TaxTMI 
TaxTMI 
2020 (10) TMI 818
X X X X Extracts X X X X
X X X X Extracts X X X X
....2002, who are the Officers of Balco and VAL. 2. Brief facts are that the appellant M/s Balco is inter alia engaged in the manufacture and clearance of 'Aluminium and Article thereof' falling under Chapter No. 76 of the First Schedule to the Central Excise Tariff Act, 1985 and is registered with the Central Excise Department vide Central Excise Registration No. AAACB1290NXM002. 3. The primary raw material for the purpose of manufacture of aluminium is 'Calcined Alumina' which is in turn manufactured from 'bauxite ore' extracted from mines. The appellant was initially having alumina refinery and aluminium smelter for which it was allocated own captive mines. However, the appellant is not permitted to sell bauxite extracted from the captive mines in the open market and therefore, on account of limitation of capacity of its refinery at Korba, the appellant was not able to use the bauxite fully from its captive mines. Accordingly, the appellant decided to get 'Calcined Alumina' manufactured on job work basis from VAL by using the bauxite extracted from its captive mines. This was found to be better and more cost effective method, than importing the deficit requirement of Calcined Alum....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... alongwith job work documents, and in the same month books of accounts, etc. of VAL were audited by the Department. 9. During the material period i.e. August, 2007 to July, 2010, VAL removed alumina on payment of central excise duty to their other unit at Jharsuguda and also to M/s Balco on the following basis:- A. Removal to the applicant's (VAL) other unit at Jharsuguda on 'stock transfer' basis referred as 'Inter Unit Transfer (ITU) Sales'. C.E. duty paid on the basis of cost of production + 10% profit. B. Removal to BALCO, Korba based on purchase orders - referred as 'Direct Sale' Aug. 07 - Nov. 08 - Based on London Metal Exchange (LME) average price and Dec. 08 onwards - Based on Alumina Spot Tender Price of the Govt. Owned company NALCO. C. Removal to BALCO, Korba of said goods obtained by job working on BALCO's input (Bauxite) under 'conversion agreement' - referred as 'Conversion Sale'. -do- 10. In case of goods removed by 'job worker' (VAL), the provision for valuation w.e.f. 01.04.2007 is as follows:- Notification No. 9/2007-CE (NT) dt. 01.03.2007 Rule 10A. Where the excisable goods are produced or manufactured by a job-worker, on behalf ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 12. The appellant M/s VAL on understanding that there have been an error in valuation of alumina cleared to M/s Balco under job work arrangement, raised a supplementary invoice on M/s Balco for an amount of Rs. 24,65,79,458/- dated 20.12.2009 which included duty + cess. 13. On completion of investigation at the end of M/s VAL, show cause notice dated 11.10.2010 was issued asking M/s VAL to show cause as to why duty of Rs. 64,70,09,162/- + cess totalling Rs. 66,64,19,436/- as per the calculation chart be not demanded and recovered under proviso to sub-section (1) of Section 11A of Central Excise Act alongwith interest and with proposal to appropriate the proposed demand from the amount of Rs. 66,64,19,436/- already deposited towards differential duty liability on the alumina removed during the period August, 2007 to August, 2010, alongwith proposal to impose penalty under Section 11AC read with Rule 25 of Central Excise Rules, 2002. Penalty was also proposed on four officers of M/s VAL under Rule 26. 14. Pursuant to raising of supplementary invoice on M/s Balco, M/s VAL had intimated the Department regarding payment of differential duty through supplementary invoices, on cleara....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were to be treated as clearances to 'independent parties' and since the comparable price of Alumina was available in the market, the same was adopted for discharging duty on the quantities of Alumina cleared by them to BALCO. (l) They were also under bona fide belief that only in case of stock transfer they were to follow COP + notional profit. (m) In the present exercise the applicant stands to lose as crores of rupees was lying as unutilised credit, could be utilised to recover from BALCO during the material time, and would not have incurred interest liability of Rs. 15,37,19,183/-, and thus non-payment of duty resulted in gain to the Government to this extent. (n) Payment of differential duty was not with any malafide intention but based on bona fide belief that valuation for removals to their own unit would be under Rule 8 of the Valuation Rules. (o) Their bona fide belief was, however, incorrect in view of the decision in the case of Ispat Industries vs. CCE, Raigad -2007 (209) ELT 185 and subsequent decisions. The applicants adopted this method, as the extra duty paid by debiting the cost of production was available as credit to its other unit. (p) The entire exerc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r sources at more or less the same price at which VAL were discharging duty on Alumina supplied by them to BALCO on direct sale basis or on conversion basis. The quantum of Alumina procured by BALCO from VAL and other sources is as follows:- Qty. in M.T. Conversion basis Sale basis From other sources 2007-08 1,27,938 47,879 1,52,391 2008-09 2,41,839 1,15,694 1,23,575 17. It was further observed by the Commission that there were no bonafide reasons for discharging duty on the basis of LME prices of Alumina, or on spot tender price of NALCO. Apparently, VAL was clearing the goods at less price to BALCO, it appears for taxation benefit of Vedanta Group, profit has been generated in BALCO by adopting supply of Alumina at low price from BALCO. The plea of neutrality is not available to them as VAL and BALCO are different legal persons. It was further held that plea of bonafide is not acceptable. 