Harish Tandon, J.
The order dated 30th September, 2013, passed by Customs Excise & Service Tax Appellate Tribunal, Eastern Zonal Bench, Kolkata disposing of an application seeking waiver of pre-deposit or Cenvat credit and equal amount of penalty is the subject matter of challenge in this writ petition. By the impugned order, the CESTAT directed the petitioner to deposit Rs. 50 lakhs out of the confirmed amount of duty excluding the amount of Rs. 15 lakhs already deposited in course of investigation.
The petitioner is a manufacturer of MS ingots and runners and risers which are the excisable goods. A search was conducted at the registered factory premises as well as head office of the petitioner and several documents and records were seized. On scrutiny of those seize documents, the authority found that the petitioners have wrongfully enjoyed the Cenvat credit. A show cause notice cum demand was issued to the petitioner primarily on the ground of clearance of MS ‘waste and scrap’ at a uniform rate of Rs.2000/- per metric tone during the financial year 2005-2006 to 2007-2008. Though the Daily Stock Accounts and ER-1 Returns showed the manufacturing of MS ingots, runners and risers in unit one but, they, never manufactured MS ‘waste and scrap’. There is also discrepancy in the raw material account as the MS ‘scrap’ has been included therein under the head ‘waste and scrap’ and, therefore, was cleared/removed as such. According to the excise authorities, the petitioner removed the ‘waste and scrap’ for manufacturing final product at a lower price and have wrongly availed the Cenvat credit and demanded the same to be reversed.
In reply to a show cause notice, the petitioner says that for manufacturing MS ingots and billets, MS scrap, CI scrap, sponge iron and pig iron are used as inputs which resulted into the removal of several foreign particles which are the ‘waste and scrap’ and, therefore, sold into the open market at a rate of Rs. 2000/- per metric tone. The petitioner further says that the excise duty leviable on the same ‘waste and scrap’ have been duly paid and, thus, the question of removal of the inputs without using the same for manufacturing of the final product is not correct. A further plea of limitation was also taken as a point of defence. According to the petitioner, there is no element of suppression of facts and, therefore, the proviso inserted to Section 11A of the Central Excise Act has been wrongly invoked. The Commissioner of Central Excise, Haldia Commissionerate confirmed the demand of Rs.2,38,60,024/- only and imposed the penalty of the like amount apart from a further penalty of Rs. 25 lakhs under Rule 26 of the Central Excise Rules’ 2002 and a penalty of Rs. 50,000/- and Rs. 10,000/- personally on the Chief Executive (Accounts) and Manager (Accounts) of the petitioner no.1. The petitioner assailed the said order before the CESTAT and also filed an application seeking waiver of the pre-deposit of the duty confirmed which is disposed of by the impugned order.
The learned Advocate for the petitioner submits that the CESTAT has not considered the financial position, which is one of the ingredients having brought within the purview of undue hardship. He further submits that the scrap generated during the manufacturing of the final product cannot be treated as passing the raw material as such. According to him, the waste is generated in the manufacturing process which is a marketable commodity and does not partake the character of the raw material and is treated as the waste. It is vehemently submitted that the CESTAT has not considered that a strong prima facie case has been made out and any direction for deposit of the duty demanded would cause undue hardship. It is lastly submitted that the CESTAT has not adverted to the issues of the limitation which was very much addressed by the petitioner and, therefore, the order impugned is not sustainable.
The learned Advocate for the respondent submits that the CESTAT has exercised the discretion in directing the petitioner to deposit Rs. 50 lakhs of the duty demanded after assigning the reasons. It is further submitted that once the tribunal has exercised such discretion with honest, bonafide and in objective manner, the writ court should not interfere with such order. It is further submitted that there is a distinction between a prima facie case and an arguable case and in former case, it is obligatory on the part of the Appellate Tribunal to grant a complete waiver but in case of later, it invites a partial waiver. It is strongly submitted that the petitioner have shown the ‘waste and scrap’ in the raw material account which necessarily follows that the raw material has been cleared as such at a shockingly low price in order to avail the Cenvat credit wrongfully.
It is undisputed that the ‘waste and scrap’ was shown in the raw material account and have been cleared @ Rs. 2,000/- per metric ton. There is a rival contentions of the respective parties that those ‘waste and scrap’ were generated from the manufacturing process. According to the department, once the ‘waste and scrap’ was shown in the raw material account, it is to be treated as such and if the same is sold in such form, it would be deemed that the raw material has been cleared without utilizing and using in a manufacturing process and, therefore, the Cenvat credit cannot be availed.
