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2015 (12) TMI 591 - CESTAT CHENNAI

2015 (12) TMI 591 - CESTAT CHENNAI - TMI - 100% EOU - Benefit of Notification 23/2003 (condition No.3) - consumption of indigenous raw materials for manufacture of final products - DTA Clearances - Valuation - Section 11A - penalty under section 11AC - Held that:- Board has categorically clarified that jurisdictional officer need to satisfy themselves that the goods in DTA have been manufactured wholly out of indigenous raw material. The said circular also empowers the adjudicating authority to .....

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udit team specialised in CAPP audit or to engage cost auditor to audit the unit which is functioning under any ERP system. - Matter remanded back on this issue.

Valuation of DTA clearance - majority of goods were cleared to sister unit on stock transfer basis - Held that:- this issue has been settled by various Tribunal decisions wherein the Tribunal held that FOB value of export cannot be adopted for payment of duty for DTA sales. - The appellant being a EOU and by relying Tribunal s .....

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OB price is liable to be set aside.

As regards the demand of educational cess and higher secondary education cess thrice while calculating excise duty, we find that appellants have already calculated educational cess twice while computing the transaction value and the same cannot be calculated again. In this regard, the Tribunalís Larger Bench in the case of Kumar Arch Tech Pvt.Ltd. Vs CCE Jaipur (2013 (4) TMI 482 - CESTAT NEW DELHI), the Larger Bench of Tribunal clearly held that lev .....

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e. - Impugned order is set aside - Decided in favour of assessee. - Appeal No. E/18/2008, Appeal No. E/325/2008 And Appeal Nos. E/130,134/2010 - Final Order No.41542-41545/2015 - Dated:- 25-9-2015 - Shri R. Periasami, Technical Member And Shri P.K. Choudhary, Judicial Member For the Petitioner : Shri Ashok B. Nawal, Advocate For the Respondent : Ms. Indira Sisupal, AC (AR) ORDER Per R. Periasami All the four appeals are filed against the separate orders passed by Commissioner of Central Excise, .....

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ion of indigenous raw materials for manufacture of final products. Further, it was alleged that valuation adopted by the appellant on the DTA clearance is to be enhanced based on the FOB value of exports. Adjudicating authority in his order confirmed the demand of ₹ 6,60,61,346/- under proviso to Section 11A along with interest and also imposed equal penalty under section 11AC. E/325/2008 3. Appellants were issued with SCN No.42/2007 dt. 1.11.2007 demanding differential duty on the goods c .....

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authority confirmed the demand of ₹ 4,94,11,050/- under Section 11A along with interest and imposed penalty of ₹ 50 lakhs under Rule 25 of Central Excise Rules, 2002. E/130-134/2008 4. The issue in these appeals are identical to Appeal E/325/2008 only the demand relates to the subsequent period wherein the Commissioner of Central Excise, Puducherry issued two SCNs dt.14.8.2008 and dt. 1.5.2009. The adjudicating authority by a common adjudication order confirmed differential duty of & .....

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bulk drugs are manufactured and exported and also cleared to DTA and paid appropriate customs duty as per Notification No.23/2003-CE dt.31.3.2003. He submits that the period involved in the appeals relates to April 2004 to September 2006. 6. In respect of Appeal E/18/2008, he submits that the adjudicating authority in his impugned order denied the exemption of the Notification No.23/2003-CE dt. 31.3.2003 condition No.(3). He submits that the goods cleared to DTA were manufactured wholly out of .....

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of invoice, the batch No is mentioned as PEDL No.0381 dt. 17.4.2004 and this batch number PDEL linked to the Batch Manufacturing Records (BMR). That Batch Manufacturing Records are annexed at pages No.2 to 18 of the compilation. The total quantity of 56.50 kgs of final product "Metadoxine IH" manufactured out of indigenous raw materials. He drew attention to the extract prepared for PDEL 0381 dt.17.4.2004 showing the details of quantity of raw materials supplied by various indigenous .....