18. With reference to issue of supplementary invoices by VAL to enable Balco take credit of the differential duty so paid during and after investigation, the Commission observed that since the issue is not before it, it need not go into it. 19. The Commission furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edit Rules. It was further alleged that scrutiny of contract between the parties dated 01.01.2008 revealed the price quoted for sale of 'calcined alumina' was linked to LME price. It was further observed in the show cause notice that during the course of scrutiny or enquiry, M/s VAL debited an amount of Rs. 24,65,79,458/- vide debit entry No. 2750, 2751 and 4929 all dated 20.12.2009 and intimated their Range Superintendent vide letter dated 21.12.2009, that as advised the clearances by them on job work fall under Rule 10A(iii) of Central Excise Valuation Rules, 2007, and duty has to be discharged on the basis of principles laid down in the case of Ujjagar Prints read with Board Circular. It was also stated by VAL that duty involved is Revenue neutral as the same is available as cenvat credit in the hand of Balco. M/s VAL has taken decision to remit the duty based on cost of production + 10% as in the case of clearance to their own unit at Jharsuguda by way of stock transfer. Further, mentioning the facts at the end of VAL, referring to the show cause notice issued to M/s VAL alongwith the final order of Settlement Commission dated 23.09.2011. It was also observed in the show cause ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0, almost about eleven months thereafter. Further, Balco has taken cenvat credit bonafide under proper intimation to the Department. Intimation of issue of supplementary invoice was also given by VAL to the Department in December, 2009 itself. It was also pointed out that Balco received the bauxite ore from their captive mines which they consumed in part in production themselves and cleared a part of the ore to VAL, under job work arrangement. Thus, VAL has no appropriate comparable price to value job work calcined alumina for paying appropriate excise duty. Thus, the parties bonafide linked the transaction price of calcined alumina to the price of aluminium as per LME, which is widely accepted. Further, stated that from December, 2008 onwards the excise duty was paid by VAL on the basis of calcined alumina spot tender price, as per NALCO (Government company) which was based on International Competitive Bidding method. Thus, in view of the reasonable method of valuation adopted for clearance under the job work arrangement, no malafide can be alleged. It was further pointed out that there is no loss of Revenue, the situation is wholly revenue neutral. Reliance was placed on the Ruli....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 25.3 That the Impugned Order denied CENVAT Credit to the Appellant - Balco, under Rule 9(1)(b) of the Credit Rules simply on the basis that, VAL in its settlement proceedings, settled its duty liability and deposited the penalty imposed by the Settlement Commission and thus mens rea stood established against VAL for committing fraud, collusion or willful misstatement and suppression of facts to evade payment of duty. In this manner, the Impugned Order simply placed reliance on the settlement proceedings in the matter of VAL to deny CENVAT Credit to the Appellant. 26. Being aggrieved by the Impugned Order, the Appellants filed the instant appeals before this Tribunal. The synopsis of the submission of the Appellant are as follows- 26.1 Rule 9(1)(b) of Credit Rules is not applicable as the issue at hand is not of a 'sale transaction'. Relevant part of Rule 9(1)(b) of the Credit Rules reads as follows: (1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be on the basis of any of the following documents, namely:- (a) ... (b) a supplementary invoice, issued by a manufacturer or importer of i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of duty committed by VAL. In the absence of the same, CENVAT Credit has been incorrectly denied to the Appellant under Rule 9(1)(b) of the Credit Rules 26.3 It is submitted that the Impugned Order is erroneous by relying on the Settlement Commission's Order in the matter of VAL, for establishing mens rea on the part of VAL. The present Show cause notice dated 06.05.2013 and the Impugned Order have neither alleged nor undertaken any independent investigation against VAL to establish mens rea on its part. It is settled law that charge has to be established from the Show cause notice in question, and cannot be borrowed from another proceedings. In the absence of the same, the entire proceedings initiated vide Show cause notice dated 06.05.2013and the findings arrived in the Impugned Order stand vitiated. Hence, CENVAT Credit under Rule 9(1)(b) of the Credit Rules could not have been denied to the Appellant at all. 26.4 In any case, allegation of suppression against VAL does not stand adjudicated by the proceedings of the Settlement Commission. It is settled principle of law that settlement of a matter does not tantamount to adjudication of the matter and thereby the Settlement Commi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Settlement Commission itself in para 10.4 of its Order dated 23.09.2011 left the question open with respect to Cenvat Credit in the hands of the Appellant (para 10.4 of the Settlement Commission's Order, page 150 of the appeal paper books). Given this, reliance placed on the Settlement Commission's Order dated 23.09.2011 to deny CENVAT Credit to the Appellant is absolutely incorrect on the face of it. 26.7 Lastly, the Settlement Commission by invoking its powers under section 32F of the Central Excise Act 1944 settled the issue by accepting the duty liability and imposing penalty to arrive at a fair settlement. Payment of penalty in terms of section 32F of the Excise Act, cannot be equated with imposition of penalty under section 11AC of the Central Excise Act. Hence, the argument of the Revenue that mens rea under section 11AC stands established against VAL is absolutely incorrect in law. Given all of the above, the Impugned Order is incorrect in law. The issue at hand is revenue neutral. Hence, the allegation of suppression is incorrect. 