Bombay High Court

M/S. Sanvijay Roling And ... vs The Commissioner Of ... on 24 January, 2018

Bench: S.C. Dharmadhikari

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           IN THE HIGH COURT OF JUDICATURE AT BOMBAY
               ORDINARY ORIGINAL CIVIL JURISDICTION

                  CENTRAL EXICISE APPEAL NO. 83 OF 2016

 M/s. Sanvijay Rolling & Engineering Ltd.
 (Formerly known as M/s. Sanvijay Alloys 
 Pvt. Ltd)
 a company incorporated under 
 the Companies Act, 1956, 
 having its registered office at 
 S-88, MIDC, Hingna Road, 
 Nagpur - 440 016.                                           ... Appellants
        Vs.
 The Commissioner of Central Excise,
 Nagpur, 
 Having his office at Telangkhedi Road,
 Civil Lines, Nagpur - 440 001.                              ... Respondent

                                  WITH
                  CENTRAL EXICISE APPEAL NO. 85 OF 2016

 Sanjay P. Agarwal, Aged 50 years
 Residing at Plot No.26, Bhagwagar
 Layout, Dharampeth Extn,
 Nagpur - 440 010.                                           ... Appellant
        Vs.
 The Commissioner of Central Excise,
 Nagpur, 
 Having his office at Telangkhedi Road,
 Civil Lines, Nagpur - 440 001.                              ... Respondent

                                  WITH
                  CENTRAL EXICISE APPEAL NO. 87 OF 2016

 M/s. Sanvijay Rolling & Engineering Ltd.
 (Formerly known as M/s. Sanvijay Steels
 Pvt. Ltd)
 a company incorporated under 




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 the Companies Act, 1956, 
 having its registered office at 
 B-202, MIDC, Butibori, 
 Nagpur - 441 108.                                                  ... Appellants
        Vs.
 The Commissioner of Central Excise,
 Nagpur, 
 Having his office at Telangkhedi Road,
 Civil Lines, Nagpur - 440 001.                                     ... Respondent

                                 WITH
                 CENTRAL EXICISE APPEAL NO. 114 OF 2016

 M/s. Sanvijay Rolling & Engineering Ltd.
 a company incorporated under 
 the Companies Act, 1956 
 having its registered office at 
 F-16, MIDC, Hingna Road, 
 Nagpur - 440 016.                                                  ... Appellants
        Vs.
 The Commissioner of Central Excise,
 Nagpur, Telangkhedi Road,
 Civil Lines, Nagpur - 440 001.                                     ... Respondent

                                ......
 Mr. V. Sridharan, Senior Advocate a/w Mr. Prakash Shah and Mr. 
 Jas Sanghavi i/by PDL Legal for the Appellants.
 Mr. M. Dwivedi a/w Ms. Shalaka Gunjar for the Respondent.
                                ......

                               CORAM : S. C. DHARMADHIKARI &
                                           SMT. BHARATI H. DANGRE, JJ.

DATE : JANUARY 24, 2018.

ORAL JUDGMENT (PER S. C. DHARMADHIKARI, J.) :

1. By these Appeals under Section 35G of the Central Excise

Act, 1944 (hereinafter referred to as, "the said Act"), the assessee

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is challenging the final order dated 21st July, 2015 of the Customs,

Excise and Service Tax Appellate Tribunal, Mumbai (CESTAT).

After hearing both sides, we are of the view that the Appeals raise

substantial questions of law. The Appeals are therefore admitted

on the following substantial questions of law:

a) Whether, in the facts and circumstances of the case, the demand raised by the Respondents is sustainable since even if credit is denied to the Appellants, it is simultaneously available to other factories who according to the Respondents have received the inputs under consideration?

b) Whether, in the facts and circumstances of the case, the Respondent is correct in invoking extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944 read with Rule 12 of the erstwhile Cenvat Credit Rules, 2002?

2. Since we have heard extensive arguments of both sides, we

dispose of these Appeals by the present order.

