Whether denial of exemption under Notification No. 108/95-CE justifiable on the ground that the project was financed by World Bank for part period only?

PJ/CASE LAW/13-14/2068

Case:- LARSEN & TOUBRO LTD. V/S COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:- 2013 (295) E.L.T. 572 (Tri.-Del.)

Brief Facts:- The appellant manufactures transmission towers for electricity and supplied it to Sasaram HVDC transmission system, a project executed by M/s Power Grid Corporation of India Ltd.PGCIL certified that the project was covered under PSDP-II loan of the World Bank. The appellants cleared the goods from 23^rd September, 1999 to March, 2001 and claimed exemption under Notification No. 108/95-CE, dated 28.8.1995. The said exemption was available for projects financed by World Bank. However, the project was financed by World Bank only with effect from 1.3.2000. Therefore issue arose that whether the said exemption could be extended to goods cleared prior to that date. Since there was doubt on this issue the appellants remitted an amount of Rs. 12119858/- and claimed that they were eligible for Cenvat credit on customs duty paid on inputs used to the extent of Rs. 11328587/-. Revenue issued a show cause notice demanding duty of Rs. 23448545/- with a proposal to adjust the amount of Rs. 12119858/-, already paid by them. The notice is adjudicated confirming the duty demand along with interest and penalty. In the impugned order, it is stated that it is an undisputed fact that duty was payable on clearances prior to 1.3.2000. However, it is seen from the submissions recorded in the order that the Appellants have been disputing this liability, in fact, they had asked for refund of duty already paid.

Appellant’s Contention:-The appellant contended that the project was financed by World Bank and the contracts executed by PGCIL also specifically provided that the project enjoys benefit under Notification No. 108/95, dated 28.8.1995. Necessary certificate for availing the exemption as prescribed under the notification was produced by them. Further, they contest that there is no condition in the said notification that the entire project cost should have been financed by the World Bank. They argue that in fact no financing agency provides loan for the entire cost of a project and part of the cost of a project has to be met by the beneficiary of the loan. In this case all the cost incurred prior to 1.3.2000 should be considered as finance put in by the beneficiary of the loan and the fact that loan was available only for expenditure after 1.3.2000 does not disqualify the project to be a project financed by World Bank. Therefore there is no reason to deny the benefit of Notification No. 108/95-CE.
They relied on the decision of the Tribunal in the case of Nestor Pharmaceuticals Ltd. v. CCE-2000 (116) ELT 477 (T) to support their argument that the benefit of Notification No. 108/95-CE cannot be denied for the reasons that the entire cost was not borne by the international organization. They also submit that there was no suppression of fact on their part. The project authority had issued certificate required Notification No. 108/95-CE and they have availed exemption based on such certificate and therefore no suppression can be alleged based on the fact that the World Bank financed expenditure from 1.3.2000 only. Therefore they contend that the entire demand is barred by limitation.
It is further submitted by them that if they have to pay duty they should be given set off for countervailing duty paid by PGCIL amounting to Rs. 11328587/- on raw materials imported by PGCIL and used by them in the manufacture of excisable goods.

Respondent’s Contention:-The Respondents submitted that the project qualified for exemption under Notification No. 108/95-CE, dated 28.8.1995 only from 1.3.2000 because only from that date the World Bank financed the project and therefore all the clearances made prior to that date has to pay duty. They points out that this position was accepted by PGCIL when they paid customs duty on the imported raw material. PGCIL also pointed out to the appellants about the liability prior to 1.3.2000 and the appellants paid excise duty as soon as issue was raised with them. Further, they contended that the Bills of Entry under which the inputs were imported by PGCIL showed payment of nil rate of Customs duty and therefore straight set off of duty paid by PGCIL on the raw material cannot be allowed and that has to be done in a separate proceeding as is ordered in the impugned order-in-original.

