Availability of exemption benefit

PJ/Case Study/2011-12/11

CASE STUDY

Prepared by:
CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]
And Megha Jain

Introduction: -

In the case under study the issues involved was that whether the benefit of exemption of Small Scale Industries under Notification No. 8/2003-CE will be available if the declaration is not filed with the department. Also, in case of supply of goods to an International organization which is not a an organization recognized under the section 3 of the United Nations Privileges and Immunities Act, 1947 but falls under International competitive bidding be eligible for benefit. Also, whether cenvat credit will be available in case of exemption claimed under International Competitive Bidding. Also, in case of supply to SEZ unit/developer, will the benefit of exemption be available if the intimation is not given within 24 hours as stipulated due to lack of knowledge but was later on furnished to the department upon knowing about it.

In the matter of M/s Qualitech Metal Industries, Jodhpur
[OIO No. 33-34-CE/JP-II/2011Additional Commissioner, dated: 24.03.2011]

Brief Facts: -

- Noticee are manufacturer of M. S. Pipes, M. S. Flanges and M. S. Specials Joint falling under sub-heading no. 730519210, 73079190 & 7307990. They had started work for a project for the Bank of Japan. For which they received project authority certificate from PHED Department and Principal Secretary to the Government of Rajasthan. The project was under international competitive bidding.

- Department issued show cause notice alleging that the Noticee had evaded payment of duty on the value of clearances of their finished goods made during the year 2007-08 and 2008-09. It was alleged that there was willful suppression on the part of the Noticee. It was also alleged that the appellant had not filed declaration on crossing the 9 lakhs limit as prescribed under SSI Notification with an intent to evade payment of duty.

Noticee’s Contentions:

The Noticee replied as under:

- DENIAL OF SSI EXEMPTION: -It was contended that Noticee had submitted complete details of value of clearances during 2007-2008 and 2008-2009 vide our letter dated 18.05.2009 in reply to Departmental letter dated 14.05.2009, thereby clearly showing exempted sales etc. Noticee had acted and informed whatever they received from PHED Department and Principal Secretary to the Government of Rajasthan, who issued them the project authority certificate for the companies working under international competitive bidding. Therefore, the allegation regarding wilful suppression of facts does not have force.

- With regard to denial of SSI Exemption, it was contended that the Noticee had submitted all the documents and certificate with the department even before the crossing the limit or even after the crossing the limit. They took excise registration as soon as they crossed the limit. Thus, it cannot be said that the Noticee have wilfully suppressed the things from the department. They had submitted the details to the department when it was demanded.

- It was submitted that it cannot be said that duty has been evaded on account of claiming wrong exemptions under notifications as Exemption notification cannot be wilfully suppressed from the department. The Noticee had claimed the exemption only after filing certificate in this regard. Further, since June, 2009, they had been taking the matter simultaneously to various authorities including Range, Division and Commissionerate officers to sort out the matter. From the correspondences made, it is clear that as of now, Noticee only intended to sort out the things. But their claim regarding SSI exemption was also supposed to be disallowed on the ground that Noticee had not filed the declaration. It is settled law that extended period cannot be invoked for inaction on the part of assessee. The SSI exemption cannot be denied on the ground of non-filing of declaration. Even afterwards, they had informed the Department when they crossed the limit and took registration. The department knew this fact that Noticee had claimed SSI exemption when they have filed certificate for claiming the exemption under notification 108/95. When the assessee was in regular correspondence with the department for claiming exemption it cannot be said that it has wilfully suppressed the things.

- Further, Noticee placed reliance on the following case laws for their contentions that the SSI exemption cannot be simply denied on account of non filling of declaration after crossing the specified limit of Rs. 90 Lakhs:

- Lokhandwala Construction Industries Ltd vs CCE [1997(92) ELT 703]
- Tufail Ahmed Vs Collector of Central Excise [1992(62) ELT 745 (Tri.)]
- BENARA UDYOG PVT. LTD. VersusCOLLECTOR OF C. EX., KANPUR [1998 (103)   E.L.T. 104 (Tribunal)]
- VIKRAM LAMINATORS PVT. LTD. Versus COLLECTOR OF C. EXCISE, AURANGABAD [1995(79)E.L.T.147 (Tribunal)].=
- TECHNOCRATS ENGINEERING CO. Versus COMMISSIONER OF C. EX., MUMBAI-II [2001(137) E.L.T. 459 (Tri.- Mumbai)].

In light of the above cited case laws, it is clear that exemption from payment cannot be denied merely because declaration for exemption not filed as it is a procedural lapse. Therefore, SSI exemption should be granted to them and duty liability assessed accordingly.

