Payment of duty on CR Machines under Compound Levy Scheme when Machine not operated

PJ/CASE STUDY/2011-12/05

04 May 2011

PJ/Case Study/2011-12/05

CASE STUDY

Prepared By:
CA Pradeep Jain and
Sukhvinder Kaur, LLB [FYIC]

Introduction: -

Under the Compound levy scheme introduced for Stainless Steel Patta/patti units under Notification No. 17/2007-CE dated 01.03.2007 a fixed amount is required to be paid in lieu of standard rate of duty. The duty is payable on the production capacity rather than on clearance of finished product. Thus, an assessee operating under compound levy scheme has to pay the duty on the number of Cold Rolling machines installed in his factory and that too in advance for the subsequent month. However, in case a machine in dismantled during a month, then for the remaining period of the month the duty will still be payable or the assessee can claim refund of the said duty. Also, whether the principle of unjust enrichment will be applicable to such refund of duty claimed by the assessee? These issues were raised in the case under study.

M/s Paradise Steels (P) Ltd v/s Deputy Commissioner, Central Excise, Jodhpur
[Order-In-Appeal no. 58(CB)CE/JPR-II/2011, dated: 16.03.2011]

Brief facts of the case: -

-           Appellant are engaged in the manufacture of Stainless Steel Patta/Patti falling under Chapter 72. Appellant was working under the special procedure for compound levy scheme prescribed vide Notification No. 17/2007-CE dated 01.03.2007.

-           Appellant deposited Rs. 150000/- for the whole month of Mat, 2010 in respect of 5 cold rolling machines but two machine was reduced from 18.05.2010 under intimation and permission of Range Superintendent.

-           Accordingly, appellant applied for refund of Rs. 27097/- for the period from 18.05.2010 to 31.05.2010.

-           The Adjudicating Authority rejected the refund application on the ground of merit as well as on the ground of unjust enrichment.

- Hence, appellants have filed appeals before the Commissioner (Appeals).

Appellant’s Contentions: -

The appellant submitted before the Commissioner (Appeals) as under:

1. It was submitted that the Adjudicating Authority had simply passed the order without relying upon the decisions placed by the appellant. The learned Assistant Commissioner has not distinguished the decisions citied by the appellant. He has not even discussed the verdicts quoted by the appellant in his reply and passed the simple order. Such a non speaking order is liable to be set aside. Reliance was placed on judgment in Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] wherein it was held that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law. Reliance was also placed on Wipro Computers Ltd. vs Commissioner of Customs, Chennai [2001 (135) ELT 450 (Tri.-Chennai)]; Commissioner of C.Ex.& Cus., Vapi vs Vishesh Dhatu Industries [2008 (222) ELT 337 (Bom.)].

2. It was submitted that the impugned order is denying the refund on the ground that duty to be paid Rs. 30000/- per machine per month for all cold rolling machines operated during the said month, irrespective to the fact that the cold rolling was operated from first day or from the middle of the month. In this regard it is submitted that the duty cannot be levied on the machine when it is not in operation or production has not been made. Further to support their contention reliance was placed on judgment in case of JUPITER INDUSTRIES Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR {Final order dated 08.08.2001 [2001 (137) E.L.T. 1018]} wherein the Tribunal has upheld that the refund to be paid for the period during which the machine was not in operation. The Tribunal was of the opinion that in case of discontinuance of the machine there is no bar as per rules or in section 11B prohibiting the refund of excess duty paid by an assessee working under the Special procedure rules. The verdict of same is as under:-

Production capacity based duty - Compounded levy - Cold rolling machine - Payment of duty after dismantling of machine and discontinuance of production not contemplated by Rules 96ZB and 96ZB(2) of Central Excise Rules, 1944. - Sub-rule (2) of Rule 96ZB laid down the method of calculation of sum payable. These rules, in no way stipulate that any sum at the compounded rate is payable towards duty for a machine which is not in existence with the manufacturer. Nor do they say that no refund claim can be made with regard to excess payment made. Central Excise refund claims are made in terms of Section 11B of the Central Excise Act. That section laid down that any person claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Collector and that, if the Asstt. Collector is satisfied that all or any part of the duty of excise paid by the applicant is refundable, he make an order accordingly. It is clear from Rule 96ZA that Pattas/Patties manufacturers can opt for the special procedure. Rule 96ZB stipulates that duty liability can be discharged by payment of certain sum. Sub-Rule (2) of Rule 96ZB deals with calculation. None of these rules contemplate payment of duty after a machine has been dismantled and production of the machine discontinued. [para 4]