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at as the appellants failed to maintain hard copies of internal records batch wise evidencing consumption of raw material. He submits that their unit is fully adopted to ERP systems and the manufacturing and production of finished goods are fully accounted and can be easily verified from the receipt of inputs stage to clearance of final products each stage. The clearance of final products are clearly declared in RT-2. The adjudicating authority relied Board's circular dt. 21.12.2001 and held .....

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145 (SC) (4) Bannari Amman Sugars Ltd. Vs CCE Salem 2009 (241) ELT 433 (Tri.-Chennai) (5) GEM Granites Vs CC 2007 (216) ELT 153 (Tri.-Chennai) (6) Imperial Granites (P) Ltd. Vs CC 2007 (218) ELT 618 (Tri.-Bang.) 7. On the second relating to valuation, he submits that the adjudicating authority demanded differential duty by adopting FOB value of exports for the goods cleared in DTA to their sister unit. They have paid excise duty on the computed value as per valuation rules after including selli .....

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(Tri.-Mumbai) 8. He further submits that the adjudicating authority while determining the value has not considered the adjustment towards quantity and rate discounts. He drew our attention to page 38 of worksheet. While comparing the FOB price, the adjudicating authority has not considered the quantity. The quantity of 595 kgs. cleared under export invoice dt. 2.8.2004 cannot be compared with 10 kgs. Instead of ₹ 609 declared by them as computed price, the adjudicating authority adopted FO .....

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rshal Power and Telecom (Ind) Ltd. 2008 (224) ELT 169 (Sett.Comm.) (v) CCE Vs I.G.P. Ltd. 2003 (156) ELT 917 (Tri.-Mumbai) (vi) Exide Industries Ltd. Vs CC Mumbai 2010 (252) ELT 447 (Tri.-Mumbai) 9. He further submits that in respect of appeal E/18/08, out of total demand confirmed in the OIO, ₹ 2,29,88,663/- is hit by limitation as there is no suppression of facts. The SCN was issued only on 2.4.2007 whereas the department sought clarification on 28.9.2004 and they submitted all the detai .....

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ild India Industries Ltd. 2005 (189) ELT 224 (Tri.-Del.) (4) Reliance Industries Ltd. CCE Mumbai 2003 (159) ELT 164 (Tri.-Mumbai) (5) Norton Intec Rubbers (P) Ltd. Vs CC Madras 2004 (164) ELT 5 (Mad.) 10. On the third issue of S.A.D, he submits that adjudicating authority has not excluded the S.A.D. and held that since appellant has not made any sale but only effected inter-unit transfer, SAD is includable. He submits that the goods cleared to their sister unit on stock transfer are not exempted .....

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have calculated educational cess twice. On this issue, he relied on Larger Bench decision in the case of Kumar Arch Tech Pvt.Ltd. Vs CCE Jaipur - 2013 (290) ELT 372 (Tri.-LB). 12. On the other hand, Ld. A.R raised the preliminary objection on the reconciliation of the data submitted by the appellant and submits that no such reconciliation / clarification was undertaken by the A.R. 13. In respect of appeal E/18/2008, regarding claim of benefit of Notification 23/2003, he drew our attention to par .....

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21.12.2001. He further submits that printouts of hardcopies of records and documents have not been maintained by the appellant month wise and batch wise in the form of hardcopies. BMR package maintained in the computer system i.e. ERP system without any periodical back up of hard copies cannot be relied as evidence for consumption of indigenous raw material. Further, these computer print outs are unsigned copies. He drew our attention to the statement of Shri Iyyakannu wherein he has admitted in .....

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the impugned order para 13.03.18of the first OIO dt.28.9.07 in appeal E/18/2008 wherein the adjudicating authority has given a clear finding and also submits that appellant themselves have adopted FOB price for determining the value of some DTA clearances where buyers were unrelated. He drew our attention to section 3(1) of Central Excise Act wherein the value of goods is to be determined in accordance with provisions of Customs Act and Customs Tariff Act under Section 14 of Customs Act. Price .....

