Refund of duty paid on dismantled SS patta/patti machines

PJ/Case Study/2010-11/15

CASE STUDY

Prepared By:
CA.Pradeep Jain
Ankit Singhvi &
Megha Jain

Introduction: -

The matter relates to compounded levy for S.S Patta patti. The issue is whether the duty is to be paid for the dismantled machines as per provisions of the notification. But it is clearcut provision in the constitution that the excise duty is on manufacture of goods. When there is no manufacture then duty cannot be demanded.

Relevant Legal Provision: Notification No. 34/2001 dated 28.06.2001-

Para3(2) read as“The sum payable under sub-paragraph (1) shall be calculated by application of the appropriate rate to the maximum number of cold rolling machines installed by or on behalf of such manufacturer in one or more premises at any time during three calendar months immediately preceding the calendar month in which the application under paragraph 2 is made.”

In the matter of M/s Acme Industries
[Order-In-Appeal no. 837-845 (RM) CE/JPR-II/2001, dated: 20.12.2004]

Brief Facts of the case:

The appellants are manufacturer of Stainless Steel Pattas and Pattis, chargeable to Central Excise Duty under Central Excise Tariff. The period of dispute in these appeals is from September 2001 to March 2002. During this period, the appellants were discharging duty liability on SS Pattas and Pattis under compounded levy scheme notified by Central Government vide Notification No. 34/2001-CE. According to this scheme, the appellants were required to apply for permission for working under the said scheme and on being permitted, they were required to pay duty Rs. 15,000/- per month per Cold Rolling Machines installed in the factory, subject to condition that they would not take Cenvat credit of duty paid on any raw materials or capital goods under the provisions of Cenvat Credit Rules. As per para 3 of the Notification, a manufacturer whose application has been granted under para 2 shall pay a sum calculated at a rate specified in this Notification, subject to the conditions herein laid down and such payment shall be in full discharge of his duty liability on his production of Cold Re-rolled Stainless Steel Pattas/Pattis during the period, for which the said sum has been paid. The sum payable under shall be calculated by application of the appropriate rate to the maximum number of Cold Rolling Machines installed by or on behalf of such manufacturer in one or more premises at any time during three calendar months immediately preceding the calendar month In which the application has been made.

In the case after obtaining the permission to work under this scheme, the appellants at one point or other dismantled one or more of the Cold Rolling Machines but continued to pay the duty in respect of the same. The dismantling of the Cold Rolling Machines had been done under Intimation to the Jurisdictional Central Excise Officers. Subsequently, they claimed refund of the duty so paid on the dismantled machines on the ground that once the machine has been dismantled; there is no question of payment of duty, as there is no production from that machine. The refund claims were rejected by the original Adjudicating Authority on the ground that the appellants operating under the compounded levy scheme of Notification No. 34/2001-CE have to discharge duty liability in terms of the provisions of the Notification, according to which the duty liability to be discharged has to be calculated by applying the rate per machines specified in the Notification to the maximum number of machines installed by or on behalf of the appellant in one or more premises at any time during three calendar months immediately preceding the calendar month in which the application has been made and that the duty liability would not change If subsequently the machines are dismantled. The appeals flied by the appellants were dismissed by CCE (Appeals), Jaipur - II vide order-in-appeal No. 837-845 (RM) CE/JPR-II/2004 dated 20^th December 2004. Against this order of the Commissioner (Appeals), the present appeals have been filed.

Appellant’s Contention:

Appellant pleaded that prior to the scheme of compounded levy for the manufacturers of Stainless Steel Pattas/ Pattis, there were Rule 96 ZA to 96 ZGG of the CER, 1944, which prescribed an identical compounding procedure for discharging duty liability in respect of Stainless Steel Pattas/ Pattis and Aluminium Circles, that provisions of Rule 96 ZA to 96 ZGG are identical to the provisions of compounded levy scheme notified under Notification No. 34/2001-CE (NT), that in respect of the compounded levy scheme under Rule 96 ZA to 96 ZGG, Hon’ble Rajasthan High Court in the case of CCE, Jaipur – II versus Jupiter Industries reported in 2006 (206) E.L.T. 1195 (Raj.) has held that no duty is leviable for the period when a machine has not been operated or has been dismantled, as when there is no production in respect of a machine, which is not in existence, there is no question of charging any Central Excise Duty in respect of that machine, In this case Hon’ble Rajasthan High Court also held that the principle of unjust enrichment has no applicability to the refund of the duty paid in respect of the machine which had been dismantled, that the ratio of judgment of Hon’ble Rajasthan High Court is squarely applicable to the facts of the case, that as per the Notification, every manufacturer who has been granted permission under of this Notification to operate under this special procedure is required to make an application in a prescribed format specified in Appendix- II, to the Jurisdictional Superintendent for permission to remove the S Pattas/ Pattis during the ensuing month declaring the number of Cold Rolling Machines installed and employed, the rate of duty per month per machine prescribed by the Government, and the total sum payable and prior to filling of the application, the amount of duty is required to be paid, that fromthis, it is clear that if in any particular month, some machines have been dismantled, no duty would be required to be paid in respect of those machines in the next month and that in any case, in view of judgment of Hon’ble Rajasthan High Court in the case of CCE, Jaipur – II versus Jupiter Industries, no duty can be charged in respect of the machines which have been dismantled.

