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M/s. Fertilisers & Chemicals Travancore Ltd. Versus Commissioner of Customs & Central Excise (Appeals)

2016 (3) TMI 1048 - CESTAT BANGALORE

Penalty invoking provisions of Section 11AC - willful misstatement of facts - shortages of phosphoric acid and sulphuric acid - Held that:- Willful misstatement or suppression of facts with intent to evade payment of duty is not established on the part of the appellants. The special facts of the case that a Government of India Enterprise - a Public Sector Undertaking (and its employees) are part of the proceedings and that “willful misstatement of facts with intent to evade duty” have not been f .....

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te the duty liability in respect of the said shortages of phosphoric acid and sulphuric acid arrived at by the impugned Orders-in-Original. The demand of duty along with interest at appropriate rate for this said shortage, which is accountable for the period of only preceding one year prior to the date of show-cause notice is hereby sustained under the provisions of Section 11A(1) of Central Excise Act, 1944 read with Rule 6 of Central Excise (RGCRDMEG) Rules, 2011 and Section 11AB of the then C .....

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SHRI M.V.RAVINDRAN, JUDICIAL MEMBER AND SHRI ASHOK K. ARYA, TECHNICAL MEMBER For the Petitioner : Mr. Sandeep Gopalakrishnan, Advocate For the Respondent : Mr. N. Jagadish, Superintendent (AR) ORDER ASHOK K. ARYA These two appeals have been filed by the appellants viz., M/s. Fertilizers & Chemicals Travancaore Ltd. (FACT). The appellants in their submissions have given some abridged data details of the dispute between the Revenue and the appellants, which is given in following table: Table: .....

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period invoked Yes Yes Extended period Upto 31.12.2003 Upto 31.8.2003 Notional shortage of Sulphuric acid due to weighment difference Nil 208.406 MTs. Notional shortage of Phosphoric acid due to weighment difference 153.827 MTs. 351.062 MTs. 2. The appellants represented by learned advocate Mr. Sandeep Gopalakrishnan inter alia submits as follows: (i) They are one of the Government of India Public Sector Undertaking mainly engaged in the manufacture of fertilizers. (ii) Fertilizers manufactured .....

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y basing the demand on the credit notes issued by Sterlite Industries. The alleged shortage is worked out by comparing the quantity for which payment is given and which was shown on accompanying invoice. (v) Difference is because of two main factors (a) Concentration loss (quantity difference) which has been accepted by the first appellate authority. (b) notional weighment difference due to calibration error in the weighing scales of the parties. (vi) The dispute here in these appeals pertains t .....

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nternal arrangement between the parties for determination and settlement of the price of the goods dispatched and therefore no reliance can be placed on the same to allege short receipt of the goods. (d) Department has to establish physical loss of goods for maintaining the demand; they cannot simply rely on the commercial workings between the parties to sustain the demands since the onus is on the Department to establish the physical loss of the goods. (e) Department should know that calibratio .....

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r in the weighment. (g) Without prejudice to the contention that loss arrived based on commercial transactions is illusionary and irrational, it is stated that Rule 196 of the old Central Excise Rules, 1944 provide for admitting goods lost or destroyed by natural causes or by unavoidable accidents, subject to the satisfaction of the proper officer. The following case laws are relied on in this regard. i. 1996 (86) ELT 6 (All.) UP State Cement Corporation Ltd. vs. Union, approved by Supreme Court .....

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be called upon to pay duty on the quantity of difference of about 1% between quantity of raw naphtha as per discharge certificate from the ship and the quantity as per the consumption certificate issued by Central Excise; the substance being volatile carried for distance of about 50 kms and there being no allegation of any unauthorized diversion. (h) Shortage is due to weighment (no actual loss); there is no allegation of unauthorized diversion. Demand under Rule 196 cannot be sustained as goods .....

