Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/008

03 September 2009

CASE STUDY

Introduction:-

The exemption has been granted to Small Scale units whose aggregate value of clearances in the past year have not exceeded Rs. 30 Lakhs, as per the Notification No. 16/97-CE, dated 01.04.97. However, for computation of aggregate value of clearances for claiming benefit of SSI exemption, certain clearances were not to be considered, which were specified in the Notification itself. But in a case where the finished product of a unit claiming SSI exemption is exempted from payment of duty under another Notification, would the value of its clearances be included for computation of aggregate value of clearances under the exemption Notification? Also, if the duty is payable on the intermediate product but the same is not being sold outside factory but is being captively consumed, whether the value of such intermediate product is to be included in the aggregate value of clearances under the exemption Notification? This issue is dealt with in the following case being studied by us.

M/s Uma Plastic Industries v/s CCE, Jaipur

Brief Facts of the matter:-

- Appellant (assessee) were engaged in the manufacture of plastic bags falling under heading 3923.90. The final product was exempt from payment of duty. Intermediate product “layflat tubings” falling under heading 3917.00 was also being produced during the manufacturing process which was being captively consumed. Layflat tubings was chargeable to 8% of duty by virtue of Notification No. 4/97-CE, dated 01.04.97 during the f. y. 97-98.

- The appellant were claiming SSI Exemption under Notification No. 16/97-CE, dated 01.04.97. The final product of appellant was exempt from payment of excise duty. Therefore, duty liability was to fall on the intermediate product “layflat tubings”. The appellant started paying duty on such layflat tubing as asked by the department.

- Appellant filed an application before the Department that there are certain rules for calculating aggregate value of clearances under the SSI exemption notification 16/97 ibid. For calculating the aggregate value of clearances under Notification No. 16/97-CE, the value of exempted goods will not be taken into consideration. Thus, the value of their finished goods viz. plastic bag will not be taken into consideration as it is exempt from payment of Excise duty. It is further provided in the notification that value of captively consumed goods will not be taken into consideration for calculate aggregate value of clearances. As such, the clearances of layflat tubings, which was being captively consumed, could not be taken into consideration. Hence, the aggregate value of clearances from their factory is zero only. As such, they did not exceed Rs. 30 lakhs and they were eligible for SSI exemption under Notification No. 16/97-CE.

- Department however did not agree with the submissions of the appellant and asked them to continue paying duty on their intermediate product @ 8%. The appellant started paying duty under protest.

- Later on the assessee applied for refund of duty paid under protest. The grounds taken for claiming refund were that both there products were not to be considered for computing aggregate value of clearances. As such their aggregate value of clearances will be zero. If the aggregate value does not exceed first exempted limit of Rs. 30 Lakhs, they are not liable to pay the duty on intermediate product also.

The value of clearances of the both the final products could not be considered for computation of aggregate value of clearances due to clause 3 (a) and (c) of the Notification No. 16/97-CE. It was further contended that both the said products were specified under the Notification No. 16/97-CE. The appellants relied upon the judgment of the Tribunal in Universal Electrical Industries v/s Collector of Central Excise [1994 (70) ELT 279] and Collector of Central Excise v/s Gadgets India Limited [1994 (71) ELT 835] and J.G. Engineers v/s Collector of Central Excise [1994 (74) ELT 942].

Department’s Contentions:-

- The Department issued a show cause notice to the assessee for denying the refund claim on the following grounds:-

v That the layflat tubings was not exempt as clause 3 (c) of the Notification 16/97-CE provided for exemption to the specified goods which were used as inputs for further manufacture of any specified goods which were availing benefit of the said Notification.

v This view was explained by clause 3 (c) which was inserted by Notification No. 69/97-CE dated 03.12.97 and as such layflat tubings was chargeable to duty w.e.f. 01.04.97 subject to SSI exemption.

v That the decision of Universal Electrical Industries was not the final decision and an appeal in the Supreme Court was filed and therefore, refund claim was pre-mature.

v The refund of the assessee was time-barred as per Section 11B of the Central Excise Act, 1944.

v The refund claim was hit by doctrine of unjust enrichment under Section 11B (2) of the Central Excise Act, 1944.

