Tien Yuan India Pvt. Ltd. vs Commissioner of C. Ex. and Cus., Belapur

This appeal by the assessee arises out of an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) dated 28 December 2010 on an application for waiver of pre-deposit. The CESTAT has directed the Appellant to deposit an amount of Rs. 1.93 Crores. The order of the CESTAT records that the Appellant had already deposited an amount of Rs. 2 Crores out of the Cenvat credit of Rs. 3.93 Crores which is alleged to have been wrongfully availed of. By the impugned order the Appellant has been directed to deposit the balance. The Appeal is admitted on the following substantial question of law:

Whether having regard to the facts as found prima facie in the order of the CESTAT, there was any justification to require the Appellant to deposit an amount of Rs. 1.93 Crores on the application for waiver of pre-deposit u/s 35F of the Central Excise Act, 1944.

The Appellant has a unit at Jammu and at Taloja. The unit at Jammu falls in an area which is governed by an area based exemption Notification 56/2002-C.E. The allegation against the Appellant is that the Jammu unit cleared 233 consignments of Deterpenated/Fractionated Menthol Oil (DFMO), to the Taloja unit between April 2005 and October 2006. The Taloja unit availed of Cenvat credit and utilized it for the payment of duty on its final products. The final products were exported through merchant exporters under a claim for rebate. According to the Revenue, the goods cleared under the 233 invoices from the Jammu unit to the Taloja unit were not DFMO, but Crude Menthol Oil which is a raw material for the manufacture of DFMO. Consequently, the case of the Revenue is that the Jammu unit actually cleared what was an input which was not excisable; the Jammu unit paid duty in the guise of clearing DFMO with the fraudulent intent to claim a refund in terms of Notification 56/2002-C.E. and to enable the Taloja unit to avail of Cenvat credit. A notice to show cause was issued upon which an order of adjudication was passed confirming the demand and imposing a penalty The Commissioner demanded duty of over Rs. 22 Crores from the Jammu unit and imposed an equal amount of penalty. An equal amount of duty was demanded from Taloja unit by denying Cenvat credit taken on the goods supplied by the Jammu unit. Personal penalties have been imposed on the directors.

The order passed by the CESTAT records that during the investigation the Jammu unit paid an amount of Rs. 3.93 Crores while the Taloja unit paid an amount of Rs. 2 Crores. The Tribunal, as regards the Jammu unit relied upon an order of adjudication passed on 31 March 2008 by the Commissioner of Central Excise, Jammu who found that during the period April 2005 to December 2006 (which also covers the period of dispute in the present Case), the Jammu unit manufactured DFMO out of Crude Menthol Oil and had correctly paid duty and taken a refund under the exemption notification, The order of adjudication of the Commissioner of Central Excise at Jammu was. according to the Tribunal accepted by the Revenue. The Tribunal therefore held that the Revenue is estopped from alleging, that during period in dispute, the Jammu unit cleared Crude Menthol Oil without subjecting it to the process of manufacture. On this ground, it was held that the Jammu unit had made a prima facie case against the demand of duty and penalty.

The dispute now centers around the liability of the Taloja unit in the application for waiver of pre-deposit. The Taloja unit took Cenvat credit on the duty paid on the raw material supplied by the Jammu unit. Raw material was utilized for the manufacture of final products and the Taloja unit availed of credit of the duty paid on the inputs. The Jammu unit initially paid an amount of Rs. 22 Crores at the time of clearance of the product to the Taloja unit. The credit of the entire amount was taken by the Taloja unit in the Cenvat account. An amount of Rs. 3.93 Crores was paid by the Jammu unit during the course of investigation. A refund application is pending but as recorded by the Tribunal no refund has been still made.

The Tribunal noted that in addition to the amount of Rs. 3.93 Crores which was paid back by the Jammu unit, the unit at Taloja had also paid an amount of Rs. 2 Crores. The Tribunal, however, directed the unit at Taloja to deposit even the balance of Rs. 1.93 Crores.

Counsel appearing on behalf of the Appellant submitted that (i) The Appellant is ready and willing to make a statement that it shall not claim back a refund of Rs. 3.93 Crores claimed by the Jammu unit pending the disposal of the appeal before the Tribunal; (ii) The Appellant has already deposited an amount of Rs. 2 Crores during the course of the investigation in respect of its Taloja unit; (iii) There was in the circumstances no justification to direct the Appellant to pay back even the balance of Rs. 1.93 Crores. On merits, it was urged that the Tribunal has found a prima facie case in favour of the Jammu unit. In the circumstances, the demand as against the Taloja unit was in the nature of a protective demand, hence a waiver should have been granted for the balance.

On the other hand counsel appearing on behalf of the Revenue has substantially relied on the impugned order of the Tribunal and we have, with the assistance of the counsel, perused the order and the record.

As we have noted earlier the Tribunal has found a prima facie case in favour of the Appellant as regards the Jammu unit based on the order of the Commissioner of Central Excise, Jammu dated 31 March 2008. In that order, the adjudicating authority came to the conclusion that during the period in dispute the Jammu unit had actually manufactured DFMO out of Crude Menthol Oil and had rightly paid duty on the product and claimed a refund under the exemption notification. As regards the Taloja unit, it is an admitted position that Rs. 2 Crores has been deposited during the course of the investigation. As we have noted earlier, counsel appearing on behalf of the assessee has stated that the assessee will not during the pendency of the appeal before the Tribunal press its claim for refund of Rs. 3.93 Crores in respect of the amount paid by the Jammu unit. We record that statement. In that view of the matter, we are of the view that since the Appellant has already deposited an amount of Rs. 2 Crores out of the total Cenvat credit of Rs. 3.93 Crores alleged to have been taken wrongly, the Revenue would be sufficiently secured in terms of the statement made on behalf of the Appellant as noted herein above. For the aforesaid reason, we dispense with the requirement of the deposit of the balance of Rs. 1.93 Crores as ordered by the Tribunal. The Appeal shall accordingly stand disposed of by dispensing with the requirement of depositing of a further amount of Rs. 1.93 Crores as directed by the Tribunal, subject to the Appellant filing an undertaking before the Tribunal within a period of two weeks from today that the Appellant shall not, during the pendency of the Appeal, seek a refund of the amount of Rs. 3.93 Crores which forms the subject matter of a claim pertaining to the Jammu unit. The Appeal is accordingly disposed of. The Tribunal is requested to expedite the disposal of the Appeal and to endeavour to do so preferably within a period of six months from the date on which a certified copy of this order is produced before it.