Custom, Excise & Service Tax Tribunal
Dharampal Premchand Ltd vs Shillong on 3 August, 2023
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
KOLKATA
EASTERN ZONAL BENCH: KOLKATA
Excise Appeal No. 76155 of 2018
(Arising out of Order-in-Original No. CCE/Shillong/ No. 02/2016 dated
28.01.2016 passed by Commissioner of Central Excise, Shillong.)
M/s Dharampal Premchand Ltd.,
Shed No. 13, Arundhuti Nagar, Agartala, Tripuna, Pin-799003.
...Appellant (s)
VERSUS
Commissioner of CGST & Central Excise, Shillong.
Morello Compound, M.G. Road, Shillong-793001.
. ..Respondent(s)
With
Excise Appeal No. 76156 of 2018
(Arising out of Order-in-Original No. CCE/Shillong/ No. 01/2016 dated
28.01.2016 passed by Commissioner of Central Excise, Shillong.)
M/s Dharampal Satyapal Ltd.,
Shed No. 14 & 15, Arundhuti Nagar, Industrial Estate, Agartala, Tripura-799003.
...Appellant (s)
VERSUS
Commissioner of CGST & Central Excise, Shillong,
Morello Compound, M.G. road, Near, DC Office, (Kachari), Shillong, Meghalaya-793001.
. ..Respondent (s)
And
Excise Appeal No. 76157 of 2018
(Arising out of Order-in-Original No. CCE/Shillong/ No. 03/2016 dated
28.01.2016 passed by Commissioner of Central Excise, Shillong.)
M/s Satyapal Shiv Kumar,
S. No. 26B, Khaitan No. 4325, Arundhati Nagar, Industrial Estate, Agartala,
...Appellant (s)
VERSUS
Commissioner of CGST & Central Excise, Shillong,
Morello Compound, M.G. road, Near, DC Office, (Kachari), Shillong, Meghalaya-793001.
. ..Respondent(s)
APPERANCE :
Shri T. R. Rostagi, Advocate for the Appellant
Shri S. Mukhopadhyay, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. ASHOK JINDAL, MEMBER (JUDICIAL)
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Excise Appeal Nos. 76155-76157/2023
HON'BLE MR. K. ANPAZHAKAN MEMBER (TECHNICAL)
FINAL ORDER No......76294-76296/2023
DATE OF HEARING : 28.07.2023
DATE OF PRONOUNCEMENT: 03.08.2023
PER K. ANPAZHAKAN :
There are three appeals, wherein the issues involved are common.
Accordingly, all three appeals are taken up together for disposal by a
common order.
Excise Appeal No. 76155 of 2018
This Appeal is filed by M/s Dharampal Premchand Ltd., against the
Order-in-Original No. 02/2016 dated 28.01.2016 passed by
Commissioner of Central Excise, Shillong, wherein the demand of
Rs.98,03,22,312 raised in the Notice dated 31.05.2012 was confirmed
along with interest and equal amount of duty as penalty.
Excise Appeal No. 76156 of 2018
This appeal is filed by M/s Dharampal Satyapal Ltd., against the Order-
in-Original No. 01/2016 dated 28.01.2016 passed by Commissioner of
Central Excise, Shillong, wherein the demand of Rs.101,83,69,342
raise in the Notice dated 07.09.2009 was confirmed along with interest
and equal amount of duty as penalty.
Excise Appeal No. 76157 of 2018
This appeal is filed by M/s Satyapal Shiv Kumar, against the Order-in-
Original No. 03/2016 dated 28.01.2016 passed by Commissioner of
Central Excise, Shillong, wherein the demand of Rs.2,58,54,193 raised
in the Notice dated 13.01.2009, was confirmed along with interest and
penalty.
2. Briefly stated facts of the case are that all the three Appellants
mentioned above are manufacturers of Chewing Tobacco and availed
exemption from Central Excise duty under Notification No. 8/2004 CE-
Dated 21.01.2004.The exemption under this notification was available
to the Appellants subject to satisfaction of certain conditions. The main
condition to avail the benefit of the said Notification is that the the
beneficiary manufacturers were required to utilize an amount equal to
the duty payable but for the exemption in the above said Notification
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Excise Appeal Nos. 76155-76157/2023
only for investment in plant and machinery in their manufacturing units
located in North East area or in infrastructure or civil works or social
projects in North East.
