Whether value of semi finished goods used for making exempted finished goods is to be included in the aggregate value of clearances under Notification 8/99-CE?

PJ/Case Law/2013-14/1831

Case:-ARIYA FLEXI LABELS Vs COMMISSIONER OF CENTRAL EXCISE, TIRUNELVELI

Citation:- 2013-TIOL-1134-CESTAT-MAD

Brief Facts:- The appellants are manufacturers of plastic film, plastic laminated film and plastic pouches. They also make plastic pouches out of plastic film and plastic laminated film and clear plastic pouches. In this process they were captively consuming plastic film and plastic laminated film to make plastic pouches.

There were also clearing plastic film and plastic laminated film to other buyers availing Notification 8/99-CE for goods manufactured by Small Scale units. The dispute involved in the present appeals relate to the issue that the value of plastic film and plastic laminated film captively consumed had not been taken into account while calculating the aggregate value of clearances that could be cleared without payment of duty in a financial year under the above notification. The department issued three show cause Notices to the appellant for the period April to Sept.1999, Oct to Dec1999 and Jan to March 2000.

From 2.6.98, a separate notification No.8/98-CE dt. 2.6.98 was issued exempting plastic pouches and similar goods falling under headings 39.23, 39.24 and 39.26 up to the value of Rs. 85 lakhs that may be cleared during the remaining part of that financial year. This exemption was Notification No.5/99 (S. No. 70) dt. 28.2.99 was continued in Notification No.6/2000 (S. No. 65) dt. 1.3.2000 with some modification in value limit. The appellants were availing these exemptions and not paying duty on plastic pouches. Since the final product was exempted from duty, Revenue was of the view that on plastic film and plastic laminated film used within the factory for manufacture of exempted product viz. Plastic pouches the appellants should have discharged duty there on or should have included the value of such goods in the aggregate value of clearances under notification 8/98-CE. Based on such reasoning, three Show Cause Notices have been issued for different periods as aforesaid. The appellants did not file any effective reply or cause personal appearance on the dates fixed for personal hearing. The matter was decided ex-parte in adjudication confirming the demand with penalty under Rule 173Q of Central Excise Rules. In appeal proceedings also, adequate opportunities were given for personal hearing which the appellant did not avail. Thereafter, the Commissioner (Appeals) passed the order disposing of the three appeals. Aggrieved by the order in appeal the appellant filed appeal before Tribunal.

Appellant’s Contention:- The appellant submits that as per para 3(c) of Notification No.8/99- CE dt. 28-2-1999 which reads as under:-

"3. For the purpose of determining the aggregate value of clearances for home consumption, the following clearances shall not be taken into account, namely:-
(a)....
(b)....
(c) Clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods."

Appellant’s contention is that since plastic film and plastic laminated film are used within the factory for further manufacture of plastic pouches, value of such captive clearances cannot be added for arriving at the value of aggregate clearances for which exemption is available.

The appellant also submits in rejoinder that plastic pouches were not fully exempt but was exempted only upto a value of Rs.1 crore in a financial year and such goods cannot be considered to be excluded by virtue of entry at 1 (i) in the Annexure to Notification 8/99-CE.

Respondent’s Contention:- The Revenue submits that the contention of Revenue is that when a final product is exempt from duty, it is no longer ‘specified goods'. He relies on Entry at No.1 (i) in the Annexure to the said notification which reads as under:-

"1. All goods specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following, namely,-

(i) all goods which are chargeable to nil rate of duty or are exempt from the whole of the duty of excise leviable thereon;
(ii) ---"

The Revenue further argues that when the goods cannot be considered as ‘specified goods', there is no question of extending the benefit under Notification No.8/99-CE and therefore the demand has been rightly confirmed against the appellant.

Reasoning of Judgment:- The Tribunal heard both the parties and considered the arguments on both sides. Tribunal finds that Tribunal not in agreement with the argument raised by appellant that Entry at 1(i) of the Annexure to the notification does not make any mention to exclude the goods exempt subject to any condition. The entry has to be interpreted in a plain and simple manner and so long as the plastic pouches were exempted they could not be considered as specified goods. As a consequence, the value of plastic film and plastic laminated film used for making such pouches are to be included the aggregate value of clearances under Notification 8/99-CE.

Therefore, Tribunal did not find any infirmity in the order passed by the lower authority and same is upheld.

Decision:- All three appeals were rejected.

Comment:- The analogy that is drawn from this case is that if the finished goods are exempted they could not be considered as specified goods for the purpose of notification no. 8/99. Consequently, the value of semi finished goods used for making such finished goods is to be included the aggregate value of clearances under Notification 8/99-CE.

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PJ/Case Law/2013-14/1831

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