Refund of excess duty paid on the basis of production capacity - Special procedure rules for compounded levy of duty and Section 11B of Central Excise Act, 1944 do not bar refund of excess duty paid by assessee working under those Rules. [para 4]

The analysis of the decision makes it ample clear that no rules stipulates that any sum of duty is payable under the compounded rate for the machine which is not in existence with the manufacture. Nor these rules debar the right of refund on excess payment made neither contemplate payment of duty when machine been inoperative and production of the machine discontinued. The above decision is squarely applicable in instant case where the duty ordered to be paid in respect of inoperative machine which is clearly the excess of the sum payable under Compound levy scheme as there being no production from such machine. Thus the excess duty should be proportionately refunded. But impugned order-in-original has not discussed the submission of the appellant. Thus, the order in void abintio and non est.

3. The appellant further submitted that if the contention of the order that the refund not be allowed in case the machine was added on 11.11.2009 and there was not production for 10 days then it will be against the decision given by the Rajasthan High Court in the case of Collector of Central Excise, Jaipur-II vs. Jupiter Industries [2006 (206)ELT 1195 (Raj.)] where in the Court held that in “Production capacity based duty- Stainless steel plant- No duty is leviable for the period when machine is not installed/operated.” Thus the duty is payable only for the period when the machine is installed and if no machine is operated and no production has taken place, there cannot be any levy of excise duty. The above decision was discussed in depth in the reply to show cause notice but the learned assistant commissioner has not considered the decision of High Court. As such, the refund for the period of non operation of machine should be allowed to us.

4. It was submitted that the impugned order is contending that there was no documentary evidence submitted by the appellant that the incidence of duty has not been transferred to any other person. In this respect it is submitted that the doctrine of unjust enrichment is applicable when there is production and the manufacturer has sold the finished goods. Hence, he can pass on the incidence of excise duty to the customer. But in instant case where there is no production, the question of passing on the burden of duty to consumers does not, therefore, arise. The same concept has been clarified by Rajasthan High Court in the decision of Jupiter Industry cited supra which reads as follows:-

“Refund- Unjust enrichment- Applicability of- when there is no production in relation to machine which is not in existence, there is no question of passing of duty to consumers and this principle is not applicable- Section 11B of Central Excise Act,1944”.

Thus the analysis of above decision makes it crystal clear that when there is no production of any articles in relation to the machine which was not in existence, the question of passing on duty to consumers does not arise. Therefore, there is no justification for taking the view that since the duty has been paid under the special provision it is not subject to refund. Similarly, in instant case also, where goods have not been manufactured during the period on dispute and yet duty has been demanded and paid, the question of passing of such duty to buyers of the non-existence production cannot arise. Therefore the concept of unjust enrichment becomes inapplicable and refund cannot be denied.

Findings of the Commissioner (Appeals): -

The Commissioner (Appeal) held that it is an undisputed fact that the appellant was paying duty in advance under Compound levy scheme.

The Commissioner (Appeal) found force in the contention of the appellant that duty cannot be levied on the machine which is not in operation.

It was further found that in the case of Jupiter Industries [2006 (206) ELT 1195], the Rajasthan High Court had held that:

“Production capacity based duty – Stainless steel pattas – No duty is leviable for period when machine is not installed/operated – It is especially so as levy of excise duty cannot go beyond charging provision and manufacture of goods is a condition precedent – Chapter E-VI of erstwhile Central Excise Rules, 1944 – Erstwhile Section 3A of Central Excise Act, 1944.

Refund – Unjust enrichment – Applicability of – When there is no production in relation to machine which is not in existence, there is no question of passing of duty to consumers and this principle is not applicable 0 Section 11B of Central Excise Act, 1944.”

In the end, the Commissioner (Appeal) held that duty cannot be levied on the machine which is not in the operation and since there was no production so no question of passing the duty arises. Accordingly, impugned order is set aside.

Decision of the Commissioner(Appeals):-

Appeal allowed.

Conclusion:-

The Commissioner (Appeal) rightly held that when there is no manufacture of final product, then duty cannot be levied on the machine as duty liability arises on the manufacture of goods. Also, when there is no production, then there cannot be any clearance of goods to the buyer and thus, the principle of unjust enrichment will not apply.

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PJ/CASE STUDY/2011-12/05
04 May 2011

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