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rse of international trade. Valuation is to be adopted as per section 14 of the Customs Act. Therefore, the adjudicating authority has rightly taken the FOB price for determining the transaction value of DTA clearance. He also submits that there is no bar of adopting FOB price. He relied the following citations :- 1. Commissioner Vs Wipro GE Medical Systems Pvt. Ltd. 2009 (242) ELT275 (Tri.-Bang.) 2. Hindustan Granites Vs CC Bangalore 2010 (262) ELT 885 (Tri.-Bang.) 15. In the rejoinder, learned .....

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the Board has categorically clarified that the adjudicating authority has to satisfy the consumption of indigenous raw materials and the Board also clarified that the authority can engage cost account or any person to verify the production and consumption records. On the FOB value, he countered that at no point of time they have taken the FOB value of exports for computing transaction value for DTA sales either to unrelated clearances or clearance to their own unit. He drew our attention to char .....

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and the appellants are now submitting voluminous data before the Tribunal which cannot be accepted at this stage. 17. We have carefully considered the submissions of both sides and examined the records. There is no dispute that appellants are registered as an EOU from 22.4.2004 and exporting the Bulk drugs and also clearing in DTA sales to unrelated persons and on stock transfer basis to their sister unit located in the States of Gujarat and Maharashtra and the Union Territory of Dadra. The iss .....

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whether the demand is hit by limitation or otherwise. (3) In respect of three remaining appeals, the issue in addition to valuation of adopting FOB value, whether Special Additional Duty (SAD) to be considered while calculating the rate of duty of Central excise under section 3 (1)of Central Excise Act for the clearances made to their sister unit on inter unit stock transfer; Whether the goods are not exempted from VAT by the State Government and (4) the last issue is whether education cess and .....

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mption notification was denied on the ground that there was no evidence to prove that only the indigenous raw materials were used in the manufacture of final products. The other issues are identical in all the three appeals. 19. We propose to discuss the first issue on the admissibility of Notification No.23/03 and condition (3) of notification in respect of appeal E/18/2008. We find that the appellants discharged excise duty on DTA clearance @ 16% as per condition (3) of the notification No.23/ .....

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ntral Excise Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below, and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, produced or manufactured in .....

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n the corresponding entry in column (4) of the said Table. Sr. No. Chapter or heading No. or sub-heading No. Description of Goods Amount of Duty Conditions (1) (2) (3) (4) (5) ... ... ... ... ... (3) Any Chapter All goods other than those referred to in Sr. Nos. 5, 5A, 6, 7 and 7A [OLD-Sr.Nos.5,6 and 7 of] of this Table In excess of amount equal to aggregate of duties of excise leviable under Section 3 of the Central Excise Act or under any other law for the time being in force on like goods pro .....

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not wholly exempt from duties of Excise or are not chargeable to NIL rate of duty. 20. As seen from the above, Sl.No.3 of the notification exempts all goods which are produced or manufactured by EOU other than those referred to in Sl.No.5,6 and 7 of the Table which are in excess of amount equal to aggregate of duties of excise leviable under Section 3 of the Central Excise Act subject to fulfilment of Condition No.3 of the Table. In order to avail exemption under Sl.No.(3) of the notification, a .....

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hey submitted comparative worksheets for each invoice and batch number, quantity manufactured and cleared and the inputs consumed and the Goods Inward Register No. (GIR) and supplier's invoice. We have perused Invoice No.L018 dt.7.6.2004 showing clearance of METADOXINE IH 103.50 Kgs. 40 Kgs and 56.500 kgs. as per their batch wise production. The said invoice clearly shows the batch number and manufacturing date against the description of the final product. In respect of Sl.No.3 of the invoic .....

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oice and for this item it is clearly indicated the lot number, quantity issued and the GIM No.etc. The details of said input in the report is given as under :- Lot Number 183RI40654 Quantity Issued 45,660 Kgs. Goods Inward Memo No. (GIM No.) 183RR40365 The next column clearly shows Supplier's name as Nandlal Bankatlal Pvt. Ltd. and the last column of the report also shows the Supplier Invoice No.0602. It is evident from this E.R.P report that 100 kgs. of this input Pyridoxine Hydrochloride w .....

