Option to pay duty under compound scheme once exercised remains valid unless revoked.

PJ/CASE LAW/2014-15/2517

Case:-M/s KAMAKHYA STEELS PVT LTD Vs COMMISSIONER OF CENTRAL EXCISE, MEERUT-I

Citation:-2015-TIOL-34-CESTAT-DEL

Brief Facts:-This order is being issued in pursuance of the order of the Hon'ble High Court of Allahabad in respect of the appellants' appeal No.171/2006.

Vide its Final Order No.61/2006-Ex. dated 7.10.2005, CESTAT had upheld the impugned order-in original in terms of which the duty demand on the appellants was confirmed assessing their liability under Sub-Rule (3) of Rule 96 ZO of the (then) Central Excise Rules, 1944. Para-3 of the CESTAT order is re-produced below:

"3. The contention of the Revenue is that the appellant filed necessarydeclaration in the year 1997 and also on 1.4.98, in terms of Sub-Rules (3) of Rule 96 ZO of t he Central Excise Rules and their duty liability is determined by the Commissioner of Central Excise. The appellant had not opted for the duty
determination on actual production under Section 3A( 4) of the Central Excise Rules. The contention of the Revenue is that the two letters relied upon by the appellant are not opting out of the Scheme provided under Sub-Rule (3) of Rule 96 ZO of the Central Excise but these are only requests that their actual production in the financial year is less than as determined by the Commissioner of Central Excise and to determine the duty liability on the basis of actual production. The Revenue's contention is that this is not permissible in view of the decision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise & Customs Vs. Venus Castings (P) Ltd. reported in 2000 (117) ELT 273 (SC) . The Revenue is also relying upon the decision of the Hon'ble Supreme Court in the case of Union of India Vs. Supreme Steels & General Mills, reported in 2001 (133) ELT 513 (SC). We find that in this case the appellant opted to pay duty under Rule 96 ZO( 3) of the Central Excise Rules and filed necessary declarations on 3.8.97 and 1.4.98 and annual capacity was determined by the Commissioner of Central Excise. The Hon'ble Supreme Court in the case of Commissioner of Central Excise & Customs Vs. Venus Castings (P) Ltd. (supra) held that a manufacturer cannot opt twice during one financial year first choosing to pay in accordance to Sub-Rule (3) of Rule 96 ZO of Central Excise Rules and, thereafter, to switch over to actual production basis under Section 3A (4) of the Central Excise Act. The same view is reiterated in the case of Union of India Vs. Supreme Steels & General Mills (supra). In the present case the appellant during the same financial year asked for re-determination of the annual capacity under Section 3A( 4) of the Central Excise Act which is not permissible. Further, we find that appellant in the beginning of any financial year had not opted to pay duty under Section 3A (4) of the Central Excise Act. The letters relied upon by the appellant is only asking for re-determination of actual production basis during the same financial year for which appellant opted to pay duty under Rule 96 ZO (3) of the Central Excise Rules. In these circumstances, we find no infirmity in the impugned order whereby the demand of duty is confirmed. However, taking into facts and circumstances of the case, the penalty is reduced to Rs. 50,000/- (Rupees Fifty thousand only). The appeal is disposed of as indicated above."

The appellants filed an appeal before the Allahabad High Court and the Hon'ble Allahabad High Court vide its aforesaid order ordered as under:

"10. We find that the Tribunal has not considered the plea of the appellant that for the financial year 1999-2000 under Rules 96 ZO(3) the option as (sic) required under Sub-Rule 3 of 1996 ZO has not been given by the appellant.

11. The Tribunal has not adjudicated that if the option has not be given for the 1999-2000 whether the appellant is liable for the payment of duty under Rule 96 ZO.

12. On the aforesaid facts and circumstances we are of the opinion that this aspect of the matter requires consideration by the Tribunal afresh.

13. It is made clear that the matter is relegated only for the determination of the liability for the financial year 1999-2000 and not for any other year."

Thus the very narrow issue for decision in this order is whether the duty liability of the appellants for the year 1999-2000 is to be assessed in terms of Rule 96 ZO( 3) after considering the plea of the appellants that for the financial year 1999-2000 under Rule 96 ZO(3), the option as required under Sub-Rule (3) of Rule 96 ZO had not been given by them.

