By TIOL News Service

AHMEDABAD, JUNE 19, 2014: THE prelude to the case goes a long way.

Background:

During the period March, 1994 to September, 1998, IOCL cleared Xylene Reformate to the appellant on payment of duty. The duty paid by IOCL @ 10% and 15% was taken by IPCL as MODVAT Credit. SCN was issued invoking extended period of limitation to re-classify the Xylene Reformate and to demand duty @ 20% and 18% from the IOCL.

An order was passed confirming the duty demand of Rs.14.36 crores and an equivalent penalty was imposed u/s 11AC of the CEA, 1944 and interest u/s 11AB of the CEA, 1944.

The Committee of Disputes permitted IOCL to contest the order to the limited extent of the penalty and interest imposed.

Accordingly, IOCL paid the entire demand of duty confirmed of Rs.14.36 crores on 09.02.2000 and filed an appeal before the CESTAT challenging the penalty and interest imposition on the ground that there was no suppression or misstatement on their part.

The Tribunal vide its order dated 23.03.2001 upheld the penalty u/s 11AC for the period from 28.09.1996 when the section came into force.

IOCL filed an appeal before the Gujarat High Court and the matter was remanded for decision afresh in the matter of penalty post 28.09.1996.

Consequently, the Tribunal heard the matter afresh and passed a final order on 17.05.2005 accepting the contentions of IOCL that there was no suppression of facts or misstatement etc. and, therefore, penalty u/s 11AC could not be imposed on them for the period post 28.09.1996.

After seeking opinion of their legal counsel IOCL issued 83 supplementary invoices, all dated 13.04.2006, to IPCL covering the differential duty of Rs.13,99,12,911/- (out of Rs.14,36,74,091/-) paid by IOCL on 09.02.2000 in respect of Xylene Reformate cleared by IOCL to the IPCL during August, 1994 to August, 1997.

IOCL also issued certificate dated 18.09.2006 to the effect that the differential duty amount of Rs.13.99 crores was paid on the quantity of Xylene Reformate manufactured and cleared to IPCL during August, 1994 to August, 1997. This certificate was duly signed and endorsed by the Superintendent of Central Excise having jurisdiction over the factory of IOCL.

Based on the supplementary invoices and the certificate, IPCL took credit of differential duty of Rs.13.99 crores in the month of November, 2006.

ER-1 Return for November 2006 was filed by IPCL providing such details.

The present case commences:

On 07.12.2007 a SCN was issued to IPCL proposing to deny the aforesaid credit availed and for imposition of penalty on IPCL and IOCL.

The CCE, Vadodara-I vide order dated 30.12.2008 confirmed the demand of Rs.13.99 crores against IPCL along with interest u/s 11AB & imposed penalty of Rs.50 lakhs u/s 15(1) of CCR, 2004 and a penalty of Rs.50 lakhs u/r 25(1) of CER, 2002 on IPCL. The Commissioner also imposed penalty of one crore rupees on IOCL under Rule 173Q(1)(bbb) of erstwhile CER, 1944.

Both the appellants are before the CESTAT.

The pre-deposit was waived and the Stay petition was allowed unconditionally by CESTAT on 04.08.2009. We had reported this order as - 2009-TIOL-2464-CESTAT-AHM.

The appeal was heard on 28.04.2014 & the final order was passed three days back.

After hearing the extensive submissions made by both sides sprinkled with case laws, the Bench crystallized the issues thus -

++ Whether IOCL was eligible to pass on credit as per the provisions of Rule 57E of the Central Excise Rules, 1944.

++ If answer to point above is yes, whether the IOCL could issue 83 supplementary invoices on 13.04.2006 or the same could issue Certificate dated 18.09.2006 under Rule 57E of erstwhile Central Excise Rules, 1944 in respect differential duty liability of Rs.13,99,12,911/- pertaining to the period under Order-in-Original (August 1994 to August 1997) to IPCL for duty paid by IOCL on 09.02.2000.

On the first issue the Bench extracted paragraph 6 of the Tribunal's order dated 23.03.2001 and observed that the Tribunals Order does not suggest that the issue of passing of credit as per the provisions of Rule 57E, though raised by the appellant, was adjudicated by the Tribunal and have thus attained finality. Inasmuch as it only conveyed the Tribunal's observation that the issue could not be taken up by the Tribunal in view of limited scope of appeal filed by the appellant on the issue of imposition of penalty.