- Noticee further wish to bring a fact to notice that as already stated earlier also that they always cooperated with the department and wished to sort out the matter as soon as possible and that they never concealed anything from the department. In lieu of the confusion being raised and to avoid further litigations, they submit that they have not availed the exemption against the certificate issued by PHED in favour of Subhash Projects and Marketing Ltd. and have cleared all the goods within SSI exemption limit. It was also submitted that they got registered under excise before crossing the SSI exemption limit in the year 2009-2010, on 01.11.2009. As such, from the above submissions, it is clear that Noticee are eligible for SSI exemption and the same should be allowed to them.

- No Intention to Claim Benefit of Exemption Under International Competitive Bidding: It was further submitted that from the correspondences made with M/s Kirloskar Brothers Ltd. dated 15.12.2009; Noticee were informed as regards non registration of the project with Custom authority. Therefore, as of now, they did not intend to claim the benefit of said exemption under international competitive bidding and hence, they have raised supplementary excise bill and have paid the entire duty along with interest on such exempted sales after availing Cenvat credit as per separate stock register maintained by them for these exempted goods. Hence, as Noticee have rectified the flaw, the impugned show cause notice to the extent it points out wrong availment of such exemption should be quashed.

- Demand of duty without considering SSI exemption and bought out items deduction:It was submitted that the show cause notice demanding the amount of basic excise duty has been arrived at the same by disallowing the deduction of bought out items on the fact that no evidence was provided in this regard. It is submitted that it is not understandable why the amount of bought out items is included for calculating the value of clearances on which excise duty is to be paid. The bought out items were directly used at the site and it is wrong to deny its deduction only on the ground that no evidence has been provided in this respect. The intimation of claiming this deduction has been provided through the letters being sent and further this cannot be simply denied through issuing show cause notice. Reliance is being placed on the decision given in the case of Kerala State Electronic Dev. Corp. Vs CCE [2008 (224) ELT 88 (Tri.-Bang.)] that as long as the fact that goods used are bought out items on which excise duty has already been paid is not disputed, value of such bought out items cannot be included in assessable value. Further, it was submitted that the Noticee have rightfully claimed the SSI exemption and the same should be allowed to them. The allegation that they have not filed the declaration in the prescribed form as per Annexure-4 of part 7 of the manual at the time of reaching the specified limit of Rs. 90 Lakhs cannot be taken as the basis to deny SSI exemption.

- Moreover, Noticee also submitted that they have not claimed Cenvat credit on duty paid raw materials used in goods cleared to international competitive bidding. Further, the photocopies of such separate records maintained by them have already been submitted to the Department. It is further submitted that as they have deposited the duty in respect of sales under international competitive bidding, the credit on these invoices should be allowed to them. It is submitted that the amount of credit should be allowed to them and it should be deducted from the demand.

Furthermore, reliance has been placed in the case of Apex Steels Pvt. Ltd. vs Collector of Central Excise, Chandigarh [1995(80) ELT 368 (Tri)] andP.G. FOILS LTD. VersusCOMMISSIONER OF C. EX., JAIPUR [2000 (116) E.L.T 105(Tri)].

Now since the duty is confirmed against the Noticee for past period, then additional benefits available to them for such past period should also be allowed. This was held by the Tribunal in the case of M/s Shah Yarn Tex (P) Ltd. Vikash J Shah vs Commissioner of Central Excise, Coimbatore [2008-TIOL-1975-CESTAT-MAD].

Noticee further submitted that the analogy taken in the case of M/s Shah Yarn cited here above was also taken by the Tribunal in the case of S.R. SPRINGS PVT. LTD. Versus COMMISSIONER OF C. EX. & CUS., BBSR-II [2002 (150) E.L.T. 757 (Tri. - Kolkata)]. In this case, hon’ble Tribunal has allowed the Cenvat Credit on inputs to the appellants while confirming the demand for clandestine removal of goods. This case was maintained by the Highest Court of India and the judgment was reported at2003 (154) ELT A180 (Supreme Court).

Reliance was also placed on the judgment given in VIVEK RE-ROLLING MILLS Versus COLLECTOR OF CENTRAL EXCISE, CHANDIGARH [1994 (73) E.L.T. 660 (Tribunal)];COLLECTOR OF CENTRAL EXCISE, NEW DELHI Versus DALMIA INDUSTRIES LTD. [1997 (91) E.L.T. 71 (Tribunal)]; FORMICA INDIA DIVISION Versus COLLECTOR OF CENTRAL EXCISE. [1995 (77) E.L.T. 511 (S.C.)]; ANDHRA SUGARS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, GUNTUR [1997 (95) E.L.T. 484(Tribunal)].VENUS METAL WORKS Versus COLLECTOR OF C. EX., BANGALORE. [1998(98) E.L.T. 257(Tribunal)]; L.M.L. LTD. Versus COLLECTOR OF CENTRAL EXCISE, KANPUR [1998(97) E.L.T. 66 (Tribunal)].It was submitted that the ratio of above cases should be applied in Noticee’s case also and Cenvat credit should be allowed to them.

