Custom, Excise & Service Tax Tribunal
Hyderabad Industries Ltd vs Hyderabad-Iii on 7 February, 2019
Appeal No. E/1077/2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Appeal No. E/1077/2010
(Arising out of Order-in-Original No. 01/2010 CE-Hyd-III-Adjn.
Commr. dated 23.02.2010 passed by Commissioner of Customs,
Central Excise & Service Tax, Hyderabad-III)
M/s Hyderabad Industries Limited .....Appellant(s)
Vs.
Commissioner of Customs, Central Excise
& Service Tax, Hyderabad - III .....Respondent(s)
Appearance Shri Bipin Verma, Advocate for the Appellant.
Shri Arun Kumar, Joint Commissioner (AR) for the Respondent. Coram:
Hon'ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL) Hon'ble Mr. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing: 08/01/2019 Date of Decision: 07/02/2019 FINAL ORDER No. A/30170/2019 [Order per: P. Venkata Subba Rao] This appeal is filed against Order-in-Original No. 01/2010 CE-Hyd-III-Adjn. Commr. dated 23.02.2010.
2. Heard both sides and perused the records. The appellants herein are registered with central excise Department and are engaged in the manufacture of Aerocon Panels falling under Chapter 68 of the 1 Appeal No. E/1077/2010 Central Excise Tariff Act. They cleared the goods at nil rate of duty claiming the benefit of exemption Notification No. 06/2002-CE dated 01.03.2002 upto February, 2006 and thereafter cleared the goods paying a concessional rate of duty by exemption Notification No. 05/2006 dated 01.03.2006. The period of dispute is April, 2004 to March, 2008.
3. Learned Counsel for the appellant explains the manufacturing process of the impugned goods as follows:
a) Flex-O-Board Sheets (FOB sheets) are procured from the parent company
b) A Slurry is prepared using raw materials such as fly ash, cement, gypsum, burnt lime, recron fibre etc.,
c) The slurry is poured between two FOB sheets
d) The slurry will rise to the surface due to chemical reaction
e) The panels are kept in moulds for initial setting then removed from the moulds and stacked for 10 to 12days
f) The panels are then shifted to curing chambers and after a period of 28 days the panels are ready.
4. The appellant procures the Flex-O-Board sheets (FOB sheets) from the parent unit in Sanathnagar. It is not in dispute that the goods manufactured by the appellant fall under chapter 68 and that they are claiming the benefit of exemptions indicated above. Notification No. 06/2002- CE dated 01.03.2002 exempted goods in which not less than 25% by weight of fly ash or phospho-gypsum or both have been used subject to the following condition. 2
Appeal No. E/1077/2010 "If the manufacturer maintains proper account in such form and in such manner as the commissioner of central excise having jurisdiction may specify in this behalf, for receipt and use of fly ash or phosphor-gypsum or both, in the manufacture of all goods falling under chapter 68 of the First Schedule and files a monthly return in the form and manner, as may be specified by such Commissioner of Central Excise, with the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as a case may be, having jurisdiction.
5. Notification No. 05/2006 dated 01.03.2006 also exempted from duty in excess of 8% if the goods are manufactured in which not less than 25% by weight or of fly ash or phosphor- gypsum or both have been used subject to the following condition:
"3. If the manufacturer maintains proper account in such form and in such manner as the Commissioner of Central Excise having jurisdiction may specify in this behalf, for receipt and use of fly-ash or phospho-gypsum or both, in the manufacture of all goods falling under Chapter 68 of the First Schedule and files a monthly return in the form and manner, as may be specified by such Commissioner of Central Excise, with the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction."
6. The dispute in this case whether the fly ash used in the manufacture of Flex-O-Board (by the sister unit of the appellant) 3 Appeal No. E/1077/2010 should also be reckoned or only the fly ash used in the manufacture of Aerocon panels should be considered for determining the eligibility of exemption. It is the case of the Revenue that the fly ash used in the manufacture of Aerocon sheets only can be considered while, it is the case of the appellant that the fly ash used in manufacture of their inputs viz., flexo boards should also be reckoned to determine the eligibility of the notification. It is the submission of the Learned Counsel that they cleared Aerocon panels which have more than 25% by weight of fly ash by weight correctly availing the benefit of the aforesaid two notifications. They have also filed monthly returns as per the notifications giving the fly ash used in the manufacture of Aerocon panels and they maintained records as required. The monthly returns filed by them specifically mentioned percentage of fly ash contained in the Flex-O-Boards as well as the percentage of fly ash used in the manufacture of Aerocon panels. During audit, it was observed that the appellants were not maintaining any batch-wise consumption particulars of the fly ash used in manufacture of slurry and are only maintaining day-wise production sheets and were also not maintaining any record for actual usage of fly ash at the time of mixing of each batch. Therefore, they were asked to submit a statement of showing quantities of various raw materials used in the manufacture of Aerocon panels. After examining the information, the appellants were issued a show cause notice on 07.05.2009 proposing to deny the benefit of aforesaid two notifications and demanding differential duty invoking extended period of time along with interest. It was also proposed to impose penalty under Section 11AC read with Rule 25 of Central Excise Rules, 2002. The appellant contested the 4 Appeal No. E/1077/2010 show cause notice on merits as well as on limitation. After following due process, the Learned Commissioner confirmed the demand along with interest and imposed penalty under Section 11AC. Hence this appeal.