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on and other documents. They being a public sector undertaking there is absolutely no scope for them to indulge in duty evasion. The extended period of limitation cannot therefore be invoked against them. (k) Department except for narrating that the declarations and other documents reflected the quantity dispatched did not bring out any conscious or deliberate intention on their part and in view of large number of rulings on this point, Section 11A(1) cannot be invoked against them. (l) The firs .....

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required for imposing penalty under 11AC and invoking extended period of limitation under Section 11A(1) are same. The finding of the appellate authority that the said ingredients are absent while dropping the penalty under Section 11AC, takes in that the Section 11A(1) also cannot be worked for extending the normal period of demand. This is especially so as the Department has accepted the findings of the appellate Commissioner and has chosen not to file an appeal against the said order. Hence, .....

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lants are accountable for the transit loss and are liable to pay duty on the same. i. The learned AR for the Revenue has also mentioned that in case of Appeal No.634, the loss of 153.827 MTs accounted towards the difference in weighments at two weighbridges is to the extent of 0.71% of the total quantity procured by the appellants. He submitted that Clause (4) of the specimen purchase order mentioned in Commissioner (A)s order reveal that appellants could recover the shortage in excess of 0.5% .....

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ate of Duty for Manufacture of Excisable Goods) Rules, 2001. After receipt of these goods, FACT ascertained the net weight of each consignment and based on this settled their bill with SIIL on a weekly basis. On receipt of subject inputs, appellants viz., FACT regularly filed D-3 intimations, monthly, quarterly returns with the jurisdictional Central Excise Range Officers. The appellants also maintained required registers under Rule 194(1) of erstwhile Central Excise Rules, 1944 in RG-16 and sub .....

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ysical shortage but a commercial shortage. Since tankers carrying subject inputs on arrival at FACT are inspected to ensure that sealing is not tampered and only on such certification, tankers are allowed for unloading, there is no scope for change in the concentration and commercial shortage. Further FACT submitted that the quantum sent by SIIL should be considered to have been received by them in full. The learned AR submits that FACT has failed to explain why they did not account for and paid .....

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or concealed any records or willfully misstated any fact with a view to evade payment of duty, the learned AR for the Revenue argues that if there was no intention to evade payment of duty, the appellants should have shown actual receipt of the subject inputs in Central Excise Returns/Registers and would not have maintained parallel account. 4. In case of both these appeals, the facts on record and the submissions of both the sides have been carefully considered. 4.1 These two appeals numbering .....

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A). In the Order-in-Appeal No.165/2006 dated 10.3.2006, Commissioner (A) held that appellants were liable to pay the duty of ₹ 3,52,838/- on 153.827 MTs of phosphoric acid along with interest but the penalty imposed by Order-in-Original was set aside by the Commissioner (A). The Department fixed the duty liability of ₹ 3,52,838/- for said 153.827 MTs of phosphoric acid held liable to duty by Commissioner (Appeals). 4.3 In case of appeal No.635/2006, in the Order-in-Original No.07/200 .....

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d and 208.406 MTs. of Sulphuric Acid saying that the same was not utilized for specified industrial purpose of manufacture of fertilizer and the interest was also held as payable by M/s. FACT. Here the Commissioner (A) set aside the penalties imposed under Section 11AC of Central Excise Act and Rule 25 of Central Excise Rules, 2002 by the Order-in-Original dated 21.2.2005. 5. In both these cases, it is found that the Revenue issued show-cause notices invoking the Proviso to Section 11A(1) of Cen .....

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ted by issual of two show-cause notices where the period involved was more than one year alleging suppression of facts with intent to evade payment of duty . It is to be noted that the Commissioner (Appeals) in both his orders has dropped the penalties which were invoked under Section 11AC of Central Excise Act, 1944 which is mandatory penalty wherever willful misstatement or suppression of facts with intent to evade payment of duty is alleged, though Commissioner (Appeals) in case of certain qu .....