- Interpretation of provisions rigidly to deny benefit of exemption:It was contended that the Noticee have been refused exemptions earlier under Notification no. 108/95-CE dated 28.08.1995 on the grounds that Japan Bank for International Cooperation was not notified as international organisation under section 3 of the United Nations Privileges and Immunities Act, 1947 even though Project Authority Certificates were being provided by them. Afterwards, exemption under Notification no. 128/94-Cus dated 10.06.199 was denied on the fact that they had cleared final goods and the notification sought to provide exemption in respect of raw materials and intermediate consumables. Finally, Noticee claimed exemption under the Notification no. 6/2006-CE dated 01.03.2006 which was also denied on account of non satisfaction of condition no.19 and condition no.4.

Furthermore, SSI exemption is being denied on account of non filing of declaration after crossing Rs. 90 lakhs. In this respect, it is submitted that the provisions are framed so that the benefit is availed rightfully and in proper manner and these should not be         taken as a tool to deny benefit to the right claimant. Considering this view, non filing of declaration should not be taken as the basis of denying SSI exemption as it is a mere procedural lapse. Hence, the show cause notice demanding duty without allowing SSI exemption should be set aside.

- Proposal to recover interest under Section 11 AB not tenable:Noticee also submit that the show cause notice proposes to recover interest on the central excise duty not paid under section 11AB of the Central Excise Act, 1944. In this respect, they submit that the said interest on the duty has already been deposited by them and it cannot be recovered from them again. Hence, the impugned show cause demanding interest should be set aside.

- Penalty under Section 11 AC not justifiable: Noticee further submitted that penalty should not be imposed under Section 11 AC of the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules, 2002, as it has been already explained that there was no malafide intention to evade payment of duty on their part as they have acted under the bonafide belief that they were entitled to claim benefit of exemption notification as per project authority certificate issued by Chief Engineer, Principal Secretary PHED, Government of Rajasthan. Moreover, it has been held in the case of Commissioner of C. Ex., Coimbatore V/s M.S. Samuel and Sons [2009 (238) E.L.T. 696 (Tri.- Chennai)] that no penalty is warranted when the assessee has acted on the basis of bonafide belief. It was decided that no penalty is imposable as the assessee was under the bonafide belief that there was no duty liability on his part.

Reliance was also placed on the judgments in the case ofAbe Value Point Systems Pvt Ltd v/s Commissioner of Service Tax, Bangalore [2009 (013) STR 0288 (Tri-Bang)]; CCE, Goa Vs M/s Betts India Pvt Ltd [2008-TIOL-2057-CESTAT-MUM];M/s Arani Agro Oil Industries Ltd Vs CCE, Visakhapatnam [2008-TIOL-1883-CESTAT-BANG]and inMahalakshmi Textiles v/s Commissioner of Central Excise, Coimbatore [2008 (232) ELT 0099 (Tri. - Chennai)]. The analysis of these decisions makes it ample clear that the penalty is not imposable in their case as the issue is made up of the divergent interpretations of the exemption notifications. Therefore the impugned show cause notice should be quashed and it should be set aside.

- Extended Period of Limitation Not Invokable:Noticee further submit that the impugned show cause notice is issued by invoking the extended period of limitation. Extended period of limitation is invokable only in case of willful suppression of facts which is not present in their case. Noticee have provided each and every information to the departmental officers as and when required by them. Even otherwise, they were in regular contact with the range office and the division office and every activity of our premise was open for their reference. Further, Noticee have taken registration under Central Excise as soon as their clearances crossed the SSI exemption limit. This is a clear indicative of the fact that there was no intention on their part to evade the payment of duty. Reliance was placed on case ofM/s Savita Polymers Ltd v/s Commissioner of C. Ex., Raigad [2009 (240) ELT 616 (Tri-Mumbai)]; Sunadaram Plastics Ltd v/s Commissioner of Central Excise, Chennai [2008 (089) RLT 0037 (CESTAT-Ban.)]; It was submitted that the ratio of these judgments is equally applicable to their case. Accordingly they submit that the extended period of limitation under Section 73 cannot be invoked in their case as there was no intention to evade payment of duty.

