Hon'ble Aditya Nath Mittal, J.
1. We have heard Shri Bharat Ji Agarwal, Senior Advocate assisted by Shri R.R. Kapoor, learned counsel appearing for the appellant. Shri B.K.S. Raghuvansi appears for the department.
2. In this Central Excise Appeal under Section 35-G of the Central Excise Act, 1944, arising out of the judgement of Customs, Excise & Service Tax Appellate Tribunal dated 24.6.2004 in Appeal No. E/3352-3353/03-NB(B) (arising out of Order-in-Original No. 11/Commr/GZB/03 dated 30.7.2003 passed by the Commissioner, Customs & Central Excise Commissionerate: Ghaziabad), 'Hero Motors Limited' (formerly Majestic Auto Ltd)-the appellant has raised the following questions of law:-
"1. Despite their being specific admission of the fact of the capital goods in question continued to be installed in their original position in a part of the Appellant Company, whether the Hon'ble Appellate Tribunal have committed an error in arriving at the finding of removal;
2. Whether the Hon'ble Tribunal was wrong in not following the settled law that for 'removal' as envisaged in the Modvat Rules for demand of duty, there has to be physical removal of the capital goods as provided under Rule 9 and 49 of Central Excise Rules;
3. Whether the Hon'ble Tribunal have committed a manifest error in upholding the demand of duty by invoking the extended period under Section 11-A of the Act by ignoring the law laid down by the Hon'ble Supreme Court in the case of CCE Jaipur vs. Raghuvar India Ltd 2000 (118) ELT 311;
4. Whether the demand of duty as upheld by the Hon'ble Appellant Tribunal by ignoring the law laid down in the case of Pushpaman Forgings, is correct;
5. Whether the imposition of penalty was correct in view of the facts and circumstances of the case;
6. Whether the order of the Hon'ble Tribunal confirming demand of interest is correct."
3. The facts giving rise to this appeal are that on the sanction of scheme of arrangement between M/s Hero Auto Limited (transferee company) and M/s Majestic Auto Limited (transferor company) by the Delhi High Court by its order dated 22.7.2004 in Company Petition No. 3 of 2004, all the properties, rights, and claims and undertaking relating and pertaining to the Ghaziabad business of the transferor company was transferred to the transferee company. M/s Hero Auto limited (transferee company), which changed its name to 'Hero Briggs & Stratton Auto Private Limited' as per fresh certificate of incorporation vide Certificate of Incorporation dated 14.9.2004 under Section 23 (1) of the Companies Act, 1956.
4. The appellant-company belongs to the Hero Group of Companies/Industrial units engaged in the manufacture of two wheeled motor vehicles, and parts & accessories of two wheeled motor vehicles. One of these parts is I.C. Engine (Internal Combustion Engines). The IC Engines were manufactured by the company at its factory at Ghaziabad.
5. On 25.8.1998, the manufacture of IC Engines was diverted to M/s Hero Briggs & Stratton Auto Pvt. Ltd, established by Hero Group of Companies and for that purpose the appellant-company gave on lease a part of their factory premises to Hero Briggs & Stratton Auto Pvt Ltd (HBSA Pvt. Ltd). The HBSA Pvt. Ltd obtained registration under Central Excise Rules for manufacture of parts and accessories of motor vehicles and undertook manufacture of IC Engines for Hero Motors Ltd-the appellant company on job work basis under Notification No. 214/86 dated 10.3.86. A part of their production was for sale to other buyers.
6. The appellant-company purchased various plants and machineries for manufacture of IC Engines. Some of the plants and machineries were sold by the appellant-company to HBSA Pvt. Ltd. In addition to these, the plant and machineries, which were used for manufacture of IC Engines continued to be owned by the appellant-company, and remained installed at the very same places/position in which it was originally installed in the premises which were later leased out to HBSA Pvt. Ltd.
7. The manufacturing facility of HBSA Pvt. Ltd was demarcated within the factory premises of the appellant-company and was shown accordingly in the lay out plan filed by HBSA Pvt. Ltd for obtaining registration under the Central Excise Rules. The plan forms part of the registration certificate granted to the HBSA Pvt. Ltd. The appellant-company claimed depreciation as per Income Tax Act upto the material time, and even thereafter as per Income Tax Rules.
