Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/004

01 August 2009

CASE STUDY

INTRODUCTION

There is special procedure for the manufacturers of Stainless steel patta patti as contained in the Notification no. 17/2007-C.E.01.03.2007. The department said that the duty is to be paid for the next three months on dismantled machines as per notification. But the Hon’ble Rajasthan High Court has said that the duty is not to be deposited for next three months. A case study has been prepared by us on the same and published on the website. In this case, the machine was dismantled in the middle of the month for which the duty was already deposited. Whether the refund of the same will be granted by the department?

Just because the provisions of Para 8 read with Para 6 of the Notification No. 17/2007-CE, dated 01.03.07 led to a conclusion that if an assessee recommences/restarts the production from previously dismantled machine, within the period of 3 months, he will not be refunded the duty paid by him for such period; can refund be denied eventhough there was no production from such machines. This is the issue involved in the case we are studying in this case study.

RELEVANT PROVISIONS

Para 6 of Notification No. 17/2007-CE, dated 01.03.07:-Provisions regarding new factories and closed factories resuming production. - (1) In the case of a manufacturer who commences production for the first time or who recommences production after having ceased production for a continuous period of not less than three months, and who has been permitted by the Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be, under paragraph 2 to avail of the procedure, the amount payable by him for the first month or part thereof, as the case may be, shall be provisionally calculated on the basis of his declaration of the maximum number of cold rolling machines that are or are likely to be installed by him or on his behalf during such period.

(2) At the expiry of the period, the amount payable shall be recalculated on the basis of the maximum number of cold rolling machines actually installed and if the initial payment falls short of the total liability so determined, the deficiency shall be recovered from the manufacturer and where the total liability is less than the initial deposit, the balance shall be refunded to the manufacturer.

Para 8 of Notification No. 17/2007-CE, dated 01.03.07:- Provision regarding factories ceasing to work or reverting to the normal procedure. - Notwithstanding anything contained in this notification, where a manufacturer who had availed himself of the procedure contained in this notification ceases to work or reverts to the normal procedure, the duty payable by him in the month during which he has availed himself of the procedure shall be calculated on the basis of the maximum number of cold rolling machines installed during the last month in the manner prescribed in paragraph 6 and the amount already paid for the month in accordance with paragraph 3 shall be adjusted towards the duty so calculated and on such adjustment if there is any excess payment it shall be refunded to the manufacturer and any deficiency in duty shall be recovered from the manufacturer.

Explanation. - A manufacturer, who ceases to work his factory for one or two shifts only, shall not be deemed to have ceased to work within the meaning of this notification.

M/s Sidhi Vinayak Industries, Jodhpur v/s CCE, Jodhpur

BRIEF FACTS OF THE CASE

- The assessee is engaged in the manufacturing of Stainless Steel Cold Rolled Patta/Patti and is working under the compound levy scheme under Notification No. 17/2007-CE dated 01.03.09. It was paying central excise duty @ Rs. 30, 000/- per machine per month (the then prescribed rate under the afore-said Notification)

- The assessee had deposited duty of Rs. 60,000/- for 2 machines installed and being operated in his factory on 29.09.08 for the month of October, 2008.

- The assessee dismantled both the machines w.e.f. 15.10.2008 and had informed of their intention to do so to the Range Office and obtained permission as per clause 4 (3) of impugned Notification No. 17/2007-CE.

- The assessee re-started/recommenced the production after one and half month i.e. in January, 2009.

- The assessee claimed refund of central excise duty proportionately for the period from 16.10.08 to 31.10.08, saying that the machines were not in operation and as such there should not be any duty as per Jodhpur High Court decision in case of Jupiter Industries. The concept of unjust enrichment is not applicable as there was no production from the machines and as such the question of passing on the duty incidence to buyers does not arise.

- The Department issued the show cause notice on the ground that the assessee had recommenced the production after one and half month, therefore, the condition of para 8 read with para 6 of the said Notification was not satisfied. As such the refund claim is not admissible.

QUESTION FOR CONSIDERATION

The question for consideration before the Adjudication officer was whether duty can be paid for the period the machines were dismantled and there was no production only because the provisions of para 8 read with para 6 of the Notification No. 17/2007-CE, disallowed it? Whether the interpretation of said provisions by the Department was correct?

CONTENTION OF THE DEPARTMENT

The contention raised by the Department was that in view of the provisions of Para 8 r/w Para 6 of the said Notification, since the assessee has recommenced the production after one and half month i.e. before 3 months, therefore, the conditions of recalculation under Para 8 r/w Para 6 is not satisfied by the assessee. Therefore, the refund claimed by the assessee is not admissible in terms of the said provisions.

CONTENTION OF THE ASSESSEE

- The assessee contended that the analysis of para 8 clearly shows that the provisions of this para applies to a compound unit which ceases to work or reverts to the normal procedure. In such a case, the duty payable for that month will be calculated in the manner prescribed in para 6 of the said Notification. The said para also clarifies that for the purpose of calculating this duty, the basis to be taken is the maximum no. of cold rolling machines installed during the last month. It is amply clear that provisions of para 6 are to be imported only to the extent they serve the purpose of duty calculation. The language of para 8 clears that all the provisions of para 6 will not be applicable in such cases of ceasing of production. The contention of the department is not sustainable.

- The assessee further contends that the duty paid during the month will be compared with the duty payable on the basis of no. of machines actually operated for the no. of days.

- The assessee has relied upon the judgment of Rajasthan High Court delivered in the case of Collector of Central Excise, Jaipur-II vs Jupiter Industries [2006 (206) ELT 1195 (Raj.)] in which it was held that no duty will be leviable for the period when machine is not installed/operated. It was held that the 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.

On the basis of this judgment, assessee has contended that duty will not be payable for the period when the machine is not installed/operated.

JUDGMENT OF ADJUDICATING AUTHORITY

v The Adjudication Authority has relied upon the judgment of the CESTAT, New Delhi given in its order dated 08.08.2001 [2001 (137) ELT 1018 (Tri.-Del.)]. The CESTAT had held that none of the Rules under Chapter E-VI [relating to issue raised in that matter] contemplates charge of duty after the machines have 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 which prohibits refund of excess duty paid by an assessee working under the Special Procedure Rules.

The CETAT had held that duty paid for the months the machines were dismantled was in excess of the sum payable under the Special Procedure Rules and the said amount is to be refunded in terms of Section 11B of the Central Excise Act.

v The learned officer has also relied upon the judgment of the High Court of Rajasthan in the case of Collector of Central Excise, Jaipur-II vs Jupiter Industries [2006 (206) ELT 1195 (Raj.)]. This judgment which was cited by the assessee was held to be relevant to the facts of the assessee’s case.

DECISION OF APPELLATE AUTHORITY

The refund claim filed by the assessee on account of stopping of work under the compound levy scheme in terms of Notification No. 17/2007-CE, dated 01.03.07 is admissible to the assessee. Refund is allowed.

COMMENTS & CONCLUSION

The Order-in-original has given a correct and justified decision. It is very apparent that when there is no production from machines which were dismantled, then no duty becomes payable for that period of non-production. The conclusion reached by the Department was not only absurd but also was not in favour of the assessee. It was also against the judicial pronouncements given by the Appellate Authorities that the rules cannot be made to go beyond the scope of charging provisions.

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PJ/CASE STUDY/2009-10/004
01 August 2009

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