Availability of Benefit of SSI exemption under Notification No. 4/2006-CE

PJ/Case Study/2010-11/36

CASE STUDY

Prepared By:

CA Pradeep Jain,

Sukhvinder Kaur, LLB [FYIC]

And Parag Ghate, B.Com

Introduction:

Exemption from payment of excise duty is granted in certain cases on fulfillment of certain conditions. However, if certain conditions are not fulfilled which are not mandatory in nature but a procedural in nature, then can the benefit of exemption can be denied to the assessee? The benefit of exemption is a substantial right of the assessee and if a condition is procedural in nature, can the benefit still be denied to him although the assessee fulfills all the other basic conditions. Such issues were involved in the case under study.

Relevant Legal Provisions:

Ö Condition No. 1 of the Notification No. 4/2006-CE, Dated: 01.03.2006

(i) If the cement manufacturer makes a declaration to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction regarding the installed capacity of the factory before availing of exemption under this notification or wherever there is a change in the said capacity, and furnishes such information or documents, if any, as may be required by the Deputy Commissioner or the Assistant Commissioner, as the case may be, for his satisfaction in this regard.

(ii) The exemption shall be applicable up to a maximum quantity of ninety-nine thousand tonnes in a financial year. For computing the quantity of ninety-nine thousand tonnes in a financial year, the clearances of cement effected under any other notification shall be included.

However, the clearances of cement effected on payment of duty-

(a) at the rate of Rs.350 per tonne, in case of goods falling under S.No. 1A;

(b) at the rate of Rs.400 per tonne, in case of goods falling under S.No.1C; and

(c) at the rate of Rs.600 per tonne in case of goods cleared in packaged form and the retail sale price of such goods exceeds Rs. 190 per 50 kg bag or per tonne equivalent retail sale price exceeds Rs.3800, shall not be taken into account for computing the above mentioned quantity of ninety-nine thousand tonnes

(iii) The exemption under this notification shall not be applicable to,-

(a) cement manufactured from such clinker which is not manufactured within the same factory; and

(b) cement bearing a brand name or trade name (whether registered or not) of another person.

Explanation.-For the purposes of condition (iii), “brand name” or “trade name” means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, signature, or invented words or any writing which is used in relation to a product for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.

M/s Shiv Shakti Minerals & Chemicals v/s Additional Commissioner, Central Excise, Jaipur-II

[Order-In-Appeal no. 385(CB) CE/JPR-II/2010, Dated: 28.10.2010]

Brief Facts:

- Appellant are engaged in the manufacture of Clinker and Grey Portland Cement falling under Chapter 25 of the first Schedule to the Central Excise Tariff Act, 1985.

- The Appellant did not pay the duty on the clearances made after crossing the exemption limit of Rs. 1.00 Crore in the financial year 2006-07 and Rs. 1.50 crore in the financial year 2007-08. On being pointed out, they accepted the mistake and deposited the duty as per benefit of Notification No. 4/2006-CE dated 1.3.2006 (amended vide Notification No. 4/2007-CE dated 1.3.2007 mentioned at Sr. No. 1 i.e. @ Rs. 220 per tone.

- Show cause notice was issued to the appellant alleging that they had wrongly taken the benefit of Notification no. 4/2006-CE dated 1.03.06. It was further contended that the since the appellant have not filed the declaration specified in this notification, they were supposed to pay duty at the full rate instead of concessional rate specified in this notification.

- Reply was filed by the appellant but their contentions were not accepted and the order in original was passed confirming the demand raised under Section 11A (1) of the Central Excise Act, 1944 along with interest under Section 11AB of the Central Excise Act, 1944 and also imposed equal penalty under Section 11AC of the Central Excise Act, 1944.

- Aggrieved by the impugned order, appellant filed appeal before the Commissioner (Appeal).

Appellant’s Contentions:

¨ The Appellant submitted that they were not knowing that the central excise duty was payable by them. And as soon as they were told about their liability by the Revenue department they have readily paid the duty alongwith interest.

¨ It was submitted that the appellant had availed the concession available to mini cement plant and paid the duty at concessional rate. It was submitted that in the impugned order, it was held that since they have not filed the declaration before the Deputy Commissioner or the Assistant Commissioner of Central Excise for claiming the benefit under Notification No. 4/2006-CE, dated 01.03.2006, therefore, they were required to pay the duty at the full rate of duty. In this regard the appellant submitted that furnishing of the declaration before the Deputy Commissioner/Assistant Commissioner was a mere procedural requirement and the substantial benefit of the Notification could not be denied to the appellant for non-fulfillment of the said procedure of filing declaration.