3. For manufacture of their finished goods namely, Chewing Tobacco,
the Appellants manufactured an intermediate product called 'Compound'
which was used for captive consumption in the same factory. Some of
the major ingredients used in the manufacture of 'Compund' are
Sandalwood Oil, Attar Hina, Kimam, Menthol, NEW Masala etc. The
blended 'Compound' is then mixed with raw tobacco leaves/silver etc.
for manufacture of Chewing Tobacco. The Appellants have availed the
benefit of Notification 52/2002 CE dated 17.10.2002 and not paid
Central Excise duty on the intermediate product 'Compound' as the
same was consumed captively. Notification 52/2002 dated 17.10.2002
exempts all goods falling under Tariff Heading 21069020 and Chapter
24 of the First schedule to the CETA, 1985 manufactured in a factory
and used within the said factory for manufacture of final products. The
benefit of this Notification is, however, not applicable where the final
products are exempt from the whole of duty of excise leviable thereon.
The department has raised the issue that ' Compound' manufactured
and consumed within the factory are liable to central excise duty, as
their finished goods Chewing Tobacco manufactured out of the said
compound were exempt from whole of Central Excise duty as per
Notification 8/2004-CE dated 21.01.2004.
4. Accordingly, Show Cause Notices were issued to the Appellants and
were adjudicated by the Ld. Commissioner vide Order-in-Original
6/2012, 05/2012 and 04/2012 all dated 31.05.2012, confirming the
duty demanded in the Notices along with interest and penalty, as
tabulated below:
Sl No. Name of the party & Appeal No. Duty & Penalty Period
1) M/s Satyapal Shivkumar Duty 21.01.2004 to
(E/A/552/2012) Rs.2,58,54,193/- 28.02.2007
Penalty:-
Rs.2,58,54,193/-
2) M/s Dharampal Premchand Ltd., Duty Do
(E/A/553/2012) Rs.98,03,22,312/-
Rs.98,03,22,312/-
3) M/s Dharampal Satyapal ltd., Duty Do
(E/A/573/2012) Rs.101,83,69,342/-
Penalty
Rs.101,83,69,342/-
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Excise Appeal Nos. 76155-76157/2023
5. Aggrieved against the said order, all the three Appellants filed
appeals before the Tribunal, Kolkata, which were disposed off by the
Tribunal vide a common Order No. FO/A/75415-75417/2015, dated
30.07.2015, remanding the matter to the adjudicating authority to
decide the issue afresh. The observations made by the Tribunal while
remanding the cases, are reproduced below;
"7.1. We find that issue involved in all the appeals are identical
and therefore, they are disposed by this common order.
7.2. During the relevant period, the appellants manufactured
compound and clared them without payment of duty for captive
consumption in their own factory for manufacture of chewing tobacco
which is wholly exempt under Notification No. 8/2004-CE dated
21.01.2004. the said compound classifiable under Chapter Heading
2404.41 of CETA, 1985 and under 24039930 after 28.02.2005, is
specified in the Notification No. 8/2004 and there is no dispute about
this.
7.3. The issue involved is whether the appellants are eligible for
exemption on compound under Notification No. 52/2002, as their
finished products i.e. chewing tobacco are wholly exempt under
Notification No. 8/2004. This notification exempts all goods falling under
tariff item 21069020 and chapter 24 of the first schedule to the CETA,
1985 manufactured in a factory and used within the said factory for
manufacture of final products. The benefit of this notification is,
however, not applicable where the final products are exempt from the
whole of the duty of excise leviable.
7.4. It is the contention of the appellants that since the
notification No. 8/2004 is a conditional one and not an absolute
exemption, therefore, the benefit of Notification No. 52/2002-CE cannot
be denied to their inter-mediate products i.e. compound used in the
manufacture of chewing tobacco which is dutiable but for exemption
notification No. 8/2004. It is submitted that the Department has already
raised the demands to the appellant denying the benefit of exemption
notification No. 8/2004. This clearly shows that the said notification is
not the absolute exemption notification.
8. On perusal of the order, we find that in para 5.12.1 and 5.12.2
of the order No. 4/2012, the Ld. Commissioner has discussed as to how
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Excise Appeal Nos. 76155-76157/2023
the benefit of Notification No. 8/2004 is not applicable to the compound.