Reasoning of Judgment:- The Hon’ble Tribunal held that they are not able to see any misrepresentation on the part of appellants with intent to evade payment of duty. Further, the revenue is not contesting the facts that necessary certificates to claim the exemption were produced by the appellants at the time of clearance of the goods. There is no case made out that such certificates were fraudulent or not issued by proper authority. They are also not in agreement with the argument of the respondents that the claim for cenvat credit should be decided in a separate proceeding for the reason that the Bill of Entry concerned did not show payment of Customs duty. It stands explained by the appellants that initially the goods were imported without payment of duty availing the exemption for goods imported for supply to a project financed by World Bank and when the issue that they might not be eligible for such exemption for the period prior to 1.3.2000 was pointed out to them they paid the duty subsequently. In the facts of the case duty paid on raw materials should have been taken into account while determining the duty liability.
They are of the view that the impugned project is in fact a project financed by the World Bank. They do not see anything in the wordings of the notification for denying the exemption to goods supplied to the project prior to the date from which finance was provided by the World Bank. As already decided in the case of Nestor Pharmaceuticals Ltd., exemption under Notification No. 108/95-CE cannot be denied for the reason that part of the project was met by the beneficiary of the loan from the World Bank. The fact that the expenditure upto a particular time frame was met by the beneficiary of the loan is not substantially different from the said position. They are of the view that the appellants succeeds on the merits also.
There is an issue whether the appellants are eligible for the refund of duty already paid. This is a matter to be decided in a separate proceeding in a refund application filed under Section 11B where issues like whether the claim is within the time limit prescribed and whether the incidence has been passed to the buyers will arise. Without examining these issues they do not want to pass any orders in the matter of refund claimed in the process of filing reply to demand for duty. It would appear that in this case the duty was borne by PGCIL who in turn passed it on to the owner of the system set up. In view of the findings, they allow the appeal to the extent of setting aside the impugned order demanding differential excise duty of Rs. 11328687/- and interest thereon as well as penalty imposed under Rule 11AC of Central Excise Act read with Rule 25 of the Central Excise Rules, 2002. They make it clear that they are not passing any order with regard to refund of duty already paid. They find themselves in agreement with the order recorded by Learned Member (Technical) extending the benefit of Notification No. 108/95-CE to the appellant. However, they have not been able to convince themselves to be in agreement with the observations of learned Member (Technical), as recorded in para 12 of the order proposed.
On going through the impugned order of the Commissioner, they find that he has passed the order confirming demand of duty amounting to Rs. 23448545/- in terms of section 11A(1) of the Central Excise Act, 1944, penalty of Rs. 1000000/- under Section 11AC of the Central Excise Act, 1944, and interest under Section 11AB of the Act. It is seen from the said order, the total duty confirmed against the appellant was to the tune of Rs. 23448545/-. The order recorded by the learned member (Technical) is to the effect that the benefit of Notification No. 108/95-CE, was available to the appellant and as such no duty demand could be confirmed against them by denying the benefit of said notification. Consequence of the order so recorded by the learned member (Technical) would be that the demand confirmed against the appellant to the extent of Rs. 23448545/- is not sustainable against them.
It is further seen that the appellant have already deposited an amount of Rs. 12119858/-. The deposit of said duty was during the course of investigation against them. When the entire duty confirmed against the appellant stands set aside, duty deposited by them during the course of investigation becomes liable to be refunded to them in accordance with law. The provisions of Section 11B of Central Excise Act, 1944 deal with refund of such duty which becomes refundable as consequence of judgment, decree or order by the appellate authority. The same are also required to be examined from the unjust enrichment angle or from the other angle in terms of the provisions of Section 11B. While implementing the Tribunal’s order setting aside the total confirmed demand against the appellant, the lower authorities are bound to adhere to the provisions of law while extending the consequential benefit to the appellant. Further, para 12 of the order recorded by the learned member (Technical) on the issue whether appellant is eligible for refund of duty is beyond the scope of present proceedings, in as much as it is not the case where any refund of duty is claimed by the appellant and stands rejected by the lower adjudicating authority. The issue relates to denial of benefit of Notification No. 108/95-CE and consequent confirmation of demand. In as much as the proceedings before the lower authorities were not for claim of refund of any amount paid by the appellant, according to them, the observations made in para 12 of the order proposed by learned member (Technical) are not necessary. As the issue is not of refund of any duty already paid, no order are required to be passed on the same and it should be left to the lower authorities to implement the present order of the Tribunal setting aside confirmation of the demand and imposition of penalty on the appellant in accordance with law. However, as learned member has also held that no orders are being passed with regard to refund of duty, and their disagreement is only to the observations made by him, there exists no real difference of opinion requiring the matter to be placed before the Third member.
In view of the above findings, the appeal was allowed.

Decision:- The appeal was allowed.

Comment:- The gist of this case is that when it is practically settled position that no project is funded by one particular bank solely, denial of the benefit of the notification no. 108/95-CE, dated 28.8.1995 only on the basis that the World Bank financed the project only for a particular period is not sustainable. The benefit of the exemption would be available for the entire period of the project and cannot be denied for the period prior to 1.3.2000 on the ground that the funding from the World Bank started w.e.f.1.3.2000.

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PJ/CASE LAW/13-14/2068

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