8. An inspection of the factory premises of the appellant-company and that HBSA Pvt. Ltd was carried out on 10.1.2001 by the preventive team of the Central Excise Officers. A show cause notice dated 25.10.2002 was issued alleging that the Modvat credit availed by M/s Majestic Auto Limited on the capital goods transferred to HBSA Pvt. Ltd was not reversed by M/s Majestic Auto Limited and therefore, Majestic Auto Limited has to pay excise duty on such machinery and fixtures on 25.8.1998 in terms of Rule 57-S (b) of the Central Excise Rules, 1944, as the same were being used in the manufacture of IC Engines by M/s Majestic Auto Limited, after calculating deductions of 2.5% of credit taken for each quarter of a year of use or erection thereof worked out to Rs. 25, 08, 877/- recoverable from M/s Majestic Auto Limited in terms of Rule 57-S (2) (b), and 57-U (4) read with Section 11-A of the Central Excise Act, 1944. It was alleged that the appellant-company had suppressed the material facts from the department; that they have transferred/removed the machineries and fixtures to HBSA Pvt. Ltd on 25.8.1998 on which they have availed Modvat credit and also that these machines and fixtures were used by HBSA Pvt. Ltd in manufacture of IC Engines.
9. The show cause notice resulted into the order in original dated 30.7.2003 passed by the Commissioner, Central Excise, Ghaziabad confirming the demand and penalty. The Appellate Tribunal by its final order dated 24.6.2004 has upheld the order in original. The Appellate Tribunal held as follows:
"6.1 We have considered the submissions of both the sides. It is not disputed by the learned Advocate that both the appellants are separate limited companies and as such they are two different legal entity, though they may belong to same group. It is also not in dispute that the Appellant No. 1 have taken the MODVAT Credit of the duty paid on the capital goods in question and the premises in which the said goods are installed had been given on lease to the Appellant No. 2. This is also very clear from the Lease Agreement that the Lessee i.e. Appellants No. 2 shall enjoy the Demised Premises during the lease period without interruption by the lessor (i.e Appellant No.1). In terms of the Lease Agreement, the Appellants No. 2 enjoy the said premises and therefore it cannot be claimed to be the part of factory premises of the Appellants No.1.
6.2Rule 57-Q of the Central Excise Rules empower a manufacturer to take the credit of the duty paid on the capital goods used in the factory of the manufacturer of final products. Rule 57-S deals with the "manner of utilization of the capital goods." As per sub-Rule (1) of Rule 57-S, the capital goods "may be (i) used in the factory of the manufacturer of the final produces; or (ii) removed, after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory and after obtaining dated acknowledgement of the same, from the factory for home consumption or for export on payment of appropriate duty of excise leviable thereon or for export under bond, as if the capital goods have been manufactured in the said factory."
6.3As the premises in which the capital goods are installed has now been leased to the Appellants No. 2 who are now in possession of the said premises, it cannot be claimed by the Appellants No. 1 that the capital goods are used in their factory. The capital goods are no more installed in the factory of the Appellant No. 1 and as these are now in the factory premises of another manufacturer (i.e Appellants No.2), the same have been removed from the factory for home consumption. In terms of provisions of clause (ii) of sub-Rule (1) of Rule 57-S, the same should have been removed -
(a) after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory;
(b) after obtaining dated acknowledgement of the same; and
(c)on payment of appropriate duty of excise leviable thereon as if such capital goods have been manufactured in their factory Thus the Appellants No.1 is liable to pay the duty on the impugned capital goods. A penalty is also imposable on them as they have not complied with the conditions specified in Rule 57-S for the utilization of the capital goods."
10. Shri Bharat Ji Agarwal, learned counsel appearing for the appellant-company submits that the provisions of Section 11-A of the Central Excise Act, 1944 were not applicable to the MODVAT Rules on 25.8.1998 as the same had been applied to the recovery of credit, from 1.4.2000 onwards. Rule 57-S of the Central Excise Rules, 1944 provides for recovery of the credit wrongly taken, whereas the demand of duty in the present case is not on the premises that the credit was wrongly taken but that the capital goods were removed without notice to the department and reversing the credit. He contends that the demand of duty under Rule 57-U (4), is not sustainable as the capital goods in question were not manufactured by the appellant. Rule 57-U (4) was amended, and now instead of 'payment of duty leviable', it provides for 'payment of an amount equal to the amount for which the credit was taken as contained in sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2002.
11. Shri Bharat Ji Agarwal submits that the capital goods were not removed. They were fixed and installed at their original position. The capital goods were neither leased nor given on loan. The appellant continues to own these goods, and continues to avail the depreciation under the Income Tax Act. The machines continue to be used in the manufacture of IC Engines which in turn are used for manufacture of motor vehicles, which was the case even prior to leasing out of the portion of the factory to HBSA Pvt. Ltd.