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100 kgs. Pyridoxine Hydrochloride (Vitamin B6) is related to Batch No.PDEL0381 and as evident from the name of the supplier it is proved beyond doubt that the input is procured indigenously used in the manufacture of METADOXINE. 22. We find that the entire work sheet submitted by the appellant for 57 invoices which is generated by the system and combined with BMR and the Appellant's contended that in the same sequence the entire quantity of inputs can be tallied and traced back to the final .....

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ted by any person. We are not in agreement with the adjudicating authority's findings for rejecting these documents as the appellants were following ERP system for monitoring the movement from the stage of inward receipt of raw materials to the finished goods stage. Tis practice has been followed by all major industries and the Govt recognized this as method of maintaining and control system. Once the system is able to show from GMR data for particular final product, the Batch No., raw mater .....

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ts using imported as well as indigenously procured raw materials provided the unit is able to satisfy the jurisdictional authorities beyond doubt that the goods to be sold in DTA are manufactured out of wholly indigenous raw materials by way of maintenance of records etc. as provided in the said Boards Circular. Maintenance of separate records would include, inter alia, separate raw material registers for indigenously procured goods and imported ones, separate finished goods registers - one for .....

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utput norm fixed by the Cost Account so as to ensure that imported inputs, if common, are not used in the manufacture of the final products to be cleared in DTA. But the intention is certainly not to insist upon separate machinery, separate godowns and separate branches of manufacturing process (which would amount to establishing a separate factory within the factory) before extending the benefit of the above-said Circular." As evident from the above circular, the Board has categorically cl .....

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r consumption of raw materials and manufacture of final products which are maintained in any ERP system. In the Excise Audit (EA 2000) Procedure, the Board has empowered the jurisdictional officers to carryout Computer Aided Audit Programme (CAAP) wherein the entire audit of records is being scrutinised through system without verification of any manual records. A special software is used for this purpose and by using this the entire ERP system of any industry for any product can be scrutinised s .....

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st auditor to audit the unit which is functioning under any ERP system. 26. It is pertinent to state that on perusal of one invoice and corresponding ERP data we are able to ascertain the use of indigenous inputs for manufacture of final product cleared in DTA as discussed in the preceding paragraphs. The same can be verified by any competent person for all 57 invoices which are covered under this impugned order (E/18/2008) and confirm whether the appellant had used wholly the indigenous raw mat .....

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pect of Appeal No.E/18/2008 confirmed on this count is liable to be set aside and remanded to the adjudicating authority with direction to follow the guidelines as stipulated in the Board s circular dt. 21.12.2001 and satisfy himself on the use of indigenous raw materials in the manufacture of bulk drugs cleared in DTA. For the reasons already explained above, the adjudicating authority is free to use the departmental audit source or engage special audit under section (14A) or any mechanism as d .....

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. 28. We now propose to discuss the second issue on valuation. The adjudicating authority in his impugned orders compared the FOB price and enhanced the transaction value for the DTA clearances. Whereas the appellant contended that the majority of goods were cleared to sister unit on stock transfer basis and they had arrived the transaction value by taking the computed value. We find that the adjudicating authority rejected the appellant s transaction value of ₹ 609/- but has taken the FOB .....

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evant to the case on hand. The relevant para-6 of Tribunal s decision in the case of Cadila Health Care Ltd. is reproduced as under :- "6. We have carefully considered the submissions by both sides. We do not agree that the value of DTA clearances should necessarily be same as that of value of export. The value of exports could be different for different customers, especially if the exports are to different countries. In the present case, it has not been disputed that the value adopted for .....

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ribunals decision, we are of the considered view that when the department is not able to bring out clear cut evidence to show that computed value arrived at by the appellant is either manipulated or otherwise, merely taking FOB price for DTA sales is not justified. Therefore, the value adopted by the adjudicating authority by taking the FOB price and the consequential demand of differential duty is not sustainable. Accordingly, the demand of customs duty in respect of four appeals on account of .....

