SSI Exemption - denial of benefit - Modification of Stay Order

PJ/Case Study/2011-12/28

CASE STUDY

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

Introduction:-

The issue involved in the case under study was regarding denial of SSI Exemption to the assessee for the reason that they had paid duty on the transactions for which exemption under Notification No. 108/95-CE was denied. When the exemption under notification 108/95 has been denied later on, the manufacturer has paid the duty on the same. But the department contended that the SSI exemption is denied from the date when the first clearance under notification 108/95 has taken place.

M/s Qualitech Metal Industries v/s Additional Commissioner, C. Ex. Commissionerate, Jaipur
[Order for Modification of Stay no. 137(CB)ST/JPR-II/2011, Dated: 06.09.2011]

Brief Facts:-

- Appellant are engaged in the manufacture of M. S. pipes, M. S. Flanges and M. S. Special Joint falling under Chapter heading no. 73.

- During the period from 19.11.2008 to 28.1.2009 the appellant cleared goods under Exemption Notification No. 108/95-CE dated 28.08.1995. Later on, it was found that condition of Notification No. 108/95-CE dated 28.08.1995 was not fulfilled and therefore, benefit of exemption was not available there under. The appellant were also availing benefit of SSI exemption.

- The appellant deposited the excise duty of Rs. 923090/- against the clearance amounting to Rs. 8840710/-from cenvat credit account and in cash.

- Department issued show cause notice to the appellant.

- The Adjudicating Authority confirmed the demand and did not extend the benefit of SSI exemption from the date from which first consignment was cleared under Notification No. 108/95-CE dated 28.08.1995.

-Against the impugned order, appellant filed appeal before the Commissioner (Appeal) and also filed application for stay of impugned order and waiver of pre-deposit.

- During hearing of Stay application, the appellant submitted that they had already deposited an amount of Rs. 923090/- against the clearance amounting to Rs. 8840710/- and the remaining clearance amounting to Rs. 1, 40, 18, 662/- comes under the SSI exemption limit of Rs. 1.5 crore.

- However, the learned Commissioner (Appeal) did not adhere to the submissions of the appellant and held that prima facie the issue appears to be in favour of revenue and therefore, directed the appellant-assessee to deposit the entire remaining amount of Central excise duty of Rs. 287448/- within 30 days of the receipt of this order.

- Aggrieved by the stay order, appellant filed application for Modification of Stay.

Appellant’s Contentions:-

Appellant made following submissions before the Commissioner (Appeal):

A. CASE ON MERIT: - The brief facts of the case are that during the year 2008-09 the appellant received a excise Exemption Certificate issued by Principal Secretary of Government of Rajasthan having authority to issue Excise Exemption Certificate with the clear mention that goods to be supplied against this certificate are Exempted from Excise Duty. The assesse immediately submitted the certificate vide their letter dt.17.11.08,to the Supdt. Central Excise II for their information & record and goods were cleared under this exemption certificate only after this submission and intimation to Excise Deptt. The appelant had cleared the goods without payment of duty under bona fide belief that benefit of exemption under Notification no. 108/95 was available to them as per certificate recd. from Govt. of Rajasthan through M/S Kirloskar Bros. Ltd.

There was no reason to believe by small scale unit like us that the exemption is not available when it was issued by Principal Secretary of Government of Rajasthan having authority to issue Excise Exemption Certificate. The said benefit was denied to us and then benefit under notification no. 6/2006 was opted for which was also subsequently denied. However, for claiming the benefit under these notifications, appellant had obtained the certificate issued by Principal Secretary, government of Rajasthan. Since the certificate was issued by concerned officer from Rajasthan government, there was not any scope of doubt that the exemption can be denied. As such, appellant had cleared the goods against the said certificate only under intimation to Excise Deptt.

- It is submitted that the appellant had throughout conducted themselves bona fidely. They have submitted the certificate before the range office. It is submitted that when an objection was raised from the range officevide their letter dt 3.4.2009—four months after clearing of goods, the assessee has sought clarification on the matter from the superintendent, then from Deputy Commissioner and then from the Hon’ble Commissioner. The assessee earnestly requested at all levels vide their letters dt.28.5.2009,2.6.2009,18.6.2009,17.7.2009,26.8.2009,24.9.2009 etc. requesting for consideration and clarification to avoid complication s &litigation in the future. Finally appellant recd. clarification letter dated 04.11.2009 of the Hon’ble Commissioner wherein it was provided that certificate is valid if the project is registered under customs. Appellant contacted to the contractor – M/s Kirloskar Bros. Ltd. and on receipt of reply on dt. 15.12.2009, that project was not registered under customs, assessee immediately deposited the duty (from Cenvat as well as from PLA) alongwith interest on dt 18.12.2009. Thereafter assessee did not use the similar exemption certificate recd. from Govt. of Rajasthan through another contractors.

