1. Whether Cenvat credit is allowable on inputs stolen from the factory?

Held : No

The dealer is engaged in the manufacture of tin containers and they were availing the benefit of Modvat credit in respect of the duty paid. Tin plates were used in the manufacture of final product 23.524 Mt inputs were stolen from the factory. The Revenue issued on a show cause notice for reversal of the credit in respect of the inputs, which were stolen. The adjudicating authority confirmed the demand by denying the credit and also imposing the penalty of Rs. 20,000/-. On appeal filed by the appellant, the Commissioner (Appeals) allowed the appeal after taking into consideration the decision of the Tribunal in the case of Ram Printing Mills vs. Collector of Central Excise, Chandigarh, reported in 1994 (73) E.L.T. 397 (Tribunal).

Before the Tribunal revenue contended that, as the inputs were not used for the manufacture of final products, the dealer was not entitled to Cenvat credit. They argued that the reliance placed by the Commissioner on Ram Printing Mills vs. Collector of Central Excise, 73 E.L.T. 397 was incorrect as in that case the final product after manufacture was stolen and hence the Tribunal allowed the claim.

The department relied on the decisions of Madras High Court in the case of Golden Hills Estate vs. C.C.E. 90 E.L.T. 301 wherein it was held that, loss by way of theft of duty paid goods is neither an accident nor is it unavoidable and hence request for remission of duty was rejected. Reliance was also placed on Tribunal decision in the case of Asian Paints vs. C.C.E. 173 E.L.T. 187 wherein inputs lost in fire before these were issued for manufacture were not allowed for Cenvat credit.

Tribunal allowed the appeal of the department and the Commissioner’s order was squashed and original order was restored.

C.C.E. vs. Royal Containers 197 E.L.T. 381 (Del)

2. Whether excess finished goods found in the factory premises, when accounts were not maintained liable for confiscation?

Held : No

The brief facts of the case are as follows:

The Central Excise Officers visited the premises of the appellants and conducted stock taking of the steel billets manufactured and stored in the factory. During the stock taking, there was an excess quantity of 762.176 MT of steel billets valued at Rs. 76,10,716/-. The Revenue proceeded against the appellants. The excess quantity was confiscated. An option to redeem the goods on payment of fine of Rs. 2,50,000 /- was given. Further a penalty of Rs. 20,000 /- was imposed under Rule 173Q of Central Excise Rules, 1944. The appellants approached the Commissioner (Appeals). The Commissioner (Appeals) upheld the imposition of penalty but reduced the same to Rs. 10,000 /- only. As regards the confiscation, relying on the following decisions of the Tribunal, he held that the goods which have still not been removed from the factory are not liable to confiscation.

1. M/s. Pooja Forge [1996 (84) E.L.T. 37 (Tri.)]

2. M/s. New Polymer Industries [1991 (52) E.L.T. 145 (Tri.)]

3. M/s. Garden Silk Mills [1991 (51) E.L.T. 373 (Tri.)]

The department being agreed with the order of the Commissioner proceeded before the Tribunal. The department relied upon the following cases:

1. M/s. Auto India Ltd. vs. C.C.E 93 E.L.T. 397.

2. M/s. Multiplex Packaging Pvt. Ltd. vs. C.C.E. 112 E.L.T. 923.

It was contended by them that the decisions relied upon by the Commissioner were in different context in those cases, the goods had not reached the RGI stage and hence those decisions were delivered.

The Tribunal observed that there were contradictory decisions on the issue and each case had to be decided in the facts and circumstances. They emphasized that the Commissioner’s appeal had stated that the unit was closed for last 5 years and accumulated difference in stock has arisen over a period of 5 years. He has also mentioned that the method adopted by Central Excise Officer was faulty. Again no evidence was available to prove that the accounts were not maintained with an intention to evade duty. The Tribunal held it was a simple case of non-maintenance accounts. More so when the stock taking was not done on the basis of achieved weighment. It was done only on basis of estimates. They finally held that in the light of the ratio of, Bhilai Conductors Pvt. Ltd., wherein it had been held "Simple failure could not attract penal action under Rule 173Q. It is well settled that penal provisions had to be construed strictly and in favour of the assessee unless the Court is compelled by the language to construe it otherwise. Decisions referred to by the counsel on behalf of the appellants are of the consistent view in holding that no penal action can be taken under Rule 173Q either in confiscating or imposing penalty unless the goods were removed illegally or final goods should have been in the preparation for such removal or they must have been seized while being transported without recovery or gate passes and without payment of duty’’. The department’s appeal was dismissed

[C.C.E. vs. Steel Complex Ltd. 197 E.L.T. 512 (Tri.-Bangalore)]

3. A) Excess goods found during visit to factory, which were not recorded in daily production register. Explanation granted, therefore goods cannot be confiscated.

