Commissioner of Central Excise vs Tripura Containers Pvt. Ltd.

Harsha Devani, J.—In this appeal u/s 35G of the Central Excise Act, 1944 (the Act), the Appellant-revenue has challenged order dated 31st March, 2009 [2009 (241) E.L.T. 279 (Tribunal)] passed by the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) proposing the following two questions:

(1) In view of the facts and circumstances said above, whether the Hon''ble CESTAT is justified in imposing penalty under Rule 27 of the Central Excise Rules, 1944, when it is established that the case is of wrong availment of CENVAT credit on input which were neither brought into the factory of the Assessee or utilized in or in relation to the manufacture of finished products?

(2) In view of the facts and circumstances said above, whether the Hon''ble CESTAT is justified in not appreciating the Order-In-Original No. MP/30/Offence/07-08 dated 11-3-2008, passed by the Assistant Commissioner, Central Excise, Division-Ill, Ahmedabad-II, confirming the duty of Rs. 2,79,969/-, penalty of Rs. 2,79,969/-and interest at the prescribed rate on the Assessee and imposing penalty of Rs. 25,000/- on the Director, Shri Harendrabhai H. Mehta under Rule 26 of Central Excise Rules, 2002, and rejecting the appeal of the Revenue, upholding the Order-in-Appeal No. 167 to 168/2008(Ahd.-II)/CE/ID/Commr.(A)/Ahd., dated 19-12-2008, passed by the Commissioner (Appeals-I), Central Excise, Ahmedabad?

The facts stated briefly are that the Respondent is engaged in the manufacture and sale of M.S. Barrels. During the course of a search carried out by the Central Excise Preventive Wing, it was found that the Respondent during the period from October, 2006 to December, 2006 purchased M.S. Drums from other manufacturers of drums and sold them to various buyers without carrying out any manufacturing process thereon. However, it had availed of CENVAT credit on the said drums and sold the same on payment of duty. A show-cause notice dated 2nd August, 2007 came to be issued to the Respondent seeking to recover CENVAT credit to the tune of Rs. 2,79,969/- u/s 11A(1) of the Act and also proposing interest and penalty under Sections 11AB and 11AC of the Act in respect of the said clearances. The show-cause notice came to be adjudicated vide order dated 11th March, 2008 confirming the duty, penalty and interest. The Assessee carried the matter in appeal before the Commissioner (Appeals) who set aside the order made by the adjudicating authority and allowed the appeal. The Commissioner (Appeals) found that the Assessee had purchased M.S. Drums from manufacturers of drums and had availed CENVAT credit on the duty paid on such drums. The Assessee had not undertaken any manufacturing process on the said drums but sold the same to the buyers raising central excise invoices and discharging central excise duty thereon. According to the Commissioner (Appeals), if the Assessee had paid excise duty, then it was entitled to avail CENVAT credit even if no manufacturing was undertaken on the purchased goods. It was noted that in the present case, the Assessee had paid the central excise duty on the purchased drums and after selling the same it had also discharged the duty thereon and cleared the same under central excise invoices. The Commissioner (Appeals) also found that the Assessee had filed returns in the Department and that the said transactions were duly reflected in the said returns and that there was no suppression of facts whatsoever. In the light of the aforesaid facts, Commissioner (Appeals) was of the view that even if the Assessee had wrongly availed of CENVAT credit, ultimately the Assessee had paid central excise duty thereon and as such the transaction was revenue neutral. He, however, was of the opinion that there was a technical lapse and accordingly while allowing the appeal he issued a warning to the Assessee to follow the correct procedure as per law in future.

Being aggrieved, the revenue carried the matter in appeal before the Tribunal, who, vide the impugned order upheld the order of the Commissioner (Appeals) to a large extent but held that since there was a lapse on the part of the Respondent, penalty was required to be imposed in terms of provisions of Rule 27 of the Central Excise Rules, 2002 (the Rules) which provides for maximum penalty of Rs. 5,000/- and ordered accordingly.

