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Customs Appellate Tribunal Case regarding Non payment of excise duty and incorrect utilization of cenvat credit on input packing material

2013-ITS-39-CESTAT-M/s. Nabisco Confectionery & Food (I) Pvt. Ltd. -Vs- Commr. of C. Excise- Kolkata-VII , DECISION : 04.01.2013

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EAST REGIONAL BENCH : KOLKATA

Excise Appeal No.-197/2011

(Arising out of the Order in Appeal No.03/Kol-VII/2011 dated-25.1.2011 passed by the Commissioner of Central Excise (Appeals-I), Kolkata)

For Approval and signature of :

DR.D.M. MISRA, HON BLE JUDICIAL MEMBER

M/s. Nabisco Confectionery & Food (I) Pvt. Ltd. APPELLANT(S)

VERSUS

Commr. of C. Excise- Kolkata-VII RESPONDENT(S)

APPEARANCE

Sri B.N. Chattopadhyay, Consultant FOR APPELLANTS

Sri A.K. Biswas, Supdt. (A.R.)

FOR THE RESPONDENTS

CORAM: DR.D.M. MISRA, HON BLE JUDICIAL MEMBER

DATE OF HEARING & DECISION : 04.01.2013

Bottom line:- The amendment to the definition of excisable goods brought into effect from 10th May, 2008 cannot be made applicable retrospectively and hence the principles laid down in the said judgments are squarely applicable to the facts and circumstances of the present case. I find that in the show cause notice as well as in the impugned order, there is no allegation that biscuits of goods quality were manufactured and cleared during the said period. The Ld. A.R. also did not dispute about the same nor could place any judgment contrary to the ones referred above.

ORDER.NO. A-9/KOL/13

Per DR.D.M. MISRA

This is an appeal filed by the appellant against the order in appeal No. 03/Kol-VII/2011 dated-25.1.2011 passed by the Commissioner of Central Excise (Appeals), Kolkata.

2. Briefly stated facts of the case are that the appellant are engaged in the manufacture of biscuits classifiable under sub-heading 1905.11 of the first schedule of CETA, 1985 and the entire quantity manufactured by them were cleared to M/s. Parle Products Pvt. Ltd. (hereinafter referred as M/s. PPPL).A show cause notice was issued to them alleging removal of excisable goods valued at Rs.31,58,090/- involving duty of Rs.2,52,647/- and wrong utilization of cenvat credit of Rs.42,147/- on input packing material. The demand was confirmed by the adjudicating authority and equivalent penalty was imposed on the appellant under Section 11AC read with Rule 13 of Cenvat Credit Rules, 2002 for the period June, 2003 to March, 2005. Aggrieved, the appellant filed an appeal before the Ld. Commissioner (Appeal) who has upheld the order of the adjudicating authority. Hence, the present appeal.

3. The Ld. Consultant appearing for the appellant has submitted that the entire allegation of the Department is based on the Variance Report prepared by them. Explaining the said report, the Ld. Consultant has submitted that since the entire production had been cleared to M/s. PPPL, by arrangement between the appellant and M/s. PPPL, their production had been continuously monitored by M/s. PPPL as per Norms fixed about the use of raw materials as well as packing material in the manufacture of finished product viz. biscuits. Accordingly, monthly reports were prepared by the appellant and submitted to M/s. PPPL. The said reports were prepared and named as Variance Report. It is prepared on the basis of data on utilization of raw materials as well as packing materials in the manufacture of finished goods in their factory. In the event with minimum wastage of raw material, agreed quantity of finished goods were manufactured, then the appellant were entitled for an incentive and if excess raw material were used, for manufacture of finished products, they are penalized for the wastages/excess use of raw materials by M/s. PPPL. Only on the basis of said Variation Report, wherever penalty for excess use of input were collected from the appellant by M/s. PPPL, the Department came to a conclusion that the excess raw materials were used in the manufacture of broken and damaged biscuits and cleared without payment of duty. Advancing his argument, Ld. Consultant has submitted that the use of excess raw material was attributed to floor sweepings, broken and damaged biscuits. The said broken, damaged biscuits were non excisable goods and hence no duty was leviable on the same. In support, he has referred to the judgments of this Tribunal in the case of Commr. of Central Excise, Bhopal Vs. J.B. Mangharam Food Ltd. -2000 (115) ELT 683 (Tribunal) and followed in the case of Parle Biscuits Pvt. Ltd. Vs. CCE, Jaipur-A/434/03-NB-C dated-11.8.2003. Further, he has submitted that the input (packing materials) received by them were used in the process of manufacture of their finished goods.The demand on the said inputs were also based on the Variance Report. It is his submission that the entire quantity of inputs (packing material) could not be used in the manufacture of the finished product due to damages in the process and accordingly wastage of same resulted during the course of manufacture of finished goods, hence it cannot be the basis for denial of Cenvat Credit on the inputs (packing material). In support, he has referred to the decision of Hon ble High Court of Allahabad in the case of C.C.E., Noida Vs. Laxmi Agro Industrial Consultants & Exporters Ltd.-2011 (274) E.L.T. 176 (All.) and Nirma Ltd. Vs. Commr. of Central Excise, Ahmedabad-2012 (276) E.L.T. 283 (Tri.-Ahmd.).

