Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/018

13 November 2009

Case Study

Prepared by: - CA. Pradeep Jain

Sukhvinder Kaur, LLB(FYIC)

Introduction: -

Timely action taken by a person always helps in curbing the problems. If timely action is not taken, the person who has lapsed in so doing has to face the consequences. In the matters of taxation also, not only the assessee but the department is also required to take actions within time. Otherwise, the consequences are to be born by them. In the case under study, the benefit of the exemption notification was no longer available to the assessee but still they had taken the benefit. However, the department also did not take any action within the limitation period. Then can the assessee alone be made responsible for his actions? Or the Department also has to made liable to take the burden?

Gupta Dyeing & Printing Mills (P) Ltd v/s Commr. of C. Ex., Surat-I

[2009 (243) ELT 69 (Tri-Chennai)]

Brief Facts of the Case: -

- The Appellant were engaged in the manufacture of Dyed Polyester Yarn from raw material Poly Texturised/ Crimp yarn, Poly Twisted Yarn etc. Both texturised yarn as well as Twisted Tarn which was used for dying was manufactured out of duty paid yarn.

- The Appellant were claiming exemption under Notification No. 6/2000-CE, dated 01.03.2000 for the period April, 2000 to March, 2003.

- The Department contended that appellant were not eligible for exemption on dyed yarn manufactured out of twisted yarn which had not suffered any duty. Show cause notice was issued on 20.04.05.

- The Adjudicating Authority confirmed the demand with equal amount of penalty as well as interest. Penalty was also imposed on the Managing Director of the Appellant-company.

- Both the appellants are in appeal against the order of the Commissioner (A).

Question for Consideration: -

The issue involved was-

“Whether the appellants were eligible for exemption under Notification No. 6/2000-CE, dated 01.03.2000 and other notifications which continued to exempt subject to the same conditions during the relevant period?”

Appellant’s Contentions: -

- Appellants have placed reliance on the Board Circular No. 125/36/95-CX, dated 15.05.95 wherein it was stated that exemption has been provided subject to the condition that exempted goods have been manufactured out of duty paid goods, even if the input are exempted from excise duty, exemption on the finished goods cannot be denied on that ground.

- It is further submitted that the said Circular was withdrawn vide Circular no. 667/58/2002-CX, dated 26.09.2000. This was done after the Apex Court in the case of Dhiren Chemical Industries [2002 (139) ELT 3 (SC)] had taken the view that word “appropriate duty of excise” in the context of such exemption Notification means the correct or specified rate of excise duty and where the raw materials are totally exempted or liable to nil rate, such exemption shall not be available.

- It is further submitted that in the same decision it was observed by the Apex Court that where the Board’s Circular is beneficial to the appellant and even if it is contradictory to the statute the departmental officers are bound by the circular and such benefit should be extended.

- It is further submitted that The Apex Court in Kalyani Packaging Industries [2004 (168) ELT 145 (SC)] had stated that para 9 of Dhiren Chemical Industries case was incorporated to ensure that cases where benefit of exemption Notification had been granted, the Revenue would remain bound and such cases were not to re-opened.

- It is submitted that the appellant are eligible for exemption throughout the period, since the appropriate duty could be nil rate also during that period under consideration.

- It is further submitted that the show cause notice is time barred in view of the fact that appellants had filed classification list claiming exemption and the clearances of dyed yarn availing exemption were reflected in the monthly returns filed by the appellant during the period.

- It is further submitted that even if it is assumed that extended period would be applicable and appellants are not eligible for exemption, the cut off date should be 26.09.2002, the date on which the CBEC had issued the second Circular.

- It is submitted that even on merits the appellants have strong case in view of decision given in Precot Mills Ltd v/s CCE, Bangalore [2005 (183) ELT 407] wherein it was held that appellants were eligible for the benefit of exemption on dyed yarn even if manufactured out of doubled Yarn on which, no duty was paid, even if duty was paid on the doubled yarn, modvat credit was available for utilisation.

- Reliance has also been placed on judgments given in Padmini Product case [1989 (43) ELT 195 (SC)] and Chemphar Drugs & Liniments case [1989 (40) ELT 276 (SC)] to support their contentions that mere negligence of the manufacturer to take out license or pay duty when there was scope of doubt that the goods are excisable extended period under the Central Excise Act, 1944, would not be applicable. It is also submitted that the even after circular issued on 26.09.2002, exemption was allowed by the Revenue without any objection because of the long standing legal position.