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their tankers were always verified as intact saying further that, therefore, quantity sent from the supplier SIIL was received without any loss and that the Department did not show any physical loss of the goods. On the other hand, Revenue contends that the appellants regularly filed D-3 intimations and other returns which were duly submitted to Central Excise Officers where they never mentioned any notional shortage of the goods. But when the appellants commercial accounts were audited, it wa .....

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quantity of the goods, the receipt of which were shown in their Commercial accounts. 6.1 The argument by the appellants that commercial accounts and agreement were their internal arrangement between the supplier and the appellants and that was for determination and settlement of the price of the goods despatched and no reliance could be placed on the same for alleged short receipt of the goods, is not an acceptable argument and does not have any force; no prudent person would agree that a comme .....

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uments, which they used for making payments to their suppliers, does not have any force as the said documents cannot be ignored by anyone and more so by an official of Revenue Department. 6.2 Thus, it is on record that the appellants did not show actual receipt of the subject inputs in Central Excise records and registers but maintained separate accounts which were different from the entries put in Central Excise records and registers. Appellants have argued regarding the weighment difference bu .....

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ir suppliers for the quantity shown as less received goods only. Appellants argue that this notional shortage was mainly on account of variations and concentration and due to variation in weighment or weighing scale differences at the point of supply and at the point of discharge. The Commissioner (A) in his Orders-in-Appeal (which are the impugned orders here) have given benefit to the appellants for variation in concentration thereby holding that appellants were liable for payment of duty in .....

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osed under Section 11AC were set aside. In other words, ingredients or elements holding the appellants liable for willful default in payment of duty with the intention to evade, to cover their case under the provisions of willful misstatement or suppression of facts with intent to evade payment of duty, which are part of proviso to Section 11A(1) of Central Excise Act as well as under the provisions of Section 11AC of Central Excise Act, have not been found to be existing on record by the Co .....

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ntent to evade payment of duty were not found available by the Commissioner (A), in both the cases, he set aside the penalties under Section 11AC, which otherwise is mandatory penalty, whenever there is a case of willful misstatement or suppression of facts with intent to evade payment of duty. 7.1.1 It is not clear that how the Commissioner (A) has sustained the demand for the entire period which is beyond one year, when the penalty under Section 11AC of Central Excise Act has been set aside. H .....

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o evade payment of service tax there is mandatory penalty under Section 78 of Finance Act, 1994 as is the case in the case of Central Excise under the provisions of Section 11AC of the then Central Excise Act, 1994. CESTAT Delhi in this case held that if an assessee was found under bona fide misconception of liability to tax and primary authority dropped the penalty under Section 77, then the finding would equally cover the case in favour of the assessee both in respect of imposition of penalty .....

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with regard to imposition of penalty under Section 78 as well initiation of proceedings by invoking the extended period of limitation. Revenue has not preferred any appeal against the order of the primary authority against dropping of penalty under Section 77 of the Act. 7 In the facts and circumstances adverted to above, the impugned order of learned appellate Commissioner is unsustainable and is quashed. Appeal is allowed with no order as the costs. 7.2 Further from the facts on record and the .....

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motive for them unless otherwise proved on record by the Revenue authorities, which they have failed to do. Rather the employees of PSU very well know that if there has been any contravention of laws/rules, knowingly or unknowingly, they would be liable to vigilance/penal action. It is reiterated that the facts and investigations have not clearly and convincingly indicated any such mala fide involvement of the appellants and their employees. 7.3 The appellants have quoted the decisions of Hon bl .....

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cannot have any substance and support for further relief citing above two decisions, where the present facts do not match with the facts of the said two cases. 7.4 From the discussions above and the findings given by Commissioner (A) in his impugned orders No.165/2006 dated 10.3.2006 and No.249/2006 dated 29.3.2006 willful misstatement or suppression of facts with intent to evade payment of duty is not established on the part of the appellants. The special facts of the case that a Government of .....

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