Appeal Case No.7(1240)ST/IB/TRF of 2001(PB), decided on 25th January, 2003 Versus Appeal Case No.7(1240)ST/IB/TRF of 2001(PB), decided on 25th January, 2003
S.M. KAZIM, MEMBER (TECHNICAL). ‑‑‑This judgment disposes of the appeal filed by Messrs Shadman Metal Fabricators (Pvt.) Ltd., Nowshera, against the Order‑in‑Original No.36 of 2000, dated 10‑5‑2000 (dispatched on 13‑5‑2000) passed by the learned Additional Collector, Sales Tax & Central Excise, Peshawar.
2. Briefly, the facts of the case are that in pursuance of an information, the Central Excise Officers of Peshawar Division office audited the record of Messrs Shadman Metal Fabricators (Pvt.) Ltd., Nowshera for the period from 1996‑97 to May, 1999, and observed that the unit had been paying central excise duty at 5% ad‑val (instead of 15%), on the clearance of metal containers of various sizes of PCT Heading 73.10, without complying with the provisions of Chapter X of the Central Excise Rules, 1944 (a condition precedent for concessionary rate of duty 5%). The Additional Collector accordingly issued notice C. No.CE/Add: C‑1/35/99/397, dated 9‑8‑1999 requiring Messrs Shadman Metal Fabricators (Pvt.) Ltd., Nowshera to show‑cause why central excise duty of Rs.7,767,670, alongwith the addition duty due in terms of section 3‑B of the Central Excise Act, 1944, should not be recovered from them under rule 7 and 10 of the Central Excise Rules, 1944, and also why penal action under rule 210 of the said Rules should not be taken against them. After taking into consideration their written reply in response to the above‑said show‑cause notice and on hearing their arguments, the learned Additional Collector decided the case of Messrs Shadman Metal Fabricators (Pvt.) Ltd., Nowshera in terms of paragraph 11 of the impugned consolidated. Order‑in‑Original No.36 of 2000 and directed that the said trill should pay the short‑assessed duty of Rs.7,767,670 alongwith the amount of additional duty in terms of section 3‑B of the Act. Hence this appeal.
3. During the course of hearing before us, the learned counsel for the appellant stated that the appellant had supplied all the metal containers during the period involved only and exclusively to one consumer‑cum‑buyer i.e. Messrs Associated Industries Ltd., Nowshera, a manufacturer of vegetable oils & ghee and holder of L‑1 Licence No.L‑1 (Metal Container) 3/92, dated 27‑4‑1992 issued by the Collector of Customs & Central Excise, Peshawar, under rule 192 of the Central Excise Rules, 1944, duly re‑validated upto 30‑6‑2000. He also produced copy of Form B‑4 Bond (CE Series No.16) executed by Messrs Associated Industries Ltd., Nowshera on 12‑2‑1992, duly accepted by the Collector, Peshawar, on 27‑4‑1992, for Rs.2 lac as security against bank guarantee of UBL, in terms of rule 192 of the Central Excise Rules, 1944, for purchase of duty‑exempt metal containers of 16 Kgs, 5 Kgs and 2.5 Kgs for manufacture of commodity in their factory. He pointed out that Central Excise conditional exemption Notification No. S.R.O. 455(I)/96, dated 13‑6‑1996, effective from 13‑6‑1996, provided that Metal Containers (of respective headings of Chapter 73 and 76) "if used for packing kerosene, vegetable products and edible oil of vegetable origin or mixture thereof having melting. or cloud point below 10 degrees centigrade, provided that the provisions of Chapter X of the Central Excise Rules, 1944, are followed" shall be liable to a concessionary rate of central excise duty at 5% ad valorem. He stated that initially they supplied metal containers against 307 AR‑1 application from 10‑7‑1996 to 11‑11‑1996 only and exclusively to Messrs Associated Industries Ltd. Nowshera (who manufacture vegetable oils & ghee) after paying central excise duty at 5 %. They made only AR‑01 applications because of the direction contained in paragraph 2 of the Superintendent, Central Excise and Sales Tax, Nowshera Circle's C. No.IV‑CE Misc/95/521, dated 2‑7‑1995. However, w.e.f. 12‑11‑1996 and until 7‑5‑1999 involving 360 clearances, they started preparing both AR‑1 and AR‑2 applications simultaneously for the same clearance i.e. AR‑1 for payment of duty of 5% and AR‑2 for remission of 10% duty under the aforesaid notification read with the provisions of Chapter X of the Central Excise Rules, 1944. He also claimed that both the despatcher (the appellant) and the recipient (Messrs Associated Industries Ltd.) fulfilled all the provisions of Chapter X of the Central Excise Rules, 1944, and, therefore, nothing is payable by the appellant.
