Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/035

23 March 2010

PJ/CASE STUDY/2009-10/35

Case Study

Prepared by:

CA Pradeep Jain and

Sukhvinder Kaur, LLB

Introduction: -

In the case under study herein the issue raised is that when a person has acted according to the law and with bona fide belief, can he be prosecuted for the default of another person. When the bond is executed by a person then he is liable for payment of duty under export and other person cannot be held liable for the same.

Commissioner of Central Excise, Jodhpur v/s M/s Pack Point (Unit-II)

[Order-in-Original No. 23/2010-CE-DEMAND, Dated: 17/02/2010]

Brief Facts of the Case: -

- The assessee, M/s Pack Point (Unit-II), Jodhpur is engaged in the manufacture of Flexible Rolls and Flexible Pouches falling under heading 39219096 and 39239090 respectively. They cleared the goods to another unit M/s Dinesh Tobacco Industries- Unit-II against Annexure-I issued under the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rule, 2001 for procurement of material at ‘Nil’ rate of duty to be used in the manufacture of the goods to be exported under Notification No. 43/2001-CE (NT), dated 26.06.2001 issued under Rule 19 of the Central Excise Rules, 2001.

- The other unit M/s Dinesh Tobacco Industries- Unit-II was issued Annexure-I under the Rules, 2001 by the Assistant Commissioner vide letter dated 23.04.08 allowing them to obtain flexible laminated rolls and flexible laminated pouches. Accordingly, assessee had supplied the said goods during the period 01.07.2008 to 30.09.2008 to M/s Dinesh Tobacco Industries- Unit-II.

- The other unit, M/s Dinesh Tobacco Industries- Unit-II, opted for payment of duty under compound levy scheme. The Department issued show cause notice to the assessee on the ground that M/s Dinesh Tobacco Industries- Unit-II could export their goods under rebate under Rule 18 of the Central Excise Rules, 2002 only after payment of duty leviable under Section 3A of the Central Excise Act, 1944. These provisions were prescribed in the Notification No. 32/2008-CE (NT) dated 28.08.2008. And Rule 19 was not applicable in respect of such units working under compound levy scheme under Notification No. 30/2008-CE (NT) which was made effective from 01.07.2008. Consequently, the units engaged in the manufacture and export of Gutkha/Pan masala in pouched could not be allowed to procure duty free material under Notification No. 43/2001-CE (NT).

- Accordingly, the Issuing Authority withdrew the Annexure-I dated 23.04.08 issued to M/s Dinesh Tobacco Industries- Unit-II from 01.07.2008 vide their letter dated 05.09.2008.

- Thereafter, the Department issued show cause notice to the assessee for recovery of duty with interest payable on the goods sent to M/s Dinesh Tobacco Industries- Unit-II at ‘Nil’ rate of duty. Penal provisions under Rule 25 of the Rules, 2002 were also sought to be initiated against the assessee.

Appellant’s Contention: -

¨ In their reply, the assessee contended that they have acted as per law while supplying the said goods under Annexure-I issued under the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rule, 2001 to the exporter M/s Dinesh Tobacco Industries- Unit-II.

¨ It was contended that they were not informed about the fact that M/s Dinesh Tobacco Industries- Unit-II had opted for compound levy scheme for payment of duty as there was no written intimation given to them. The letter confirming the withdrawal of Annexure-I by M/s Dinesh Tobacco Industries- Unit-II was sent not sent to the assessee. Therefore, they cannot be held liable for contravention of the provisions of Section 3A of the Central Excise Act, 1944 readwith Rule 4, 6 & 8 of the Central Excise Rules, 2002.

¨ The assessee contended that if any liability arises then it will fall upon the exporter M/s Dinesh Tobacco Industries- Unit-II and not them as the bond regarding Annexure-I was executed by the exporter and not by them.

¨ Assessee further submitted that the Annexure-I was withdrawn vide letter dated 05.09.2008. Annexure-I was withdrawn w.e.f. 01.07.08. The Issuing Authority had withdrawn the Annexure-I retrospectively. Thus, it could not be expected from the assessee to know about the withdrawal on 01.07.08 when they have issued letter after 2 months. Moreover, the assessee did not receive any intimation regarding the withdrawal.