In the end, it was once again submitted that during the year 2008-2009, Noticee had cleared the material against the exemption certificate issued by PHED in favour of M/s Kirloskar Brothers Ltd., but according to communication from the company as regards forwarding of documents in this regards to them, they came to know of their failure to submit such documents. Accordingly, they have raised the supplementary excise bill and paid the duty amount after availing Cenvat credit as per separate stock register maintained by them for these exempted goods.

Second Show Case Notice Contentions:

- It was contended that Noticee have got an order from SEZ for supply of material. They have informed the department about the same vide our letter dated 31/12/2009 and have produced the certificates also. As they were a small scale industry and were not knowing about the exact procedure. As such, they have supplied the material on dated 30.01.2010 under ARE-1 as told by SEZ unit. Noticee were not knowing that triplicate and quadruplicate copy is to be submitted to the range office within 24 hours and came to know about the same later on. They have tried to submit the same to range office but they refused to accept it as more than 24 hours were lapsed. Finally it was accepted by Range Office on dated 23.02.2010. Afterwards, Noticee have received the proof of export through ARE-1 containing endorsement regarding admittance of goods in SEZ, in the sealed envelope from MIHAN SEZ Nagpur through their client and have submitted the same in the Range office. This clearly establishes that the export has been made.

Denial of exemption to goods supplied to SEZ: - The department says that we have not followed the procedure stipulate in the circular no. 29/2006-Customs dated 27.12.2006 read with the SEZ Rules, 2006, notification no. 42/2001-C.E. (N.T.) dated 26.06.2001 Rule 19 of Central Excise Rules, 2002. Even we have not followed procedure of movement of goods from the place of manufacture to SEZ like

The goods should be cleared on the basis of ARE-1 (in cases where export entitlements are not availed);
The goods should be cleared on the basis of ARE-1 and Bills of Export (in cases where export entitlements are availed) and against a general Bond or Letter of Undertaking, specified in Annexure-I and Annexure-II, under notification no. 42/2001-C.E.(N.T.) dated 26.06.2001 as amended, and furnished by DTA supplier to the jurisdictional Assistant Commissioner and Deputy Commissioner of Central Excise.

It has also been stipulated that in the event of non-receipt of proof of export in form of endorsement, regarding admittance of goods in full into the Special Economic Zone, by the Authorised officer of Customs posted in the SEZ, on ARE-1 and /or Bill of Export, as the case may be, within a period of 45 days, the duty should be demanded from the DTA supplier by the jurisdictional Central Excise Officer as is done in the case of non-availability of proof of export for normal export of goods, without payment of Central Excise duty, under Rule 19, of Central Excise Rules, 2002.

We are a small scale unit. We were not very much clear about the procedures. But we have informed the department of clearance of goods to SEZ. This was also clear from the show cause notice. Hence, there was no wilful suppression intention on our part as alleged in the show cause notice. If there was any intention then we would not have informed the department. Hence, the demand is not sustainable.

Further, we came to know about the mistake done by us that we have not submitted the ARE-1 within 24 hours of dispatch of material. We tried to submit the same but the same was not accepted by the department and finally received by Range office on 23.02.2010.
Further, we have submitted the proof of export later on in a sealed envelope received from the SEZ. This has been submitted in the Range office. This shows that the proof of export has taken place. Hence the demand should be dropped. We have cleared the goods to SEZ for the first time. The goods were cleared under the cover of ARE-1. The mistake on our part was that we were doing the job for the first time so we had no idea of the export procedure and we had not exported the goods under Bond. But the department has also not guided us. As already said, we are small scale unit and was not aware about the procedure and hence could not follow the same. But the proof of export has been received and as such the demand should be dropped against us.

We had no idea that only the original and duplicate copies of the ARE-1 are required to be sent for export and the triplicate and the quadriduplicate copies need to be submitted to the range officer with in 24 hrs, but was submitted late. However now we have already received the proof and documents from the Custom Authorities and we have already submitted its proof to the department. Just there are procedural lapses on our behalf and this cannot be basis of raising the demand against us. The substantive benefit should not be denied on procedural infraction. Reliance is placed on following case laws:-
- Modern Process Printers [2006 (204) E.L.T. 632 (G.O.I.)]
-KRISHNA FILAMENTS LTD.2001 (131) ELT 726 (G.O.I)

Issue: -

The issued involved in the case were as under:

- Whether Exemption under Notification No. 108/95-CE, 6/2006-CE, 128/94-Cus, 21/2002-Cus, 84/97-Cus during the period 2008-09 and 2009-10 is available to assessee?