Agreeing with the appellant that this issue was not adjudicated by the Tribunal (in its earlier order dated 23.03.2001) and thus the question of attaining its finality does not arise, the Bench held that the impugned credit was admissible to IPCL.

On the second issue, the Bench observed that an identical case was dealt with by the Mumbai bench of the Tribunal in the case of CCE, Raigad vs. ONGC Ltd. - 2012-TIOL-1031-CESTAT-MUM and after extracting paragraphs 32 to 35 of the said order, the CESTAT held -

+ In the present case, on the date of payment of differential duty on 09.02.2000, and also during the period of demand, erstwhile Central Excise Rules, 1944 were in force.

+ The differential duty liability was cast on IOCL vide Order dated 25.08.1999 along with interest under Section 11AB and penalty under Section 11AC. Therefore, on receipt of the said order-in-original dated 25.08.1999 also IOCL could not issue certificate in terms of Rule 57E of the CER, 1944 in force during material time on account of exception clause contained in the prevailing Rule 57E(3) of the CER, 1944 because penalty on account of suppression etc. under Section 11AC was imposed on IOCL by the adjudicating authority.

+ IOCL paid differential duty of Rs.14,36,74,091/- on 09.02.2000 against OIO dated 25.08.1999 but filed an appeal with the CEGAT against imposition of interest and penalty. The CEGAT vide Final Order No.36/2001-C & S.O. No.15/2001-C dated 23.03.2001 decided the appeal against IOCL so far as the imposition of penalty under Section 11AC of the Central Excise Act on IOCL was concerned for the period after 28.09.1996. But the fact remained that there could be a suppression of facts etc. on the part of the IOCL for the period prior to 28.09.1996. Therefore, even after the said order dated 23.03.2001, the IOCL could not issue any certificate under Rule 57E to enable IPCL to avail credit of additional duty liability paid by IOCL on 09.02.2000 by virtue of exception contained in Rule 57E(3). IOCL filed an appeal before the High Court of Gujarat against the Order dated 23.03.2001 of the CEGAT. The Hon'ble Gujarat High Court set aside the said CEGAT Order dated 23.03.2001 and directed the CEGAT to consider the issue of imposition of penalty under Section 11AC of the Act for the period after 28.09.1996 afresh. The CESTAT pursuant to the High Court's Order heard the matter afresh and passed Final Order dated 17.05.2005 by accepting the contentions of IOCL that there was no suppression of facts or mis-statement etc. and, therefore, penalty under Section 11AC could not be imposed on them.

+ Thus only on 17.05.2005, it was held by appropriate Court that there was no suppression of facts etc. on the part of IOCL in non-payment of differential duty liability of Rs.14,36,74,091/- for the period from March 1994 to September 1997 and that no penalty is imposable. Thus it was on or after 17.05.2005 that IOCL was absolved by CESTAT of the charge of suppression of facts etc. with intention to evade payment of duty. It was thus on or after 17.05.2005 the IOCL could issue Certificate under Rule 57E to enable IPCL or other buyers to take credit of the differential duty paid on 09.02.2000 by virtue of saving of erstwhile Central Excise Rules, 1944 by Section 38A of the Central Excise Act, 1944.

+ The appellants have placed on record a copy of Certificate dated 18.09.2006 issued by IOCL duly verified and signed by the jurisdictional Superintendent of Central Excise certifying that M/s IOCL had paid duty of Rs.14,36,74,091/- with reference to adjudication order No.6/BRC/MP/99, dated 25.08.1999, and that out of which Rs.13,99,12,946/- pertained to IPCL as per Annexure enclosed to the said certificate dated 18.09.2006.

+ We find that the certificate dated 18.09.2006 contains all details required for the purpose of issuing 57E Certificate and for taking credit etc. The MODVAT Rules did not contain any time limit for issuance of such Rule 57E Certificates and the Cenvat Credit Rules do not restrict taking of credit within a specified period.

+ In the present, the Certificate was issued by IOCL on 18.09.2006, and MODVAT Credit was taken by IPCL in November, 2006 as a result of prolonged litigation which ended only on 17.05.2005 as per the final order passed by CESTAT in the case of the appellant IOCL.

It was, therefore, held that in the peculiar facts and circumstances of the case IOCL had correctly issued certificate dt. 18.09.2006 and IPCL had correctly taken credit and consequently no penalties are imposable on the appellants.

The appeals were allowed.

(See 2014-TIOL-1066-CESTAT-AHM)