Commissioner of Central Excise vs Maruti Udyog Limited

M.M. Kumar, J.—This order shall dispose of C.E.A. Nos. 64 and 65 of 2009 as the issue raised in both the appeals is common. The facts are being taken from CEA No. 64 of 2009.

The revenue has approached this Court by filing the instant appeal u/s 35G of the Central Excise Act, 1944 (for brevity ''the Act'') against order dated 20.6.2008 (A.3) passed by the Customs, Central Excise and Services Tax Appellate Tribunal, New Delhi (for brevity ''the Tribunal'') by claiming that the following substantive question of law would arise for determination of this Court:

Whether the Hon''ble CESTAT was justified in setting aside the penalty imposed under Rule 13 of the Cenvat Credit Rules, 2002, on the ground that it is a case of interpretation of law, though the party knowingly availed and utilised inadmissible Cenvat Credit contravening the provisions of Rule 2(g), 3(1) and 6(1) of Cenvat Credit Rules, 2002 ?

Brief facts of the case, as disclosed in the appeal, are that the respondent assessee is engaged in the manufacturing of motor vehicles under Chapter heading 87.02 and 87.08 of the schedule to the Central Excise Tariff Act, 1985. The officers of Anti Evasion, Delhi III, Commissionerate Gurgaon visited the factory premises and found that the assessee-respondent had availed Cenvat Credit in respect of Naptha which is used as fuel in the manufacture of electricity to be used captively. Some portion of the so generated electricity is supplied to their vendors who are independent manufactures. The quantity of Naptha used in generation of electricity not used within the factory for production did not fall within the ambit of definition of ''input'' given in Rule 2(g) of the Cenvat Credit Rules, 2002 (for brevity ''the Rules'') and therefore credit on such Naptha is not admissible in terms of provisions of Rule 3(1) of the Rules. Therefore, cenvat credit taken on such quantities of Naptha which is used for manufacture of electricity and sold to their joint ventures and vendors is inadmissible in terms of Rule 6(1) of the Rules. The respondent-assessee was issued a show cause notice on 30.1.2004 (A.1) for wrongly availing the CENVAT credit to the tune of Rs. 67,17,876/-on quantity of Naptha utilised in generation of electricity supplied to joint ventures, vendors and spare parts division of M/s MUL from January 2003 to October, 2003 in as much as Naphtha used in generation of electricity not used within the factory of production, did not fall within the ambit of definition of'' input'' given in Rule 2(g) of the Rules and therefore credit on such Naphtha is not admissible in terms of provisions of Rule 3(1) of the rules. The case was adjudicated by the Commissioner of Central Excise who vide order dated 30.11.2003 (A.2) disallowed the proportionate credit of Rs. 67,71,876/-and penalty of equivalent amount under Rule 13 of the rules was imposed. The Commissioner also ordered charging of interest u/s 11AB. The respondent-assesse filed an appeal before the Tribunal. The Tribunal vide order dated 20.6.2008 (A.3) modified the order by maintaining the demand of Rs. 67,71,876/-alongwith interest but set aside the penalty of equivalent amount imposed under Rule 13 of the Rules. In support of the above conclusion, the Tribunal relied upon the judgement of Hon''ble the Supreme Court in the case of Collector of Central Excise Vs. Solaris Chemtech Limited and Others, wherein it is held that credit is not admissible on the inputs used as fuel for generation of electricity consumed by residential colony of factory workers, families, colonies etc. The Tribunal also observed that Adjudicating Authority has rightly disallowed the quantity of Naptha used for generation of electricity sold/supplied to joint ventures and vendors.

In order to appreciate the controversy as to whether the provision with regard to penalty is attracted to the facts of the present case it would be necessary to read Rule 13 of the Rules which reads thus:

Confiscation and penalty.-(1) If any person, takes CENVAT credit in respect of inputs or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said inputs or capital goods has been paid as indicated in the document accompanying the inputs or capital goods specified in Rule 7, or contravenes any of the provisions of these rules in respect of any inputs or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excigable goods in respect of which any contravention has been committed, or ten thousand rupees, whichever is greater.

(2) In a case, where the CENVAT credit has been taken or utilized wrongly on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of Section 11AC of the Act.

(3) Any order under Sub-rule (1) or Sub-rule (2) shall be issued by the Central Excise Officer following the principles of natural justice.

