Madras High Court
The Commissioner Of Central Excise vs M/S.Sundaram Clayton Limited on 5 December, 2014
Bench: R.Sudhakar, R.Karuppiah
In the High Court of Judicature at Madras
Dated: 05.12.2014
Coram
The Honourable Mr.JUSTICE R.SUDHAKAR
and
The Honourable Mr.JUSTICE R.KARUPPIAH
Civil Miscellaneous Appeal No.968 of 2009
& M.P.No.1 of 2009
The Commissioner of Central Excise,
Chennai II Commissionerate,
No.692, MHU Complex,
Anna Salai,
Nandanam, Chennai - 600 035.
.... Appellant
Vs.
1. M/s.Sundaram Clayton Limited,
Padi, Chennai - 600 050.
2. The Customs, Excise and Service Tax
Appellante Tribunal,
South Zonal Bench, Shastri Bhavan Annexe,
1st Floor, No.26, Haddows Road,
Chennai 600 006.
.... Respondent
APPEAL under Section 35-G of the Central Excise Act against the Final order dated 25.08.2008 made in Final Order No.916 of 2008 on the file of the Customs, Excise and Service Tax Appellate Tribunal, Chennai.
For Appellant : Mr.K.Mohama Murali
For Respondent: No appearance - R1
--------
J U D G M E N T
(Delivered by R.SUDHAKAR,J.) This Civil Miscellaneous Appeal is filed by the Revenue as against the order of the Customs, Excise and Service Tax Appellate Tribunal raising the following substantial questions of law:
1. Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the aluminium castings in question were tailored for spring brake chambers ordered by the Motor Vehicle factory of the defence Ministry and that these castings were not fit for use by Private Motor vehicle Manufacturers?
2. Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the marketing of the aluminium castings manufactured by the 1st respondent and transfer of information of the same to other persons were forbidden under the agreement entered into between the 1st respondent and the Defence Ministry under the provisions of official Secret Act?
3. Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the aluminium castings in question were not capable of being marketed and, therefore, no duty of excise was leviable?
4. Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the respondents are entitled to claim exemption of duty on aluminium castings that are intermediate products under Notification no.217/86-CE and 67/95 CE despite the fact that the final product was cleared without payment of duty?
5. Whether on the facts and circumstances of the case, the tribunal ought not to have held that the essential ingredients of the Notification No.217/86 CE and 67/95-CE were not satisfied?
2. Even though notice has been served on the first respondent and the name of the first respondent is printed in the cause list, none appears for the first respondent. Hence, after hearing the learned Standing Counsel appearing for the appellant and after perusing the materials placed before this Court, we pass the following order.
3. The brief facts are as follows:
The first respondent is engaged in the manufacture of excisable goods including spring brake chambers. The period in dispute is October, 1991 to March, 1996. During this period, the first respondent manufactured spring brake chambers for the vehicles factory run by the Ministry of Defence. The goods were manufactured out of aluminium ingots which were got manufactured by job workers, to whom the appellants supplied aluminium metal, after availing MODVAT credit, under Rule 57F(2) and (3) of the Central Excise Rules, 1944 for conversion into ingots. During the course of manufacture of final product (spring brake chamber) out of aluminium ingots in the appellant's factory, aluminium castings emerged as an intermediate, which were captively consumed in the manufacture of the final product. This captive clearance of the castings was made without payment of duty by the first respondent by availing the benefit of Notification No.217/86-CE, which granted the facility of duty-free procurement of job-worked goods and Notification No.67/95-CE, which granted exemption from payment of duty on inputs manufactured and captively consumed in the factory of production of final product. The final product, namely, spring brake chambers, was cleared from the vehicle factory without payment of duty in terms of Notification No.239/86-CE and 64/95-CE. The Department demanded duty on the aluminium castings on the ground that the benefit of Notification No.67/95-CE was not admissible to the said commodity as the final products had been exempted from payment of duty under the relevant notifications.
4. The first respondent contested this demand by submitting that the castings were not marketable and hence not dutiable. The first respondent relied on the terms and conditions of the agreement between them and the vehicle factory of the Defence Ministry. It was pointed out that under the agreement, the first respondent was prevented from selling or marketing the castings or passing on any information about the same to any other persons for strategic reasons as indicated by the Defence Ministry.
5. The Adjudicating Authority found this submission of the first respondent to be factually true and held that the aluminium castings, out of which the finished goods were manufactured and cleared to the vehicles factory of the Defence Ministry, were not capable of being marketed. It was also found that the marketability of castings was not otherwise established by the Department. As a result, the demand of duty raised was dropped.
