Whether intermediate goods supplied to projects funded by UN eligible for exemption retrospectively ?

PJ/Case Law/2013-14/2052

Case:- MAHINDRA & MAHINDRA LTD. Vs COMMISSIONER OF C. EX., NASHIK

Citation:- 2013 (296) E.L.T. 62 (Tri. - Mumbai)

Brief facts:- The appellants, M/s. Mahindra & Mahindra Ltd., were manufacturing motor vehicles and motor vehicle parts, etc., and supplying to their regional sales offices, who in turn sold to the dealers. By a Notification No. 108/95, dated 28-8-1995, all goods falling under the Schedule to the Central Excise Tariff Act, 1985 were exempted from the whole of the duty of excise when supplied for the official use of United Nations or International Organization or for the projects funded by United Nations or an International Organization and approved by the Govt. of India.

Rule 57C of the Central Excise Rules, 1944 prevailing during February, 1997 provided for disallowance of Modvat credit only when final product was exempted from duty. However, exemption was made in respect of supplies made in terms of Notification No. 108/95, dated 28-8-1995. The appellants were, therefore, entitled for Modvat credit of duty paid on the components used in the manufacture of motor vehicles supplied to United Nations or International Organizations; whereas Notification No. 67/95, dated 16-3-1995 did not mention about clearances of the final product to the International Organizations, whom the appellants were supplying. Later on, an amendment came by virtue of Notification No. 11/97 with effect from 1-3-1997, including these International organizations. Therefore, the dispute pertains to one month period i.e. February, 1997, during which the supplies were made to the International Organizations by the appellants, wherein the Department demanded the duty on the intermediate products utilized in the final product. The appellants claim that the subsequent amendment was to be given effect retrospectively even for the month of February, 1997 also. This position was made clear in case of CCE v. M/s. Premier Tyres Ltd. reported in 1992 (62)E.L.T.104 (Tribunal)and further contention was that the situation of Revenue neutral. The Commissioner (Appeals) had rejected the contention of the appellants and confirmed the duty demand of Rs. 1,03,707/-.

Appellant’s contentions:- The ld. Counsel for the appellants submitted that the Notification No. 11/97, dated 1-3-1997 was clarificatory in nature to the Notification No. 108/95, dated 28-8-1995. To support this contention, he placed reliance on the decision of the Tribunal in the case of CCE v. M/s. Premier Tyres Ltd. reported in 1992 (62)E.L.T.104 (Tribunal) which was confirmed by the Hon’ble Kerala High Court reported in 2001 (130)E.L.T.417 (Ker.).He further submitted that the similar issue came up before this Tribunal in the case of Indian Aluminium Co. Ltd. v. Collector of Central Excise, Cochin reported in 1995 (79)E.L.T.111 (Tribunal). In alternate, he submitted that it was a Revenue Neutral situation and therefore the appeal should be allowed.

Respondent’s contentions:- On the other hand the ld. Additional Commissioner (A.R.) appearing on behalf of the Revenue reiterated the impugned order and submitted that the Notification No. 11/97 could not have retrospective effect, therefore appeal be dismissed.

Reasoning of judgment:- Considering the submissions made by both sides and after examining the issue before them the Bench found that as per Rule 57C, the credit of duty was not allowed if final product were exempted.
They further found that as per Notification No. 108/95-C.E., dated 28-8-1995 the goods were exempted which were supplied to the United Nations or an International Organization for their official use. They further found that as there was an anomaly in the Rule; to plug that anomaly Notification No. 11/97-C.E., dated 1-3-1997 came into effect. The issue came before this Tribunal in the case of Indian Aluminium Co. Ltd.(supra) wherein that case the final product namely Aluminium Extrusions were dutiable and the appellant had paid duty on all such clearances, made to Export Units, as duty to such units was exempted by different notifications issued under Rule 13, which were for export obligations. No bond was executed in these cases, as they fell within the category of export units where taking of bond was not obligatory and such non-execution was only a procedural lapse and for such lapse, the benefit of the exemption could not be denied. As admittedly the final product had been utilized by export units, hence such clearance of the final products, do not attract the proviso to the Notification. In that case this Tribunal held that as Aluminium billets used in manufacture of Aluminium extrusions, which were cleared to export unit products so cleared to export units whether cleared under bond or not, not treatable as goods wholly exempt or chargeable to nil rate of duty. Benefit of exemption in respect of intermediate product was available under Notification No. 217/86-C.E., dated 2-4-1986. In the case in hand before tribunal also, the parts assembles to the motor vehicle which was the final product supplied to unit. Therefore, the intermediate product of the parts assembled, the benefit of Notification No. 67/95 read with Notification No. 108/95 was available to the appellants. Accordingly, the impugned order was set aside and the appeal was allowed with consequential relief if any.

Decision:- Impugned order was set aside and the appeal was allowed.

Comment:- The analogy drawn from the case is that the intermediate products supplied for the projects funded by International Organisations have been given exemption vide notification no. 11/97-C.E., dated 1-3-1997 and this exemption is clarificatory in nature as it removed the loophole in the Rule. Accordingly, this notification was held to be retrospectively applicable in view of the decision given in the case of Indian Aluminium Co. Ltd.

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PJ/Case Law/2013-14/2052

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