ISPAT INDUSTRIES LTD. Vs. COMMISSIONER OF CEN. EXCISE

JUDGEMENT

(1.) M /s. Ispat Metallics (India) Ltd. (hereinafter referred to as IMIL) are engaged in the manufacture of Pig Iron (Hot Metal) falling under Chapter 72 of the Central Excise Tariff Act, 1985. One more unit set up adjacent to IMIL by the name of M/s. Ispat Industries Ltd. (hereinafter referred to as IIL) is engaged in the manufacture of H.R. Coils from Directly Reduced Iron. IMIL was promoted by IIL for setting up a blast furnace for the manufacture of hot metal/pig iron mainly to cater to the needs of IIL for hot metal required in the manufacture of H.R. coils by IIL. IMIL had cleared hot metal/pig iron to IIL on payment of duty at an assessable value calculated @ 115% of cost of production in terms of Rule 8 of Central Excise (Valuation) Rules 2000 by issuing invoices at an estimated price of Rs. 6.500/ - P.M.T. and paying differential duty on the revised assessable value. While working out the cost of production, the elements of Bank charges and LC commission on Raw Material, Exchange rate fluctuations, and depreciation etc. were not included. On being pointed out that the above elements were required to be included, IMIL paid differential duty of Rs. 72,29,467 in August, 2001 for the years 2000 -01, 2001 -02 and 2002 -03, on account of non inclusion of the above elements excepting the element of depreciation. During the year 2001 -02, IMIL had produced 38% of the installed capacity of hot metal and during year 2002 - 03, they had produced 56% of the installed capacity. The statement of cost of production in the CAS -4 format also clearly showed that they had not considered depreciation while calculating the cost of production. Since the department was of the view that depreciation element was required to be included in the assessable value of hot metal/pig iron, a show cause notice dated 11.11.05 proposing recovery of differential duty of Rs. 35,14,16,652/ - together with interest and penalty, and proposing recovery of interest on differential duty of Rs. 72.29 lakhs already paid, was issued. The notice was adjudicated by the Commissioner who confirmed the demand raised under proviso to Section 11A(1) together with interest under Section 11A(1), on the duty amount confirmed as well as on the duty already paid, and imposed penalty equal to duty confirmed under provisions of Section 11AC of the Central Excise Act, 1944 read with relevant Rules. Hence this appeal.

(2.) WE have heard both sides. We see force in the submission of the appellants that the demand of Rs. 35,14,16,652/ - is barred by limitation as they cannot be held to be guilty of suppression with intent to evade payment of duty so as to apply the extended period of limitation against them. The Commissioner's findings on time barred nature of the demand are contained in paragraphs 25 and 26 of the impugned order, which are reproduced below: 25 - Similarly in the monthly ERI returns, IMIL have made a declaration in the assessment memorandum at Clause (b) as " We have assessed the ad -valorem duty on the clearance documents in terms of Section 4 of the Act read with Valuation Rules, 2000 or in terms of Section 4 A of the Act." Although, IMIL were aware of clearance of hot metal to III under Rule 8 of the Central Excise Valuation Rules, 2000 @ 115%, they have mis -declared to the Department that the assessment of duty was as per Section 4 of the Central Excise Act, 1944. Not only this, they have included Section 4A (MRP) as well. This is another example of suppression of facts by deliberate twisting of truth and by attempting to mislead the Department. Again, it is seen that in spite of having been asked to file the Price Declaration under erstwhile Rule 173C of the Central Excise Rules, 1944 vide letter No.CEX/R -PenlMIL/2000 at. 11.09.2000, they failed to file any price declarations. I rely upon Hon'ble High Court of Madhya Pradesh judgment in the case of Procter and Gamble Hygiene and Health Care Ltd. v. CC and C.Ex. Bhopal wherein it was held that non filing of correct price declaration is a willful misrepresentation or the case of suppression. Further, it is also observed that IMIL had entered into an agreement with IIL for manufacture and supply of the entire quantity of hot metal only to IIL at a price which is 5% below the prevailing market price of the basic grade Pig Iron. This proves that everything was pre -planned with an intention to defraud the Govt. exchequer. Further, on being pointed out IMIL has paid the differential duty of Rs. 72,29,467/ - for the years 2000 -01, 2001 -02 & 2002 -03 on account of non -inclusion of other elements i.e. bank charges, LC Commission on raw materials, exchange rate fluctuations, handling charges etc. in the cost of production as per CAS -4 standards which indicates that they do agree that it is not a trial run production. Thus, the above acts of the assessee invokes proviso to Section 11A of the Central Excise Act, 1944. 26. To sum up, I am firmly of the view that IMIL was very much aware of the fact that depreciation of plan and machinery is required to be added to the cost of production but with an intention to evade the payment of C.Ex. duty they did not include the element of depreciation in the cost of production under the guise that it is a trial run production. Thus they have failed to correctly assess the cost of production by not including the element of depreciation of plant and machinery for the calculation of cost of production as required under Rule 8 of the Central Excise (Valuation) Rules, 2000 on the ground that the production is a trial run production which is evident from the statement of cost of production submitted by IMIL in CAS -4 format for the years 2001 -02 and 2002 -03 certifying therein that for calculation of the cost of production the depreciation has not been considered. The extended period under Section 11A of the Central Excise Act, 1944 is, therefore, invokable.

(3.) HOWEVER , we find that on 6.11.2000 IMIL had written to the jurisdictional Range Supdt. enclosing the original certificate of Chartered Accountant certifying cost of manufacture of hot metal for the month of July 2000 and in the cost sheet, particulars of raw materials etc. are to be found but there is no entry in respect of depreciation on plant and building. Further, for the subsequent period from May 2001 onwards IMIL had filed certificate of Chartered Accountant specifically stating that depreciation on plant and building has not been considered as the same is not provided in the books This clearly shows that IMIL had disclosed that depreciation on plant and building has not been taken into consideration for calculating cost of production of hot metal/pig iron transferred to IIL (inter connected unit) by applying provisions of Rule 8 of the Central Excise (Valuation) Rules 2000. No finding has been recorded by the Commissioner on these submissions which were raised before him as seen from the fact that same submissions had been recorded as part of the defence reply, in the impugned order. Further, the entire exercise is revenue neutral as if duty had been paid, it would have been available as credit to the other unit and therefore, there could not have been any intention to evade payment of duty.