12. Shri Bharat Ji Agarwal further submits that findings of suppression ignores the documents on record inasmuch as the lay out plan shows that the premises leased out to HBSA Pvt. Ltd and the installation of capital goods therein was in existence and was well within the knowledge of the department. The Superintendent, Central Excise had approved the ground plan. The penalty, therefore, is not imposable under Section 11-A of the Central Excise Act. As a newly established unit HBSA Pvt. Ltd had no knowledge of the Rules providing payment of duty in case of removal of the used capital goods. The capital goods (machinery) installed at the same place was neither transferred nor sold nor there was any reason to believe that the goods was liable for confiscation. The findings of connivance was also entirely misplaced inasmuch as the duty was paid by Majestic Auto Limited on which HBSA Pvt. Ltd could have taken credit.
13. Shri Bharat Ji Agarwal has in support of his submissions relied upon the judgment of CEGAT, Northern Bench, New Delhi in Jamna Auto Industries Limited vs. Commissioner of Central Excise, Indore 2001 (130) ELT 181 (Tri-Del); Whirpool of India Ltd v. CC, New Delhi 2003 (58) RLT 241 (CESTAT-Del); Metzeller Automotive Profiles India P. Ltd v. C.C.E. Ghaziabad 2004 (167) ELT 208 (Tri-Del); and Tata Motors Pvt Ltd v. Commissioner of Central Excise, Jamshedpur 2005 (190) ELT 269 (Tri-Mumbai).
14. Shri Bharat Ji Agarwal submits that the penalty is not imposable if the extended period of limitation is not available to the department and has relied upon a judgment of Supreme Court in Pahwa Chemicals Private Limited v. Commissioner of C. Ex., Delhi 2005 (1989) E.L.T. 257 (SC).
15. Shri B.K.S. Raghuvansi, appearing for the department has referred to the reasons given in the appellate order and the order passed by the Tribunal. He submits that on an inspection, it was found that excisable capital goods on which Modvat credit was taken, were being used by HBSA Pvt. Ltd. Every premise used in the manufacture of excisable goods, which is also defined as a factory requires a different registration certificate, and such certificate is applicable for that factory only. Since both the units, namely the appellant and HBSA Pvt. Ltd were separate units being separate factories; they were granted separate registration certificates. They were under statutory obligation to observe and follow the Central Excise law and procedures laid down therein. The Tribunal did not commit any error in finding that the appellant had taken Modvat credit on the duty paid on capital goods. The premises in which the said goods were installed was given on lease to HBSA Pvt. Ltd, which was clear from the lease agreement allowing HBSA Pvt. Ltd to enjoy the demised premises during the lease period without any interruption by the lessor. These premises, therefore, cannot be claimed to be part of the factory of the appellant.
16. Shri Raghuvansi submits that Rule 57-S deals with the manner of utilisation of capital goods. These capital goods may be under sub-rule (i) used in the factory of the manufacturer of the final products; or (ii) removed, after intimation to the Assistant Commissioner of Central Excise having jurisdiction over the factory, and after obtaining dated acknowledgement of the same, from the factory for home consumption or for export on payment appropriate duty of excise leviable thereon or for manufacture in the factory. Sub-rule (ii) of Rule 1 of Rule 57-S provides that the goods should have been removed - (a) after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory; (b) after obtaining dated acknowledgement of the same; and (c) on payment of appropriate duty of excise leviable thereon as if such capital goods have been manufactured in their factory.
17. It is submitted by Shri Raghuvansi that under the lease agreement the demised premises with plant and machinery was given to HBSA Pvt. Ltd. The capital goods are no more installed in the factory of the appellant. These are now in the factory premises of HBSA Pvt. Ltd and thus the same have been removed from the factory for home consumption without any intimation of Excise Commissioner of Central Excise after obtaining dated acknowledgement and on payment of appropriate duty of excise leviable thereon. The appellant is, therefore, liable to pay the duty on the capital goods. A penalty is also imposable on them and that since the goods were removed without intimation, which were so found on an inspection, the machinery provisions of Section 11A of the Excise Act are applicable.
18. In Jamna Auto Industries Ltd v. Commissioner of Central Excise, Indore (supra) the Tribunal had found that the removal is covered by Rules 9 & 49. Sub-rule (2) and sub-rule (21) are self contained code covering both transfer of credits and transfer of inputs. Sub-rule (20) covers the transfer of the credit lying in the books of the seller and sub-rule (21) covers the transfer of inputs lying in a stock with the seller on the date of sale. The capital goods are covered by Rule 57S (5) and the credit on capital goods is covered by sub-rule (6). In view of the specific provisions covering the change in the ownership of the factory, the general provisions of Rule 57F (2) are not applicable. The demand of duty was set aside and on the question of imposition of penalty it was found that the necessary verification was conducted by the department, which was aware inasmuch the de-registration of one unit and its registration into two units was allowed by the departmental officers. The excise duty, and penalty were not found justified by the Tribunal which allowed the appeals.
