Whether exemption benefit deniable for period prior to financing of project by the World Bank?

PJ/Case Law/2014-15/2376

Case:-LARSEN & TOUBRO LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, INDORE

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

Brief facts:-The Appellant manufactured 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” for short). PGCIL certified that the project was covered under PSDP-II loan of World Bank. The Appellants cleared the goods from 23rd 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 an issue arose 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. 1,21,19,858/- and claimed that they were eligible for Cenvat credit on customs duty paid on inputs used to the extent of Rs. 1,13,28,587/-. Revenue issued a Show Cause Notice demanding duty of Rs. 2,34,48,545/- with a proposal to adjust the amount of Rs. 1,21,19,858/-, already paid by them. The notice is adjudicated confirming the duty demanded 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 impugned order that the Appellants have been disputing this liability, in fact they had asked for refund of duty already paid.

Appellant’s Contention:-On merits, the submission of the Appellants is 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 Appellants: Further, theycontest 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-C.E. The Appellants relied on the decision of the Tribunal in the case of Nestor Pharmaceuticals Ltd. v. C.C.E. - 2000 (116) E.L.T. 477 (T)to support their argument that the benefit of Notification No. 108/95-C.E. cannot be denied for the reasons that the entire cost was not borne by the international organisation. The Appellants also submitted that there was no suppression of fact on their part. The project authority had issued certificate required Notification No. 108/95-C.E. and the Appellants had availed exemption based on such certificate and therefore no suppression can be alleged based on the fact the World Bank financed expenditure from 1-3-2000 only. Therefore they contend that the entire demand is barred by limitation. It was the further submission of the Appellants that if they had to pay duty they should be given set off for countervailing duty paid by PGCIL amounting to Rs. 1,13,28,587/- on raw materials imported by PGCIL and used by the Appellants in the manufacture of excisable goods.

Respondent’s contention:-The Respondent submitted that the project qualified for exemption under Notification No. 108/95-C.E., dated 28-8-1995 only from 1-3-2001 because only from that date the World Bank financed the project and all the clearances made prior to that day are leviable to duty. The Respondent pointed out 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 the issue was raised with them. It was the contention of the Respondent 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 materials cannot be allowed and that has to be done in a separate proceedings as is ordered in the impugned order-in-original.

Reasoning of Judgment:-After considering the records and persuing the submission , It was cleared that the adjudicating authority had notseen any mis-representation on the part of the Appellants with intent to evade payment of duty. They noted that the conditions for claiming the said exemption were as under :

"Provided that before clearance of the said goods, the manufacturer produces before the Assistant Commissioner of Central Excise having jurisdiction over his factory :-
(a)
(b)     in the case the said goods are -
(I)
(ii) Supplied to a project that has been approved by the Government of India and financed (whether by a loan or a grant) by an international organization listed in the said Annexure, a certificate from an officer not below the rank of Deputy Secretary to the Government of India, in the Ministry of Finance (Department of Economic Affairs) that the said goods are required for the execution of the said project and that the said project has duly been approved by the Government of India.

(c)      In case the said goods are intended to be supplied to a project financed (whether by a loan or a grant) by the World Bank, the Asian Development Bank or any international organization other than those listed in the Annexure, and

(i)if the said project has been approved by the Government of India, a certificate from the executive head of the Project Implementing Authority and countersigned by an officer not below the rank of a Joint Secretary to the Government of India, in the concerned Line Ministry in the Government of India, that the said goods are required for the execution of the said project and that the said project has duly been approved by the Government of India, and

(ii)     if the said project has been approved by the Government of India for implementation by the Government of a State or a Union Territory, a certificate from the executive head of the Project Implementing Authority and countersigned by the Principal Secretary or the Secretary (Finance), as the case may be, in the concerned State Government or the Union Territory, that the said goods are required for the execution of the said project, and that the said project has duly been approved by the Government of India for implementation by the concerned State Government."

They also added that the Respondent were 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.

The adjudicating authority also not satisfied with the arguments of the Appellant that the claim for Cenvat credit should be decided in a separate proceeding for the reason that the Bills 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 the duty liability.

They also cited a case laws that as already decided in the case of Nestor Pharmaceuticals Ltd. exemption under Notification No. 108/95- C.E. 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 up to a particular time frame was met by the beneficiary of the loan is not substantially different from, the said position. The Tribunal was of the view that the Appellants succeeds on merits also.

At the end, the issue regarding the refund of the aforesaid duty was raised. But the fact was that it was depending on the decision and prescribed limit for the claim of refund.

At last it was decided that in view of the findings as above, the Appeal was allowed to the extent of setting aside the impugned order demanding differential excise duty of Rs. 1,13,28,687/^-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. It was also made clear that they are not passing any order with regard to refund of duty already paid.

Decision:- Appeal allowed.

Comment:- The crux of this case is that the assessee is eligible for claiming the benefit of exemption under international competitive bidding even for the period prior to financing of the project by the World Bank because it is possible that a part of the project is financed by the beneficiary of the loan from the World Bank. The benefit of exemption notification should not be denied as far as the other conditions for claiming the said benefit stands fulfilled by the assessee.

Prepared by:- Kushal Shah

Comments

PJ/Case Law/2014-15/2376

Post a Comment

Query