Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/002

22 July 2009

CASE STUDY

INTRODUCTION

The compound levy scheme is a scheme under which an assessee can pay duty at a fixed rate on the basis of no. of machines installed which are producing final products. As per Rule 96 ZB (2) the assessee is required to pay duty which is to be calculated by applying such rate to the maximum number of cold rolling machines installed by or on behalf of such manufacturer in one/more premises at any time during 3 calendar months immediately preceding the calendar month. However, if one machine has been dismantled, then also is he required to pay duty on the basis of maximum number of machines installed at any time in 3 preceding calendar months even though there is no production from dismantled machinery? This question was raised in the following case which we are going to study.

RELEVANT PROVISIONS

Rules 96 ZB (2) of the Central Excise Rules, 1944:- The sum payable under sub-rule (1) shall be calculated by application of such 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 rule 96ZC is made.

Rule 96ZC of the Central Excise Rules, 1944:-Manufacturer's declaration and accounts.- (1) Such manufacturer shall, at any time during the calendar month immediately preceding any month or part thereof, as the case may be, in respect of which he has been permitted to avail himself of the provision of this section, make an application to the proper officer in the proper Form for leave to remove stainless steel pattis/pattas, or aluminium circles from his premises during the ensuing month, declaring therein the maximum number of cold rolling machines installed by him or on his behalf, in one or more premises at any time during three calendar month immediately preceding the said calendar month.

(2) If such application is not made to the proper officer within the time limit laid down in sub-rule (1), the manufacturer shall, unless, otherwise directed by the Commissioner, and in exceptional circumstances, be liable to pay duty on his entire production of stainless steel pattis/pattas, or aluminium circles during the month or part thereof in respect of which the application was to be made, at the rate prescribed in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) read with any relevant notification or notifications issued under sub-section (1) of section 5A of the Act.

(3) Such manufacturer shall also intimate the proper officer in writing of any proposed change in the number of cold rolling machines installed by him or on his behalf, and obtain the written approval of such officer before making any such change.

M/s Collector of Central Excise, Jaipur-II v/s Jupiter Industries

[2006 (206) ELT 1195 (Raj.)]

BRIEF FACTS OF THE CASE

- The respondent-assessee is engaged in the manufacture of stainless steel pattas/patties falling under Chapter 72 of the Central Excise and Tariff Act. He had opted for levy and payment of excise duty under compound levy scheme as contained in Chapter E-VI of the Central Excise Rules, 1944 (containing provisions from 96ZA to 96ZGG. Assessee had obtained permission under Rule 96ZA from the Commissioner for availing the special procedure for payment of duty i.e. compound levy.

- Assessee had two cold rolling machines and he dismantled one machine on 29^th May, 1998. For this he had given intimation to the Assistant Commissioner and who had given his approval to so. Thus, after 29^th May, 1998 only one machine was operating and producing patta/patties on which the compound duty was leviable.

- The Competent Authority was of the opinion that the assessee was required to pay duty for 3 successive months even after the removal of one cold rolling machine at the compound rate in terms of sub-rule (2) of Rule 96ZB read with Rule 96AC. Therefore, he called upon the assessee to pay additional duty.

- Assessee paid the additional duty under protest but challenged the levy of such duty and applied for refund of such duty paid in excess by him. Assessee believed that w.e.f. 1-6-98, he was liable to pay compound duty only in respect of one cold rolling machine which was in operation, at the rate prescribed at the relevant time for per month per machine.

- The Assistant Commissioner vide Order dated 24.02.99 rejected the claim of the assessee.

- Assessee filed further appeal before the Commissioner (Appeal). The learned Commissioner dismissed the appeal on 18-11-1999 holding that the duty is payable under Sub-Rule 96ZB and the amount is required to be calculated by applying such rates to the maximum number of cold rolling machines installed by or on behalf of such manufacturer at one or more premises at any time during 3 calendar months immediately preceding the calendar month in which the application under Section 96ZC is made. On this basis, the Commissioner was of the opinion that the provisions of Section 96ZB is very clear and does not give any power for calculating the aforesaid duty only on the actual number of machines installed and working during the period.

