP sheets which are quite costlier as compared to HR/CR sheets. The only object was to claim higher Modvat Credit as, in fact, the GP sheets so purchased were never used for the manufacture of OE parts. The OE parts were manufactured out of HR/CR sheets, otherwise purchase of HR/CR sheets clandestinely without payment of any duty whereas GP sheets purchased against the invoice on payment of excise duty were sold in the market clandestinely. The submission is also that it does not make sense that a manufacturer will use costlier raw material to manufacture a part once the Central Excise Appeal No. 36 of 2005 4 requirement by the person placing order for the supply of parts is for cheeper material. It is further submitted that fraud committed by the assessee is fully established from the inquiries conducted by the Department from the Original Equipment Manufacturers to whom the assessee was supplying the parts who clearly stated that they never placed any order for manufacture of parts out of GP sheets and it was further submitted that GP sheets are not used in the manufacture of tractor/ Engine parts and no component manufactured out of GP sheets were ever received from the assessee. Still further he submitted that show cause notice was issued to the assessee and though the case was fixed on various dates of hearing but the assessee never filed any reply thereto. The request of the assessee for supply of documents though was accepted but the assessee never came forward to collect the copies thereof. The assessee did not avail any opportunity of personal hearing and in the circumstances, the only thing which can be inferred is that the assessee did not have any explanation to justify the excess Modvat Credit availed by it in illegal manner. According to the learned counsel, the Commissioner (Appeals) though on the one hand opined that there was failure on the part of the Adjudicating Authority to afford proper opportunity of hearing to the assessee but still instead of remanding the case back to the Adjudicating Officer, the matter was discussed on merits ignoring the sufficient material on record in the form of statements and communications from the Original Equipment Manufacturers to whom the assessee was supplying the parts, corroborating the case set up against the assessee still finding even on merits of the controversy was recorded. The same error was repeated by the Tribunal in appeal by the revenue. There also finding was recorded on merits in favour of the assessee ignoring material on record with the Department. It was further held by the Tribunal that the case of extended period of limitation was made out. On the other hand, learned counsel for the assessee submitted that though admittedly the alleged evasion of duty came to the notice of the Department way back in 1999 but still the show cause notice was issued on 26.3.2002. The assessee, in fact, had disclosed complete facts to the Department in the form of returns filed on statutory Form RT-12 in which it was clearly mentioned that the assessee had purchased GP sheets and was Central Excise Appeal No. 36 of 2005 5 using the same in the manufacture of OE parts. The entire process was well within the knowledge of the Department. Even otherwise, there was a complete violation of the principles of natural justice. The assessee was not supplied with the material sought to be used against it as was collected by the revenue during the investigation at the back of the assessee. There was no material gathered by the revenue to show that the GP sheets purchased by the assessee were ever removed in clandestine manner and to whom the same were sold and further as to from which source HR/CR sheets were procured outside the books of accounts. The alleged evasion of duty took place during the period from January 1997 to May 1999 and show cause notice having been issued in March 2002, is clearly time barred. Keeping in view the fact that the allegation of fraud could not be made out against the assessee as it had declared complete facts to the Department, learned counsel relied upon a judgment of Hon'ble the Supreme Court in Commissioner of C. Ex. & CUS., Mumbai vs Bell Granito Ceramica Ltd. 2006 (198) E. L. T. 161 (SC). Heard learned counsel for the parties and perused the paper book. On perusal of the record, it is evident that the alleged evasion of duty took place from January 1997 to May 1999. The show cause notice was issued to the assessee on 26.3.2002. The allegation that it had availed of Modvat Credit on GP sheets whereas, in fact, in the production of goods supplied to the Original Equipment Manufacturers, as per their specified requirements, HR/CR sheets were used. This resulted in availing of more Modvat Credit. From the perusal of the order passed by the Adjudicating Officer, it is evident that before the issuance of show cause notice to the assessee on the basis of Intelligence report, certain inquiries were conducted by the Department from HMT, Steel Authority of India Limited and other persons to come to a conclusion that the requirement of the Original Equipment Manufacturers was for manufacture of parts from HR/CR sheets only and in fact GP sheets were not fit for manufacture thereof. Certain discrepancies in the invoices issued by the supplier of GP sheets to the assessee were also pointed out. Though as is evident from the record, the assessee did not appear before the Adjudicating Authority but still the fact remains that the material which was collected at the back of the assessee in Central Excise Appeal No. 36 of 2005 6 the preliminary investigation was not supplied to the assessee, as per the contention of learned counsel for the assessee though it has been recorded in the order passed by the Adjudicating Authority that the assessee never collected the material. Further the Commissioner (Appeals) and the Tribunal recorded findings on merits in favour of the assessee ignoring the material which had been collected by the Department in the preliminary investigation. Be that as it may, the fact remains that the assessee did not have the opportunity to go through and confront the material which was collected by the Department in the preliminary investigation conducted by it and in the absence thereof, the assessee could not possibly defend its case. Ultimately on the basis of the material so collected, the assessee was to be subjected to the levy of duty. Keeping these facts into consideration, we are of the view that the ends of justice in the present case will be met, in case the impugned orders passed by the authorities are set aside and the matter is remanded back to the Adjudicating Authority for consideration afresh in accordance with law after affording opportunity of hearing to the assessee and confronting the material collected against it. The appeals are disposed of on the terms indicated above. ( Rajesh Bindal) Judge 21.8.2008 (Hemant Gupta) vs. Judge