Held : No

B) Whether mens rea is required for confiscation of non-accounted goods?

Held : No

The department filed two appeals vide Appeal Nos. 1088 and 1092. The facts of Appeal No. 1088 are –

The Central Excise officers visited the premises of M/s. Magnum Steel Ltd. on 7-2-2002 and after physical verification of the stock of finished goods, excess quantity of the 48.200 MT of Twisted Bars and 51.21 MTs. of Flats was found than the recorded balance in daily production register. On inquiry, the representative of the manufacturer explained that the excess goods found on verification was due to incorrect accounting of the stock in register. After issue of the show cause notice, the original authority confiscated the seized goods and allowed the same to be redeemed on payment of a fine of Rs. 3 lakhs and also imposed a penalty of Rs. 2 lakhs on M/s. Magnum Steels Ltd. On appeal, the Commissioner (Appeals) under the impugned order set aside the confiscation of goods and reduced penalty to Rs. 10,000/- (Rupees Ten Thousand only).

The facts of Appeal No.1092 are –

On 7-9-2001, the Central Excise officers visited the factory of M/s. Magnum Steels Ltd. and on physical verification of the stock with their daily production register, they found an excess stock of goods valued at Rs. 2,59,012/-. The representative of M/s. Magnum Steel Ltd. stated that they are keeping the records not by physical weighment but on the basis of use of the raw materials. The goods found in excess were seized, for which show cause notice was issued and the case was adjudicated by the Dy. Commissioner, who confiscated the goods but allowed these to be redeemed on payment of a fine of Rs. 30,000/- and imposed a penalty of Rs. 15,000/-. The Commissioner (Appeals) under impugned order set aside the confiscation of goods and reduced penalty to Rs. 10,000/- (Rupees Ten Thousand only).

The department contended before the Tribunal that even though, there is no direct evidence that they were preparing to remove the goods, however, non-accountal of excess goods makes these liable for confiscation under Rule 25 of the Central, Excise Rules, 2001. For confiscation of goods, mens rea is not required. Reliance was placed on the decision of Bombay High Court in the case of Kirloskar Brothers Ltd. vs. Union of India & Ors. [(34) E.L.T. 30 (Bom.) = (83) ECC 497 (Bombay)], where it was held that the question whether one had intention to evade payment is a question of fact. Secondly, clauses (a), (b) and (c) of sub-rule (1) of Rule 173Q do not admittedly use the expression "with intent to evade payment of duty’’, which is found in clause (d) thereof. It can, therefore, be prima facie, assumed that the liability in terms of Rule 173Q (1) sub-clauses (a), (b) and (c) does not depend upon mens rea.

The dealer contended that the excess quantity found was due to the fact that weighment of actual quantity is done only at the time of clearance, for recording in production register the quantity is worked out theoretically on the basis of raw material used in manufacture. They had no intention of removal of goods without payment of duty and no such evidence was found on search, thus the confiscation of goods was rightly dropped by Commissioner.

Tribunal observed that there is no dispute that the goods found in excess at the time of seizure were not accounted for in the RG-I register. The main argument of the Revenue is that for confiscation of the goods, mens rea is not required and non-accountal simpliciter is enough for confiscation of the goods. The respondent’s claim is that non-accountal of the goods is not enough for confiscation as they have neither removed the goods without payment of duty nor they had any intent to remove the goods without payment of duty. The goods were found inside the factory. No instance of removal of goods without payment of duty has been mentioned in the show cause notice. The reason for non-accountal is that the weight of the goods manufactured is recorded on an approximate basis but when the goods were cleared and entries were made in RG-I register, it is based on the actual weight, which created a difference. Since the respondents have no intention to remove the goods and they have been penalized for non-accountal, confiscation should not be warranted. Tribunal further noted that