4. With the consent of the appellant and Collectorate's representatives, we directed Mr. Ishtiaq Ahmad, Law Officer of Collectorate of Sales Tax & Central Excise, Peshawar, to personally visit the appellant Messrs Shadman Metal Fabricators (Pvt.) Ltd., Nowshera and the recipient Associated Industries Ltd. and report on the factual aspects, specially the extent of breach of the provisions of conditional exemption notification and of Chapter X of the Central Excise Rules, 1944. M. Ishtiaq Ahmad submitted his report on 11‑1‑2002 copies of which were handed over, to the representatives of the appellant and respondent. The report read as hereunder:--
"On 25-10-2002, I visited Messrs Associated Industries Ltd. Nowshera in pursuance to the directions of this Honourable forum to ascertain the following:--
A. L-1 Licence issued by the Competent -Authority under Chapter X of the Central .Excise Rules, 1944 and validity thereof during the period involved.
B. AR-I issued during the period 10-7-1996 to 11-11-1996 and AR-2 & AR-I issued during the period 12-11-1996 to 7-5-1999.
C. To verify whether or not the procedure was adopted by the recipient and suppliers as laid down under Chapter X of the said rules and if not followed the procedure to what extent the procedure has been violated.
LICENCE UNDER CHAPTER X OF CENTRAL EXCISE RULES
That Messrs Associated Industries Limited Nowshera being the manufacturer of Ghee/Vegetable Oil applied to the Collector Central Excise & Sales Tax on the proper Form B-4 (Central Excise Series No.16) under Rules 192 of the Central Excise Rules stating therein quantities of 16 Kgs, 5 Kgs & 2.5 Kgs tins as may be required not exceeding 10 lac per year and the Collector allowed the same on 27-4-1992.
(Copy of Form B-4 ANNEXED AS "A")
That in pursuance thereof the Collectorate issued Licence No.L-1 (Metal Containers) 3/92, dated 27-4-1992. The same was checked and found that the same has been regularly renewed and valid during the period involved (Copy of Licence Annexed as "B"). Messrs Associated Industries Limited maintained Storage and Accounts on a Register in the proper Form showing the quantity of Excisable goods received in the Store Room and Quantity used in the Industrial process as per Rule 194 of the said Rules.
SUPPLY OF METAL CONTAINERS AGAINST AR-1
Messrs Shadman Metal Fabricators (Pvt.) Ltd. Manufacturers of metal containers supplied the Excisable goods to Messrs Associated Industries Limited Nowshera during the period 10-7-1996 to 11-11-1996 against AR-I and Central Excise duty @5% has been assessed and paid on the same supplies. These supplies were received and entered in the RG-II Register by Messrs Associated Industries Limited, which were subsequently issued for filling of ghee and vegetable oil.
SUPPLY OF METAL CONTAINERS AGAINST AR-2 & AR-1.
Messrs Shadman Metal Fabricators (Pvt.) Ltd. Removed its excisable goods against AR-1 as well as Alt-2 with payment of 5% Central Excise Duty w.e.f. 12-11-1996 upto 7-5-1999 but still the recipient of the supply i.e. Messrs Associated Industries Limited did not assess the central excise duty payable @ 5% against AR-1. It is worth-mentioning that the goods were received during the period by Messrs Associated Industries Limited against Form AR-2. Meaning thereby both the forms were used for the removal of excisable goods for industrial process.
EXTENT OF VIOLATION
Messrs Shadman removed its excisable goods against. Form AR-1 during the period 11-7-1996 to 11-11-1996 and against AR-I and AR-11 during the period w.e.f. 12-11-1997 to 7-5-1999. The supplies removed against AR-1 has been entered in RG-11 register only whereas the supplies removed against AR-2 and AR-1 during the period has been entered in bond as well as RG-11 register.
The Central Excise Duty should hake been paid by the recipient of the supply duly received against AR-2 without payment of Central Excise Duty. In both the cases entries have been made by AIL in the RG-11 register.
(Sd.)
Ishtiaq Ahmad
Law Officer.
5. Both the parties did not contest this report and consented that the Tribunal may decide the case on merit accordingly.