- Whether the value based exemption notification no. 8/2003-CE during the period 2008-09 and 2009-10 is available or not and value of the bought items is includable in the assessable while calculating aggregate value of clearance?

- Whether utilization of Cenvat Credit is allowed while payment of Central Excise Duty in respect of the goods cleared to M/s Kirloskar Brother Ltd., under international competitive bidding or not?

- Whether clearances of the goods to the SEZ is allowed or not?

- Whether penalty u/s 11AC of the CEA, 1944, penalty under Rule 15(2) of Cenvat Credit Rules, 2004, interest u/s 11AB, penalty under rule 25 of the CER, 2002 is impossible or not?

Reasoning of Order-in-Original:

The Adjudicating Authority held as under:

- It was observed that the plain reading of Notification No. 108/95-CE, it is very much clear that the assessee has cleared the goods to the Bisalpur Jaipur Water Supply Project, Jaipur (Raj.) financed by the Japan Bank for International Co-Operation, Jaipur which is not notified as International Organization under Section 3 of the United Nations Privileges and Immunities Act, 1947.

- It was found that the assessee is not entitled to avail any exemption under Notification no. 108/95-CE. The assessee, in their defence, admitted that they have not availed exemption against the certificate issued by PHED in favour of Subhash Projects and Marketing Ltd. and have cleared all the goods within SSI exemption limit. As such, they are eligible for SSI exemption and the same should be allowed to them.

- It was noted that the assessee had cleared final products/ finished goods falling under Chapter 73 of CETA, 1985. Thus, finished goods are also not exempted from Custom duty leviable under Notification no. 128/94-Cus. Therefore, in view of above, It was held that the said exemption notification relating to international competitive bidding is not available to the assessee.

- It was found that for availing exemption of international competitive bidding, the product of the assessee is required to be exempted from payment of custom duty if imported into India. However, no such exemption to MS Pipes, MS Puddle, Flenge, MS Bends and MS Reducer under chapter heading 73 is available, therefore, the assessee were not entitled to avail any exemption under Notification no. 06/2006-CE.

- It was found that the assessee have been advised by the department that the goods supplied by them to Bisalpur Jaipur Water Projects, Jaipur were not exempted from payment of duty under notification 06/2006-CE as all goods falling under any chapter are leviable Nil rate of duty supplied against International Competitive Bidding subject to the conditions 19.

- The Adjudicating Authority also fond that the assessee, as per the details provided by them through their letter dated 18.05.2009, have cleared the goods without payment of Central Excise duty on 19.11.2008, 16.12.2008 and 28.01.2009 to M/s Kirloskar Bros. Ltd. under the said notification taking into consideration the clearances exempted under international competitive bidding.

It was found that after a long period, the assessee themselves admitted in their defence reply that they made correspondence with M/s Kirloskar Brothers Ltd. and they were informed non registration of the project with custom authority. Therefore, they did not intend to claim the benefit of the said exemption under International Competitive bidding and hence, they have raised supplementary excise bill on 18.12.2009 and have paid the entire duty alongwith interest on such exempted sales made to M/s Kirloskar Brothers Ltd., after availing Cenvat Credit as per Separate stock Register maintained for these exempted goods.

- The Adjudicating Authority found that the noticee has availed and utilised the Cenvat Credit on the inputs received from 05.11.2008 to 01.12.2008 when they were availing the benefit of SSI exemption Notification no. 08/2003-CE. The claim of the assessee that they have maintained Separate stock register of the exempted sale is also not acceptable, when they have repeatedly been advised that none of the exemption certificate was applicable/ available to them the question of maintaining should not be taken up. However, the noticee was registered with the department on 05.02.2009 and surrendered their registration on 31.03.2009.

- To examine the availability of the Cenvat credit while enjoying the benefit of the SSI exemption under notification no. 08/2003-CE, the Adjudicating Authority perused the provisions of the said notification as well as the provisions of the Cenvat Credit Rules, 2004. It was held that a perusal of the text of the notification and provisions of CCR, 2004 makes it clear that the assessee was not entitled to take and utilize Cenvat credit because the notification specifically prohibit the availment of credit of duty on inputs under rule 3 or rule 11 of the CENVAT credit rules, 2004. Further the provisions of above notification no. 8/2003 will prevail over the provisions of Cenvat Credit Rules, 2004 by virtue of explanation of Rue 3 (7) of Cenvat credit Rules, 2004.