Appellant’s Reply:-

In their reply, the assessee raised the following grounds:-

v That the Notification No. 16/97-CE dated 01.04.97 talks of “specified goods’ and these goods were mentioned in table annexed to the said Notification. Their final product Plastic Bags and Layflat tubings were specified goods as mentioned in the said Table. This view was upheld by decisions of Universal Electrical Industries as well as in J.G. Engineers case.

v The exemption notification was to be strictly followed. Neither a word could be inserted nor was there any scope for any intendment. Therefore, the amendment of Notification 69/97-CE dated 03.12.97 had prospective effect.

v The fact that appeal was filed in the Supreme Court did not restrict the implementation of decision unless stay was granted by competent Court. The same principle of judicial discipline in matter of precedents as laid down in case of Kamalakshmis Finance Corp. Ltd. v/s Union of India [1991 (55) ELT 433 SC] by the Highest Court of India.

v Further, contentions were raised on the grounds of limitation as well as unjust enrichment.

Decision of Adjudicating Authority:-

The Assistant Commissioner rejected the refund claim of the appellants on the following grounds:-

v The Notification 16/97-CE was applicable to goods which were chargeable to excise duty. It was not applicable to goods which were unconditionally exempted from duty under other Notifications. The benefit of said Notification was not available to plastic bags which were fully exempt from excise duty. Also, the layflat tubings consumed as an input in the manufacture of plastic bags were not eligible for clause 3 (c) of the said Notification.

v The above contention raised was clarified by the Notification No. 69/97-CE dated 03.12.97. Hence, the amendment being clarificatory in nature was applicable with retrospective effect.

v The judgment given by the Tribunal in the case of Universal Electrical Industries & Anr was not applicable to appellant’s case as the said judgment related to a different Notification No. 175/86-CE dated 01.04.86. Moreover, an appeal was filed before the Supreme Court against the said decision. Also, the clarification notification was issued for Notification No. 69/97-CE and not for Notification No. 175/86-CE.

v It was added that there was no need to discuss another issue raised in scn as refund was rejected on the above analogy only.

Before Commissioner (Appeals):-

The appellant then approached the Commissioner (Appeals) against the order passed by the Adjudicating Authority. In the meanwhile, the Supreme Court passed its verdict in the Revenue’s appeal against the decision given by the Tribunal in the case of Universal Electrical Industries & Anr.

Verdict of Supreme Court:-

In Collector of Central Excise, New Delhi v/s Universal Electrical Industries & Anr [2003 (55) RLT 256 (SC)] the Apex Court examined the question that how should the aggregate value be arrived at, for the purpose of claiming exemption under the notification no. 175/86-CE, dated 01.03.86. It was already clear that the inputs as well as the finished goods manufactured by the assessee therein were falling under the description of “specified goods” under the said exemption Notification.

The Supreme Court referred to Explanations II and III to the said Notification and held that the aggregate value of clearances excluded the value of finished goods exempted under any other notification as well as the value of specified goods which were captively used in the manufacture of specified finished goods.

Consequential steps:-

Following the judgment delivered by the Supreme Court, the Commissioner (Appeals) has decided the matter in the favour of the appellant. The value of clearances of appellant’s final product Plastic Bag as well as the value of their captively consumed intermediate product layflat tubings was not required to be included in the computation of aggregate value of clearances under the exemption notification no. 16/97-CE. It was remanded to see the concept of unjust enrichment. The appellant pleaded before the adjudication officer that they have paid the duty on captively consumed goods and as such they have not passed the duty incidence to the buyer. The appellant relied on the Mumbai High Court decision in case of Solar pesticides and the refund was allowed. (Thank God, by this time the decision of Apex Court has not come wherein it is held that the concept of unjust enrichment also applies to captively consumed goods).

Conclusion:-

In the case studied hereinabove, the finished goods of the assessee was exempted from payment of duty. In addition, the intermediate product was also not being cleared on payment of duty but was being captively consumed in the factory itself. Both the said products were listed in the specified goods in the Exemption Notification, the value of which were not to be considered for computing the aggregate value of clearances under the exemption notification no. 16/97-CE. However, the Department was denying the benefit of SSI exemption to the appellant and was demanding that duty be paid on the intermediate product which was being captively consumed in the factory itself.

The Supreme Court rightly held that the value of clearances of the finished goods and the value of intermediate goods used captively in the factory of the assessee was not to be included for computing aggregate value of clearances under the exemption notification no. 16/97-CE. The reason was that the exemption notification had specified that these kinds of goods were not to be considered.

One important conclusion is that the language of exemption notification is most important and it has read strictly. One has to follow the meaning conveyed by the same and one can not go beyond the same. Secondly, the amendment has prospective effect unless and until it is proved that it is clarificatory in nature. Even the amendment done by way of inserting “Explanation” then also it does not mean that it is clarificatory in nature. It will have prospective effect only.

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PJ/CASE STUDY/2009-10/008
03 September 2009

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