3. The assessee has pointed out that it is a company duly

incorporated under the Indian Companies Act, 1956. The

respondent exercises powers and discharges duties conferred upon

him under the Central Excise Act, 1944. The appellants are

engaged inter alia in manufacture of rolled products of iron and

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steel falling under Chapter 72 of the Central Excise Tariff Act,

1985. There are six factories of M/s. Sanvijay Group of Industries

(for short, "Sanvijay Group"). Out of six factories, five are located

in MIDC, Hingna Road, Nagpur and one is located at MIDC,

Butibori. In para 7 of the memo of Central Excise Appeal No.114

of 2016, the names of six factories and their addresses are set out.

It is stated that the present Appeal (Central Excise Appeal No.114

of 2016) concerns the first of the units/companies, namely M/s.

Sanvijay Rolling & Engineering Ltd. It is stated that the appellants

as well as the other units received the duty paid blooms, which is

their main raw material used for the manufacture of different

types of rolled products. The appellants take cenvat credit of the

duty paid on the raw materials received from the supplier. It is

stated that four units of Sanvijay Group have a common prefix,

namely "Sanvijay". It is stated that one of the group companies

M/s. Sanvijay Steel Private Limited, Butibori, Nagpur and three

other units located at Hingna Road, Nagpur share the same name.

4. It is stated that when the duty paid inputs are consigned by

the respective manufacturers to the various factories of this group,

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there have been instances of errors in the wrong delivery of

consignments to the precise recipient-factory. Thus, there are

cases when the inputs are wrongly delivered to unintended

recipient due to similarity in name and address. Whenever such

instances are occurring, the respective factories arrange to deliver

the inputs to the correct recipient-factory, but without correcting

the transport documents (lorry receipts) through local transport.

The respective factories in whose premises the inputs were

delivered may appear to be consuming these inputs on the basis of

the lorry receipts, but in reality, the material is consumed by the

factories in whose name the excise invoices have been issued.

Thus, the material is ordered and ultimately delivered and

consumed in the factory in whose name the excise invoices have

been issued by the supplier. The concerned factories transport the

wrongly delivered inputs to the correct recipient-factory. The local

transportation of wrongly delivered inputs is therefore not backed

up by further documents.

5. The appellant-assessee has set out this procedure in detail

simply because the Preventive Branch of the Central Excise

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Headquarters, Nagpur, through its officials, visited the factory on

20th/ 21st May, 2003 and verification of stocks of inputs as well as

finished goods was undertaken. The shortage was noticed as far as

inputs are concerned, to the extent of 3.367 Metric Tons (MTs).

The statements were recorded of various persons and the officers

came to the conclusion that there was no proper explanation

provided. It is in these circumstances, it was alleged that the

appellants had taken wrong credit of Rs.21,14,189/- on the inputs

which were received and consumed in another factory of Sanvijay

Group located at Butibori, whereas only duty paying documents

were received in the factory of the appellants. That is how a

common show cause notice dated 18th/24th December, 2003 was

issued to all the units listing out the alleged irregularities noticed

in the individual units. The appellants were therefore called upon

to show cause as to why the amounts mentioned in the notice

besides penalty should not be recovered.

6. Replies were filed to notice on 18 th November, 2004 after

which the order-in-original was passed on 30th March, 2007.

Aggrieved thereby, an appeal was carried to the Commissioner

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(Appeals). The Commissioner (Appeals), after a personal hearing,

proceeded to dismiss the Appeals by the order-in-Appeal dated

12th September, 2007.

7. That is how the appellants and others preferred Appeals

before the CESTAT and which have been partly allowed.

8. Our attention has been invited to the order of the CESTAT

and which sustains the demand but interferes with the penalty. It

is in these circumstances that the present Appeals have been filed.

9. It was argued by Mr. Sridharan, learned Senior Counsel

appearing on behalf of the appellants that credit has been denied

on the ground that the goods were actually delivered to the other

factory of the appellants. If the credit is denied to the appellants,

the same should be allowed to the other factory where the goods

were alleged to be actually delivered. Thus, the entire exercise of

denial of credit is revenue neutral inasmuch as credit is available

to the other factory of the appellants manufacturing the same

products and with identical inputs. In these circumstances, there

was no question of any suppression with intent to evade payment

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of duty. The assessee would suppress something when he gains

and by way of payment. In the sense, he does not have to pay any

duty. The assessee would not suppress, for the allegations in the

show cause notice themselves reveal that the goods were received,

and because of the local transportation, they reached the correct

recipient. They may not reach the appellant's factory, therefore

this is not a case where penalty and equivalent to the duty amount

and by invoking the legal provisions should be imposed.