The respective counsels have placed several judgments in support of the contention that the waiver of the pre-deposit conditions can only be allowed where there raises the strong prima facie case and deposits of the duty demanded, would cause undue hardship.
Section 35F of the Central Excise Act requires the deposit with the adjudicating authority, the duty demanded or the penalty levied where an appeal is filed against a decision or order relating to duty demanded. First proviso to the said section bestowed power on the appellate tribunal to dispense with such deposit, subject, however, to such condition which may be deemed fit to impose so as to safeguard the interest of revenue. Such dispensation can be made, if the appellate tribunal is of the view that deposit of duty demanded, would cause undue hardship.
In case of Vijay Prakash D. Mehta –v- Collector of Customs reported in 1989 (39) ELT 178 (SC), the Apex Court held that though first proviso under Section 35F empowers the Appellate Authority to dispense with the obligation to deposit but such discretion should be exercised on the relevant material honestly, bonafide and objectively. Similar view is expressed in case of Benara Valves Ltd; -v- Commissioner of Central Excise reported in 2006 (204) ELT 513 (SC) in these words:
'8. It is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens’ faith in the impartiality of public administration, interim relief can be given.'
The aforesaid principle is further echoed in case of Indu Nissan Oxo Chemicals Industries Ltd; -v- Union of India reported in 2008 (221) ELT 7 (SC) in these words:
'14. Two significant expressions used in the provisions are 'undue hardship to such person' and 'safeguard the interests of revenue'. Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the interest of Revenue have to be kept in view.
15. As noted above there are two important expressions in Section 129 E. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva –v- State of Karnataka and Ors. (AIR 1994 SC 923) that under Indian conditions expression 'Undue hardship' is normally related to economic hardship. 'Undue' which means something which is not merited by the conduct of the claimant, or very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances.
16. For a hardship to be ‘undue’ it must be shown that the particular burden to have to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it.
17. The above position has been highlighted in M/s Benara Valves Ltd and Ors. v. Commissioner of Central Excise and Anr. – (2006 (12) SCALE 303). Though the said case related to dispute under the Central Excise Act, 1944 (in short the ‘Excise Act’) the parameters are the same.'
There is no quarrel to the aforesaid proposition of law as laid down in the above reports. While dealing with an application for dispensation of the pre-deposit condition, the Appellate Authority should not only record on the prima facie merit but also address on the prima facie balance of convenience as held by the Supreme Court in case of Mehsana Dist. Co-op. Milk P.U. Ltd. –v- Union of India reported in 2003 (154) ELT 347 (SC).
In the instant case, apart from the plea that the ‘waste and scrap’ generated from the manufacturing process does not invalidate the availment of the Cenvat credit but a plea of limitation was also taken, which if succeeds, would render the entire proceeding to fall. This Court does not find any reflection in the impugned order that the CESTAT has addressed on the issue of limitation though the same was raised before the adjudicating authority and also raised before the CESTAT. Furthermore, the petitioner have produced documents and materials relating to the loss suffered in the business and raises the plea of financial hardship which does not appear to have been taken care of in the impugned order.
The reliance can be safely made to a judgment of the Supreme Court rendered in case of Commissioner of Central Excise, Indore –v- C.T. Cotton Yarn Ltd; reported in 2010 (259) ELT 3 (SC) wherein it is held that the tribunal is required not only to give decision on the merit but should also record the reasons on the plea of limitation, if raised. It would relevant to quote the Paragraph 6 of the said judgment which runs thus:
'6. At this stage, the counsel appearing for the respondent seeks to argue on the limitation also. Since no finding whatsoever was recorded by the Tribunal on the aforesaid issue, we are of the opinion that the impugned judgment and orde
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r passed by the Tribunal is required to be set aside and sent back to the Tribunal, for the purposes of giving its decision on all the issues like limitation raised and is mentioned paragraph 11 of the impugned judgment and order and also to give decision on merits after noticing and appreciating the aforesaid decisions which have been relied upon before us. The Tribunal may hear the parties and render its decision by giving reasons for it as expeditiously as possible.' This Court, therefore, finds that the issues raised before this Court which was also raised before the CESTAT has not been considered in the impugned order and, therefore, is required to be set aside. Accordingly, the impugned order is set aside. The CESTAT is directed to consider the application afresh and shall render its decision by giving reasons not only on the merits but also on the issue of limitation within three weeks from the date of the communications of this order. It goes without saying that the tribunal shall not be swayed by any observations made in this order and shall take its independent decision in accordance with law. With these observations, the writ petition is disposed of. However, there shall be no order as to costs.