19. In Whirlpool of India Ltd vs. CC, New Delhi (supra) the appellants were availing the benefit of MODVAT credit in respect of capital goods installed in the compressor division, which was sold along with plant and machinery to M/s Tecumseh India Pvt Ltd. The necessary amendment was made in the registration. The Tribunal did not agree with the contention of the revenue that the capital goods were deemed to be removed from the factory. It was found that in fact no capital goods were removed from the factory but the compressor unit was sold. Relying upon Jamna Auto Industries Ltd (supra) the Tribunal allowed the appeal and set aside the imposition of excise duty and penalty.
20. In Metzeller Automotive Profiles India (P) Ltd (supra) the Tribunal at Delhi in an order written by Shri V.K. Agrawal, Member (T), who has also passed the order in the present case, followed the judgment in Whirlpool of India Ltd v. CCE, New Delhi and Jamna Auto Industries Ltd v. CCE, Indore and held that the sale of a factory resulting in change in ownership does not amount to removal of the inputs and capital goods. He held in paragraph-4 as follows:-
"4. We have considered the submissions of both the sides. The facts which are not in dispute are that the Appellant No. 1 has sold one of its division - Anti Vibration System Division with all capital goods and inputs to Appellant No. 2 who are manufacturing Anti Vibration System in the same premises in which earlier Appellant No. 1 used to manufacture those goods. The admitted fact is that neither the inputs nor the capital goods have been removed from the factory premises. The provisions of Explanation to sub-rule 1 (b) of Rule 57AB is applicable only in those cases when inputs or capital goods are removed from the factory. The deemed provisions of removal, as contained in Rules 9 and 49 of the Central Excise Rules, will not be applicable in the present matter for the simple reason that there is no removal of the goods but sale of the entire division with all its machines, machinery, raw material, finished goods etc. The Appellate Tribunal has considered the similar issue in both the decisions relied upon by the learned Advocate, and has held that the Appellants were not liable to pay any duty. Following the ratio of these two decisions, we hold that the Appellants No. 1 herein is not liable to pay any duty and consequently no penalty is imposable on either of the Appellants. We therefore allow both the Appeals."
21. In Tata Motors Pvt Ltd v. Commissioner of Central Excise, Jamshedput (supra) following the Jamna Auto, Metzeller Automotive Profiles India Pvt. Ltd, and Whirlpool of India Ltd, CESTAT Bombay held that the inputs, in work in progress, and finished goods were finally routed only to M/s Telco where they were used in the assembly of motor vehicles. Such removals of M/s Telco inputs to the new unit i.e. hived out Axle & Transmission Assembly unit, on job work without reversal of credit & receipt back by M/s Telco, was the prescribed permitted feature of Modvat Rules. There was no reason to demand duty, equivalent to the credit, on such inputs. The Axle & Transmission Assembly cleared/transferred to M/s Telco for use in motor vehicle, axle assembly only after payment of duty under the procedures in Rule 57F (3) or (4). The revenue's interest was safeguarded.
22. In the present case we find substance in the contention of Shri Bharat Ji Agarwal that at the time of obtaining registration HBSA Pvt. Ltd had submitted a ground lay out plan, which was approved by the Superintendent, Customs and Central Excise, Range-6, Division-III, Ghaziabad on 21.8.1998 and in which the engine assembly on ground flour in the premises of Majestic Auto Limited was clearly demarcated. The plant and machinery was installed and was never removed from the premises. The I.C. Engines manufactured by HBSA Pvt. Ltd in the same premises were used by the appellant. Once it was admitted that the capital goods, on which Modvat Credit was taken by the appellant remained installed in the same premises, which was leased out and continued to be engaged in the manufacture of I.C. Engine, which was further used in the manufacture of two wheelers and that a separate registration certificate was obtained by HBSA Pvt. Ltd, there was no removal of goods. The capital goods remained installed in the same premises and thus even if the premises were transferred on lease, the capital goods even if they were deemed to be installed in the premises of HBSA Pvt. Ltd, Rule 57-S, would not be attracted.
23. We also find that since a separate registration certificate was obtained by which the ground plan was approved by the Central Excise Department, there was no case made out for attracting Section 11A of the Act as there was no intention to evade the payment of duty nor HBSA Pvt. Ltd could be made liable for penal action under the provisions of Rule 209A of the Central Excise Rules.
24. The appeal is allowed. The order of the Commissioner, Customs & Central Excise Commissionerate, Ghaziabad dated 30.7.2003 and the judgment and order dated 24.6.2004 passed by Customs, Excise & Service Tax Appellate Tribunal, New Delhi are set aside. The demand of excise duty and penalty are also set aside. The department will give refund to the appellant in accordance with the law.
Dt.30.8.2012 RKP/