10. In support of these contentions, reliance is placed on two

decisions, one is rendered by a Division Bench of this Court to

which one of us (Shri S.C. Dharmadhikari, J.) was a party

{Commissioner of C.Ex. CUS. & S.T., Vapi vs. Tarapur Grease

India Pvt. Ltd. reported in 2016 (334) E.L.T. 416 (Bom.)} and

the other is the one which is a view of the Tribunal but in identical

circumstances {Geep Industrial Syndicate Ltd. vs. Collector of

C.Ex., Allahabad, reported in 1999 (114) E.L.T. 850

(Tribunal)}. Thus, the argument as summed up is that this is a

case of alleged irregularity and not illegality going to the root of

the case. There was therefore, no occasion for holding that there is

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any evasion of duty. Further, there is no suppression when all the

documents and materials are as clear as can be seen from the

show cause notice itself.

11. On the other hand, Mr. Dwivedi, learned counsel appearing

for the respondent would submit that there are concurrent

findings of fact. They are not vitiated by any error of law apparent

on the face of record or perversity warranting our interference in

our further appellate jurisdiction. He would submit that once the

allegations are admitted, then, the consequences must follow. The

explanation that has been given by the assessee is not reasonable

and truthful. This is a case where inputs have been diverted in

order to evade payment of duty. All the explanations now given

are pure after thought. In the circumstances, we should dismiss

these Appeals.

12. Since the paper book is complete, as noted above, we have

proceeded to dispose of these Appeals. The show cause notice

which is common to all the units, proceeds and alleges that the six

units named therein are of M/s. Sanvijay Group of Industries.

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They have common registered office. That was visited by the

officers of Central Excise Commissionerate, Nagpur on 20th May,

2003 to carry out preventive checks. During the course of

verification of the statutory records with the physical stocks of

finished goods as well as raw materials with cenvat credit, it was

prima facie revealed that there were discrepancies in the stock of

finished goods as compared to the recorded balance, as well as in

the raw material. Physical verification of both was conducted in

the presence of independent panchas and authorized persons of

the Sanvijay Group on 20th May, 2003 and 21st May, 2003. The

verification resulted in a shortage of finished goods as well as raw

materials. The details of the same are set out and then it is alleged

that the Central Excise Officers recorded the statements of the

authorized signatory of each unit of the Sanvijay Group, who inter

alia admitted that the group comprises of six units, four of which

are in close proximity to each other. It is not as if the diversion of

the inputs or raw materials is to this extent that the same was not

utilized at all but was disposed of in open market. On the own

showing of the authorities, the consumption is by the

members/units of the Sanvijay Group. The show cause notice

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therefore refers to all these materials and alleges that there is an

inadmissible and irregularly availed cenvat credit. The noticees,

therefore, were called upon to show cause as to why Central

Excise duty in respect of shortage of finished foods and raw

materials should not be demanded by having recourse to Section

11A of the said Act, including the proviso thereof, but once the

duty is already paid by the assessee, then, why the said amount so

paid should not be adjudged against the confirmed demand.

Thereafter, appropriate penalty and interest was sought to be

recovered.

13. It is common ground that a reply was given to this show

cause notice in which the visit was admitted, the alleged

deficiency and short-fall was also admitted. However, what the

assessee pointed out is, that the allegations at best indicate an

irregularity and not a gross or patent illegality. It is very clear that

the assessee has pointed out that there are two charges and which

can be culled out from the records themselves. The assessee, with

reference to the stock, indicated that there has been no diversion.

The raw material figures would indicate that the same was

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consigned to other units. That would have been used by the

Butibori factory of the assessee. If it was used entirely by this

factory, it could have consumed the raw materials in the

quantities mentioned in the reply to the show cause notice. It is in

these circumstances that the explanation or reply says that the

show cause notice be dropped.

