TAXAP/1015/2007 1/6 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 1015 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ========================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= COMMISSIONER OF CENTRAL EXCISE & CUSTOM Versus AUTL LTD. ========================================= Appearance : MR HARIN P RAVAL for the Appellant None for Opponent(s) : 1, ========================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 17/07/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) TAXAP/1015/2007 2/6 JUDGMENT 1. Appellant revenue has proposed the following question. “Whether Hon'ble CESTAT is right in not imposing penalty equal to duty amount under Section 11AC of the Central Excise Act, 1944.” 2. Heard the learned counsel for the appellant. It is contended that the adjudicating authority erred in not levying the penalty at a figure equivalent to the duty amount, and hence, both Commissioner (Appeals) and the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) have erred in dismissing the successive appeals filed by revenue by upholding the penalty levied at a sum of Rs.15,000/- as against duty demand of Rs.2,81,074/- for the period from 1.7.2000 to 28.2.2001. It is submitted that under section 11AC of the Central Excise Act, 1944 (the Act), the authority has no discretion to levy a penalty of a lesser amount and hence the impugned order of Tribunal gives rise to the proposed question. In light of the frame of the proposed question, the learned counsel has urged that the Court is not required to consider applicability or otherwise of rule 8 of the Rules. It is also submitted that an issue involving similar controversy is pending before a larger Bench of the Apex Court. It is contended that once Rule 9 of the Central Excise (Valuation) Rules, 2000 (the Rules) is invoked read with Rule 8 of the Rules and such adjudication is accepted by paying duty the assessee cannot be heard to contend otherwise. 3. The adjudicating authority has invoked Rules 8 and 9 of the Central Excise (Valuation) Rules, 2000 (the Rules) while issuing show cause notice. The basis for this is that Ankleshwar unit of respondent assessee transferred certain goods to Atul unit of the respondent assessee. In response to the show cause notice, the respondent assessee contended as under: TAXAP/1015/2007 3/6 JUDGMENT “3. They were under bonafide belief that the clearance of the goods made for the Atul Ltd are not required to be valued as per Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2001 and under such circumstances the larger period of limitation can not be invoked. 4. The Atul unit avails modvat/cenvat credit and as such their was not intention to evade payment of Excise duty. Whatever duty is paid the same is available as Cenvat Credit to the Atul unit and in the situation none of the units gains by paying the Excise duty short as alleged in the notice and in no way it adds to the profitability of both the units. 6. Rule 8 is also not applicable to their case. The said Rule is applicable only when the goods are not sold by the assessee not used by him or on his behalf in the production or manufacture of their articles. In the present case, however, Ankleshwar unit is neither consuming the goods and nor are being used in the manufacture of other articles on their behalf.” 4. Adjudicating authority under the heading “Discussions and Findings”, has noted thus: “I agree with the unit's contention that the two units at Ankleshwar and at Atul are not related persons as theses are only the manufacturing Divisions of one corporate body namely M/s Atul Ltd. and these two unit are not corporate persons by themselves. The unit's argument that there has to be two persons for sale and in the instant case there is only one person M/s Atul Ltd. involved in the transaction has legal force and cannot be ignored. However, the other argument of the unit regarding non-application of rule 8 to their case is not found to be tenable. The unit's plea that in their case the Ankleshwar unit is neither consuming the goods and nor on its behalf and the same are being used in production and manufacture of other articles is not convincing and not legally maintainable. In the instant case, it cannot be disputed that the assessee is M/s Atul Ltd., a corporate body, and M/s Atul Ltd., at Ankleshwar and at Atul are its manufacturing Divisions only. The liability to pay TAXAP/1015/2007 4/6 JUDGMENT duty for the products manufactured by these two Division is with the company namely M/s Atul Ltd. only and M/s Atul Ltd. is the assessee as defined under Section 4(4)(a). In the defense reply it is already accepted and a plea is also made that there is no sale transaction of the products between the two units and there is a inter unit transfer of the goods only. The material received from Ankleshwar unit and consumed by Atul unit is, therefore, a clear case of inter unit transfer and captive consumption of the