6. Having heard the parties and on perusal of record of the case, we find that the exemption in excess of 5 % excise duty was available if metal containers were supplied for manufacture of kerosene or vegetable products or vegetable oils or mixture thereof provided that the provisions of Chapter X of the Central Excise Rules, 1944, were followed. The provisions of the said Chapter X envisage as hereunder in relation to despatch/supply of excisable goods under the said provisions:--
(1) The recipient mills should apply on Form AL-1 (Central Excise Series No. 1) for a licence under rules 192 to engage in business in connection with the goods relating estimated annual requirement of receipt of excisable goods;
(2) The applicant (recipient mill) mill should possess a licence in Form L-1 (Central Excise Series No.21) issued by the Collector under rule 192 of the Central Excise Rules. This licence should be duly renewed;
(3) The recipient mill (licensee) should furnish B-4 Bond (Central Excise Series No.16) with such surety, security, bank or insurance guarantee, in such amount as the Collector may approve;
(4) The goods shall be transported to the recipient milt in terms of rules 193 against AR-2 application (Central Excise Series No.5) in case of receipt from other mills/supplier and against R. IC 1 (Central Excise Series No. 39) if received from the same factory i.e. where dispatcher and recipient mills are one and the same legal person: and
(5) Goods, so removed/dispatched are stored and accounted for by the recipient mill, in terms of rule 194 of the Central Excise Rules, 1994, in a separate store-room in the recipient's mills in RG-11 register (Central Excise Series No.34)
7. The report submitted by Mr. Ishtiaq Ahmad shows total compliance of all the aforesaid provisions of the notification and the rules except that:---
(1) AR-2 application were not made for the supplies (307 clearances) during 10-7-1996. to 11-11-1996 and instead clearances were made against AR-1 only. However, these too were duly entered in the RG-II register of the recipient mill and the recipient mill was holder of valid licence under rule 19 z, had executed B-4 bond to the satisfaction of the Collector and had entered these in. RG-11 register Mr. Ishtiaq reports non-entry in the Bond Register. However, we find that Bond Register is to be maintained by the Central Excise Officer Incharge of the recipient mills and not by the mill itself. Therefore, the default of non-entry in Bond Register cannot be termed as a breach of Chapter X of the Central Excise Rules, 1944, by the appellant or by the recipient mills.
(2) Duty 5% should have been paid by AIL (the recipient mill).
8. On perusal of record of the case, we do not agree with Mr. Ishtiaq that the duty at 5 % should have been paid by the recipient mill against AR-2 application. The duty (non-remitted/non-exempted) at 5% is payable, in terms of rule 9 of the Central Excise Rules, 1944, by the manufacturer on the eve of its removal whether under AR-1 or tinder AR-2. The recipient mill takes over the liability of the (remitted/exempted) 10% duty if the goods are not properly received stored and accounted for in the recipient mills. We, therefore, discard this portion of the report submitted by Mr. Ishtiaq Ahmad. The only, breach of law is the removal of metal containers from 10-7-1996 to 11-11-1996 without any prescribed AR-2 application. However, this too is mitigated by the fact that there was an inappropriate direction by the Central ,Excise Circle Officer in his aforesaid Letter C. No.IV-CE-Misc/95/521 dated 2-7-1995. Moreover, the appellant supplied metal containers only and exclusively to a recipient mills who was duly licensed for the purposes of rule 192 of Chapter X of the Central Excise Rules, 1944, had a. valid B-4 bond as required under the said rule 192, had duly' received the metal containers and duly stored and the same in the- store room after entering it in RG-11 register- in terms of rule 194 of Chapter X of the Central Excise Rules, 1944, and there is no report about any shortage or misuse or misappropriation of the conditionally-exempted (in excess of 5 % ad. Val) metal containers in the recipient mills. For the above-specified mitigating circumstances of the case showing compliance of all the provisions of Chapter X of the Central Excise Rules, 1944, by the recipient mills, we are inclined to take a lenient view and condone the non-issuance of AR-2 applications in this case by the appellants during the period from 10-7-199 1 -11-1996. For the period from 12-11-1996 onwards, there is no compliance of the provisions of Chapter X of the Central Excise Rules, 1944, as verified by; Mr. Ishtiaq Ahamd. Law Officer -and accepted by representatives of both the appellants and the Collectorate. As a result, the impugned order is set aside and the appeal stands disposed of as accepted accordingly.
9. Inform all concerned accordingly.
10. Announced.
C.M.A./637/Tax (Trib.) Appeal accepted