A perusal of sub rule (1) of Rule 13 of the Rules would show that if cenvat credit in respect of any inputs or capital goods have been obtained wrongly or without taking reasonable steps or making payment of appropriate duty then all such goods are liable to be confiscated and such a person has been made liable to penal action. Accordingly duty on the excigable goods in respect of which contravention has been committed has been provided. It is further provided that minimum amount of Rs. 10,000/is to be paid. Sub Rule 1 of Rule 13 of the Rules obviously talks of confiscation of goods and imposition of penalty. The use of word ''and'' is significant which would mean that it is in case of confiscation where such an accused can also be liable to pay penalty equivalent to the amount of duty. According to sub Rule 2 of Rule 13 of the Rules if cenvate credit has been taken or utilised wrongly on account of fraud, willful mis-statement, collusion or suppression of facts or contravention of any of the provisions made in the Act or the Rules with the intention to evade payment of duty then a dealer would be liable to pay penalty in terms of Section 11AC of the Act. The Hon''ble Supreme Court in the case of Union of India v. Dharamendra Textile Processors 2008(231) ELT (SC) has held that in the absence of specific requirement of the statutory provision to satisfy the ingredient of intention there would be no necessity to prove that the evasion of duty was intentional. According to the view taken by their Lordships the function of provision of Section 11AC of the Act is to provide machinery to enforce the civil liability and no mens rea would be required.

The aforesaid view has been further explained by their Lordships of Hon''ble the Supreme Court in the case of Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, holding that mandatory provisions of penalty u/s 11AC of the Act are not applicable automatically to every case of non payment of duty or short payment of duty. Therefore, to determine whether the penalty is impossible or not , it has been held in para 19 of the judgement that ''penalty u/s 11AC , as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section''. Accordingly Hon''ble the Supreme Court has held that the judgement in Dharmendra Textile Processors''s case (supra) is not an authority for the proposition that Section 11AC of the Act would apply to every case of non payment or short payment of duty regardless of fulfillment of the conditions expressly mentioned in the section for its application. It has further been held that application u/s 11AC of the Act would depend expressly or otherwise stated in that application but once it was found to be applicable then the concerned authorities would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined u/s 11(2) of the Act.

In the present case, the provisions of Rule 13(2) of the Rules specifically require that cenvat credit must have been taken or utilised wrongly on account of fraud, willful mis-statement, collusion or suppression of facts with the intention to evade payment of duty. We confronted Mr. Sehgal, learned Counsel for the revenue to point out any finding of availing cenvat credit by playing fraud, willful mis-statement, collusion etc. with the intention to evade payment of duty but he remained unable to show any such finding.. It is pertinent to notice that Rule 13(2) of the Rules uses strong expression like fraud, willful mis-statement, collusion or suppression of facts etc. with the intention to evade payment of duty. In the absence of any proof it has to be presumed that there was no such settlement involved in transaction. Mr. Sehgal, learned Counsel for the revenue was not able to read anything from the order of the Tribunal or that of the Commissioner to show any such proof. In the absence of any finding of fraud etc. it is not possible to assume the existence of fraud, willful misstatement, collusion or suppression of facts etc. with the intention to evade payment of duty. Moreover, in cases where the requirement of proving the intention to evade duty is not satisfiedproved then the question of invoking penalty clause would be impermissible. The language of Rule 11 AC is similar to Rule 13(2) which has been interpreted by Hon''ble the Supreme Court in Rajasthan Spinning and Weaving Mills'' case (supra). In that regard paras 18 and 19 of the judgement would be relevant which reads thus:

One can not fail to notice that both the proviso to sub Section 1 of Section 11A and Section 11AC use the same expressions: "...by reasons of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice u/s 11A (1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed u/s 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed u/s 11A

(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessee it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed u/s 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.

From the aforesaid discussion it is clear that penalty u/s 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section.

From the perusal of the aforesaid paras it is evident that penal clause would not be attracted to the facts of every case unless a categorical finding of fraud, collusion, willful-mis statement etc. with the intention to evade payment of duty have been recorded. In the absence of such a finding, the imposition of penalty is not automatic and cannot be levied. Accordingly, we hold that the appeal does not merit admission and the same is liable to be dismissed.

For the reasons recorded above, both the appeals fail and the same are dismissed.

A copy of this order be placed on the file of the connected file.