Respondent’s Contention:

Respondent defended the impugned order by reiterating the Commissioner (A)’s findings and further pleaded that the judgment of Hon’ble Rajasthan High Court in the case of CCE, Jaipur – II versus Jupiter Industries is with regard to the special procedure for Stainless Steel Pattas/ Pattis and Aluminium Circles prescribed in Rule 96 ZA to 96 ZGG of the Central Excise Rules, 1944, while the appellants were operating under the compounded scheme prescribed under Notification No. 34/2001-CE(NT) and as such the judgment of Hon’ble Rajasthan High Court is not in the Notification No. 34/2001-CE(NT), the appellants were liable to discharge duty liability by paying a sum determined by applying the rate of duty per machine per month prescribed in the Notification, to the maximum number of Cold Rolling Machined installed by or on behalf of the appellants in one or more premises at any time during three calendars months immediately preceding the calendar month in which the application had been made for operating under this procedure is not material and that the duty liability has to be discharged on the basis of maximum number of machines during preceding three months, as declared at the time of applying for permission to operate under this procedure and in the application for removal being made to the superintendent every month and that in view of this, there is no infirmity in the impugned order.

Reasoning of the Judgment:

Under Rule 15(1) of the Central Excise Rules,2001, the central government may, by notification, specify the goods, in respect of which an assessee shall have option to pay the excise duty on the basis of such factors as may be relevant to production of such goods and as such rates as may be prescribed in the such notification, subject to such limitations and conditions including, those relating to interest and penalty, as may be specified in such notification.

Government has issued notification no. 34/2001-CE, by which the compounding scheme for payment of duty on stainless steel Pattas/ Pattis and Aluminium circles has been prescribed.

These compounded rates mentioned in the notification are applicable subject to the procedure prescribed in the notification. Notification provides for an application being made in a prescribed format to the jurisdictional superintendent and also that the application shall be made so as to cover 12 consequent calendar months but the permission may be given for shorter period for the reasons to be recorded by the Assistant Commissioner/ Deputy Commissioner.

A manufacturer, who has been allowed to operate by availing of this compounding scheme, is required to pay a sum calculated at the rate specified of this notification which shall be in full discharge of his duty liability on his entire production of Cold discharge of his duty liability on his entire production of Cold Rolled Stainless Steel Pattas/ Pattis during the month, and the sum payable shall be calculated by application of the specified rate to the maximum number of cold rolling machines installed by or on behalf of such manufacturer in one or more premises at any time during three calendar months immediately preceding the calendar month in which the application under para 2 has been made and the sum shall be tendered by the manufacturer alongwith the application. In terms of the Notification, the manufacturer who has been granted permission under the Notification, shall make an application in a prescribed form (Appendix II) to the Superintendent incharge of the factory for permission to remove Stainless Steel Pattas/Pattis from his premises during the ensuing month, declaring the maximum number of cold rolling machines installed by him on his behalf in one or more premises at any time during three calendar month immediately preceding the calendar month in which such application has been made.

As per notification, the manufacturer shall also intimate the Superintendent in writing for any proposed change in the number of cold rolling Machines installed by him or in his behalf and obtain written approval of such officer before making any such change. On the basis of para of the Notification, the Department's contention is that if after obtaining the permission to operate under the compounded levy scheme and starting the operation under this scheme on the basis of maximum number of machines declared, the manufacturer dismantles some machines in a particular month, for three months following the month in which the machines had been dismantled, he will have to pay duty on the basis of the maximum number of machines declared earlier. The appellant plead that the provisions of Notification No. 34/2001-CE (NT) are identical to the special procedure prescribed under Rule 96 ZA to 96 ZGG and, therefore, the ratio of Hon'ble Rajasthan High Court judgment in the case of CCE, Jaipur - II vs. Jupiter Industries (supra) which is with regard to Rule 96 ZA to 96 ZC is applicable to these cases also.