14. Both the orders, namely, the order-in-original and the order-

in-Appeal, proceed on the footing that there has been no serious

denial of the allegations in the show cause notice. The order-in-

original goes unit wise and in the discussions and findings, the

order-in-original says very clearly that the assessee did not

maintain the statutory record of finished goods/raw materials

correctly. If the Central Excise Officer had not detected the

shortcoming, it would be continued for future and the Department

would be deprived of Central Excise duty. That is a conclusion

which runs throughout, but what we find from the reasons is that

this surprise visit revealed that the shortage of finished goods/raw

materials was noticed during verification of the statutory records

with the physical stocks at the six units. The assessee did not

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maintain that record correctly, but in none of the findings and

conclusions it is held that there was a diversion of stocks. It is only

an omission to record the inter-unit transfer. It is in these

circumstances that we expected the Commissioner (Appeals) at

least to take an appropriate decision. However, the Commissioner

(Appeals) as well, while confirming the view of the adjudicating

authority, concluded that this irregularity cannot be condoned,

nor there is any question of revenue neutrality.

15. When the Tribunal was approached by the assessee, the

Tribunal passed a short but cryptic order. It noted the facts and

which we have already set out in great details. After noting these

facts and the payment of duty under protest, what the Tribunal

does is to hold that the credit was availed by the unit whose name

was mentioned in the invoices as consignee, whereas in

investigation it was revealed that the inputs were received in some

different unit of the Sanvijay Group. Therefore, this is a wrong

availment of cenvat credit. Once the stock of raw materials has

not gone out of the units of the Sanvijay Group or the Group as a

whole, then, what ought to be apparent to all of them is that there

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was an irregularity and at best discrepancy, but not a wrongful

availment of the cenvat credit. It is, therefore, clear that the

Tribunal noted the arguments of the assessee's Advocate, and

particularly that the shortage is not due to the clandestine removal

of the goods, but it is only due to the accounting method and

secondly, that the difference in the stock is less than 5% which is

permissible by the BIS standards. Apart therefrom, the

confirmation of demand of cenvat credit was on the basis of non

receipt of inputs in the respective units. The argument was that,

the goods were received in some different unit, but subsequently

transported and shifted to the unit in whose name the invoices

were drawn. Thus, the consignee was the one whose name is

mentioned in the invoices. It is in these circumstances, by mere

wrong delivery at the initial stage, no inference, much less a

conclusion can be drawn that there was any evasion. The

Department on the other hand reiterated its argument and

particularly of wrong availment of cenvat credit without receipt of

inputs in the respective units. Thus, the admission on the part of

the officials was taken as conclusive. The Tribunal, in para 6 holds

that there is no dispute that the entire shortage found in the

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physical stock taken by the officers is less than 5%. It is in these

circumstances and when in the assessee's own case it was held

that shortage in the range of +/- 5% should be ignored, then, the

Tribunal followed its own order in the case of this very assessee

and dropped the demand in respect of shortage found in the

physical stock and consequent penalty commensurate to the duty

on such shortage. Thus, the Group, the units and their activities

were known to the Revenue. It is not as if the shortage was

noticed for the first time. The shortage was not to such an extent

as would make a demand for duty interest and penalty

sustainable. It was in the permissible range.

16. Thus, the Appeals succeeded partly.

17. As far as the issue of wrongful availment of cenvat credit is

concerned, the Tribunal did not consider the arguments and

submissions in their proper perspective. Throughout, the

admission was not of any guilt but of an irregularity. The inputs

were initially received and delivered on different unit, but credit

was availed of by the unit in whose name the invoices were

issued. The finding is that the assessee could not produce any

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single evidence regarding re-transportation of inputs from wrong

factory to the correct factory. Therefore, it is clear that the cenvat

credit was availed by the assessee but the input was delivered at

different factory and it was used in the production by the different

factory. At the same time, the assessee's explanation that this was

all done by local transportation and therefore no records were

maintained but there is revenue neutrality, has been conveniently

brushed aside and ignored. In the sense, the inputs were also the

inputs of the common finished product of all the factories/units in

the Group. They were therefore entitled and eligible to take

cenvat credit on these raw materials as far as finished product is

concerned. Thus "A" unit may be the recipient of the goods/inputs

and utilized the same as raw materials for its finished product, but

"B" unit was the entity to which the consignment was delivered

does not mean that "A" was not entitled to cenvat credit. Nowhere

there is a finding that this cenvat credit should not have been

availed of by the units. Thus, it may have been wrongfully availed

of by the "A" unit, but even if that wrongful availment by "A" unit

is taken into consideration, a set-off or adjustment would

definitely have been admissible and permissible because "B" unit

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also enjoyed the cenvat credit. Thus, the goods have been

consumed within the Group units and there is no cenvat credit

which was wrongfully availed, but was adjusted as stated above.