Respondent’s Contentions: -

- Revenue contended that the appellants were not eligible to avail benefit of exemption. The Show cause notice is referred wherein, in respect of 3 suppliers it has been stated that they had purchased Texturised Yarn from the open market and they do not have any evidence to show that yarn used for manufacture of Twisted Yarn had suffered duty.

- It was contended that although exemption was reflected in the classification list and the returns filed by the appellant but the ‘fact that twisted yarn has not suffered duty was no where mentioned and therefore, this was a clear case of suppression of facts on the part of the appellant with a view to avail exemption.

- It was contended that even after the decision of the Apex Court, the appellant did not change the practice and continued to avail the exemption. Therefore, extended period was correctly invoked.

Order of the Tribunal: -

Ø The Tribunal held that till the Hon’ble Supreme Court rendered their decision in Dhiren Chemical case, the Revenue as well as Trade were under the impression that where goods are exempted or attracted nil rate subject to the condition that the same are manufactured out of raw material on which appropriate duty has been paid, the appropriate duty could be nil rate of duty or fully exempted goods. Further the Supreme Court has again observed in the said judgment that Revenue would be bound by beneficial circular issued by the Board. The Supreme Court in the case of Kalyani Packaging has again observed that even though the decision in Dhiren Chemical case would be applicable to all cases, the assessments which are already completed need not be re-opened by the department.

The Tribunal held that appellant are eligible for the benefit of the Circular.

Ø On the question that what should be the cut off gate for application of the Apex Court decision in respect of appellants, the Tribunal held that the cut off date would be the date of issue of Board Circular and not the date of decision of the Apex Court. This is because the Government often takes a decision to amend the law retrospectively or take other measures and it is not necessary that decision of the Court would be implemented in all cases. There have been cases where the Government has amended the law with retrospective effect and the Hon’ble Supreme Court also upheld such amendments. Accordingly, it is held that the demand for the period subsequent to 26.9.2002 was sustainable.

Ø On the question for invoking extended period, the Tribunal further held that at the most it can be said that the appellant neglected to start paying duty from 26.09.2002. But the fact remained that the department also could have issued show cause notice within one year from that date. The appellant had filed classification declaration which was verified by the department. Apparently, if exemption under this notification was claimed, clearly such verification has to raise a question, as to whether input has suffered duty. The Revenue department were required to do such verification after the issuance of Circular dated 26.09.2002. At the best it can be said that applicant neglected to inform the Revenue after 26.09.02 that input had not suffered duty and their view, duty was paid on the dyed yarn out which the twisted yarn was manufactured, they were eligible for the benefit.

Ø The Tribunal further held that the appellant had submitted that raw material of twisted yarn had suffered duty and therefore, in their view condition of the Notification was fulfilled. In the light of decision given in Padmini Products case and Chemphar drugs and in view of the submissions made in this case, it is held that the department had not made out a convincing case for invoking longer period under Section 11A of the Central Excise Act, 1944 by establishing that there was suppression or fraud or collusion etc. subsequent to 26.09.2002 appellants are not eligible for the benefit of the notification provided where Department takes action without invoking proviso to Section 11A.

Decision of the Tribunal: -

Appeals allowed on the ground of limitation with consequential relief to the appellants. Impugned order set aside with regard to duty demanded, interest thereon and penalties on the appellant.

Comments & Conclusion: -

The Tribunal rightfully held that the demand was not sustainable. When there was no suppression on the assessee’s part and the Revenue had not taken timely action, extended period could not be invoked and the assessee alone could not be penalized. If the action of revenue in raising demand for a certain period by invoking extended period of limitation under Section 11AC is upheld in every case, then the department will be able to raise incessant demands for past period which would lead to further complications. The department is also bound by the letter of the law. They are also required to take timely action and if extended period is invoked then they have to justify such invocation.

Further, the Circular issued by the Board are equally binding on the department. They cannot take action against the assessee, by disregarding the Board Circulars.

******

Comments

PJ/CASE STUDY/2009-10/018
13 November 2009

Post a Comment

Query