By TIOL News Service

MUMBAI, JUNE 23, 2017: ON the ground that the Product Development Cost incurred by the appellant and collected from the consignee by raising of debit notes (of Rs.2.5 crores and Rs.1.30 crores) is includible in the Assessable value of the goods manufactured since having a nexus with manufacture, a duty demand was raised and confirmed against the appellant along with imposition of penalties on appellant and the Director.

The appellant is before the CESTAT and submits that the duty on these debit notes amounts have been paid. Their plea is against the penalties imposed.

The Bench held that as the Revenue contention of demanding CE duty is correct, the appeal to this extent is dismissed.

On the ground taken by the appellant that the developer of the products i.e. ISSAL and the present appellants have merged together by the order of the High Court approving amalgamation and, therefore, duty liability does not arise, the Bench remarked -"It does not appeal to common sense, how the appellant will gain when appellant's duty liability was independent of merger of two different entities merged. Accordingly, stand of the appellant fails.”

On the question of penalty imposed, the appellant's prayer is that duty having been paid prior to issuance of the show-cause notice and at the investigation stage, there shall be no penalty under Section 11AC of the Central Excise Act, 1944.

Revenue, on the other hand, submitted that under valuation of goods was detected only after investigation; that the appellant had not at all come out with clean hands and also did not co-operate with investigating authority. That, when the Director, O.P. Kakkar, who was well connected with the debit notes was summoned for examination, he had no regard to law to co-operate with the investigating authorities to explain the case; that he authorized E.S. Gado, Assistant General Manager (Accounts & Finance) to be examined by investigation on his behalf.

The Bench was apparently peeved with the conduct of the appellant and, therefore, observed -

++ Section 14 of the Central Excise Act, 1944 permits recording of oral evidence by the Investigating Authority. Any obstruction thereto amounts to disregard to quasi-judicial proceedings as well as violation of law. Authority has every power to discover truth through such process.

++ When due regard to law was not paid and debit note caused deliberate under valuation, penalty is the only remedial measure to protect Revenue. Therefore, invoking of penal provisions of Section 11AC was justified. Appellant could not come out with clean hands to establish its innocence except repeating the stand that duty elements having been paid against the debit notes, there shall be no penalty. If submission of appellants is accepted that shall grant bonus to evasion and perpetuate fraud against Revenue and shall also be an incentive to lawlessness.

++ The facts and circumstances of the case as well as the modus operandi followed by the appellants in the present case demonstrate that they had deliberate intention to evade duty without inclusion of debit note amount in the assessable value of goods. This could not have been noticed without investigation. Therefore, the appellant does not deserve any consideration of leniency. Accordingly, penalty imposed under Section 11AC is confirmed.

++ In the present case, contumacious conduct of the appellants as well as its oblique motive is clear from the record as well as evidence gathered which remained uncontroverted. Therefore they do not require any consideration for immunity from penalty and any such consideration shall be misplaced sympathy.

++ When there are two different entities having involved in the fraudulent transaction is clear from the material facts and evidence stated herein before, the appellants do not get any advantage of the judgement of the Hon'ble High Court of Gujarat [in Indeos ABS Ltd.] Admissibility of Cenvat Credit is subject to scrutiny and claimant does not get right to immunity ipso facto . There are two different jurisdictions relating to product developer and user thereof. We may state that taxes paid today is more valuable for the country to fund public welfare than sacrificing public revenue on the palpable plea of Revenue neutrality which is subject to scrutiny to grant Cenvat Credit to a different unit.

++ Act of fraud on Revenue is always viewed seriously. "Fraud” and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. It is a concept description of human conduct either by letter or words, which includes the other person or authority to take a definite determinative stand as a response to the conduct of the former either by words or letter.

++ Fraud is proved when deliberate intention to evade has surfaced and that too that was made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false. … Fraud unravels everything and fraud vitiates all transactions known to the law of however high a degree of solemnity.

++ The appellant made attempt to be enriched at the cost of Revenue. For deliberate act of the appellant to exclude the debit note amount from the scope of duty, questionable conduct and oblique motive of the appellant came up and that contributed to its implication to the charge.

++ When fraud surfaces, that unravels all. …no court in this land will allow a person to keep an advantage which he obtained by fraud. Not only the manufacturer appellant M/s. ISMT Ltd. but also its Director Shri O.P. Kakkar, the second appellant defrauded Revenue.

Both the appeals were dismissed.

(See 2017-TIOL-2151-CESTAT-MUM)