¨ Appellant submitted that although Notification No. 8/2003-CE provides that for claiming the benefit of exemption under the said Notification, the assessee is required to file a declaration and they have not filed the said declaration. Neither they have filed declaration under Notification No. 36/2001-CE (NT), dated 26.06.2001 issued under Rule 9 (2) of the Central Excise Rules, 2002 prescribed the filing of declaration by the small scale unit availing the slab exemption based on the value of clearances under a notification when the value of their clearances touches Rs. 40 lakhs. Even then the Department has extended the benefit of SSI exemption to the appellant. Thus, it is clear that filing of declaration was a mere formality and the substantial benefit was extended to the appellant even when they have not filed any declaration. Thus, even if no declaration is filed by the appellant before availing the benefit of Notification 4/2006-CE, the substantial benefit cannot be denied as the department has acted in extending the substantial benefit to the appellant in the previous instances.

¨ Appellant further submit that there is difference between the conditions which are mandatory requirements and the conditions which are procedural requirement. It is submitted that if the conditions with the mandatory requirements are not fulfilled then the substantive benefit cannot be granted as the basic requirements are not fulfilled by an assessee. However, in case an assessee is fulfilling the mandatory requirements but is not fulfilling the procedural requirements, then the substantial benefit should not be denied to them as basically the assessee is fulfilling all the requirements but has committed certain procedural lapses. It has been held by the highest Court of India that the procedural lapses would not deny the substantial benefit.

¨ The appellant further submitted that they are fulfilling all the criteria as prescribed in the Notification No. 4/2006-CE. It was submitted that they are manufacturing the cement in a mini cement plant. They are also manufacturing cement of MRP below Rs. 190 per 50 kg bag. They are not using brand name of another person. They are manufacturing the cement form their own clinker. It is submitted that in the show cause notice as well as in the impugned order-in-original it has neither been contended nor has been found that the appellant are not fulfilling the prescribed criteria then the benefit of exemption granted under Notification No. 4/2006-CE should be extended to them.

¨ Appellant relied upon the following cases in support of their contentions:

· Formica India Division v/s Collector of Central Excise [1995 (77) E.L.T. 511 (S.C.)]

· C.C.E., Mangalore v/s Mangalore Refinery & Petrochemicals Ltd [2002 (150) ELT 114 (Tri-Bang)]

· Benara Udyog Pvt. Ltd. v/s Collector of C. Ex., Kanpur [1998 (103) E.L.T. 104 (Tribunal) ]

· Vikram Lamimators Pvt. Ltd. v/s Collector of C. Excise, Aurangabad [1995(79)E.L.T.147 (Tribunal)].

· Technocrats Engineering Co. v/s Commissioner of C. Ex., Mumbai-II [2001(137) E.L.T. 459 (Tri.- Mumbai)]

· Delhi Paper Products Co. v/s Collector of C. Ex., New Delhi [2000(125)E.L.T. 661(Tribunal)]

· Tufail Ahmed v/s Collector of Central Excise [ 1992(62) E.L.T. 745 (Tribunal)]

· Lokhandwala Construction Industries Ltd v/s C.C.E., Mumbai-II [1997(92)E.L.T.703 (Tribunal)]

· Commissioner of Central Excise, Chennai v/s ITC Ltd [2008(224)E.L.T. 226 (Mad.)]

· Vivek Re-rolling Mills v/s Collector of Central Excise, Chandigarh [1994 (73) E.L.T. 660 (Tribunal)].

· Apex Steels (P) Ltd v/s Collector of Central Excise, Chandigarh [1995 (80) E.L.T. 368 (Tribunal)].

· Andhra Sugars Ltd. v/s Commissioner of Central Excise, Guntur [1997 (95) E.L.T. 484(Tribunal)].

· Venus Metal Works v/s Collector of C. Ex., Bangalore. [1998(98) E.L.T. 257(Tribunal)].

· L.M.L. Ltd v/s Collector of Central Excise, Kanpur [1998(97) E.L.T. 66 (Tribunal)].