Appellant contentions:- The appellants contended that the compounded levy scheme under Rule 96 ZO ibid operated financial year wise and therefore when no option was given by them to opt for the scheme for the financial year 1999-2000, the assessment under Rule 96 ZO was not legal and proper. They also contended that by their various letters they had been protesting that there is much difference between their capacity determination and actual production and that the duty paid by them under Rule 96 ZO should be treated to have been paid under protest. They referred to their letters dated 27.2.1999 and 4.5.1999 wherein they requested for redetermination of the duty liability on actual production basis during the year 1998-1999. They claimed that all these letters clearly showed their unhappiness and their intention to opt out of the compounded levy.

Reasoning of Judgment:- We have considered the contentions of the appellants. As has been recorded by CESTAT in its order dated 7.10.2005 the appellants filed necessary declaration opting to pay duty under Rule 96 ZO(3) in the year 1997 and also again on 1.4.1998. The said Rule does not require filing of declaration on an annual basis. Indeed the format of the declaration prescribed under Rules 96 ZO(4) also makes it clear that the declaration is not for any particular financial year nor is it required to be filed for every financial year. The format of the declaration prescribed is re-produced below:

"We ________(name of the factory), located at ________(address) hereby wish to avail of the scheme described in sub-rule (3) of rule 96 ZO, for full and final discharge of our duty liability for the manufacture of ingots and billets of non-alloy steel under Section 3 A of the Central Excise Act, 1944 (1 of 1944)."

Even the appellants' declarations did not indicate that they were valid only for one financial year. Therefore unless the appellants specifically opted out of the scheme, the declarations they filed opting for the compounded levy scheme obviously continued to be valid. The Supreme Court in the case of CCE Vs. Venus Castings Pvt. Ltd.- 2000 (117) ELT 273 (SC) has held that the assessee if they have availed of the procedure under Rule 96 ZO(3) at their option, cannot claim the benefit of determination of production capacity under Section 3A(4) of the Central Excise Act, 1944 which is specifically excluded. As observed by CESTAT in its order dated 7.10.2005, the Supreme Court in the case of Venus Castings (supra) also held that a manufacturer cannot opt twice during one financial year first choosing to pay in accordance to Sub-Rule (3) of Rule 96 ZO of Central Excise Rules and, thereafter, to switch over to actual production basis under Section 3A (4) of the Central Excise Act. This itself means that the assessee can opt out of the scheme at the end of the financial year. It is matter of record that the assessee never opted out of the compounded levy scheme after having opted in for the same. Letters cited by them only show that they were not happy with the quantum of duty liability in terms of the said Rule 96 ZO( 3). But such unhappiness can never be equated to a formal opting out of the scheme. For example, expressing unhappiness in a marriage can never be taken to be tantamount to opting for divorce. Thus it is evident that in the wake of the fact that the appellants never opted out [after having opted in for paying under Rules 96 ZO (3)], they continued to be liable to be assessed thereunder. There is not even an iota of doubt that there was requirement to file the option to opt for the scheme in every financial year. Similarly, there is no ground to even suggest that the declaration to opt for the scheme was valid only for one financial year. Thus once having opted in, one had to expressly opt out of the same.

At the stage of hearing, the appellants also raised the issue to maintainability of these proceedings in the wake of abolition of Rule 96 ZO of Central Excise Rules as well as Section 3A of the Central Excise Act, 1944. However, as this adjudication is only within the narrow compass delineated by and in the wake of the judgement of Allahabad High Court, this plea cannot be, and therefore is not being, taken up for consideration.

In the light of the foregoing, it is held that the appellants were liable for payment of duty for the year 1999-2000 under Rule 96 ZO. Consequently, the Tribunal's Final Order dated 17.10.2005 requires no modification whatsoever.

Decision:- Appeal rejected.

Comment:- The crux of the case is that if a manufacturer chooses to avail the option to pay duty under compound levy scheme in accordance with Rule 96 ZO of Central Excise Rules, then such option is to be continued until and unless the same is specifically revoked by the assessee. One more analogy drawn is that is there is nothing specific in the scheme that the declaration to opt for the scheme is valid only for one financial year.Therefore, after having opted in for paying duty under Rules 96ZO( 3) on annual capacity of production unless assessee opts out of the compounded levy scheme he could not pay duty on actual production basis u/s 3A(4) of the CEA, 1944. Thus once having opted in for compound levy, the assessee had to expressly opt out of the same.

Prepared By: Meet Jain

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PJ/CASE LAW/2014-15/2517

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