During the period prior to 28/6/01 Rule 96 ZA to 96 ZGG prescribed a special procedure (compounding scheme) for discharge of duty liability by the manufacturers of Stainless Steel Pattas/Pattis and aluminium circles. On going through the compounding scheme prescribed under Rule 96 ZA to 96 ZGG of the Central Excise Rules, 1944, as it existed during the period prior to 28/6/01 and the compounding scheme prescribed under Notification No. 34/01-CE (NT) dated 28/6/01, we find that -
Rule 96 ZA of Central Excise Rules, 1944 is identical to para 2 of the Notification No. 34/01-CE (NT) dated 28/6/01 ;

Rule 96 ZB is identical to para 3 of the Notification No. 34/01-CE (NT)
Rule 96 ZC is identical to para 4 of the Notification No. 34,!01-CE (NT)
Rule 96 ZD is identical to para 5 of the Notification No. 34/01-CE (NT)
Rule 96 ZF is identical to para 6 of the Notification No. 34/01-CE (NT)
Rule 96 ZG is identical to para 7 of the Notification No. 34/01-CE (NT) and
Rule 96 ZGG is identical to para 8 of the Notification No. 34/01-CE (NT)

Thus, the provisions of Rules of Central Excise Rules, 1944 as the same existed during the period prior to 28/6/01 are in pari materia with the provisions of Notification No. 34/01-CE (NT).Notification No. 34/2001-CE (NT) as well as Rule 96 ZA to Rule ZGG of the Central Excise Rules, 1944, as the same existed during the period prior to 28/6/01, prescribed that at the time of applying for permission for operating under this special procedure and also for applying to the Jurisdictional Central Excise Superintendent in the beginning of every month, the assessee is required to declare the maximum number of cold rolling Machines installed by or on behalf of the manufacturer In one or more premises at any time during three calendar months immediately preceding the calendar month in which the application has been made and that the sum payable is to be calculated by application of the specified rate to the maximum number of cold rolling Machines installed by or on behalf of such manufacturer in one or more premises any time during three calendar months immediately preceding the calendar month in which the application has been made. The implication of these provisions is that if a manufacturer operating under this special procedure dismantles some machines in a particular month, as a result of which the number of machines decreases, even then, up to three months he will be required to pay duty even on the dismantled machines, as the amount payable is linked with the maximum number of machines installed during the preceding three months. However, while interpreting these provisions of Rules of the Central Excise Rules, 1944, Hon’ble Rajasthan Court in the case of CCE, Jaipur – II versus Jodhpur Industries held that no duty would be payable in respect of the dismantled machines.

The provisions of rules of the Central Excise Rules, 1944, as the same existed during the period prior to 28/06/01 are in pari material with the provisions of Notification No. 34/01-CE (NT) the judgment of Hon’ble Rajasthan High Court in the case of CCE, Jaipur – II versus Jupiter Industries would be applicable to the case in hand. No contrary judgment of any High Court or Hon'ble Supreme Court has been produced.

Moreover the Tribunal also finds the assessee having an option to pay the duty in respect of cold rolled Stainless Steel Pattas/Pattis on the basis of "cold rolling machines installed for cold rolling of these goods" - thereafter para fixes the rate per machine per month. When the first para of the Notification talks of payment of duty on the basis of cold rolling machines installed and not on the basis of the maximum number of cold rolling machines installed during the preceding three months, notwithstanding the provisions Notification No. 34/2001-CE (NT) the duty can be charged only on the basis of actual number of cold rolling machines installed and, therefore, if in a particular month, some cold rolling machines have been dismantled, in subsequent month duty in respect of the same cannot be charged.

Decision:

The impugned order is set aside and the appeals are allowed.

Conclusion:-

The tribunal has rightly held that the duty is on cold rolling machines installed in the factory. Even the High Court in case of Jupiter industries has held that there is clearcut provision in constitution that the excise duty is on manufacture of goods. When there is no manufacture then there cannot be any duty. Thus, the duty demand on dismantled machines ir rightly set aside in this order.

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PJ/CASE STUDY/2011-12/15
13 July 2011

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PJ/CASE STUDY/2011-12/15
13 July 2011