However, he has not recorded any findings in regard to the submission
of the appellants that while calculating the duty payable but for
exemption, the duty payable on compound is to be taken as zero. It is
the contention of the appellants that by adopting the above
methodology, duty payable for the purpose of investment works out to
excise duty payable on the final products but for the said exemption and
the said amount is already invested and therefore, no duty is leviable on
the compound. Further, it is the grievance of the appellants that there is
no detailed finding of the ld. Commissioner on the issue of time bar.
9. We find that the Ld. Advocate produced before the Bench
various notices issued to the appellants for denying the benefit of
exemption notification to the appellants to their final products that is
chewing tobacco. The facts were however, not available before the
adjudicating authority while passing the order. It is the contention of
the appellants that notification 52/2002 is not applicable to the inter-
mediate products where the final products are wholly exempt from duty.
Since in their case the final products are exempt subject to certain
conditions, the said final products cannot be said to be wholly exempt.
10. In view of above facts both the sides agree that the matter
requires a fresh look by the adjudicating authority. Accordingly, we set
aside the impugned order with the direction to the adjudicating
authority for passing a fresh order after considering all the issues raised
by both parties. We, however, direct that the adjudicating authority
should pass the order preferably as far as practicable within three
months of the date of communication of this order. It is needless to
mention that a reasonable opportunity of hearing to the appellants
should be provided before deciding the case.
11. In the result, appeals are allowed by way of remand."
6. The Ld. commissioner decided the case under denovo adjudication
vide Order-in-Original dated 28.01.2016, wherein the demands of duty
along with interest and penalty equal to the duty was confirmed against
all the three Appellants. The present appeals were filed by all the three
Appellants against the impugned order dated 28.01.2016.
7. In their grounds of Appeal, the Appellant made the following
submissions:
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Excise Appeal Nos. 76155-76157/2023
(i) Notification No. 8/2004-CE is special scheme of benevolent nature to
encourage investment for development in the North East. It is required
to be interpreted liberally keeping in view the purpose of the scheme
behind it. If the view taken by the Department is accepted, it would
defeat the very purpose of the scheme. If Department's interpretation is
accepted and duty is demanded on compound, an intermediate product,
it leads to irreconciliable legal anomalies which cannot be permitted.
This is explained by the Tribunal while interpreting its precedent
exemption under 32/99-Ce dated 8/7/1999, in the case of
Commissioner of C.Ex., Shillong vs AbdosLamitubes Pvt Ltd.--
2013 (297) ELT 117 (Tri.-Kolkata)
(ii) Chewing tobacco is not exempt from all duties. Additional duty was
paid on Chewing Tobacco under the Finance Act, 2005. Besides,
notification No. 8/2004-CE did not provide upfront exemption from
other duties to chewing tobacco. Amount equal to all other duties
otherwise payable was deposited in the Escrow Account.
(iii) From the precedent case laws relating to disputes on exemption to
goods used captively for manufacturing exempted finished goods that
are exempted under similar notifications incorporating beneficial
schemes, it follows that exemption to compound under notification No.
52/2002-CE is allowed. A careful examination of the scheme of
exemption under notification No. 8/2004-CE reveals that compound is
also exempted under notification No. 8/2004-CE. Therefore no duty
demandable under 52/2002-CE.
(iv) It is not permissible to raise demand, if any, for duty on the
intermediate product before the claim of exemption on chewing tobacco
is settled by certification of investment by the Investment Appraisal
Committee.
(v) Notification No. 8/2004-CE is a conditional exemption. Conditional
exemption to finished goods does not disqualify exemption to
intermediate goods manufactured and used captively in the same
factory. It is incongruous to argue that duty is payable on captively
used compound when final product--chewing tobacco--is exempt on
condition of making investment in the North East. That would defeat the
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Excise Appeal Nos. 76155-76157/2023
very purpose of the exemption notification. The manufacturer has then
to invest the amount equal to the duty payable on finished goods as
also pay substantial amount of duty demanded on the intermediate
compound in cash as confirmed by the Ld. Commissioner. This cannot
be the objective of scheme of incentivising investment in the North East
through notification No. 8/2004-CE. As such the bar under proviso to
52/2002-CE is not attracted. The law is well settled in this regard.
(vi)Proviso to Notification No. 52/2002 is similar to proviso to
notification No. 67/95-CE. Therefore the case laws in respect of 67/95-
CE apply to interpretation of proviso to 52/2002-CE. In Pitambar
Coated Paper Ltd vs Commissioner of Central Excise, Jaipur--
2003 (157) ELT 297 (Tri.-Del.), the argument of demanding duty on the
intermediate under captive consumption exemption notification No.
