Commissioner of Central Excise vs Ucal Fuel Systems Ltd.

T.S. Sivagnanam, J

This appeal by the Revenue is directed against the Final Order dated 3-5-2007 passed by the Customs Excise and Service Tax Appellate Tribunal (in short, "the Tribunal") by Final Order No. 471 of 2007 [2007 (216) E.L.T. 370 (Tri.-Chennai). The facts, which are necessary for disposal of the appeal, are that-

(i) the 1st respondent/assessee are manufacturers of Carburetors for Cars and they supply Carburetors to M/s. Maruti Udyog Limited, Gurgaon to be fitted into their Esteem and ZEN models of cars manufactured by them.

(ii) The assessee was issued a show cause notice dated 28-4-1999 stating that they have collected charges towards technical know-how and this fact was not informed to the department and they have not discharged the duty thereon on the said technical know-how charges and this came to light at the time of inspection and the assessee was called upon to show cause as to why the duty involved on the charges of technical assistance to the tune of Rs. 15,22,036/- should not be demanded from them under Rule 9(2) of the Central Excise Rules r/w proviso to sub-section (1) of Section 11A of the Central Excise Act; as to why the duty of Rs. 2,21,422/- subsequently paid by the assessee by challan dated 2-12-1997 should not be confirmed; why a penalty should not be imposed under Rule 9(2), 173Q of the Central Excise Rules, 1944 and Section 11AC of the Central Excise Act, 1944 and why interest under Section 11AB should not be charged.

(iii) The assessee submitted their reply contending that they have received the technical know-how fee from M/s. Maruti Udyog Limited for development of their Carburetors in two instalments and the amount so received as technical charges was transferred to Mikuin Shoka Corporation, Japan, their technical collaborator and the assessee acted only as a conduit between Maruti Udyog Ltd. and the Japanese Company, without any monetary gain/pecuniary advantage flowing to them.

(iv) It was further submitted in the reply that as insisted by the Preventive party, the excise duty amount on the entire know-how fee was deposited in their P.L.A. without even taking into regard the amortization over the purchase order quantity and the supplied quantity, if they had retained the said amount, even then, they do not at all stand to gain by not paying the duty thereon by suppressing the fact of receipt of the know-how charges, since whatever duty they pay on the said amount will be availed a Modvat credit by the buyer of the goods and consequently reimbursed to them, there was no mala fide intention on their part, which does not call for invocation of the proviso to Section 11A of the Act.

(v) It was further submitted in the reply that the duty demanded by the show cause notice is only Rs. 2,21,422/-, whereas the assessee has already deposited Rs. 15.42 lakhs on 2-12-1997, by mistake and requested the same to be re-credited, being the excess over the demand raised in the show cause notice.

(vi) The Original Authority, did not accept the explanation submitted by the assessee and confirmed the demand made in the show cause notice by demanding the excise duty and imposing penalty and interest by order dated 12-8-1999.

(vii) Aggrieved by the said order dated 12-8-1999, the assessee preferred an appeal before the Commissioner (Appeals) and reiterated the contentions raised before the Original Authority.

(viii)The First Appellate Authority did not accept the case of the assessee and by order dated 18-1-2000 rejected the appeal. Aggrieved by the same, the assessee preferred an appeal before the Tribunal and the Tribunal by order dated 30-4-2007 accepted the case of the assessee and pointed out that the assessee can hardly have a case against the demand of duty on the amortized technical know-how fee, which required to be included in the assessable value of the goods and the demand having been honoured much prior to the issuance of the show cause notice, placing reliance upon the decision of the Hon''ble Supreme Court in the case of Commissioner v. Rashtriya Ispat Nigam Ltd. reported in 2004 (163) E.L.T. A53 (S.C.) no penalty could be imposed under Section 11AC of the Act and following the same reason, the Tribunal held that interest also is not leviable under Section 11AB of the Act.

(ix) Aggrieved by the said order, the Revenue has filed this appeal and seeks admission of the appeal raising the following substantial questions of law,

"1. Whether the quantum of penalty under Section 11AC of the Central Excise Act, 1944 is mandatory in nature or not?

