C.C.E., RAIGAD Vs. M/S. ISPAT METALLICS INDUSTRIES LTD.&ORS
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 2562 of 2008, Judgment Date: May 06, 2016
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2562 OF 2008
COMMISSIONER OF CENTRAL EXCISE,
RAIGAD ....APPELLANT
VERSUS
M/S. ISPAT METALLICS INDUSTRIES
LTD. & ORS. ….RESPONDENTS
WITH
CIVIL APPEAL NO.8557 OF 2015
J U D G M E N T
R.F. Nariman, J.
1. Two appeals have been filed from a common decision of CESTAT dated
11.10.2005, whereby the Tribunal has upset the order of the Commissioner,
confirming various duty demands, penalty and interest.
2. The brief facts necessary in order to appreciate the controversy at
hand, taken from C.A. No.2562 of 2008, are as follows.
3. M/s. Ispat Industries Limited (hereinafter referred to as the “IIL”)
is engaged in the manufacture of HR coils, sheets, plates, etc., which are
cleared on payment of duty of excise. In the manufacture of such goods, it
avails credit on inputs such as iron ore pellets. Adjacent to its plant,
another group company, namely, M/s. Ispat Metallics Industries Ltd.
(hereinafter referred to as the “IMIL”) also has a factory in which pig
iron and molten metal are manufactured. The principal raw material for
manufacture for both these companies is iron ore pellets. The said pellets
were purchased from Mandovi Pellets and Essar Steel Limited. These were
carried to the factory of IIL. Credit was availed by IIL of the duty paid
on the entire quantity so procured. As and when required by the sister
company IMIL, pellets were transferred through a conveyor from IIL’s plant
to IMIL’s premises under cover of an invoice and on reversing an amount
equal to the Cenvat credit availed on inputs that were so transferred. In
addition to such invoices, IIL also raised debit notes on IMIL for
recovering actual expenditure incurred by it in relation to the procuring
of such iron ore pellets, such as bank commission, interest, etc.
4. The aforesaid two companies were issued show cause notices dated
29.9.2003 and 14.10.2003 respectively. It was alleged that iron ore
pellets were sold by IIL to IMIL and that the amounts recovered by IIL in
the form of debit notes towards bank charges, interest, etc. were
includible in the assessable value of such inputs that were cleared. The
notice alleged that the reversal of credit equal to the amount paid to the
supplier which was being followed by IIL was not in compliance with law.
5. The learned Commissioner upheld the show cause notices stating that
the transaction between IIL and IMIL was one of sale and not transfer.
Since the goods were reassessed to duty in terms of Rule 57AB(1C) of the
Central Excise Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules, 2001,
the assessable value in terms of Section 4(1)(a) of the Central Excise Act
i.e., the transaction value at the time of clearance plus any additional
consideration paid by the buyer at a later stage is to be added and,
therefore, the amounts mentioned in the debit note from IIL to IMIL were
also includible in the assessable duty valuation as additional
consideration. The extended period for limitation was also found to be
available on the facts of the present case.
6. The Tribunal reversed the aforesaid decision on the ground that the
transfer of iron ore pellets by IIL to IMIL was not a sale of goods but was
transfer of raw materials, jointly procured, under a joint procurement
policy which was followed by the two sister companies and this becomes
clear on a reading of the tripartite agreement between the supplier of the
pellets, IIL, and IMIL. This being so, the Tribunal applied a circular
dated 1.7.2002 by which, where no sale is involved but only a transfer by
one sister unit to another, the value shown in the invoice on the basis of
which Cenvat credit was taken by the assessee would be the value for the
purpose of Rule 57AB and Rule 3(4). It was further held that additional
consideration could not be added inasmuch as the amount spoken of in the
Rule 57AB and Rule 3(4) is an amount equal to the duty of excise which is
leviable on such goods. Post manufacturing expenses cannot possibly amount
to a duty of excise leviable on such goods and therefore all amounts paid
under the debit notes between IIL and IMIL could not be added to the value
of those goods. Further, the invoice value of the supplier alone was to be
taken into account and, consequently, the judgment of the learned
Commissioner was set aside, not only on merits, but also on limitation,
following the judgments of the Tribunal itself and of this Court.
7. Shri Radhakrishnan has read to us in detail the show cause notices
and the Commissioner’s judgment dated 24.12.2004, which is strongly relied
upon by him in support of his case. It is his case that a proper reading
of the relevant rules would make it clear that what has to be seen is
transaction value under Section 4(1)(a) of the Central Excise Act and not
invoice value of the supplier of the iron ore pellets. This being so,
according to him, the learned Commissioner is right in his reasoning and
the Tribunal’s judgment should be reversed.
8. Shri V. Lakshmikumaran, the learned counsel, on the other hand
supported the decision of the Tribunal and argued that on a reading of the
Rules the rate applicable to such goods would be as on the date of removal
but value would necessarily be that determined for such goods under Section
4 or 4A of the Central Excise Act which would be the invoice value of the
iron ore pellets cleared by the supplier of those pellets. He relied
strongly on the circular dated 1.7.2002, which was also relied upon by the
Tribunal, and further went on to argue that there was no suppression of
facts in this case and, hence, the extended period of limitation could not
possibly have been applied to the facts of this case.