· M/s Mansi Steels (P) Ltd v/s CCE, Patna [2009-TIOL-1821-CESTAT-KOL]

¨ Appellant further submitted that the Adjudicating Authority had relied upon the decision of Chandra Laxmi Tempered Glass Co. Pvt Ltd [2009 (234) ELT 245 (HP)] wherein it was held that

Cenvat/Modvat – Documents for availing credit – Pre-printed invoices – Requirement of statute is clear and unambiguous, hence such of those particulars which were required to be pre-printed could not have been written by hand in order to avail the credit as stipulated under Rule 57G of erstwhile Central Excise Rules, 1944 – Requirements are mandatory and not procedural – Tribunal’s order set aside – Rule 9 of the Cenvat Credit Rules, 2004.

In this regard it was submitted that pre-printing the details on the invoices are mandatory requirements. If these details are written by hand they can lead to fraud and injury can be caused by such fraud. However, in their case, there is no question of fraud involved. All the basic requirements of Notification have been fulfilled by them. Even the departmental officers have visited the factory and has not alleged that basic requirement of notification have not been fulfilled. The said judgment is clearly distinguishable from the facts of appellant’s case and the reliance cannot be placed on the said judgment.

¨ It was further submitted that judgment given in Shri Hari Chemicals Export Ltd v/s Union of India [2006 (193) ELT 0257 (SC)] which was relied upon by the Adjudicating Authority was also not applicable in their case. In this judgment it was held that even procedural requirements needs to be strictly complied with before availing facilities. It was submitted that in the said case, the issue involved was that of taking of credit under Rule 57A. And in that context the decision was given therein. But the facts of the case of the appellant are different from that case. In the appellant’s case the issue is when the demand is fastened for the past period then the benefit relating to the same will be allowed to the appellant. This cannot be denied for mere non filing of declaration.

¨ With regard to imposition of equal penalty under Section 11AC, the appellant submitted that in view of the first proviso to Section 11AC, the amount of penalty is required to be reduced to 25% of the actual amount of penalty demanded. It was submitted that they have paid the duty with interest even before the impugned order was passed. They have also paid the 25% of the penalty of agreed duty amount.

Issue Involved:

The issue involved in this appeal was that

Whether filing of declaration under Notification No. 4/2006-CE dated 01.03.2006 was a mandatory condition? Whether non-filing of the same would result in denial of exemption provided at Sr. no. 1 under Notification No. 4/2006-CE dated 01.03.2006 to the appellant-assessee?

Decision of Commissioner(Appeals):

Ø The Commissioner held that the condition of said Notification stipulated that

“The Cement manufacture makes a declaration to the Deputy Commissioner or Assistant Commissioner of Central Excise, as the case may be, having jurisdiction regarding installed capacity of the factory before availing of exemption under this notification or whatever there is a change in the said capacity, and furnishes such information or documents, if any, as may be required by the Deputy Commissioner or the Assistant Commissioner of Central Excise, as the case may be, for this satisfaction in this regard.”

Ø The Commissioner found that the appellant is a mini cement plant and retail sale price of 50 kg bag was not exceeding Rs. 190/-. It is well settled now that substantial benefit cannot be denied merely on these procedural lapses. In identical circumstances in case of Notification No. 108/95-CE dated 28.8.95 where also the manufacturer was required to file certain certificates before clearance of the goods, it was held in following judgments of the Tribunal that substantial benefit of said Notification should not be denied merely on this procedural condition of producing certificate before clearance of the goods:

(i) Shiv Durga Alloys (P) Ltd. [2002 (141) E.L.T. 733 (Tri. Del)]

(ii) Godrej Industries Ltd. [2005 (192) E.L.T 378 (Tri. Mumbai)]

Ø The Commissioner (Appeal) relied upon the judgment given in M/s Farmika India v/s CCE [1995 (77) ELT 511 (SC)] wherein the order of the Appellate Tribunal was set aside as benefit of Notification No. 71/71-CE could not be denied on technical ground of non-compliance with Rule 56A.

Ø In the end, the Commissioner (Appeal) held that the appellant was eligible for the exemption benefit as envisaged under the Notification No. 4/2006 CE dated 01.03.2006, as amended, because they have fulfilled the primary requirement of the said Notification. Hence, the demand reduced accordingly. And penalty under Section 11AC of Central Excise Act, 1944 also reduced.

Order of Commissioner(Appeals):

Appeal allowed.

Conclusion:

The Commissioner (Appeal) rightly allowed the benefit of exemption to the appellant-assessee who was fulfilling all the basic and necessary criteria prescribed by the Exemption Notification. The substantive right of an assessee should not be denied to him on mere procedural defects committed by him. Until and unless mandatory conditions prescribed by the Notification are not breached, the substantive benefit which is the basic right of every assessee should not be denied to him.

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PJ/CASE STUDY/2010-11/36
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