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supra) wherein the coordinate Bench of the Tribunal had held that when the goods are transferred to their unit on stock transfer it cannot be said that sales tax is exempted so as to deny the benefit of exemption. The relevant portion of Tribunal s order in the case of Micro Inks (supra) is reproduced asunder :- "10. We are unable to accept the contentions raised by the ld. Departmental Representative and the findings recorded by the adjudicating authority for more than one reason. Firstly, .....

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is an exemption granted by the State Government. In the absence of any notification granting exemption for specified products by the State Government from levy of sales tax on the finished goods cleared from 100% EOU, it would be incorrect to hold that the goods were exempted from sales tax, more so when the appellant has discharged the sales tax on the same products which were cleared to independent buyers. Secondly, we find that the lower authority seems to have been guided by the argument tha .....

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ared into DTA to appellants sister units are exempted or not exempted, which in our considered view due to foregoing reasons, has to be held in favour of assessee, in the absence of any evidence on record to show that the said products if cleared to DTA is exempt from payment of sales tax. It is to be noted that provisions of Central Sales Tax, 1956 recommends movements of goods inter State by raising stock transfer notes even to independent buyers/own units by non-payment of CST/VAT on such cle .....

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be held that plain reading of Notification No. 23/2003-C.E. as amended is applicable Qua Goods and exemption is across the Board and is applicable to all such goods which are not exempted by the State Government by issue of notification or an order from payment of sales tax/CST/VAT. We also find that large emphasis placed upon, by the lower authorities as well as departmental representative on the decision of the Larger Bench in the case of Moser Baer (I) Ltd. (supra). In our view, the relianc .....

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at the assessee in that case was availing sales tax exemptions in respect of sales from their unit located in the notified backward area, as has been specified in the order of exemption granted to them by the State Government of U.P. It would be not out of place to note that the State Government of U.P. had specifically granted exemption from leviable of sales tax on the goods which were manufactured in a notified area, hence the Larger Bench came to the conclusion that for discharge of excise d .....

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de. 30. As regards the demand of educational cess and higher secondary education cess thrice while calculating excise duty, we find that appellants have already calculated educational cess twice while computing the transaction value and the same cannot be calculated again. In this regard, the Tribunal s Larger Bench in the case of Kumar Arch Tech Pvt.Ltd. Vs CCE Jaipur (supra), the Larger Bench of Tribunal clearly held that levy of CESS cannot be levied third time. The relevant paragraph of the .....

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Surcharge on a tax means additional tax on that tax. As discussed above, though education cess and S&H cess being cess to enable the Government to finance its expenditure on providing basic education and secondary and higher education, is a levy different and distinct from the tax on which it is levied as surcharge, the mode or measure of this levy is surcharge at the rate of 2% and 1% on the existing levies i.e. the taxes being collected by the Government as - (a) Central excise duties und .....

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nd Sections 138 and 139 of Finance Act, 2007 while defining the measure of education cess and S&H cess in respect of excisable goods and imported goods respectively, specifically provide that the aggregate of duties of excise or aggregate of duties of customs levied by the Central Government in the Ministry of Finance (Deptt. of Revenue), on which this cess is to be levied as surcharge, would not include the education cess and S&H cess. Thus, the intention of the legislature was never to .....

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ported goods under Section 94 of Finance Act, 2004 and Section 139 of Finance Act, 2007 is charged as duty of customs and on the aggregate of duties of customs, cess on excisable goods, under Section 93 of Finance Act, 2004 and Section 138 of Finance Act, 2007 is charged, it would amount to charging education cess on education cess for which there is no sanction in law. Apex Court in case of Jain Brothers v. U.O.I., reported in (1970) 77 ITR 107 has held that there can be no objection for double .....

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y leviable is aggregate of duties of customs charged on import of like goods into India under Customs Act, 1962 read with Indian Customs Tariff Act, 1975 or any other law for the time being in force, this aggregate of duties of customs on which education cess under Section 93 of Finance Act, 2004 and S&H cess under Section 138 of Finance Act, 2007 is to be charged, would not include education cess and S&H cess under Section 94 of Finance Act, 2004 and Section 139 of Finance Act, 2007. In .....

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