Thus, the allegation of willful suppression on appellant’s part couldnot be levied. Therefore, there was no mala fide intention to evade payment of duty on their part.

It is submitted that the Department had issued two show cause notices for the period 2008-09 and 2009-10 as under:

-                      SCN No. V(73)Adj-II/JPR-II/513/09/5351 dated 13.11.2009
-                      SCN No. V(73)Adj-II/JPR-II/77/10/5998 dated 19.03.2010

In both the show cause notice, it was alleged that appellant have not filed the declaration and hence the SSI exemption is not available. It is submitted that both the afore-mentioned show cause notices were decided by the same order-in-original which is appealed against. It is submitted that in the show cause notice no. V (73) Adj-II /JPR-II/77/10/5998 dated 19/03/2010, the SSI exemption was allowed to them by the learned Adjudicating Authority.

However, the learned Commissioner (Appeal) has not considered the said fact and have found that benefit of SSI exemption has been denied by the Adjudicating Authority on the ground that appellant did not fulfill the condition of said notification. Firstly, there was only allegation in show cause notice that appellant have not filed the declaration and hence the same is not available. Appellant have given the number of citations which says that the benefit is available to appellant. These citations are enumerated below:-

Ø                   Lokhandwala Construction Industries Ltd vs CCE [1997(92) ELT 703]: It has been held that the benefit of SSI exemption cannot be denied for non filing of declaration when the requirement of notification is satisfied.

Ø                   Tufail Ahmed Vs Collector of Central Excise [1992(62) ELT 745 (Tri.)]:It has been held in this case also that exemption from duty was not effected due to non filing of declaration from licensing control.

Ø                   BENARA UDYOG PVT. LTD. VersusCOLLECTOR OF C. EX., KANPUR [1998 (103)   E.L.T. 104 (Tribunal) ]in that case it was held as under:-

“SSI Exemption - Metal container, specific goods in notification and value of clearances within prescribed limit in terms of Notification No. 83/83-C.E. - Non-filing of declaration not to result in denial of benefit of exemption - Matter remanded to Asstt.Commissioner for extending benefit subject to verification.”

Ø                   VIKRAM LAMINATORS PVT. LTD. Versus COLLECTOR OF C. EXCISE, AURANGABAD [1995 (79) E.L.T. 147 (Tribunal)]. In that case it was held as under:-

S.S.I. Exemption - Unit not having S.S.I. registration certificate - Assessee claiming exemption under Notification No. 175/86-C.E. [now 1/93-C.E.] for the years 1989-90 and 1990-91 on the plea of availing benefit of said notification in the preceding year - No declaration or classification list filed claiming such exemption in the preceding year - Value of clearances in the preceding year within exemption limit and not disputed by the department - Department alleging that the assessee though eligible for exemption but did not avail the same as department’s approval not obtained for availment of the exemption - HELD that non-filing of declaration does not affect availment of exemption notification - Assessee eligible for exemption during the years 1989-90 and 1990-91 as they availed the exemption under Notification No. 175/86-C.E. during preceding year - Department’s stand that the appellants were not availing the exemption although they were entitled to exemption turned down.

Ø                   TECHNOCRATS ENGINEERING CO. Versus COMMISSIONER OF C. EX., MUMBAI-II [2001(137) E.L.T. 459 (Tri.- Mumbai)]. In that case it was held as under:-

SSI Exemption - Non-filing of the declaration would not deny the benefit of the exemption Notification No. 175/86-C.E. [para 3]

Ø                   DELHI PAPER PRODUCTS CO.Versus COLLECTOR OF C. EX., NEW DELHI [2000(125)E.L.T. 661(Tribunal)]. In that case it was held as under:

SSI Exemption not affected by non-filing of declaration for exemption from licensing/registration control - Section 5A(1) of Central Excise Act, 1944 - Rule 174 of Central Excise Rules, 1944.

Ø                   Mangalore Refinery & Petrochemicals Ltd [2002 (150) ELT 114 (Tri-bang)]:

Non-filing of declaration is only a technical lapse and therefore should not result in denial of substantive benefit of credit particularly where duty paid character of goods is not disputes. Appeal dismissed. (Para 3, 4).