67/95-CE was rejected by the Tribunal, observing that "If the
interpretation sought to be given by the Revenue is accepted, it would
defeat the very objective." The above judgment was approved by the
Hon'ble Supreme Court, vide Commissioner of Central Excise,
Jaipur vs Pitambar Coated Paper Ltd-- 2015 (319) ELT 357 (SC).
(vii) Interpretation of the word 'exempted' in Notification 8/2004 need
to be considered in the relevant context of facts and not literally. Having
regard to the essential purpose of the scheme of exemption in
notification No. 8/2004-CE and notification No. 52/2002-CE, it would be
illogical to interpret that the proviso to this notification is attracted to
demand duty on intermediate compound. Notification No. 8/2004-CE
mandates that an amount equal to the duties, otherwise payable, on
chewing tobacco is deposited and invested.
(viii) Compound is also covered by exemption under Notification No.
8/2004-CE and therefore question of demanding duty on 'Compound'
under Notification No. 52/2002-CE does not arise. Even if, for
argument's sake, duty is demandable under 52/2002-CE, the amount
payable is ZERO. Notification No. 8/2004-CE exempts all goods falling
under sub-heading 2401.90, 2402.00, 2404.41, 2404.49, 2404.50 or
2404.99 of the Tariff from basic duty, additional duty and NCCD. Since
'Compound' falling under Heading No. 2404.41 during 2003-04 and
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Excise Appeal Nos. 76155-76157/2023
2004-05 (up to 28/22005) and under heading 24039990 with effect
from 28/2/2005, it is eligible for the benefit of exemption Notification
8/2004-CE .
(ix) The exemption under 8/2004-CE is applicable to compound as well.
However, compound is not removed or cleared as such. Its identity gets
merged in chewing tobacco. Thus, the compound gets cleared along
with chewing tobacco. The fact that compound is classifiable as chewing
tobacco and falls in the category of products specified under notification
No. 8/2004-CE is not disputed by the Commissioner in the impugned
order.
(x) The Appellant manufactured two products--one, compound and the
other, chewing tobacco in the same factory and compound was used
entirely captively. According to the Department, while chewing tobacco
is exempt under notification No. 8/2004-CE, compound is not, even
though both are products specified under the same Notification No.
8/2004-CE. The substantive condition for exemption under notification
No. 8/2004-CE is that an amount equal to the duty payable on the
specified product should be invested in the North East for any of the
notified purposes through the mechanism of Escrow Account deposit
and withdrawal. Other conditions are purely procedural. It is not in
dispute that the Appellant used the compound only for captive
consumption and nothing was cleared from the factory as such. Once
the condition of deposit of an amount equal to the duty payable, but for
exemption under notification No. 8/2004-CE stands satisfied for
chewing tobacco, the same condition gets automatically satisfied for
compound captively consumed as well. This is for the reason that the
amount of duty payable on compound, but for the exemption contained
in notification No. 8/2004-CE, is nothing but ZERO. When we calculate
the amount to be invested for availing of exemption under notification
No. 8/2004-CE, the amount is to be calculated as if compound and
chewing tobacco are both taxable in a regime where notification No.
8/2004-CE is not in existence. This follows quite clearly from the use of
the words, "but for the exemption in this notification" used in
notification No. 8/2004-CE. Thus, when we calculate the amount to be
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Excise Appeal Nos. 76155-76157/2023
deposited/invested for compound keeping this in mind, the amount
comes to be ZERO because in a tax regime in which 8/2004-CE is non-
existent, the intermediate compound having been used captively in
dutiable chewing tobacco gets the benefit of duty exemption under
notification No. 52/2002-CE and thus no amount of duty is payable on
compound. Thus, the exemption to chewing tobacco under notification
No. 8/2004-CE automatically accompanies with it the exemption to
captively used compound under the same very notification. In other
words, exemption to compound travels along with exemption on
chewing tobacco.
(xi) All duties were not exempt under 8/2004-CE dated 25.01.2004.
AED under Finance Act 2005 was paid on chewing tobacco. The word
'exempted' used in the proviso to 52/2002-CE has to be interpreted in
the relevant context and not literally. In the first place, there was no
upfront exemption on chewing tobacco from basic duty, NCCD etc. An
amount equal to theses duties, payable at the normal rate, was
deposited in the Escrow Account. Secondly, chewing tobacco was
chargeable to an Additional Duty of 6% under the Finance Act 2005.
