By TIOL News Service

AHMEDABAD, SEPT 16, 2013: TWO issues arise for consideration in this case. When the goods are cleared by one of the units of a company to another unit of the same company for utilization in the manufacture of another final product and the duty paid on the first unit is utilized for payment of duty on the final product, whether duty demand on the first unit on the ground that the value had not been arrived at properly can be sustained and if so whether such a demand can be sustained by invoking extending period on the ground of suppression of facts/ misdeclaration and if not whether differential duty is liable to be paid within the period of limitation.

The Member (J) observed that in as much as manufacturing unit as well as the buyer unit belong to the same company, revenue-neutral situation exist in relation to variation in duty liability and confirmation of demand is not justified. She found no justification in confirmation of demand for imposition of penalty against the appellant and set aside the same.

The Member (T) did not agree.

Revenue Neutrality : The Member (T) observed that the Tribunal is a creation of statute and therefore cannot take equity as a consideration. Further the question to be examined is whether the relief claimed by the department would result in any benefit to Revenue or not but what is to be examined is whether in terms of law the differential duty is payable or not.

On Revenue neutrality, he observed, “ It has to be noted that even when there was no BSNL and Telecom Department of Government of India used to provide telephone services, all the other departments of Government of India were required to pay telephone bills just like any other customer. This would mean the government was paying for the telephone services to itself. Secondly if we take the example of postal service even today every Government Department of Central Government is required to affix stamps on envelops and pay for other services just like any other customer. Government of India prints stamps specially for this purpose, postal department collects money for the stamps and releases the same to government departments who affix such stamps and send envelopes. Elaborate accounts of expenditure incurred on stamps and other postal expenses are maintained by all government departments . Even though this results in putting money from one pocket of the same person to another pocket of the same person, government continues to do this. A government which does not exempt its own department for payment for the services rendered on the ground of revenue neutrality and on the ground that there cannot be payment by the person who is receiving the service to the same person who is providing the service only because they happened to be two parts of the same person, question arises whether we can justify revenue neutrality when payment is made by a person to the government and when other person takes credit and uses it only because situation becomes revenue neutral.

When such is the situation, I am unable to understand why the government should not recover the amount from one unit when goods are cleared to another unit of the same factory when as per law, central excise duty is required to be discharged after payment of duty on the value determined at the time and place of removal. A relief from the statutory liability on the ground that the credit is available to the other unit and the government would be collecting the money and putting it in one pocket and putting the same money in another pocket later does not appear logical. Further we have to take note of the fact that there is no guarantee that the goods which have been cleared would reach the other unit definitely. Once the duty is paid, the appellant would be free to dispose of the goods whatever way he deems fit. There is no rule that goods should be sent to the same person to whom the same is invoiced and a fresh invoice can at any time be prepared and goods diverted so long as there is no violation of any law and in central excise once full duty is paid, the appellant has no obligation whatsoever as regards disposal unless he has availed a conditional exemption notification. Under these circumstances just because credit is available to the other unit, there cannot be a general principle that when credit is available to the other unit and duty paid is more than the credit taken, the situation would be revenue neutral.

There is another possibility also. Even after the goods have reached the unit, the goods may be disposed of without utilizing in further manufacture which is permitted as per central excise law. As of now the only requirement is the credit taken has to be reversed. Therefore under the present legal situation, even after receipt of the goods by the second unit, the second unit could dispose of the goods by simply reversing the credit taken. In this case the revenue neutral situation would not be valid.”

Limitation and neutrality : On limitation, he observed, “However for invoking extended period under Section 11A of Central Excise Act, suppression of facts, misdeclaration , fraud and collusion etc with intent to evade duty is required to be proved. Therefore unless the department is able to establish that there was an intention to evade duty on the part of the assessee and there was suppression of fact/ misdeclaration /fraud etc. extended period cannot be invoked. The normal assumption when goods are cleared to the own unit of the appellant and the unit receiving the goods is taking the credit and pay more duty on the final product is that there was no intention to evade duty by under declaring the value because by under-declaration, the assessee does not gain any benefit. In such a situation naturally the department may have to show that there was an intention to evade duty which could probably be done by showing that the goods are diverted.”

So he held that “in this case there is no evidence produced by the department to show that assessee had an intention to evade payment of duty by under declaring the value. Therefore extended period cannot be invoked in this case. Once extended period cannot be invoked, penalty under Section 11AC also cannot be justified and sustained. In such an event, the demand has to be limited to the normal limitation period.

To the Third Member : So the following question was referred to the Third Member, ” Whether the demand for the normal period of limitation without invoking extended period has to be upheld as observed by Member (Technical) or whether the demand for the entire period has to be set aside as held by learned Member (Judicial) .”

The Third Member held that the demand of duty liability within the limitation period as provided under Section 11A (1) will be applicable, as has been held by the Member (Technical).

Final Order : In view of the majority order demand of duty within the period of limitation is upheld, which is required to be quantified by the Original Adjudicating Authority. The interest liability would be examined by the Original Adjudicating Authority in accordance with law. However, the demand beyond the period of limitation is set aside along with setting aside of penalties imposed upon all the appellants.

(See 2013-TIOL-1364-CESTAT-AHM)