¨ Assessee submitted that the default was committed by M/s Dinesh Tobacco Industries- Unit-II and therefore liability to pay the duty. In this regard the assessee has relied upon the judgment given in the case of Commissioner of C. Ex., Nagpur [2007 (215) ELT 107 (Tri-Mumbai)] wherein it was held that the liability of duty on account of non-fulfillment of condition in exemption notification accrued on the merchant exporter and not on the manufacturer.

¨ The Assessee further contended that one party could not be held liable for the acts of the other party. In this regard they relied upon the judgment given in the case of CCE v/s Simplex Mill Co. [2007 (215) ELT 07 (T)], Kishore Pumps Ltd v/s CCE [2004 (173) ELT 45 (Tri-Mumbai)], Shree Vithal S. S. K. Ltd v/s CCE [1992 (59) ELT 54 (T)] and Tejal Paper Mills Pvt Ltd v/s CCE [2003 (156) ELT 364 (Tri-Del)].

¨ It was further contended that as per conditions of Notification No. 32/2008-CE (NT) dated 28.08.08, which is effective from 01.07.08, the exporter of Gutkha/ Pan Masala in pouches can clear their goods for export under claim of rebate only under Rule 18 of the Central Excise Rules, 2002 after payment of duty leviable under Section 3(A) of the Central Excise Act, 1944. The assessee submitted that the said notification does not specifically provide that a person opting for compound levy scheme of duty cannot export goods without payment of duty under Rule 19. Therefore, it cannot be said that export under Rule 19 is not allowed. Accordingly, it is also contended that no penalty can be imposed on them.

Reasoning of the Order-in-Original: -

The learned Adjudicating Authority held as under: -

Ø The Adjudicating Authority held that the issue to be examined whether in this case was there any violation on the part of the assessee who supplied duty free due on such clearances.

Ø The Adjudicating Authority found that Annexure-I was issued to M/s Dinesh Tobacco Industries- Unit-II for procurement of material at NIL rate of duty. And the assessee had supplied the goods against the said Annexure-I during the period from 01.07.2008 to 30.09.2008, without payment of duty. At the time of such clearances the said Annexure-I was very much in force in terms of which assessee was authorised to clear the impugned inputs duty free and it is not disputed that the material so cleared against the said Annexure-I was duly exported under Rule 19 and under ARE-2s.

Ø The Adjudicating Authority held that the assessee was required to do before or after such clearances were to ensure (i) the validity of Annexure-I and (ii) that the goods so removed are received by the buyer. Thus, there was no violation on the part of assessee of either legal or procedural aspects of the Notification No. 43/2001-CE (NT) dated 26.06.2001.

Ø On the aspect that the said Annexure-I against which the assessee effected supplies during the months of July 2008 to Sept, 2008 which was withdrawn retrospectively w.e.f. 01.07.2008 by the Assistant Commissioner on the ground that Rule 19 is not applicable. The Adjudicating Authority relied upon the judgment given in the case of Collector v/s Himdari Electricals (Pvt) Ltd [1998 (102) ELT A 223 (SC)] which upheld the judgment reported at 1987 (29) ELT 140 (Tribunal). In this judgment it was held that demand, if any, can only be raised from the date of withdrawal of permission and not for a period of six months prior to such withdrawal.

Ø In the end the Adjudicating Authority held that proceeding initiated against the assessee are not sustainable. It was also taken note that the demand on the similar issue was already been dropped by the Commissioner in the case of M/s Dinesh Tobacco Industries- Unit-II.

Decision of the Adjudicating Authority: -

Proceedings initiated against the assessee were dropped.

Comments: -

Thus, it is crystal clear when the exporter has executed the bond and the manufacturer has supplied the material then the demand cannot be fastened on the manufacturer who has supplied the material at nil rate of duty to the exporter. The exporter has got the benefit of nil rate of duty material. He has opted for the compounded scheme. As such, he is liable for payment of duty, if any. Thus, the manufacturer cannot be held liable for the same.

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PJ/CASE STUDY/2009-10/035
23 March 2010

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