Assailing the impugned order passed by the Tribunal, Ms. Sejal Mandavia, learned Standing Counsel for the Appellant invited attention to the order made by the adjudicating authority, to submit that the adjudicating authority has recorded a finding of fact to the effect that the Assessee had availed of CENVAT credit on drums which had been cleared on payment of Central Excise duty without undertaking any process thereon and without bringing the same in its factory premises. M.S. Drums being finished goods cannot be treated as input and as such, the Assessee was not entitled to avail of CENVAT credit in respect thereof. The Assessee had indulged in the activity of trading of drums only and not manufacturing and as such, had wrongly taken the CENVAT credit on the M.S. Drums so purchased. It was submitted that in the light of Rule 3(1) of the CENVAT Credit Rules, 2004, the Assessee was not entitled to avail of CENVAT credit in relation to any activity which did not amount to manufacturing activity and as such, the Tribunal was not justified in confirming the order of Commissioner (Appeals) to the extent he had set aside the duty imposed and the penalty levied u/s 11AC of the Act read with Rule 25 of the Rules.

As can be seen from the impugned order of the Tribunal, the Tribunal upon appreciation of the evidence on record has concurred with the findings of fact recorded by the Commissioner (Appeals). The Tribunal has noted that the CENVAT credit which was availed by the Assessee was utilised for payment of duty on the final product and as such the credit, even if wrongly availed, stood paid back to the revenue when the duty was paid on the final product, which even according to the revenue was not required to be paid. As such, the entire situation being revenue neutral, there was no justification for confirmation of demand of MODVAT credit. However, in the light of the procedural infraction, the Tribunal was of the view that penalty was required to be imposed u/s 27 of the Rules, which provides for maximum penalty of Rs. 5,000/- and ordered accordingly.

From the facts noted hereinabove, it is apparent that the Assessee had purchased the M.S. Drums from manufacturers. On the M.S. Drums so purchased by it the Assessee had availed of CENVAT credit. The Assessee sold the said M.S. Drums to purchasers without undertaking any manufacturing activity thereon. As such, the M.S. Drums not having been used as inputs for manufacture of final product, the Assessee was not entitled to avail of CENVAT credit in respect thereof. However, as noted by both the Commissioner (Appeals) as well as the Tribunal, though the Assessee had availed of CENVAT credit on the M.S. drums purchased by it, it had sold the same to buyers raising central excise invoices and had discharged central excise duty thereon. Thus, on the one hand, while the Assessee was not entitled to avail of CENVAT credit on the M.S. Drums purchased by it, correspondingly there was also no obligation on it to pay central excise duty on the sale thereof as it had not carried out any manufacturing activity thereon. Thus, the entire exercise is revenue neutral inasmuch as though CENVAT credit had been wrongly availed, central excise duty had been paid on the goods in respect of which CENVAT credit had been availed.

Insofar as invocation of the provisions of Section 11AC of the Act and Rule 25 of the Rules is concerned, in the entire order of the adjudicating authority there is no finding to the effect that there is any fraud, misrepresentation or suppression of facts or that there is contravention of the provisions of the Act or Rules with intent to evade payment of duty on the part of the Assessee. Rule 25 of the Rules provides for levy of penalty in case of any contravention of the nature referred to in Clauses (a) to (d) therein. Rule 25 opens with the words, "subject to the provisions of Section 11AC of the Act". Thus, for the purpose of invoking the said Rule, the requirements of Section 11AC of the Act are required to be satisfied, namely that the default should be occasioned by reason of fraud, collusion or any willful misstatement or suppression of facts, or the contravention of any of the provisions of the Act or Rules should be with the intent to evade payment of duty. Unless, the said basic ingredients are satisfied, the question of invoking either Section 11AC of the Act or Rule 25 of the Rules would not arise. In the circumstances, in the absence of any such finding having been recorded by the adjudicating authority, the question of imposing penalty u/s 11AC of the Act and Rule 25 of the Rules would not arise.

In the light of the aforesaid discussion, it is not possible to state that there is any infirmity in the impugned order of the Tribunal so as to warrant-interference. No question of law, much less, a substantial question of law, can be stated to arise out of the impugned order of the Tribunal. The appeal is accordingly dismissed.