7. Learned Counsel submits that the only point of contention is that the Aerocon panels which they cleared were not made using 25 % by weight of fly ash. It is his contention that the FOB sheets which they purchased from parent unit at Sanathnagar itself has more than 25% fly ash and then these boards were used and slurry was poured between them and the final panel which was manufactured does contain more than 25% fly-ash weight. However, if they ignore the fly ash contained in the FOB sheets then the percentage of fly ash falls below 25%. The Department seeks to deny them the benefit of exemption on the ground that they were not using 25% of fly ash by weight in their final products. He vehemently argued that such an interpretation of notification is incorrect and the notification nowhere said but the entire fly ash must be used within the factory of manufacture of final products. The fly ash contained in the inputs namely FOB sheets which they procure should also be reckoned. If such a view is taken they are clearly covered by exemption notification and therefore the demand does not sustain. He relies on the case of Eternit Everest Ltd., Vs. CCE, Indore [2002 (150) ELT 1151 (Tri. - Delhi)] in which, it was held that the actual weight of fly ash contained in the final products should be considered for the purpose of claiming benefit of Notification No. 79/1993-CE. He also placed reliance on the decision of Minwool Rock Fibres Ltd., [2010 (251) ELT 389 (Tri. - 5
Appeal No. E/1077/2010 Bang.)] wherein, it was held that the assessee is entitled to the benefit of Notification No. 03/2005 even if the material, namely blast furnace slag was not used by them in their factory as holding such a narrow interpretation of the language of the notification will defeat its purpose. He further submits that this decision of the Hon'ble Tribunal was upheld by the Apex Court as reported in [2013 (288) ELT A80 (S.C)]. He further relies on the case of Tata Oil Mills Vs. Collector of CE [1989 (43) ELT 183 (S.C)] wherein, the issue was eligibility of exemption notification No. 46/1972. This notification granted a concession if the percentage of the rice bran oil used in the manufacture of soap exceeded fifteen per cent of the total oil consumption in the manufacture. Assessee availed the benefit of this notification but had not used rice bran oil but manufactured the soap out of rice bran fatty acid which, in turn, has been obtained by hydrolysis of rice bran oil in a different factory. The Hon'ble Apex Court allowed the benefit of this exemption notification.
8. Notwithstanding the contention on the merits of the case, Learned Counsel argued that the extended period of limitation is not applicable as they have not suppressed any facts or manipulated the quantity of fly ash used with an intent to evade payment of duty. They had filed periodical returns, maintained records and declared that there were availing the benefit of exemption. All facts were in the knowledge of Department which sought more information at the time of audit which they provided. When all the facts are within the knowledge of department the extended period of limitation cannot be invoked and they have not suppressed any facts in the matter. 6
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9. Learned Departmental Representative, on the other hand submits that the goods in question need to be assessed as they are manufactured. The goods in question in this case are the Aerocon panels. These panels are made up of FOB sheets and slurry made from a number of materials including the fly ash. There is nothing in the notification to indicate that the fly ash contained in the inputs used by the appellant will entitle them to exemption notification. Both notifications are similarly worded and exempt goods in which not less than 25% by weight of fly ash or phospo-gypsum or both have been used. In this case fly ash is an input and so were also gypsum and FOB sheets. The input content each of the input need not be looked into and a plain reading of the exemption notification does not indicate that the composition of individual inputs entitle the appellant to the benefit of the exemption notification. Therefore the amount of fly ash used by the appellant in their process of manufacture only can be considered. Therefore, the exemption notification cannot be interpret to stretch it is manner. It should be read as it has been drafted.