goods.” Thereafter, finally while working out the quantum of the penalty imposed by the adjudicating authority, it has been observed as under: “However, I agree with the contention of the unit that as per the Hon'ble Supreme Court's judgment in the case of State of Madhyapradesh V/s. Bharat Heavy Electrical reported in 1998 (99) ELT 33 (SC) and various other CEGAT's decisions, the provision of Section 11AC of the Central Excise Act has to be construed to mean that the quantum of penalty equal to the duty is the maximum amount of the penalty which can be imposed under Section 11AC and the adjudicating authority has the discretion to impose lesser amount of penalty in considering the facts and circumstances of the case.” 5. It is the aforesaid order, which has been confirmed by both Commissioner (Appeals) and the Tribunal by recording concurrent findings. The Tribunal has recorded thus: 4. “We find that the demand of duty has been confirmed against the appellants on the technical point of arriving at the assessable value of inter unit transferred goods, which is based on cost structure. The said duty stands admitted and paid by the appellants. There is no mala fide on the part of the appellants. It is well-settled that Section 11AC provides for imposition of maximum penalty and it is not obligatory on the part of the adjudicating authority to always impose penalty equivalent to the duty amount. We find no justifiable reason to enhance the quantum of penalty. Accordingly, the appeal filed by the Revenue is rejected.” TAXAP/1015/2007 5/6 JUDGMENT 6. In light of the aforesaid findings, it is apparent that rule 9 of the Rules was held to be not applicable by the adjudicating authority itself. Hence, it is not necessary to deal with the contentions raised on behalf of appellant revenue as to applicability or otherwise of rule 9 of the Rules considering the finding of fact recorded by the adjudicating authority that two units of the respondent assessee cannot be treated as “a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of Section 4 of the Act.” 7. Prima facie, when one reads the findings recorded by the adjudicating authority as to applicability of rule 8 of the Rules, it appears that rule 8 of the Rules also could not have been invoked against respondent assessee. However, in light of the fact that, for the present, the Court is only required to examine as to whether penalty at a lesser figure has been rightly imposed or not, it is not necessary to record a final finding as to applicability or otherwise of rule 8 of the Rules. Suffice it to state that rule 8 of the Rules requires a fact situation where excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles. Therefore, once the fact of there being no sale by the Ankleshwar unit to the Atul unit stands accepted, the only other requirement that was to be verified was as to whether the excisable goods are used for consumption by the assessee or on his behalf in the production or manufacture of other articles. In other words, a case where an assessee without selling goods which are raw material, uses the same for consumption, or the goods are used on behalf of assessee in production or manufacture by a person other than the assessee, the cost of production or manufacture shall be valued at the prescribed percentage. In the present case, it is not possible to state that the goods TAXAP/1015/2007 6/6 JUDGMENT transferred from Ankleshwar unit to Atul unit have been either used by the Ankleshwar unit or used by Atul unit on behalf of Ankleshwar unit for production or manufacture. Even if one reads the rule as laying down that the consumption is by the Atul unit, it has to be borne in mind that the earlier part of the said rule requires transfer of goods from A to B such transfer not amounting to sale. In the present case, admittedly, as accepted by the adjudicating authority, both Ankleshwar and Atul units are part of the same assessee and in these circumstances whether rule 8 would apply or not, is an arguable point. 8. In these circumstances, if the adjudicating authority has, after placing reliance on Apex Court decision, and after taking into consideration the conduct of respondent assessee, recorded a finding that under section 11AC of the Act, penalty at a reduced figure is leviable, no infirmity can be found if such an order has been confirmed by both Commissioner (Appeals) and the Tribunal. 9. In fact, the Tribunal has recorded that demand of duty has been confirmed against the respondent assessee on a technical point by arriving at the assessable value of inter unit transferred goods based on the cost structure and there is no mala fide on part of the respondent assessee. In the circumstances, no question of law, as proposed or otherwise, much less a substantial question of law, can be said to arise out of impugned order of Tribunal so as to warrant interference. The appeal is accordingly dismissed. (D.A. MEHTA, J.) (HARSHA DEVANI, J.) shekhar/-