Notification No. 8/2004-CE did not exempt this duty. Since the amount
of duty payable on compound, but for the exemption in notification No.
8/2004-CE is ZERO, the substantive as well as procedural conditions get
automatically satisfied along with that for chewing tobacco.
(xii) In Dharampal Premchand Ltd., Dharampal Satyapal Ltd. vs
Commissioner of Central Excise, Shillong--2018 (8) TMI 469-
Tribunal Kolkata, while dealing with the use of the word "exempted" in
Rule 6(3) of the Cenvat Credit Rules, 2004, observed as under:
"It is our considered view that the words "exempted goods"
appearing in Rule 6 of the Cenvat Credit Rules are to be read and
interpreted in the relevant context. It is not the correct
interpretation that when a product is chargeable to different kinds
of excise duties, the words "exempted goods" refer only to
exemption from basic excise duty. The words 'exempted goods'
refer only to a situation where the goods are exempted from all
kinds of excise duties in so far as Rule 6(1) of the Cenvat Credit
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Excise Appeal Nos. 76155-76157/2023
Rules, 2004 is concerned. If the Cenvat credit is denied in respect
of inputs and capital goods merely on the interpretation that basic
excise duty on the finished goods is exempted, then it would lead
to an anomalous situation.
The Tribunal's Order has been affirmed by the Tripura High Court in
Union of India vs Dharampal Satyapal Ltd.--2021 (377) ELT 523
(Tripura).
(xiii) The word "exempted" used in the proviso to notification No.
52/2002-CE has to be interpreted keeping in view the context and
purpose of exemption to chewing tobacco under 8/2004-CE, otherwise
it would defeat the very purpose of exemption and cause anomaly.
(xiv) Exemption to chewing tobacco at the time of clearance is only a
claim. Chewing tobacco becomes 'exempted' only after the Investment
Appraisal Committee (IAC) gives the investment certificate. That is why
the notification says that if certificate is not given, duty becomes
recoverable. Now, if any demand on finished chewing tobacco is
confirmed for the reason that conditions of exemption on finished
chewing tobacco are not fulfilled, then, no duty is payable on the
intermediate product 'Compound' used in manufacture of the relevant
clearances of chewing tobacco by virtue of notification No. 124/94-CE
itself in as much as compound was used in dutiable clearances of
chewing tobacco. This renders the action taken to raise the demand of
duty on compound without waiting for confirmation of exemption claim
on chewing tobacco via the mechanism of investment certificate by the
IAC completely premature, infructuous and legally untenable. From
this, it follows that even if the Department contends that duty is
payable on intermediate goods captively used, the demand, if at all, can
be raised only after the fate of exemption claimed on finished chewing
tobacco is known after the appraisal by the IAC. In other words, the
impugned show cause issued is a nullity and consequently the
impugned order confirming the demand is also a nullity.
(xv) The demands are barred by limitation. No evidence of suppression
of facts with intention to evade duty has been either alleged in the SCN
or discussed in the findings of the impugned order, except stating that
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Excise Appeal Nos. 76155-76157/2023
suppression of facts involved in this case. The Process of manufacture
was declared to the department. The compound emerging as an
intermediate product was in the knowledge of the Department. Records
were maintained. Audit was conducted in 2001, 2003, 2004, 2005 and
2007.There was no suppression of facts with intention to evade duty on
compound. When the facts were in the knowledge of the Department,
suppression cannot be alleged. Hence, extended period cannot be
invoked to demand duty. There could be no intention to evade duty
on compound for the simple reason that compound, also being eligible
to exemption under 8/2004-CE, had the exemption been availed of, the
Appellant would have only gained by getting more money ,equal to the
duty otherwise payable on compound for investment.
(xvi) If Audit is conducted in the past, but discrepancy not pointed out,
then Tribunal has held that intent to evade can't be alleged, in the
following cases:
- CCE vs MTR Foods Ltd.--2012 (282) ELT 196
(Kar.).
- Rajasthan State Warehousing Corporation--
2011 (23) STR 385 (Tri.).
- Trans Engineers India Pvt. Ltd. vs
Commissioner of C.Ex., Pune--2015 (40) S.T.R.
490 (Tri. - Mumbai).