6. As against this order of adjudication, the Department preferred an appeal before the Commissioner (Appeals), who allowed the appeal. Thereafter, the first respondent pursued the matter before the Tribunal. The Tribunal came to hold that castings were not fit for use by private motor vehicle manufacturers and there is no market for these castings and even transfer of information about the same to other persons were forbidden under the agreement between the first respondent and the Defence Ministry. The Tribunal further held that the aluminium castings in question were not capable of being marketed and hence the commodity does not suffer any duty of excise. Accordingly, the Tribunal set aside the order of the Commissioner (Appeals), thereby, confirmed the order of the Original Authority. Aggrieved by the said order of the Tribunal, the Revenue is before this Court raising the above-mentioned substantial questions of law.
7. Admittedly, the facts are not in dispute. It is seen that as per the agreement between the first respondent and Vehicle Factory of the Defence Ministry, the first respondent was prevented from selling or marketing the castings or passing on any information about the same to any other persons. Hence, the finding of the Original Authority as well as the Tribunal that aluminium castings in question were not marketable is justified. Accordingly, we find that substantial question of law Nos.1 to 3 are pure questions of fact and hence, the same are answered against the Revenue and in favour of the first respondent/assessee.
8. With regard to the fourth and fifth substantial question of laws are concerned, we find that the Commissioner (Appeals) has rendered a finding in paragraph Nos. 7, 8, and 9, which reads as follows:
"From the records, I observe that the respondent company have entered into an agreement with the Vehicle Factory, Jabalpur for supply of Spring Brake Actuation Equipment without payment of duty under Notification 239/86 and 64/95. In the grounds of appeal, the Department argued that when the final products are exempt, duty has to be levied on the capitvely consumed goods as per Notification 217/86 and 67/95. It is not disputed that the final products are cleared to Defence Establishment and the same are exempted vide Notification 239/86 and 64/95.
8. I find force in the Department's arguments both with regard to the applicability of exemption notification and marketability. The lower authority has not examined the applicability of the notification but confined to examination of marketability aspect alone. It is an accepted fact that the final product namely, Spring Brake Actuation equipment is cleared without payment of duty under Notification No.239/86 and 64/95. In the manufacture of the above said final product, the aluminium castings are used. These castings are manufactured in the factory premises itself and captively consumed. For such captive consumption, Notification No.217/86 and 67/95 have been availed by the respondent. This is not proper in my view as these two notifications are not applicable when the final product is exempted. For the sake of easy understanding, let me reproduce the relevant portion of the notification as under:-
"Exemption to all capital goods and inputs if captively consumed within the factory of production- In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts -
(i).....
(ii) goods specified in column (2) of the Table hereto annexed (hereinafter referred to as 'inputs') manufactured in a factory and used within the factory of production in or in relation to the manufacture of final products specified in column (3) of the said Table;
from the whole of the duty of excise leviable thereon which is specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products (other than those cleared to a unit in a Free Trade Zone or to a hundred per cent Export Oriented Undertaking or to a unit in an Electronic Hardware Technology Park or to a unit in Software Technology Parks or supplied to the United Nations or an International Organisation for their official use or supplied to projects funded by the United Nations or an International Organiation, on which exemption of duty is available under the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.108/95 - Central Excises, dated the 28th August, 1995 which are exempt from the whole of duty of excise leviable thereon or are chargeable to 'Nil' rate of duty.
Explanation - ...."
9. From the plain reading of the above notification, it is clear that except for few categories like 100% EOU etc.- the exemption on inputs will not be available if the final product is exempt. In the instant case, as the final product namely is exempted, I hold the view that input exemption on the aluminium castings is not available and hence chargeable to duty."
9. The above-said issue, as rightly pointed out by the Commissioner (Appeals), has not been addressed by the Adjudicating Authority or by the Tribunal. Hence, there appears to be an error apparent on the face of the record and the Original Authority is required to consider this issue, which has been raised in the show cause notice.
10. In the result, we are inclined to remand the matter to the Adjudicating Authority to consider the issue relating to applicability of the notifications, vis-a-vis the exemption of duty on aluminium castings that are intermediate products for the clearance of such goods.
11. This Civil Miscellaneous appeal is disposed of in the above terms. No costs. Consequently, connected Miscellaneous Petition is closed.
Index :Yes/No (R.S.,J) (R.K.,J)
Internet:Yes/No 05.12.2014
sl
To
1. The Customs, Excise and Service Tax Appellate Tribunal, Chennai.
2. The Commissioner of Service Tax, Chennai II Commissionerate,
No.692, MHU Complex, Anna Salai, Nandanam, Chennai - 600 035.
R.SUDHAKAR,J.
AND
R.KARUPPIAH,J.
Sl
C.M.A.No.968 of 2009
& M.P.No.1 of 2009
05.12.2014