4. Per contra, the Ld. A.R. for the Revenue reiterated the findings of the Ld. Commr. (Appeal). The Ld. A.R. submitted that in view of the amendment of the Section 2 (d) of the Central Excise Act, 1944 broken biscuits were also treated as excisable goods and accordingly leviable to duty. Regarding the input (packing materials) he has submitted that even though the same were used and become wastage during the process of manufacture Cenvat credit is not admissible in absence of any provision in this regard in the Cenvat Credit Rules, 2004.

5. In his rejoinder, the Ld. Consultant for the appellant has submitted that the period involved in the present case is from June, 2003 to March, 2005 and the amendment to the definition of excisable goods under Section 2 (d) has been made effective from 10th May, 2008, therefore, not applicable to the facts of the present case.

6. Heard both sides and perused the records. The allegation of the Department is based on the Variation Report recovered from the premises of the appellant. The Variation Report as explained by the Ld. Consultant, not disputed by the Ld. A.R., has been maintained for incentive/penalty on account of less or excess use of raw materials than the agreed norms fixed by their only customer i.e. M/s. PPPL. In the event of excess raw materials were consumed owing to various reasons including generation of broken, damaged and wastage biscuits, the appellant were liable for penalty and if less raw materials were used by generation of less quantity damaged, broken and wastage biscuits, the appellant were rewarded by their customer M/s. PPPL. The case of the Department was that the broken, damaged and wastage biscuits generated during the course of manufacture of biscuits for M/s. PPPL during June, 2003 to March, 2005 were liable to excise duty. I find that this Tribunal in the case of Commr. of Central Excise, Bhopal Vs. J.B. Mangharam Food Ltd. (supra) held that broken/waste biscuits generated during the course of manufacture of biscuits are non excisable goods and hence not liable to excise duty. It is observed at para 5 that:

5. It is thus clear that the product in question is a floor sweeping consisting of mixture of flour, maida, sugar, salt dough and mainly of biscuits which have fallen on the floor and the biscuits which have burnt by overbaking and containing metallic substances as removed by metal detectors. In our view the product as described above, is a waste of the biscuit industry and cannot be considered to be a preparation for animal feeding. As rightly pointed out by the lower appellate authority, it cannot be considered to be a residue from the food industry. It is merely a rubbish or scum which is collected by the respondents for keeping its manufacturing premises clean. Mere fact that it brings some price is no ground to treat it as an excisable goods deliberately manufactured by an industry. In our view no fault can be found with the finding of the lower appellate authority. Revenue’s reliance on Explanatory Notes under HSN Heading 23.09 in our view is not appropriate. That Heading speaks of preparation of a kind used in animal feeding. The expression “preparation” speaks of a deliberate act of manufacture of something which is used for animal feeding. Process of coming into existence of this product, as described above, cannot by any stretch of imagination be treated as deliberate one as undertaken by the respondent. Accordingly, we do not find any substance in Revenue’s appeal. Hence, we dismiss the same.

7. This principle has been followed subsequently by this Tribunal in the case of Parle Products Pvt. Ltd. (supra). The amendment to the definition of excisable goods brought into effect from 10th May, 2008 cannot be made applicable retrospectively and hence the principles laid down in the said judgments are squarely applicable to the facts and circumstances of the present case. I find that in the show cause notice as well as in the impugned order, there is no allegation that biscuits of goods quality were manufactured and cleared during the said period. The Ld. A.R. also did not dispute about the same nor could place any judgment contrary to the ones referred above. Similarly, it is also not in dispute that the input packing materials received by the appellant were used in the course of manufacture of biscuits but got damaged and the demand was also issued for reversal of cenvat credit availed on the input packing material on the basis of Variance statement. The appellant had claimed that the input packing materials were used in or in relation to manufacture of finished goods and during the course of manufacture of finished goods, got damaged and in that context, they have submitted that the entire quantity of input packing materials could not be found with the finished goods. There is no contrary evidence adduced by the Department that the input packing materials were not used in or in relation to the manufacture of finished goods except the Variance statement. In absence of evidences to the effect that these inputs were not used in or in relation to the manufacture of the final product and the claim of the appellant that these were used and got damaged during the process of manufacture of finished goods being plausible and acceptable and accordingly, CENVAT Credit in my opinion cannot be denied on the same. In these circumstances, I find that the order passed by the Ld. Commissioner (Appeals) is devoid of merit and accordingly the same is set aside and the appeal filed by the Appellant is hereby allowed, with consequential relief, if any, as permissible under law.

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