(xvii) The entire exercise would be revenue neutral and in that
situation the Appellant would not have achieved any purpose to evade
duty. The ratio of the law laid down in Commissioner of C. Ex.,
Chennai-IV vs Tenneco RC India Pvt Ltd.--2015 (323) ELT 299
(Mad.) applies in that circumstances.
(xviii) In view of the above submissions, the Appellants prayed for
setting aside the impugned orders demanding duty along with interest
and penalty.
8. The Ld. A.R. submitted that 'Compound' is a separate finished goods
chargeable to duty. This view has been upheld by the decision of the
Hon'ble Supreme Court in Appellant's own case, Dharampal Satyapal Vs
Commissioner of Central Excise, New Delhi, as reported in 2005(183)
ELT 241 (SC). Notification 52/2002 dated 17.10.2002 is not applicable
where the final products are exempt from the whole of duty of excise
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Excise Appeal Nos. 76155-76157/2023
leviable thereon. Since the finished product 'Chewing Tobaco' is
exempted by Notification 8/2004-CE dated 25.01.2004, duty is payable
on the intermediate product 'Compound'. Accordingly, he prayed for
upholding the impugned order.
9. Heard both sides and perused the appeal records.
10. We observe that the impugned order has been passed by the Ld.
Commissioner as per the directions given by the Tribunal in the Final
order dated 30.07.2015, the relevant portion of which is reproduced in
Para 5 supra. From the findings of the Tribunal, we observe that the Ld.
Commissioner while adjudicating the case earlier has not given any
finding on some of the points raised by the Appellant in their
submissions. One of the main contention of the Appellant is that the
Notification 52/2002-CE is not applicable to intermediate products,
when the final products are wholly exempt from duty. In their case, the
final products are exempt subject to certain conditions and hence it
cannot be said that the said final products are wholly exempt from duty.
We observe that this is the most vital point to be decided in this case to
arrive at a decision whether the Notification 52/2002-CE is applicable in
this case or not. Another notable omission pointed out in the Tribunal
order is that the Ld. Commissioner in his order dated 31.05.2012, has
discussed how the benefit of Notification 8/2004 is not applicable to the
compound but, he has not recorded any findings in regard to the
submission of the Appellants that while calculating the duty, but for the
exemption, the duty payable on 'Compound' is to be taken as 'Zero'.
The Appellant's contention is that by adopting the above method, duty
payable for the purpose of investment works out to excise duty payable
on the final products but for the exemption and the said amount is
already invested and therefore no duty is leviable on the 'Compound'.
The Tribunal has also observed that no detailed findings given on the
issue of time bar.
11. We will now examine how these issues are discussed by the Ld.
Commissioner in the impugned order passed in the denovo adjudication,
as per the direction of the Tribunal. We find that the Ld. Commissioner
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Excise Appeal Nos. 76155-76157/2023
has discussed the above issues in Paras 7.3.1 to 7.3.18, in the
impugned order.
11.1. In para 7.3.1 of the impugned order, the Ld. Commissioner
reproduced the contents of Notification 8/2004 . In paras 7.3.2 to 7.3.8
he has given his findings to the contention of the Appellants that, the
exemption on the final product is absolutely conditional and hence
Notification 52/2002-CE cannot be made applicable to the intermediate
product 'Compound', which is reproduced below for ready reference:
"7.3.2 Now, it transpires from the Notification No. 69/2003-CE dated
25.08.2003 that the duty exemption was for 50% of the duty payable
i.e. it was a partial exemption. The transition from 50% to 100% took
place by the Notification No. 08/2004-CE dated 21.01.2004. Thus, the
cause of action starts from 21.01.2004 as the earlier period was not
under full exemption. Therefore, the Notification No. 52/2002-CE dated
17.10.2002 was not attracted till 21.01.2004. This Notification came
into play w.e.f. 21.01.2004 as full exemption was allowed. Now the
exemption was allowed to the extent as follows:-
"an amount equal to the sum of basic excise duty, special excise
duty, additional excise duty and national Calamity Contingent duty,
payable, but for the exemption in this notification, shall be utilised by
the manufacturer only for investment in.
(i) Plant and machinery in a manufacturing unit which it located in
the State of Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland or Tripura, or
(ii) Infrastructure or civil works or social projects in the State of
Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram
Nagaland or Tripura."