10. He further argued that even, if more than one interpretation is possible, exemption notification, being an exception to the general rule must be strictly construed against the assessee. In case of any doubt, the benefit of doubt should go to the Revenue as has been held by the Hon'be Apex Court of the constitutional bench judgment in the case of Dilip Kumar & Co & Others [Civil Appeal No. 3327/2007 dated 30.07.2018]. He further argues that the extended period of limitation has been correctly invoked and the penalties have been correctly imposed. Therefore, the appeal may be dismissed. 7
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11. We have considered the arguments on both sides and perused the records. The simple point to be decided is whether the benefit of the exemption notifications should be extended in cases where the fly ash used by the appellant in manufacture of the final product less than 25% but the fly ash contained in the inputs which have been used together with the fly ash used by the appellant together exceeds 25%. In the case of Tata Oil Mills Co. Ltd., (supra) wherein, exemption to soap was on use of rice bran oil in its manufacture, the Hon'ble Apex Court extended the benefit where rice bran fatty acid produced in outside factory from rice bran oil is used by the assessee in manufacture and no rice bran oil was used as required in the notification. While holding so, the Hon'ble Apex Court held that in interpreting exemption notification the object and purpose of the exemption should be considered and even if there is difficulty in working out of the rice bran oil if the fatty acid is supplied by other factories, the benefit of exemption condition the exemption should not be denied. Similarly, in the case of Minwool Rock Fibres Ltd., (supra) wherein, mineral wool was manufactured in factory premises of assessee was exempted if it had more than 25% by weight of press mud, red mud and blast furnace slag or one or more than of these materials have been used. Relying on the judgment of the Hon'ble Apex Court in the case of Tata Oil Mills Co. Ltd., (supra), it was held by the Tribunal that the assessee is entitled to the benefit of the exemption notification. An appeal filed by the Revenue against this order was dismissed by the Supreme Court as reported in [2013 (288) ELT A80 (S.C)]. Therefore, the issue has reached finality in this case as well. As may be seen in both cases the intention of the exemption 8 Appeal No. E/1077/2010 notification was considered while interpreting it in favour of the assessee. There were a number of judgments at various levels including by the Hon'ble Supreme Court on how to interpret exemption notifications. The general view has been that an exemption notification must be strictly interpreted. Wherever it is a beneficial notification, the object of such notification was to be considered to interpret it. This is also evident by the judgement of the Hon'ble Apex Court in the case of Tata Oil Mills Co. Ltd., (supra). In view of the conflicting decisions regarding how exemption notifications should be interpreted, the matter was referred to the five member constitutional bench of Hon'ble Apex Court in the case of Dilip Kumar & Co. & Others [Civil Appeal No. 3327/2007 dated 30.07.2018] which laid down the law. According to this judgment, any exemption notification must be strictly construed. In case of any doubt as to whether the benefit of exemption notification will be available or otherwise the benefit of doubt should go to the revenue and against the assessee.
12. In this case, a plain reading of the exemption notification shows that of the various materials used in the manufacture of final products 25% must be fly ash. It does not indicate this 25% will also include any fly ash that might have been used in the course of manufacture of the inputs by the suppliers of the assessee. It also does not indicate, on the other hand, that the fly ash must be used in the manufacture of final products itself. Therefore, two views are possible in interpreting this notification:
a) that the 25% of fly ash must be used in the manufacture of final products without any reference to the composition of other inputs. 9
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b) that the 25% includes any fly ash which may have been used in the manufacture of the inputs themselves. The Department took the first view and the assessee argues the second. This is a matter of doubt and the benefit of doubt must go in favour of the Revenue and against the assessee in view of the law laid down by the constitutional bench by the Hon'ble Apex Court. Hence on merits, we find that the assessee is not entitled to the notification.
13. On the question of limitation, we have gone through the show cause notice and the impugned order and do not find that the assessee failed in his duties in maintaining the records as required. The trade notice issued by the Commissioner does not mandate the assessee maintain batch wise records. They also produced the details of the records maintained by them. They have also given data of the fly ash content of the inputs (FOB sheets) which they received from their parent unit. Under these circumstances, we find that there is no ground to allege fraud or collusion or willful misstatement or suppression of facts or contravention of any provisions of the Act or Rules with an intent to evade payment of duty. Under these circumstances, we find that the extended period of limitation cannot be invoked. Therefore, the demand of duty and interest within the normal period only can be confirmed. In view of findings recorded fraud, collusion, willful misstatement and suppression of facts, we also find that penalty under Section 11AC is liable to be set aside.
14. In view of the findings, the impugned order is modified as follows:
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i) the demand of duty and interest within the normal period is confirmed and the demand for the extended period is set aside.
ii) the penalty imposed under Section 11AC is set aside.
15. The appeal is disposed of as herein above.
(Order pronounced in open court on 07/02/2019)
P. VENKATA SUBBA RAO M.V. RAVINDRAN
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
Lakshmi....
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