Union Of India vs M/S Rajasthan Spinning & Weaving Mills

3. Though both the appeals turn on a question of law, it would be nevertheless useful to take a brief look at the facts of the two cases. 3

4. In the appeal arising from SLP (C) No.15927/2007 the respondent- assessee is a manufacturer of P/V yarn. On July 12, 2000 the Preventive Party of Central Excise Division, Udaipur visited the assessee's factory premises and on scrutiny of its internal records took the view that in clearances of goods on ex-mill sales there was short payment of duty by Rs.1,09,682.00 and by Rs.69,900.00 on sales made from the assessee's depot. The short payment of duty, according to the Revenue, took place in the following circumstances. The assessee was collecting handling and forwarding charges at the rate of Rs.6.00 per bag/ carton up to October, 1996 and after that at the rate of Rs.8/-. The amount of handling and forwarding charges was shown in the invoices separately from the assessable value of the goods. During the material time the assessee had collected a sum of Rs.7,46,219.00 as handling and forwarding charges on its sales from the mill. The assessee paid duty only on the difference between the amount collected by it and the actual expenditure incurred on loading and handling of goods within the factory. In this way a sum of Rs.5, 59,603.00 was left out of reckoning for levy of excise duty. The excise duty on the aforesaid sum came to Rs.1, 09,682.00. In the same manner there was short payment of duty amounting to Rs.69, 900.00 on sales made from the assessee's depot.

5. On the aforesaid facts the Additional Commissioner, Central Excise, Jaipur issued a show cause notice to the assessee on March 27, 2001. In the notice it was expressly acknowledged that on being pointed out the assessee deposited the full amount of duty (that is, Rs.1,09,682.00 + Rs.69,900.00) on August 26, 2000. Nevertheless, the notice went on to say that with effect from October 1, 1996 the requirement to submit the invoices to the Central Excise department was dispensed with and the assessee had discontinued submitting its invoices to the concerned authorities. This resulted into suppression of material facts on its part that the handling and forwarding charges were not being added on to the assessable value of the goods. The Additional Commissioner, therefore, invoked the provision of penalty as well. The assessee filed its show cause against imposition of penalty but the Joint Commissioner by his order dated September 26, 2001 not only confirmed the demand of duty (that was already deposited by the assessee) but also imposed penalty amounting to Rs.1,79,522/- under section 11AC of the Act. On appeal, however, the Tribunal set aside the imposition of penalty on the sole ground that the assessee had made payment of the full duty amount even before the issuance of notice.

6. M/s Lanco Industries Limited, the respondent-assessee in the appeal arising from SLP (C) No. 4078/2008 is a company engaged in the 5 manufacture of pig iron. The assessee sold pig iron and molten metal to another company called M/s. Lanco Kalahasthi Castings Limited (LKCL) which was in existence at the material time before its amalgamation with the respondent company, with effect from, April 8, 2004 as per the order of the Andhra Pradesh High Court, dated February 20, 2004 in Company Petition no. 182-83/ 2003. LKCL had its factory at a distance of about 150 metres from the assessee's factory where the pig iron and molten metal, on sale, were transferred for manufacture of ductile iron pipes by the transferee company. The sold goods were cleared from the factory of the assessee on payment of central excise duty on transaction value, that is, the price actually charged by it from LKCL. LKCL would get full CENVAT credit for the duty paid by the respondent company and would reimburse to the assessee the amount of duty at actuals.

7. The Central Excise officers on scrutiny of the annual record of the respondent for the period July 1, 2000 to March 31, 2004 took the view that the assessee had been clearing molten iron and pig iron to M/s. LKCL on an improper assessable value. In the annual reports of the respondent company for the years 2000-01 and 2001-02 LKCL was listed as one of its associate companies. The annual reports further revealed that the two companies had a number of common directors on their respective boards, as key managerial 6 personnel. The common directors were also related to each other. The two companies were having related party transactions in the form of sale of goods etc. In light of the facts disclosed in the respondent company's annual reports the Central Excise authorities took the view that after the amendment of Section 4 with effect from July 1, 2000, in relation to the respondent company, LKCL was `related person' within the meaning of section 4(3) (b)

8. The assessee in his reply explained that it had deposited the entire amount of the demand on the same day (July 27, 2005). Moreover, the whole exercise was revenue neutral and, therefore, there was no reason to impose interest, much less any penalty. The Commissioner, however, not only confirmed the demand of duty but by his order dated January 25, 2006 also levied interest under section 11AB and 100% penalty under section 11AC of the Act observing whether or not the demand was revenue neutral was not relevant to the issue before him. Against the order of the commissioner the assessee filed an appeal before the Customs Excise and Service Tax Appellate Tribunal. The Tribunal allowed the appeal by its order dated September 5, 2006 as noted above.

21. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application.

25. In light of the discussion made above it is evident that in both the appeals, orders were passed by the Tribunal on a wrong premise. In both the appeals, therefore, the impugned orders passed by the Tribunal are set aside and the matters are remitted to the respective Tribunals for fresh consideration, in accordance with law, and in light of this judgment. As the matters are quite old it is hoped and expected that the Tribunal would pass the final order within four months from the date of the receipt of this order.

26. The two appeals are allowed but with no order as to costs.