Whether under Section 11AB of the Central Excise Act, 1944 interest liability accrues whenever there is belated payment of duty or not?"

We have heard Mr. A.C. Manibharathi, learned Standing Counsel for the appellant and Mr. C. Saravanan, learned counsel for the assessee and perused the material placed on record.

The short question that falls for consideration is as to whether the assessee''s claim was bona fide or as to whether the assessee has acted in a manner willfully evading the payment of tax?

We have perused the explanation given by the assessee to the show cause notice. It is a specific case of the assessee that the technical charges which were received from M/s. Maruti Udyog Limited for development of their Carburetors was transferred to the Japanese Company, who were their technical Collaborator and they acted only as a conduit between M/s. Maruti Udyog Ltd. and the Japan Company, without any monetary gain or pecuniary advantage. Further, the assessee had specifically taken a stand that they do not stand to gain by not paying the duty thereon by suppressing the fact of receipt of the amount of know-how charges, since, whatever duty they pay on the said amount will be availed as Modvat Credit by the buyer of the goods and consequently reimbursed to them and there is no mala fide intention on their part and at best, it could be considered as inaction due to ignorance on their part. This aspect of the matter was not taken into consideration by the Original Authority as well as the First Appellate Authority. In fact, the First Appellate Authority without assigning any reason, merely stated that the plea raised by the appellant is not acceptable, since they have now shown any documentary evidence to support their plea that they have not corresponded with the department seeking clarification thereon and therefore, held that it was not a bona fide plea. We do not agree with the view expressed by the First Appellate Authority in this regard. It is not the case of the department that the plea raised by the assessee was false. The assessee has acted as a conduit and in fact the Preventive Unit having pointed out the mistake, immediately amortised the technical charges and they have also agreed to pay the duty thereon. In such circumstances, the action of the assessee cannot be termed as action lacking in bona fide.

That apart, During the period relevant to the demand in question. Section 11AB of the Act read as follows:--

Section 11AB. Interest on delayed payment of duty.--(1) Where any duty of excise has not been levied or paid or has been short-levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty, the person liable to pay duty as determined under sub-section (2) of Section 11A shall, in addition to the duty, be liable to pay interest at such rate not below ten per cent and not exceeding thirty per cent per annum, as if or the time being fixed by the Board, from the first day of the month succeeding the month in which the duty ought to have been paid under this Act or the rules made thereunder or from the date of such erroneous refund, as the case may be, but for the provisions contained in sub-section (2) of section 11A, till the date of payment of such duty.

(2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to cases where the duty became payable before the date on which the Finance (No. 2) Bill, 1996 receives the assent of the President.

Explanation I--Where the duty determined to be payable is reduced by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, the interest shall be payable on such reduced amount of duty.

Explanation II--Where the duty determined to be payable is increased or further increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, the interest shall be payable on such increased or further increased amount of duty".

The requirement as to suppression of fact of willful mis-statement with an intent to evade payment of duty as conferred in Section 11AB of the Act was however given up and Section 11AB by itself substituted by Act 14 of 2001 -Section 125 with effect from 11-5-2001. Thus, during the relevant material time, Section 11AB as it stood then, would stand attracted on the levy of interest on delayed payment of duty only when Excise duty was not levied or paid or short-levied or short paid or erroneously refunded by reason of fraud, collusion or any, willful mis-statement or suppression of facts or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty. Thus, when the explanation given by the assessee is found to be bona fide and when the action of the assessee did not lack bona fide and when there being no intention to evade payment of duty, the Tribunal rightly set aside the payment of interest and penalty. In such circumstances, going by the provisions of the said Act and the facts found by the Tribunal, we have no hesitation in confirming the order of the Tribunal.

Further, the Tribunal has observed that the assessee had paid duty before the show cause notice, which shows that there could be no demand of penalty or interest. In such view of the matter, we do not think one can go by that reasoning, without considering the merits of the legal contention, particularly in the context of the decision of the Hon''ble Supreme Court reported in Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, . However, taking note of the provisions as it stood at the relevant time, we hold that the facts of the case does not call for levy of interest and penalty under Sections 11AB and 11AC of the Act. Hence, the Civil Miscellaneous Appeal is dismissed. No costs.