- The Adjudicating Authority found that before taking any Cenvat Credit, one has to be registered with the department under the provisions of Rule. As per Rule 11 (2) of Cenvat Credit Rules, 2004, a manufacturer who opts for exemption from the whole of the duty of excise leviable on goods manufactured by him under a notification based on the value or quantity of clearances in a financial year, and who has been taking CENVAT credit on inputs or input services before such option is exercised, shall be required to pay an amount equivalent to the CENVAT credit, if any, allowed to him in respect of inputs lying in stock or in process or contained in final products lying in stock on the date when such option is exercised and after deducting the said amount from the balance, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or for export.

- It was also found that the assessee has taken any utilised Cenvat credit on the basis of inputs which they were received during that period November 2008 to December 2008, when the assessee was availing SSI exemption under Notification No. 08/2003. It was noted that the assessee registered with the department on 05.02.2009 and surrendered the registration on 31.03.2009. At the time of surrender of registration the assessee has reversed the Cenvat Credit contained in inputs, work in process and finished goods as such the assessee can not take the Cenvat Credit again for inputs for which SSI exemption/ Cenvat Credit has already been claimed. As such whatever credit available at the time of surrendering registration certificate would have been automatically lapsed.

- It was found that the assessee by raising supplementary invoices on 18.12.2009 had paid the Central excise duty on 23.12.2009. They have paid the duty both through cash and by way of utilizing input credit for the period November and December, 2008. However, the noticee registered with the department on 05.02.2009 and surrendered registration certificate on 31.03.2009. As such, it was held that the Cenvat Credit taken and utilised on the strength of supplementary bills is irregular and the same is recoverable alongwith interest under Rule 14 of the CER, 2004.

The Adjudicating Authority noted that the assessee hds contended that it has been alleged in SCN that they are also not entitled to avail SSI exemption under notification no. 08/2003-CE as they have not filed declaration in terms of notification no. 36/2001-CE(NT). They have submitted that in light of the case laws cited by them, it is clear that exemption from payment cannot be denied merely because declaration for exemption not filed as it is a procedural lapse. Therefore, SSI exemption should be granted to them and duty liability assessed accordingly. They have further submitted that they have not availed the exemption against the certificate issued by PHED in favour of Subhash Projects and Marketing Ltd. and have cleared all the goods within SSI exemption limit. As such, from the above submission, it is clear that they are eligible for SSI exemption and the same should be allowed to them.

It was found that as per Notification No. 36/2001-CE(NT), SSI units are exempted from registration control, they were required to file a declaration if they have crossed the specified limit. For the purpose of this notification, the expression “Specified Limit” shall mean full exemption limit minus Sixty Lakhs which is 150 Lakhs minus 60 Lakhs = 90 Lakhs.

It was held that primarily, it was the responsibility of the assessee to file declaration in terms of notification no. 36/2001-ce (NT) dated 26.06.2001 in the prescribed form as per annexture-4 of part 7 of the manual at the time of reaching the specified limit of rs. 90 lacs but the notice has failed to do that. However, they have registered with the department on 5.02.2009

Further, the Adjudicating Authority referred to the substantive conditions of the notification no. 8/2003-CE dated 1.3.2003 and held that the assessee has neither filed declaration in terms of notification no. 36/2001-E (NT) dated 26.06.2001 nor followed the conditions of the notification no. 8/2003-CE, where the clearences starting from 1^st April and upto rs.1.50cr are fully exempt from duty and subsequent clearance required duty. However, this exemption is available subject to the condition mentioned in para 2 and conditions no (iii) of this notification is that the manufacturer shall not avail the credit of duty on input under rule 3 or 11 of cenvat credit rules, 2002 paid on inputs themed in the manufacture of specified goods for home consumption upto the aggregate value of clearance of rs 1.50cr.

It was found that there is no dispute about the fact that on 18.12.2009 the assessee utilized the input cenvat credit for the period 2008-09 for payment of central excise duty by raising supplementary invoices No. 24, 25, 26 dated 18.12.2009 and therefore violated the condition of notification available at (iii) above. Once the assessee has opted to avail of this exemption from a particular date, he has to avail of the same upto the specified limit, if any condition is violated even once, he will loose the entire exemption – the loss of exemption will not be confined to the particular clearance in respect of which the condition has been violated. First para of the exemption mentioned the exemption available to the assessee under this notification. It was noted that Para 2 of the notification states that the exemption contained in this notification shall apply only subject to following the conditions as mention in it. Thus if any of the conditions mentioned in para 2 is violated, the assessee would cease to be eligible for the entire exemption mentioned in para 1.

