SOUTHERN STRUCTURALS LTD. Vs. COMMISSIONER OF C. EX.

JUDGEMENT

(1.) By this appeal M/s. Southern Structural Ltd., hereinafter referred to as the appellants, challenge the Order -in -Original No. 27/2000, dated 29 -12 -2000 passed by the Commissioner of Central Excise/ Chennai -II by which he has confirmed a duly demand of Rs. 61,44,084 towards interest on advances under the proviso to Section 11A of the Central Excise Act, 1944, (the Act for short). He has also confirmed a duty demand of Rs. 7560/ - towards inspection charges under the proviso to Section 11A of the Act, besides confirming a duty demand of Rs. 2,82,155/ - on the escalated price of wagons under Section 11A of the Act. A penalty of Rs. 20,00,000/ - under Rule 173Q of the Central Excise Rules, 1944 (the Rules for short) and a further penalty of Rs. 34,18,250/ - under Section 11AC of the Act for the various contravention alleged.

(2.) The appellants are an Undertaking wholly owned by the Government of Tamil Nadu. They are engaged in the manufacture inter alia of Railway wagons falling under Chapter Headings 8605.50 and 8428.00 of the CETA, 1985. It was found on verification of their accounts that the appellants have entered into a contract with the Southern Railways for the manufacture and supply of 106 wagons of BTPGLN wagons vide contract No. 94/PS/PF and EC/954/3, dated 1 -12 -94 for an amount of Rs. 16,10,90,974/ - which is inclusive of cost of steel at Rs. 6,65/833 per wagon. The cost of each wagon including the cost of steel worked out to Rs. 15,29,724 (6,55,833 + 8,63,891). The Railways have given free supply of raw materials worth Rs. 7 lakhs per wagon. The appellants have paid Central Excise duty @ 15% ad valorem and have cleared 21 wagons to their customer till 16 -7 -1998. It was also noticed that the appellants have adjusted value mentioned in the invoices against 50% of the advance amount received from their customers. They have also collected an amount of Rs. 2400/ - per wagon by way of inspection charges. This amount was not included in the assessable value. The total amount of advance received by the appellant was to the tune of Rs. 10,29,80,192/ -. They have also raised bill for an escalation price for 19 wagons and the amount on this account was Rs. 18,81,036/ - for which the duty involved was Rs. 2,82,155/ - which amount has not been debited by the appellants.

(3.) Statement was recorded from Shri K.S. Ramamurthy, General Manager on 29 -7 -98 wherein he has stated inter alia that duty on the escalation price was paid by them subsequently on 24 -7 -98 and that the advance amount of Rs. 10.29 crores received from the Railways were used in payment of their official expenditure. He has also stated that inspection charges collected from the Railways were towards reimbursement charges paid to PDIL who is an inspection agency as per the direction of the Railway Board and it was a necessary test for marketing the wagons. According to the department, the appellants have suppressed the value in the invoice of the appellants with a view to enjoying the benefit of duty involved on differential value. Proceedings were therefore initiated against the appellants by issue of show cause notice No. 98/98, dated 28 -9 -98 on the following charges : (a) that they have undervalued the cost of wagons and conveyor parts cleared to Railways and NLC to the extent of interest accrued on advances received from them and thus contravened Section 4 of the Act. (b) Under valued the cost of wagon to the extent of inspection charges collected and hence contravened Section 4 of the Act read with Rules 173Q, 9(1), 173F and 173G of the Rules. (c) Not paid duty on the escalation charges collected from the Railways thereby contravened Section 4 read with Rules 173C, 9(1), 173F and 173GG, and the proceedings culminated in the order -in -original demanding duty and imposing penalty as noted above against which the appellants have come in appeal on the following grounds: (a) The goods in question viz BPTGLN wagons were tailor made for use in the Railways and cannot be put to any other use and in such circumstances it is normal for the manufacturer to take advance to protect their interest against the buyer reneging on the contract. In support of their plea they relied upon the decision of the Tribunal in the case of CCE, Mumbai v. Netel Chromatographs reported in 1998 (100) E.L.T. 111 wherein it was held that the price was a contracted price between the buyer and the seller and that has no relevance to the advance taken. (b) It is not for the Revenue to see as to how the advance received has been used and what is to be seen is whether because of the advance taken, there was any lowering of the price and 50% of the price taken as advance cannot be taken to be abnormally high. (c) The appellants are an undertaking wholly owned by the Govt. of Tamil Nadu and the buyer is the Indian Railways and hence there cannot be any motive to depress the price. (d) Longer period of limitation cannot be invoked in this case in view of the decisions in the case of Tamil Nadu Housing Board [1994 (74) E.L.T. 0009 (S.C.) = 1994 (55) ECR 7 (S.C.)] and various other decisions such as CCE v. Chemphar Drugs [1989 (40) E.L.T. 276 (S.C.)], Padmini Products v. CCE, Bangalore [1989 (43) E.L.T. 195 (S.C) = 1989 (25) ECR 289 (S.C.)] and in the case of Pushpam Pharmaceuticals v. CCE, Bombay reported in 1995 (78) E.L.T. 401 (S.C.). (e) The testing charges paid to the IDPL cannot be included in the assessable value for the reason that the inspection fee was paid by the appellants to PDL, the inspecting agency, as per the directions of the Railway Board. The appellants did not accrue any benefit on this account. In support of their plea they cited various case laws, one such decision is in the case of Larsen & Toubro v. CCE reported in 1998 (101) E.L.T. 668. (f) The duty on the escalated price has been paid by the appellants as per the norm in the industry since the Commissioner has accepted that as per the commercial practice a pre -audit commercial invoice dated 4 -6 -98 for the escalated price was raised by the appellants for the purpose of verification by the Railways which was followed by issue of invoice under Rule 52A. Therefore, fraudulent intent cannot be attributed against the appellants. (g) Penalties under Rule 173Q and under Section 11 AC cannot be imposed when there was no evasion of duty by the appellant and penalty cannot be imposed merely because it is lawful to do so. There has to be some element of mens rea on the part of the appellants before penalty can be imposed. In any case penalty is very harsh and excessive.