No Penalty under Excise Act Invokable When  Duty with interest Levied u/s 12BB on Clearance of Engine to Sister Concern: CESTAT [Read Order]

The Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that penalty under the excise act is not invokable when duty with interest levied under section 12BB on clearance of engine to sister concern.

M/s. Caterpillar India Pvt. Ltd, the appellants are engaged in manufacturer of ‘Earth Moving Machinery’ viz. Dumpers, Loaders, Excavators and are registered with the Central Excise Department. They are availing the facility of CENVAT credit of duty paid on inputs, capital goods and service tax paid on input services.

On audit, it was noticed that appellants have been receiving engines without payment of duty from their sister unit located in Hosur under Rule 12BB of the Central Excise Rules, 2002 (CER, 2002). The said engines are used in the manufacture of Earth Moving Machinery by the appellant and the finished goods are cleared on payment of appropriate duty.

On detailed verification it was noticed that the Earth Moving Machinery manufactured out of such intermediate goods (engines received from sister units without payment of duty) have not been cleared within a period of six months from the date of receipt of such intermediate goods as mandated under Rule 12BB of CER, 2002. On being pointed out, the appellant paid total duty along with interest for the intermediate goods received by the appellant during the period May 2010 to November 2013 as mandated under Rule 12BB of CER, 2002.

It was also noticed that the appellant had availed CENVAT credit during the period January 2014 to July 2014 on the duty paid under Rule 12BB on the clearances of engines from their Hosur Unit. The department viewed that credit can be availed only on inputs and not on intermediate goods. The engines received from Hosur Unit were only intermediate goods and not inputs for further manufacture of Earth Moving Machinery, the credit was not eligible.

Show Cause Notice dated 14.10.2014 was issued invoking the extended period proposing to demand the duty payable under Rule 12BB on intermediate goods along with interest and for imposing a penalty. The Show Cause Notice also proposed to deny the CENVAT credit wrongly availed and to recover the same along with interest and imposing a penalty. After due process of law, the original authority confirmed the demands along with interest and imposed penalties regarding both demands.

Shri Raghavan Ramabhadran appeared and argued for the appellant. It was submitted that being an LTU, the appellant manufactures the engines at its Hosur Unit and stock transfers the engines to its Tiruvallur Unit without paying excise duty on the engines in terms of Rule 12BB of CER, 2002. The appellant undertakes the stock transfer under a transfer challan. The engines are then used in the appellant unit (Tiruvallur Unit) in the manufacture of final products viz. Earth Moving Machines (EMMs).

On a bare reading of Rule 12BB of CER, it can be understood that in compliance with the conditions contained therein, the liability to pay duty and interest on intermediate goods is shifted on the recipient premises. 

It was observed that Rule 12BB allows this facility of clearances without payment of duty on complying with the condition that the intermediate goods have to be cleared or used further in the manufacture of finished products by the recipient unit and such finished products should be cleared within a period of six months.

It was evident that the condition has not been satisfied by the assessee. “Rule 12BB casts the liability on the recipient unit. The appellant is therefore liable to pay duty on the engines. It is also an admitted fact that there is a delay in making the payment. Rule 12BB not only defers the payment of duty but also shifts the liability on the recipient unit. The Rule itself states that if the condition is not satisfied the duty along with interest has to be paid by the recipient unit. We therefore do not find any grounds to interfere with the demand of interest and we uphold the same”, the two-member bench comprising Ms Sulekha Beevi C.S., Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) held.  

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