2009 (8) TMI 908 - AT - Central Excise

SSI exemption - CENVAT credit - case of appellant is that by bona fide and genuine belief the appellants were not liable to pay duty for the manufacture of such tanks supplied to M/s. IOCL and they even did not avail the Cenvat credit on the inputs utilised for the manufacture of those tanks - Held that - the appellants had not sought proper advice prior to 31-1-2006 and were under the impression that they would not be subjected to the above liability and under that genuine belief did not bother to seek or obtain any legal advice till then. The party did not make any attempt to appraise itself of the correct situation of law cannot be a ground to say that they did not know that they were liable to pay the duty or to contend that the belief was genuine and bona fide. It was necessary for the appellants to appraise themselves of the correct position in law in relation to their duty liability. Merely on fanciful imagination the assessee was not entitled to assume that he had no liability to pay the duty. In the matter in hand admittedly the appellants were paying duty in relation to similar storage tanks manufactured for other parties. In this background it was necessary for the assessee to disclose the ground for distinguishing the work of manufacture of the storage tanks for IOCL from others - appeal dismissed - decided against appellant.

Summary

Issues:
- Duty liability on manufacture of storage tanks for a specific party.
- Bona fide belief of the appellants regarding duty liability.
- Nature of the work contract between the parties.
- Non-availment of Cenvat credit and its implications.
- Liability to pay penalty and extended period of limitation.

Detailed Analysis:

Issue 1: Duty liability on manufacture of storage tanks
The case involved a dispute over the duty liability arising from the manufacture of storage tanks for a specific party. The appellants contended that they believed the duty liability rested with the primary manufacturer, while the respondent argued that the appellants were liable to pay duty on the manufacture of the tanks supplied to the specific party.

Issue 2: Bona fide belief of the appellants
The appellants claimed that they had a genuine belief that they were not liable to pay duty as they considered themselves providers of skilled labor services and not the primary manufacturers. However, the respondent disputed this claim, asserting that the appellants intentionally evaded payment of duty by not disclosing the manufacture of the storage tanks for the specific party.

Issue 3: Nature of the work contract
The nature of the work contract between the parties was a point of contention. The respondent argued that the contract for manufacturing the storage tanks was not merely a labor contract but attracted duty liability, as evidenced by the tender process and the terms of the agreement between the parties.

Issue 4: Non-availment of Cenvat credit
The appellants' non-availment of Cenvat credit was highlighted as a factor in determining their intention to evade duty payment. The respondent argued that the failure to avail of this credit did not absolve the appellants of their duty liability and could even indicate a calculated move to evade payment.

Issue 5: Liability to pay penalty and extended period of limitation
The question of liability to pay penalty and the application of the extended period of limitation was discussed. The judgment referred to a Supreme Court decision to establish that once the intention to evade duty payment was established, the invocation of the extended period of limitation and the imposition of penalties were justified.

In conclusion, the tribunal dismissed the appeal, emphasizing that the appellants were aware of their duty liability but failed to pay or disclose it until later. The judgment highlighted the importance of seeking legal advice and complying with duty obligations, ultimately upholding the decision regarding duty liability and penalties.