Payment of duty on goods cleared to 100% EOU

PJ/Case Laws/2010-11/1060

Case: Commissioner of Central Excise, Bangalore-I v/s M/s Crompton Greaves Ltd

Citation: 2011-TIOL49-HC-KAR-CX

Issue:- The exemption at the time of clearance of goods can be availed by assessee even though the returned goods are cleared.

Brief Facts:- Respondent-assessee is a manufacturer of Rural Automotive exchanges and parts thereof. They cleared 900 numbers of FRS 120 with all accessories to a 100% EOU on payment of central excise duty.

Their goods were rejected on the goods due to certain defects. The goods were brought back to the respondent’s factory and respondent availed cenvat credit of the duty paid on the rejected goods. Respondents removed the defects from the rejected goods and on the basis of a fresh purchase order, cleared the goods free of duty under cover CT-3 certificates.

Revenue issued show cause notice to the respondent for clearing the goods without payment of duty. Duty was demanded under Rule 16 of the Central Excise Rules, 2002. The Adjudicating Authority affirmed the duty demand and imposed penalty under Rule 25 of the Rules and Section 11AC of the CEA, 1944.

Respondent’s appeal before the Commissioner (Appeal) was dismissed.

In further appeal, the Tribunal held in the first instance the assessee was not liable to pay any excise duty at all as the goods cleared to 100% EOU are exempted from payment of Central excise duty vide Notification No. 22/2003-CE. It was held that by mistake the assessee had paid the said duty. When the goods were returned as defective, they were justified in claiming credit of duty. However, after rectifying the defects, in pursuance of a fresh purchase order, when they supplied the goods again to the very same 100% EOU when by that time they had obtained CT3 certificates there was no liability on their part to pay any duty at all. Therefore, the respondent did not commit any illegality in clearing the goods without paying duty.

The Tribunal accordingly, set aside the impugned order and allowed the appeal. Aggrieved by the impugned order, Revenue has filed appeal before the High Court.

Appellant’s Contentions:- Revenue contended that the assessee was under an obligation to comply with the requirement of Rule 16(3) which admittedly they have not done. Even the Tribunal holds that the assessee committed a lapse in not complying with the said legal requirement. In those circumstances, the Tribunal was not justified in interfering the order of the Commissioner (Appeal) as well as the Adjudicating Authority.

Reasoning of Judgment:- The High Court held that in terms of Notification No. 22/2003 goods cleared to 100% EOU are exempted from duty of central excise duty. Obviously assessee committed an error in paying the excise duty. When the said goods were returned because of defects, in law they were entitled to claim cenvat credit which they did. Later, after rectifying the defects in pursuance of fresh purchase order, they supplied the very same goods to their customer, a100% EOU. They were under no obligation to pay any duty as payment of duty was exempted vide Notification No. 22/2003. On the date of second supply they were also in possession of CT3 certificates.

It was held that as per these facts, it was held that though there is no liability on assessee’s part to pay excise duty, the proceedings initiated against the assessee claiming excise duty was without jurisdiction. The impugned order was without jurisdiction. The Tribunal was justified in setting aside the impugned order.

Decision:- Appeal dismissed.

Comments:- This is far reaching decision as normally the department asks to either pay the duty on clearance of re-entered goods or reverse the cenvat credit as per Rule 16. We have come across a case when the department raised objection even though the goods were cleared for export later on.

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PJ/Case Laws/2010-11/1060

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