7.3.3 It thus transpires that the specified duties were payable but for
the exemption in the notification. This denotes that the goods were
exempted notwithstanding the conditions attached to the notification
the duty payment was to be made at the factory gate read with Rule 8
of the Central Excise Rules. The notice has opted for the exemption and
thus the goods were exempted. In that situation the calculation of the
duty on intermediate product at zero rates was irrelevant. The
Notification has not specified anything that the goods so cleared under
the provision of the Notification were not exempted even when the
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Excise Appeal Nos. 76155-76157/2023
investments are not certified. The goods were exempt at the time of
clearance as well as on or after payment of the amount equal to the
sum, as specified in the Notification, Notwithstanding the exemption,
the duties were levied, and the goods were cleared for home
consumption and the prie included the element of duty also. Thus, the
duty' stands as collected from the buyer/market. One o the pleas taken
by the noticee is that the impugned 'Kimam' falling under sub-head
2404.41 up to 28.02.2005 and thereafter under sub-head 2403 9930,
was covered by Notification No. 8/2004-CE dated 21.01.2004, as
amended; therefore, it was open to the noticee to avail of the benefit of
said exemption notification in respect of their intermediate product
subject inter alia to the condition that an amount equal to the sum of
basic excise duty, special excise duty, additional excuse duty and
National Calamity contingent Duty, payable but for the exemption in
said notification, shall be utilized only for investment in plant and
machinery in a manufacturing unit of infrastructure or civil works in any
of the North Eastern States
7.3.4 As for coverage of impugned "Kiman' under Notification No.
8/2004-CE, it is the case of the Revenue that under no circumstances
the impugned 'Kimam' that was not even declared by the noticee in
their statutory Returns, could be deemed as covered by a conditional
notification. Secondly, it is Impossible for the noticee at this stage to
comply with time-bound conditions retrospectively such as the
execution of a bond prior to Investment in North Eastern States,
requirement of quarterly payment of the amount equal to the sum of
duty payable withn sixty days from the end of each quarter in an escrow
account, investment of the said amount in the manner as specified in
condition (B) of the notification within sixty days of withdrawal,
submission of a quarterly statement with sixty days from the end of the
relevant quarter to a Committee, consisting of the Chief Commissioner
of Central Excise, Shillong, the Principal Secretary or the Secretary of
the Commissioner in the Department of Industry of the State
concerned, giving details of deposit, withdrawal and investment during
the quarter and proving to the satisfaction of the said Committee that
the investment has been made for the purposes in condition (B) etc,
thirdly in condition EA of the notification, it is provided that if the
manufacturer fails to make the deposit or does not invest the amount
15
Excise Appeal Nos. 76155-76157/2023
specified in condition (B), within the stipulated period and in the manner
prescribed, then the duty which is equivalent to the amount not so
deposited or invested shall be recoverable from the manufacturer
alongwith interest without prejudice to any action that may be taken
under the provisions of the Central Excise At, by forfeiture of amount in
the said escrow account.
7.3.5 The above time-bound stringent conditions of the Notification No.
8/2004-CE makes it patently clear that it is no longer open to the
noticee to retrospectively claim the benefit of the said notification after
nearly a decade in respect of the impugned Intermediate product.
7.3.6 AS for deemed exemption of the impugned 'Kimam' under
Notification No. 52/2002-CE, on the basis of the Demand issued by
Revenue for denial of the benefit of Notification No. 8/2004-CE, it is the
case of Revenue that neither the Demand Notices per se, nor the
decision of the investment Appraisal Committee comprising the Chief
Commissioner of Central Excise and the principle Secretary/ Secretary
of the State concerned to recover proportionate duty in pursuance of
the order of the apex court dated 24.01.2014, negates the fact that the
noticee availed of exemption from the whole of the duty of excuse
leviable on their final product, viz, performed chewing tobacco or
scented Jarda, under Notification No. 8/2004-CE, and therefore, their
intermediate product 'Kimam' was not eligible for exemption under
Notification No. 52/2002-CE.
7.3.7. Secondly, as has been pointed out above, the benefit of a
conditional exemption notification cannot be retrospectively claimed in
regard to offending goods in respect of which duty had been evaded. In
support of the above contention the following case laws are relied upon
by Revenue.
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7.3.8 Therefore, within the scope of the Notification No. 08/2004-CE dated 21.01.2004 the calculation of duty on compound @ zero rate, has no relevancy and significance."