On examining clause (b) of sub-rule (1) to Rule 25, the goods are liable for confiscation if the producer or manufacturer does not account for any excisable goods produced or manufactured or stored by him. In both the cases, the manufacturer has explained the reason that there is excess of the goods as compared to the physical stock and that is because of not taking the weight by physical weighment. This explanation cannot be accepted. If this explanation is accepted then there will always be irregular maintenance of the records and true position will never be known to the Department leaving scope for clandestine clearances. On two occasions, the Department has been able to point out that the substantial quantities of the goods were not accounted for. There are case laws relied upon by both the sides supporting each others point of view. I find that the Commissioner (Appeals) had lifted the confiscation following the decisions in case of Bhilai Conductors. In that case, the goods were kept inside for some tests or for some examination before they could have been entered in the RG-I Register and there was a proper explanation for such type of situation. Even in case of Reliance Industries, the goods were kept inside the bonded store room and explanation was given for non-accountal of these goods but in the present case, it is not at the one occasion but at the two occasions, the explanation was given is that they are recording the theoretical weight based on weight of raw material issued for manufacture of goods. Such situation will lead to improper maintenance of records. Therefore, it cannot be taken lightly. The goods have to be confiscated so that the respondents may take due care in future for proper maintenance of the records. Under the clause (b) of Rule 25 (1) of Central Excise Rules, 2002, mens rea is not required for confiscation of the non-accounted goods. Therefore, order of the Commissioner Appeal was set aside as far as dropping of confiscation of goods and redemption fine.

[CCE vs. Magnum Steels Ltd. 197 LT 572 (TRI- Dec).

4. Whether service tax leviable on foreign exchange paid to consultants based abroad during the periods 1998-99 to 2001-02?

Held : No, up to 16-8-2002

A showcase notice was issued to this manufacturer of petroleum product for payments made under the head Consultancy Charges to foreign consultants during the periods 1998-99 to 2001-02. The Commissioner (A) allowed the claim of the dealer and held that liability to pay taxes shifted from service provider to service recipient from 16-8-2001 onwards. He drew support from the decision of Supreme Court in the case of Laghu Udyog Bharti vs. UOI 112 ELT 365. He further held that details of consultancy charges paid was disclosed in annual accounts of the appellants of which copy had been submitted to the department and therefore the allegation of suppression does not stand.

The revenue before the Tribunal relied on the order of the lower authority. The dealers representative relied on the decisions of CCE vs. Travancore Cochin Chemicals Ltd.

1. Service Tax Review 219 (Tri- Bang) and M/s. BST Ltd vs. CCE

2. Service Tax Review 40 wherein in similar facts the department’s appeal was rejected.

The Hon’ble Tribunal agreed with the contentions raised by the dealer and dismissed appeal of the department.

CCE vs. Kochi Refineries Ltd. [6 Service Tax Review 38 (Tri- Bang)].

5. Whether minimum penalty for delay in payment can be imposed of an amount less than Rs. 100/- per day?

Held : No

The facts of the case are that the assessee dealer paid off the entire service tax along with interest before issue of show cause notice. In addition penalty u/s 78 was also paid off. The appellant was however contesting the penalty levied u/s 76 @ Rs. 100/- per day of default restricted to amount of service tax.

The appellant dealer admitted a delay of 4 years in making payment of service tax due to bonafide belief, that service tax was not payable. The appellant relied on the decision of a single member in Care Viswanath Karkera 1 Service Tax Review 282 (Tri-Bang)... Wherein the penalty was reduced.

The department relied on the decision of the Larger bench in case of ETA Engineering, Ltd. 3 Service Tax Review 429 (Tri-LB) or 179 ELT 19. Wherein it was clarified that u/s 76 penalty imposable is not less than Rs. 100/- per day.

Tribunal sympathized with the appellant but refused to reduce the penalty as the decision referred to by the department was of a Larger bench and was given after the decision quoted by the appellants. The Tribunal was duty bound to follow the decision of Larger bench and hence the appeal of the appellant dealer was dismissed.

Setco Chem. (1) Ltd. vs. CCE Thane. 6 Service Tax Review 50 (Tri.-Mumbai)