9. Having heard the learned counsel for the parties, it is important to
first set out the relevant rules. Rule 57AB(1C) of the Central Excise
Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules, 2001 as they read at
the relevant time, read as follows:-
“57(1C) When inputs or capital goods, on which credit has
been taken, are removed as such from the factory, the
manufacturer of the final products shall pay an amount equal to
the duty of excise which is leviable on such goods at the rate
applicable to such goods on the date of such removal and on the
value determined for such goods under Section 4 of the said
Central Excise Act, and such removal shall be made under the
cover of an invoice referred to in rule 52A.”
Rule 3(4) When inputs or capital goods, on which CENVAT credit
has been taken, are removed as such from the factory, the
manufacturer of the final products shall pay an amount equal to
the duty of excise which is leviable on such goods at the rate
applicable to such goods on the date of such removal and on the
value determined for such goods under Section 4 or Section 4A of
the Act, as the case may be, and such removal shall be made
under the cover of an invoice referred to in rule 7.”
10. The Tribunal being the last forum of appreciation of facts has held
that transfer of iron ore pellets by IIL to IMIL was not a sale of goods
but was only a transfer of raw materials procured under the Tripartite
Agreement between the two of them and the supplier of the said pellets.
This is a pure finding of fact and Shri Radhakrishnan has not been able to
dislodge this finding of fact. This being the case, the application of the
circular of 1.7.2002 becomes important. Paragraph 14 of the said circular
reads as under:-
|14. |How will valuation|Where inputs or capital goods, on |
| |be done when |which credit has been taken, are |
| |inputs or capital |removed as such on sale, there |
| |goods, on which |should be no problem in |
| |CENVAT credit has |ascertaining the transaction value|
| |been taken are |by application of sec.4(1)(a) or |
| |removed as such |the Valuation Rules. [Provided |
| |from the factory, |tariff values have not been fixed |
| |under the |for the inputs or they are not |
| |erstwhile sub rule|assessed under Section 4A on the |
| |(1C) of rule 57AB |basis of MRP ] |
| |of the Central |There may be cases where the |
| |Excise Rules, |inputs or capital goods are |
| |1944, or under |removed as such to a sister unit |
| |rule 3(4) of the |of the assessee or to another |
| |Cenvat Credit |factory of the same company and |
| |Rules, 2001 or |where no sale is involved. It may |
| |2002 ? |be noticed that sub rule (1C) of |
| | |Rule 57AB of the erstwhile Central|
| | |Excise Rules, 1944 and Rule 3(4) |
| | |of the Cenvat Credit Rules 2001 |
| | |(now 2002, talk of determination |
| | |of value for “such goods” and not |
| | |the “said goods”. Thus, if the |
| | |assessee partly sells the inputs |
| | |to independent buyers and partly |
| | |transfers to its sister units, the|
| | |transaction value of “such goods” |
| | |would be available in the form of |
| | |the transaction value of inputs |
| | |sold to an unrelated buyer (if the|
| | |sale price to the unrelated buyer |
| | |varies over a period of time, the |
| | |value nearest to the time of |
| | |removal should be adopted). |
| | |Problems will, however, arise |
| | |where the assessee does not sell |
| | |the inputs/ capital goods to any |
| | |independent buyer and the only |
| | |removal of such input/ capital |
| | |goods, outside the factory, is in |
| | |the nature of transfer to a sister|
| | |unit. In such a case proviso to |
| | |rule 9 will apply and provisions |
| | |of rule 8 of the valuation rules |
| | |would have to be invoked. However,|
| | |this would require determination |
| | |of the ‘cost of production or |
| | |manufacture’, which would not be |
| | |possible since the said inputs/ |
| | |capital goods have been received |
| | |by the assessee from outside and |
| | |have not been produced or |
| | |manufactured in his factory. |
| | |Recourse will, therefore, have to |
| | |be taken to the residuary rule 11 |
| | |of the valuation rules and the |
| | |value determined using reasonable |
| | |means consistent with the |
| | |principles and general provisions |
| | |of the valuation rules and |
| | |sub-section (1) of sec. 4 of the |
| | |Act. In that case it would be |
| | |reasonable to adopt the value |
| | |shown in the invoice on the basis |
| | |of which CENVAT credit was taken |
| | |by the assessee in the first |
| | |place. In respect of capital goods|
| | |adequate depreciation may be given|
| | |as per the rates fixed in letter F|
| | |No. 495/16/93-Cus.VI dated |
| | |26.5.93, issued on the Customs |
| | |side. |
11. A reading of this circular makes it clear that a distinction is made
between inputs on which credit has been taken which are removed on sale,
and those which are removed on transfer. If removed on sale, “transaction
value” on the application of Section 4(1)(a) of the valuation rules is to
be looked at. However, where the goods are entirely transferred to a
sister unit, it is reasonable to adopt the value shown in the invoice on
the basis of which Cenvat Credit was taken by the assessee i.e. the invoice
of the supplier of the pellets to the assessee.
12. As it is clear that the present is a case of transfer and not sale of
pellets, no infirmity can be found with the Tribunal’s judgment, which only
follows the circular dated 1.7.2001. In addition, the Tribunal was also
correct in holding that post manufacturing expenses cannot be loaded on to
the amount equal to the duty of excise leviable on such goods as this
amount would, then, cease to be an amount equal to the duty of excise but
would be something more. On both these counts therefore, we find that the
Tribunal is justified in its finding on law, which is based on its finding
of fact that the present is a case of transfer and not sale. This being the
case, it is unnecessary to consider any of the other submissions made by
the learned counsel including the point of limitation. The appeals are,
accordingly, dismissed.
……………………J.
(A.K. Sikri)
……………………J.
(R.F. Nariman)
New Delhi;
May 6, 2016