Ø                   Formica India Division [1995 (77) ELT 511 (SC)]

Thus, it is clear that the SSI exemption cannot be denied only on the ground that declaration is not filed. But the learned adjudication authority came with new point to deny the same. They say that appellant have paid the duty on exemption claimed by us and availed the credit on the same. This means that appellant have availed the exemption while operating under SSI exemption. When first clearance under this exemption certificate has taken place, it is presumed that appellant have taken the cenvat credit on that day, hence the benefit of SSI exemption will not be available from that day.

- But appellant submit that they are availing exemption under this certificate separately and under SSI exemption separately. Appellant have availed the limit under SSI exemption. When it was said that exemption is not available then appellant have paid the duty and availed cenvat credit. It was simple payment of duty. But the learned adjudication officer has taken a totally different stand which is not permissible on the following reasons:-

1.                  Firstly, there was no such allegation in show cause notice and hence the order is going beyond the show cause notice. Such an order is not legally sustainable.

2.                  When the benefit in subsequent period is given for the show cause notice of non filing of declaration then benefit should be granted for this period also.

3.                  Even if the stand of order-in-original is accepted then also the duty can be demanded from the date when appellant have cleared first clearance. But the learned adjudication officer has completely disallowed the SSI exemption. We are enclosing herewith the chart for the same. At the most, duty can be demanded from us from the date of crossing the SSI exemption limit only.

4.                  Appellant have paid the duty on goods cleared under exemption. This should not be demanded once again.

Hence, it is submitted that the SSI exemption was held available to the appellant by the Adjudicating Authority therefore, the stay order passed by your good honour is required to be modified. It is most humbly submitted that unconditional stay should be granted without insisting on further pre-deposit.

B.                  Financial Hardship: - Appellant submit that ours is a small scale unit. Our clearances is less than Rs. 2 crore. Appellant have taken loan from financial institution and banks. A certificate for the same is enclosed. Appellant cannot pay such a huge amount of Rs. 28 lakhs as pre-deposit. It is simply a case on interpretation and not a case of clandestine removal. A liberal view should be taken and unconditional stay should be granted to us. Such a harsh order will lead to closure of the running unit.

C. Duty calculation: - Appellant strongly object the calculation of duty demand done in show cause notice. Appellant have total clearance of Rs. 25194263/-during the disputed period. Out of above, appellant have clearance under the exemption certificate issued by principal secretary of Rs. 88,40,710/-. On this amount appellant have already paid the central excise duty of Rs.923090/-. Out of the above, appellant have paid Rs. 421873/- in cash and rest was paid from Cenvat credit. The unit was regd. under Excise on dt 5.2.2009 and clearance of Rs.28,24,625/-with payment of excise duty. Hence, on the rest of clearance of Rs. 1,40,18,662/- which includes bought out items of Rs.489734/-, net clearance of Rs.1,35,28,928/-and on this clearance duty can come to Rs. 13,93,480/-. Therefore the demand of Rs. 3296321/- under impugned show cause notice is not permissible.

It is submitted that the financial condition of the appellant is not very stable and depositing a huge amount of Rs. 28,74,448/- would be impossible at the present stage. It is submitted that the appellant have already deposited an amount of Rs. 9,23,090/-. It is most humbly submitted that the amount already deposited is sufficient to protect the interest of the Revenue.

Reasoning of the Commissioner (Appeal):-

·                     The Commissioner (Appeal) found that appellant had availed benefit of SSI exemption under Notification No. 8/2003-CE dated 01.03.2003 whereas the Adjudicating Authority denied the benefit of the same from the date from which the first consignment was sent without payment of duty under exemption Notification No. 108/95-CE dated 28.08.1995 on which later on duty was paid.

·                     It was found that recently the Hon’ble High Court of Karnataka in case of Cresent Polymers Pvt Ltd [2011 (270) ELT 510] held that “Exemption – SSI Exempion claim of – Payment of normal duty on some consignment does not disentitle assessee from continuing to claim exemption”.

·                     Therefore, prima facie the issue appears to be in favour of the appellant, hence, the stay order requires to be modified.

·                     Therefore, the appellant was directed to deposit central excise duty of Rs. 337200/- within 30 days of the receipt of this order and submit the evidences of the deposit to the concerned Range Superintendent under intimation to the Office of the Commissioner failing which the appeal will be liable for rejection for non-complying with the order. On deposit of this amount, interest and penalty will be stayed till disposal of appeal.

Decision of the Commissioner (Appeal):-

Stay was granted on payment of reduced amount of excise duty. Stay order modified.

Conclusion:-

The Learned Commissioner (Appeals) rightly relied upon judgment of the High Court of Karanataka wherein it was held that SSI exemption cannot be denied on the ground that for some consignment duty was paid. The issue is still under appeal and the final order is awaited.

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12 October 2011

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PJ/CASE STUDY/2011-12/28
12 October 2011