It is settled law that exemption notification has to be strictly construed and if the exemption notification is available subject to certain conditions, non fulfillment of those conditions would disentitle the assessee to the exemption. It was held in the judgment of the Tribunal in the case of CCE, Mumbai-I Vs. Engineers Enterprises (p) Ltd., reported in 1999 (105) E.L.T. 376 that “an exemption notification is required to be strictly interpreted reading the plain meaning of words mentioned therein’. Hon’ble Supreme court in case of Eagle Flask Industries Ltd. Vs. CCE, Pune reported in 2004 (171) E.L.T. 296 (S.C.) has held that conditions of the exemption notification have to be fulfilled for claiming its benefit. The Hon’ble Supreme Court in the case of Commissioner of Central Excise, New Delhi Vs. Hari Chand Shri Gopal reported in 2010(260) E.L.T. 3 (S.C.) has held “that the Law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exemption, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is availed on complying with certain conditions, conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption.

It was held that in the present case, the facts remains that during the period 2008-09 when the exemption was being availed, the Central Excise duty was paid utilizing input Cenvat credit in violation of the conditions of the notification. A violation is a violation irrespective of its extent. Therefore, it was held that the assessee would loose the benefit of SSI exemption in respect entire clearances.

As far as inclusion of the value of the bought out items in the assessable value while calculating the aggregate value of clearances is concerned, it was held that it is very much clear that the bought out items was the integral part of the final product and the value of these bought out items can not be deducted. Further no evidence of these bought out items has been provided to the department, therefore contention of assessee to deduct the value of the bought out items is not acceptable.

It was further held that the assessee has challenged charges of invocation of extended period for demand and imposition of penalty under section 11 AC of Central Excise Act, 1944/Rule 25 of Central Excise Rules, 2002 and proposal for recovery of interest under section 11 AB of the Central Excise Act, 1944 as proposed in the show cause Notice. It was found that it is the responsibility of the assessee to narrate and disclose all the details to the Jurisdictional Central Excise Officers and get it verified. Despite several letters and summon issued by the jurisdictional Superintendent to provide the details of clearance month wise/invoice wise/date wise the assessee has not taken care of and not provided the desired information deliberately. During the relevant period the assessee was not registered with the department and was not discharging duty on their clearances. Time and again, it has been advised by the department that they are not entitled to avail benefit of any of the exemption notifications claimed by them but they have ignored and cleared the goods without payment of any Central Excise duty. It thus establishes that they deliberately and willfully suppressed the material facts with intend to evade payment of duty and to claim time bar. Accordingly, the ingredients for invoking extended period are manifestly present in this case. And needless to mention that when duty is found recoverable with interest. Thus interest gets automatically attracted. It was noted that the Noticee have cited various legal pronouncements in support of their submissions for not imposing penalty as proposed in the show cause notice. From the various judgments cited by them it can be seen that matter of imposition of penalty needs examination in the individual facts and circumstances of each and every case. If it is proved that there was suppression/ willful misstatement or intension/ mens rea and violation of any of the provisions of law with intend to evade duty/tax extended period resultant penalty provisions get attracted. It is too obvious to elaborate that when suppression of facts with intend to evade payment of duty is established consequential mandatory penalty provisions under section 11AC also get attracted. As far as penalty under Rule 25 of the Central Excise Rules, 2002 is concerned, it is settled legal position that when penalty under section 11 AC is imposed, penalty under Rule 25 of central Excise Rules, 2002 is not impossible.

From the above, the Adjudicating Authority found that the assessee has contravened the provisions of Rule 4, 6, 8, 9, 10, 11 and 12 of the Central Excise Rules, 2002, with intent to evade the payment of Central Excise duty. Therefore, they are liable for penalty u/s 11AC of the CEA, 1944.

Therefore, from the available details it appeared that the assessee would have been liable for payment of Central Excise duty much before 05.02.2009 hence the assessee has cleared the goods valued at without payment of Central Excise duty by wrongly availing different exemption notification.

It was found from the facts of the case, the assessee has not submitted the original certificate and cleared the goods by wrongly claiming exemption under notification no. 108/95-CE and 84/97-Cus because the projects are not financed by any of the specified agencies as mentioned in the Notiification No. 108/95-CE above. It has also alleged that no procedure has been followed, as laid down, to avail the said exemption. The assessee neither sought prior permission from the jurisdictional Assistant/ Deputy Commissioner, Central Excise, Jodhpur nor provided original certificate issued by the project implementing authority.