- Assessee then approached the Hon’ble Tribunal. Tribunal was of the opinion that none of the Rules under Chapter E-VI contemplates charge of duty after the machine has been dismantled and production of that machine is discontinued and there is no bar also contained in the special procedure as per rules or in Section 11B prohibiting refund of excess duty paid by an assessee working under the Special Procedure Rules. The Tribunal was of the opinion that since there is no dispute that in the case of assessee, the machine was dismantled on 29-5-1998 and found that despite the said fact, duty was ordered to be paid in respect of dismantled machine for 3 months i.e. June 98 to August 98, this payment was clearly in excess of the sum payable under Compounded Levy Scheme. It was held that the said amount is refundable in terms of Section 11B of the Central Excise Act. It was held that the Lower Authorities were in error in holding that the refund was not permissible in terms of Rules relating to Special Levy. Therefore, the Tribunal set aside the orders denying the refund and upheld the contention of the assessee and allowed the appeal vide its order dated 08.08.01.

- Against the order of the Tribunal, Revenue had filed an application under Section 35H seeking reference of the question of law arising from the Tribunal’s order. The question was directed to be referred for decision by the High Court

QUESTION FOR CONSIDERATION

The question referred to the High Court was as under:-

“Whether the CEGAT can allow refund under Section 11B of Central Excise Act, 1944 when it was specifically not allowed by the sub rule (2) of the Rule 96ZB of Central Excise Rules, 1944?”

JUDGMENT OF HIGH COURT

v High Court held that the interpretation of Rules 96ZB (2) and Rule 96ZC as reached by the Revenue would render the provisions redundant.

v A distinction has to be drawn in this context between requirement of application under Section 96ZC before removing the goods and the requirement of intimating the officer before removing the machine itself. The application is in respect of removal of the manufactured articles from the premises whereas intimation only is needed in respect of change in machines installed in the factory premises.

v Apparently, the Assistant Commissioner as well as the Commissioner (Appeals) were under impression that application required under Rule 96ZC relates to removal of cold rolling machines whereas there is no such requirement of making such application in that regard.

v High Court held that it goes without saying that if in any particular month, no machine is operated and no production had taken place, there cannot be any levy of excise duty. The charging provision prescribed that manufacture of goods is condition precedent for charging of excise duty without which no levy can be made. Therefore, the rule cannot be made to go beyond the scope of charging provision.

v High Court held that in the present case, it is an undisputed fact that no production had taken place from the cold rolling machine which has been removed on 29th May, 1998. In other words, no production has been taken place in respect of cold rolling machine which ceased to operate before the first July, 1996, no review could have been allowed in respect of estimated production in that machine. This is the simple logic which has prevailed within the Tribunal and in their opinion rightly. No contrary view can be taken from the reading of the Rules also. The conclusion reached by the Tribunal was valid.

v It was further held that the question of invocation of unjust enrichment to deny refund does not arise as there was no production of any article in relation to the machine which was not in existence and therefore, the question of passing on duty to consumers of existing goods cannot arise. In the present case, goods have not at all been manufactured and yet on estimated basis of imaginary production duty has been demanded, the question of passing of such duty collected from the assessee to buyers of the non-existence production cannot arise.

v The direction of the Tribunal to refund excess amount received in respect of machine which had ceased to function during the month of July to August does not call for any interference.

DECISION OF HIGH COURT

Question referred to answered in affirmative that is in favour of the assessee and against the revenue. Appeal rejected.

COMMENTS & CONCLUSION

The issue involved was that was the assessee required to pay duty even when there was no production after dismantling of machine only because the Rule 96 ZB (2) provided that the duty is to be calculated by applying such rate to the maximum number of cold rolling machines installed by or on behalf of such manufacturer in one/more premises at any time during 3 calendar months immediately preceding the calendar month. However, the High Court rightfully held that it is only logical that when there is no production then there cannot be any levy of excise duty. It was also held correctly that rule cannot be made to go beyond the scope of charging provision.

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PJ/CASE STUDY/2009-10/002
22 July 2009

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