CENVAT - Amount of 5%/10% paid by manufacturer in terms of rule 6 is ‘recovered' from customers - Revenue taking view that said recovery should be treated as 'additional consideration' and again 10% should be paid- Matter referred to Third Member: CESTAT
By TIOL News Service
NEW DELHI, OCT 14, 2013: THE appellant,a PSU, manufactures mechanical, electrical & electronic equipment.They also avail CENVAT credit and manufacture both dutiable and exempted final products but do not maintain separate accounts/inventory of inputs used for the aforesaid purpose. Therefore, in terms of the provisions of Rule 6(3) of the CCR, 2004 they were paying amount equal to 5%/10% of the sale value of the exempted final products at the time of their clearances. However, in the invoices to the customers, the amounts of 5%/10% of the sale price were being mentioned as "CENVAT Credit reversal", and these amounts were being recovered from their customers.
The Department was of the view that the amount being recovered from the customers has to be treated as “additional consideration” for the goods sold and as such, the same would be part of the sale price. And that the manufacturer should pay 5%/10% on these amounts of 5%/10% collected!
A SCN dated 12.03.2010 was issued demanding an amount of Rs.2,45,26,401/- in respect of such clearances of exempted goods during period from April '05 to Feb. '10 along with interest and also for imposition of penalty on the appellant under Rule 15 of the CENVAT Credit Rules 2004.
Two more SCNs also found their way on 23/03/2011 and 07/12/2011 for the period March 2010 to December 2010 and June 2011 to August 2011.
All the three SCNs were adjudicated by a common order dated 30/07/2012 by the CCE, Bhopal and result was obvious – all of them were confirmed along with penalty and interest.
The appellant is before the CESTAT and submitted that the matter is covered in their favour by the Larger Bench decision in Unison Metals Ltd. - (2006-TIOL-1337-CESTAT-DEL-LB). The appellant further submitted that bulk of the demand raised by SCN dated 12/03/2010 for the period from April 2005 to February 2010 is time barred as on the same ground SCNs dtd. 19/01/2009 & 20/09/2009 were issued.In this regard apex Court ruling in Nizam Sugar Factory- (2006-TIOL-56-SC-CX) is relied upon.
The Revenue representative submitted that the order of the adjudicating authority is proper in law and that the judgment of the Tribunal in the case of Unison Metals Ltd. cited by the appellant and the Board's Circular No.870/8/2008 dtd. 16.05.2008 based on the same, is not applicable to the point of dispute in this case.
The Member (Technical) inter alia observed -
+ In our view this judgment (of Unison Metals Ltd.) is not applicable to the issue involved in this case, as the issue involved in the case is as to whether, the amount of 5%/10% of the sale price of exempted goods being collected by the appellant from the customers, is part of the sale price or not on which the amount under Rule (3) is to be paid.
+ When an assessee has paid to the Government an amount @ 5%/10% of the sale value of the exempted goods under Rule 6(3), this payment is linked to the requirement of reversal of CENVAT Credit on the inputs/input services used in the manufacture of exempted final products. In such circumstances, if the same amount is recovered by the assessee from the customers, it cannot be said that he has paid that amount to the Government, as the amount paid to the Government is towards neutralization of the benefit of CENVAT Credit in respect of inputs/input services used in the manufacture of the exempted final products to which he is not entitled.
+ Thus the amount recovered in this case has to be treated as additional consideration and, hence, part of the sale price and as such on this amount also the amount @ 5% / 10% under Rule 6(3) would be required to be paid. We therefore, hold that on merits the Department's stand is correct.
The argument on time bar was accepted by the Member (Technical) and he remanded the matter for re-quantification of the amount payable u/r 6(3) of CCR, 2004.
The Member (Judicial) had the following differing view. After referring to the LB decision (supra) and the Board Circular 870/8/2008-CX, dated 16.5.2008 based on the same and mentioning that an identical issue was before the LB, the Member (J) inter alia observed -
+ The only difference in the Unison decision and the present case is that in that case demand was made under section 11D whereas in the present case, recovered amount is sought to be added in the assessable value and consequent duty demand is made.
+ It stands clarified that as long as the amount 8% or 10% is paid to the Government in terms of Rule 57CC of the erstwhile of Central Excise or Rule 6 of the CENVAT Credit Rules, the provisions of section 11D shall not apply even if the amount is recovered from the buyers. If that be so, the said amount recovered from the buyer can also not be added to the assessable value. The demand of duty on the same amount by treating it as part of the assessable value is not in accordance with the said rule .
After holding that the issue is squarely covered by the larger bench decision of the Tribunal and there are no justifiable reasons to take a different view, the Member (J) also referred to the apex Court decision in CCE, Meerut vs. Kisan Sahkari Chinni Mills Ltd. - (2002-TIOL-394-SC-CX) and the Tribunal decision in Sujana Metal Products vs. CCE, Hyderabad (2009-TIOL-1096-CESTAT-BANG)where it is held that an amount of 10% paid under Rule 6 of CCR, 2004 is to be considered as tax and, therefore, recovery of tax amount from the customer, which already stands paid to the Revenue cannot be held to be liable to be added in the assessable value of the goods.
Nonetheless, the Member (J) agreed with Member (T) on the point of limitation and penalty and concluded that the order passed by the CCE, Bhopal is required to be set aside in its totality and the appeal is required to be allowed.
Accordingly, the following difference of opinion was referred to the Third Member -
“Whether the appeal has to be allowed on the point of limitation and penalty and the matter is required to be remanded to the Commissioner for re-quantification as held by my learned brother Member (T) or the impugned order is required to be set aside in its totality and the appeal is required to be fully allowed as held by learned Member (J).”
In passing : We had covered this issue exhaustively in DDT 124/30.05.2005 and later in DDT 869/21.05.2008 after issuance of the Board Circular 870/8/2008-CX, dated 16.5.2008.An extract there from–
“ So 11D is out. Then should this ten percent collected from the customer be added to the price to arrive at the ten percent? This will lead to absurd situations. Suppose the price is Rs 100 and the manufacturer collects ten percent from the customer. Now Audit would want this ten percent to be added to Rs. 100 and the amount to be paid should be Rs. 11 (10% of 110). But then if the assessee passes on this additional one Rupee also? Then the price has to be taken as 111 and 10% has to be calculated. This will go on and on till --- till infinity! No! we must stop it somewhere. Why not at the beginning? The point is, he collected Rs 110 and 10% has to be paid on that. But 110 includes 10%. It is 100 + 10. Elementary arithmetic? Not to Audit and some Commissioners!”
On the present case, we will keep you posted.
(See 2013-TIOL-1513-CESTAT-DEL)