The Adjudicating Authority found that it is an undisputed fact that the assessee have not submitted the certificate in original to the department. They have received the said certificate by e-mail and when they got the original they have submitted to the department by their letter and finally to the Division office vide their letters on 12.03.2010, 25.03.2010, 26.03.2010. It has also been alleged in the SCN there was no mention about which agency the project was funded. To examine, the Adjudicating Authority have pursued the certificates and it was found that the project is funded by Asian Development under loan Agreements between Govt of India and Asian Development Bank and being implemented by the Urban Administration and Development Department of Government of Madhya Pradesh from Jan. 2005 to March, 2011.

It was found that the substantive conditions of the notification is that before clearances of the said goods, the manufacturer produces before the assistant commissioner of the central Excise having jurisdiction over his factory in case of the said goods are intended to be supplied to a project financed (whether by loan or grant) by the World Bank, the Asian Development Bank or any international organization, other than those listed in the Annexure.

The Adjudicating Authority found that the substantive condition for availment of benefit under the exemption notification stands satisfied when the assessee have produced the original certificate, received from the original authority, to the jurisdiction officer makes the assessee eligible for clearances of the goods at nil rate of duty.

It was further found that the time and again in a number of decisions of Hon’ble Supreme Court/ Tribunal it has been held that even if it is a condition in the notification that the certificate be produced before clearance of goods in such case substantive benefit of the said notification should not be denied merely on the technical/ procedural requirements of producing certificate before clearance of the goods. In this regard, reliance was placed on the following decisions:

Bajaj Tempo Ltd. versus CCE, Indore – 2004 (165) ELT 323 (Tri. – Del)
Commissioner of Central Excise, Chennai versus Dynaspede Integrated Systems Ltd. – 2002 (147) ELT 541 (Tri. – Chennai)
CCE, Vadodara- II versus IRCON International Ltd. – 2008 (228) ELT 587 (Tri. – Ahmd.)

The Adjudicating Authority thus found that it is well settled by now that the substantive benefit of the notification should not be denied merely on technical/ procedural conditions of producing certificate before clearance of goods. It was also found that the substantive condition of the exemption notification has been complied with and therefore, the assessee are entitled to exemption as envisaged under the said notification. Thus, the Adjudicating Authority held that the assessee is entitled for availment of the benefit at nil rate of duty.

It has alleged that the assessee while supplying the goods to SEZ developers at nil rate of duty have not followed the procedure stipulate in the circular no. 29/2006-Cus. Even they have not followed procedure of movement of goods from the place of manufacture to SEZ like goods claimed to have been cleared to SEZ or SEZ developers have not been cleared under the cover of ARE-1, No Bond or letter of undertaking, specified in Annexure – I and Annexure-II, under notification 42/2001-CE(NT) has been executed with the jurisdictional Assistant commissioner or deputy commissioner of CE division, jodhpur and prior intimation of self sealing of the goods to be cleared to SEZ or SEZ developers has not been provided to the officers.

The assessee had contended that they are SSI unit and was not very much aware the procedure as they have cleared the good to SEZ first time. There was no willful suppression intention on their part as alleged in the SCN. If there was any intention then they would not have informed department.

The Adjudicating Authority found that the assessee has submitted triplicate and quatriplicate copies alongwith copies of exemption certificate SEZ on 30.01.2010 to the department. Commissioner further finds that they have submitted sealed envelope received from MIHAN SEZ, Nagpur evidencing admittance of goods in SEZ to the department on 30.03.2010. Commissioner finds in such cases, substantive benefit of the said notification should not be denied merely on this technical/ procedural requirement. Commissioner holds that the assessee is entitled the benefit on the goods cleared to SEZ.

It has also been alleged in the SCN that the assessee have issued supplementary invoices no. 24, 25, and 26, dated: 18.12.2009 for the period November 2008 to December 2008 when they were availing SSI exemption. It was found that this amount has already been included in the demand and on that issue has already been discussed in the earlier paras.

In view of the above discussion, it was held that the demand raised in the second SCN is not found sustainable. It is too obvious to elaborate that since the demand of duty is not found sustainable on merits, the question of imposing penalty does not arise.

Decision of Adjudicating Authority:

Demand in the first show cause notice was confirmed with interest and Penalty under Section 11AC was imposed. But the demand in the second show cause notice was dropped.

Conclusion:

Although the main issue in both the show cause notice was that the SSI exemption will not be available to the manufacturer as he has not filed the declaration. The impugned order has dropped the demand for second show cause notice but confirmed the demand for first show cause notice. The party is in appeal before appellate authority for the decision against him. But major part of demand relating to second show cause notice has been dropped against him.

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PJ/CASE STUDY/2011-12/11
16 June 2011

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PJ/CASE STUDY/2011-12/11 16 June 2011

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PJ/CASE STUDY/2011-12/11
16 June 2011