Thus, this was a case where the adjudicating authority so also the

Commissioner (Appeals) and the Tribunal could not establish any

loss of revenue. We are also not been shown any finding of such

nature. Else, the penalty would not have been dropped. Once the

explanation in regard to shortage of raw materials was found to

be plausible and is accepted and the Appeal allowed in part, then,

we do not see why for an alleged irregularity on penalty, the same

view was not taken. It was imminently possible given the fact that

no fraud has been established.

18. Precisely, this has been done and repeatedly by the Tribunal

in the cases of this nature. The Division Bench of this Court had an

occasion to consider an identical issue in the case of Tarapur

Grease India Pvt. Ltd. (supra). The Revenue brought an Appeal

against an identical finding and conclusion of the Tribunal. This

Court, while dealing with the rival contentions, held as under:

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" 4. We have with the assistance of Mr. Oak and Mr. Shah perused the orders of the Tribunal. The Tribunal has noted the factual controversy. It has noted that three companies are indeed associate companies or concerns/firms. They are in identical business, managed and administered by common partners and directors and have a common head office. The product namely the inputs which were raw materials for all three companies/concerns arrived at the factories and were cleared without payment simply because they were exchanged with the associate companies. It is no doubt true that the procedure adopted was not in consonance with the formalities prescribed by law, however, even the examination of private books and the entries therein having been corroborated by the transporters, resulted in no revenue loss, then, the Tribunal's conclusion cannot be said to be perverse. The Tribunal has found that the jurisdictional Gujarat High Court considered a similar controversy and questions. The Tribunal found that once the inputs have been delivered only at the factories of the assessees from the associate companies, then no loss occurs to revenue. The assessees would derive no benefit by not reversing Cenvat credit on the inputs, when sister concerns are also eligible to take Cenvat credit. Therefore, in the absence of cogent and reliable evidence particularly on the diversion of these inputs, the Tribunal applied the doctrine or principle of revenue neutrality. We do not see how the same was inapplicable in the admitted facts and circumstances.

5. Even the order-in-original and the paragraph which was relied upon by Mr. Oak does not indicate that any other material or evidence was placed. The Tribunal has taken this factual position from order-in-original itself. The only procedure that was required to be complied with was clearance of the raw materials after reversing the credit availed on it. Thus, the duty amount should have been paid and thereafter when these inputs or raw materials were utilized in the manufacture of the final product, the Cenvat credit could have been claimed but this procedure was not followed. It may be, as observed by the adjudicating authority, that this mode of clearance gives some temporary benefit to the associate companies but the objection raised was of diversion of goods. That case could not be

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substantiated by the Revenue as is evident from even Paragraph 67.10 of the order of the adjudicating authority.

6. In our view, therefore, merely because the penalty has been notionally imposed on all the assessees, does not mean that the Tribunal's earlier conclusion, and by applicability of the principle of revenue neutrality, is perverse or vitiated by any error of law apparent on the face of record. Imposition of the notional penalty is for infraction of some procedural rule. That has no bearing on the main issue."

19. From the above quoted observations and conclusions of this

Court, we find that once the assessees derive no benefit by not

reversing cenvat credit on the inputs, when sister concerns are

also eligible to take that credit, then, in the absence of any cogent

and reliable evidence particularly on the diversion of inputs, the

principle or doctrine of revenue neutrality, which was applied in

that case by the Tribunal, was rightly upheld. The principle of

revenue neutrality,which was applied in that case by the Tribunal

in identical facts and circumstances, was challenged by the

Revenue in Appeal but the Revenue's Appeal was dismissed on the

ground that it was not raising any substantial question of law. The

Tribunal follows one course in identical facts and circumstances,