26.8 The Appellant submits that restriction under Rule 9(1)(b) is not applicable in the absence of intention to evade duty. In the pres....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommission that "it appears that for taxation benefits of Vedanta group, profits have been generated in Balco by adopting supply of Alumina at a very low price". That the said contention is in complete ignorance of the fact that the supply of Calcined Alumina was on job-work basis and the Appellant merely paid processing charges and excise duty. Therefore, there being no sale, the question of generation of profits by the Appellant does not arise. This clearly goes to show that the Impugned Order has been passed without application of mind, and on this ground itself, the Impugned Order is liable to be set aside. Benefit of Notification no. 214/86-CE is available at a later stage. Hence, denial of CENVAT Credit does not stand to reason 26.11 That VAL in any case, being a job worker was entitled to avail benefit of Notification No.214/1986. It is settled law, benefit of exemption Notification 214/1986-CE, if not claimed earlier, can be claimed at a later stage, as held in Neo Sacks Ltd. Vs CCE 2004 (177) ELT 206, Share Medical Care vs UOI 2007 (209) ELT 321(SC). That VAL is still entitled to claim the benefit of this Notification. Pursuant thereto, the entire issue of payment of add....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was required to be issued within time as held in Nizam Sugar Factory vs CCE 2006 (197) ELT 465 (SC)]. Since the second Show cause notice was not issued within the prescribed time, it is untenable in law for this reason itself. 26.15 That the Impugned Order has not shown any evidence of suppression, positive act of evasion etc. at the end of Appellant for the purpose of invoking extended period of limitation, in issuing the Show cause notice. It is submitted that Revenue authorities have to establish mens rea, positive act of evasion etc. on the part of the Appellant for the purpose of issuing the Show cause notice on the basis of extended period of limitation. In the absence of any evidence or reasoning to this effect, the Impugned Order is completely incorrect in law for invoking the extended period of limitation, and the penalty provisions against the Appellant. Reliance is placed on the decision in the matters of Tamil Nadu Housing Board vs CCE 1994 (74) ELT 9 (SC), CCE vs Chempar Drugs & Liniments 1989 (40) ELT 276 (SC), CCE vs HMM limited 1995 (76) ELT 497(SC). He prayed that the Impugned Order is liable to be set aside and appeal of the Appellants may kindly be allowed. 27....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es. Ans. At the time of taking the cenvat credit, it was the bonafide belief that we are entitled to take the cenvat credit on these supplementary invoices and we had availed such credit. Now our management is considering the merit of the case and they will decide the matter accordingly." 28.2 Learned AR further refers to statement of Shri G. Rajendran, Vice President, Indirect Taxes and the extract of which is as follows:- "Q. No.13 Please explain the reason on the basis of which you have availed cenvat credit amounting to Rs. 24,65,79,458/- whereas rule 9(1)(b) of Cenvat Credit Rules, 2004 debar for availment of cenvat credit in those cases where there is suppression of facts, mis-statement, fraud, contravention of rule with intent to evade payment of duty as discussed and alleged in Show Cause Notice No. V(28)15/Adjn/11A/70/2010 dated 11.10.2010 issued by Commissioner, Central Excise, Bhubaneswar-I and held in the Final Order No. F-282/CE/11-SC(KB) dated 23.09.2011 passed by Settlement Commission in respect of appeal filed by M/s Vedanta Aluminium Ltd., Lanjigarh. Ans. While availing and utilising the credit against supplementary invoices in December, 2009, we were not aw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lding Ltd. Vedanta Resources P/L Volcano Investments Ltd. Fellow Subsidiaries:- (i) Sterlite Industries India Ltd. (SIIL) (ii) Hindustan Zinc Ltd. (iii) Bharat Aluminium Co. Ltd. (iv) Sterlite Paper Ltd., (v) Sterlite Energy Ltd. &^ a number of Companies From the web page of Twin Star Holding Ltd., Vedanta Resources Pvt. Ltd., Sterlite Industries (India) Ltd., and Bharat Aluminium Company Ltd., the following information were gathered- (i) Twin Star Holding Ltd., is the parent company of SIIL It holds more than 50% equity in SIIL (ii) Vedanta Resources (P) Ltd., owns 59.9% in SIIL (iii) Vedanta Resources (P) Ltd., owns 70.5% of share of VAL whereas SIIL owns 29.5% share of VAL (v) SIIL owns 51% share in BALCO (vi) SIIL is the promoter of VAL and its Annual Report 2008-2009 contains information/ performance of VAL & BALCO The relationship as reflected in the Notes of Balance Sheet and the Holding of Shares placed in the web page of various Companies, it is seen that Balco is a fellow subsidiary of VAL. The ultimate holding company i.e. Vedanta Resources (P) ltd., has control over its subsidiary companies through the ownership of shares. The holding of ....