11.2 From the findings reproduced above, we find that the Ld. Commissioner has not discussed the main issue whether the exemption provided under the Notification 8/2004 to the finished product is an absolute exemption or conditional exemption. Notification 52/2002-CE can be made applicable to the intermediate product 'Comopund' only if 16 Excise Appeal Nos. 76155-76157/2023 the Notification 8/2004 provides absolute exemption to the finished product, Chewing Tobacco. If the exemption provided under Notification 8/2004-CE is conditional, then Notification 52/2002-CE would be applicable and the intermediate product 'Compound' manufactured and consumed within the factory would be eligible for the exemption. It is also observed that the Ld. Commissioner has brushed aside the contention of the Appellant that the duty payable on 'Compound' is to be taken as 'Zero' by saying that the Appellant has opted for the exemption and thus the goods were exempted. In that situation the calculation of the duty on intermediate product at zero rates was irrelevant.
11.3. In their submissions, the Appellants stated that the Notification No. 8/2004-CE gives only a conditional exemption. It is their contention that the conditional exemption to their finished goods Chewing Tobacco does not disqualify exemption to their intermediate goods namely, 'Compound' manufactured and consumed captively in the same factory. We observe that the Notification 8/2004 exempts the final product-- chewing tobacco-- on the condition that the manufacturer has to invest the amount equal to the duty payable on the finished good in the North East area itself. This is a fact on record and not disputed. If the Appellants failed to invest the duty saved in the North East area, then the duty payable on the finished goods can be recovered from them. Thus, we observe that the Ld. Commissioner has erred in arriving at the conclusion that the exemption provided under Notification 8/2004-CE is an absolute exemption. Once the exemption provided under the Notification 8/2004-CE is considered as a conditional exemption, then the bar under proviso to 52/2002-CE is not attracted. The law is well settled in this regard.
11.4. The Appellants stated that all duties were not exempt under 8/2004-CE dated 25.01.2004. AED under Finance Act 2005 was paid on chewing tobacco. The word 'exempted' used in the proviso to 52/2002-CE has to be interpreted in the relevant context and not literally. In the first place, there was no upfront exemption on chewing tobacco from basic duty, NCCD etc. An amount equal to theses duties, 17 Excise Appeal Nos. 76155-76157/2023 payable at the normal rate, was deposited in the Escrow Account. Secondly, chewing tobacco was chargeable to an Additional Duty of 6% under the Finance Act 2005. Notification No. 8/2004-CE did not exempt this duty. Since the amount of duty payable on compound, but for the exemption in notification No. 8/2004-CE is ZERO, the substantive as well as procedural conditions get automatically satisfied along with that for chewing tobacco. We observe that the intermediate product, 'Compound' will be chargeable to duty only when the finished goods Chewing tobacco is wholly exempt from payment of all duties. In the present case firstly, the finished goods Chewing Tobacco is not exempted from all duties of excise, as Additional Duty @ 6% is still payable as per Finance Act, 2005. Secondly, an amount equal to these duties, payable at the normal rate, was deposited in the Escrow Account, which is to be withdrawn and invested in North East Area. Hence, we hold that the Exemption Notification 8/2004-CE is a conditional exemption and not an absolute exemption. 11.5. The Appellants stated that proviso to Notification No. 52/2002 is similar to proviso to notification No. 67/95-CE. Therefore the case laws in respect of 67/95-CE apply to interpretation of proviso to 52/2002-CE. They cited the decision of the Tribunal in the case of Pitambar Coated Paper Ltd vs Commissioner of Central Excise, Jaipur--2003 (157) ELT 297 (Tri.-Del.), wherein the demand of duty on the intermediate product under captive consumption exemption notification No. 67/95-CE was rejected by the Tribunal, by observing that "If the interpretation sought to be given by the Revenue is accepted, it would defeat the very objective." The above judgment was approved by the Hon'ble Supreme Court, vide Commissioner of Central Excise, Jaipur vs Pitambar Coated Paper Ltd-- 2015 (319) ELT 357 (SC).
11.6. The Appellants contended that interpretation of the word 'exempted' in Notification 8/2004 need to be considered in the relevant context of facts and not literally. Having regard to the essential purpose of the scheme of exemption in notification No. 8/2004-CE and notification No. 52/2002-CE it would be illogical to interpret that the proviso to this notification is attracted to demand duty on intermediate 18 Excise Appeal Nos. 76155-76157/2023 compound. Notification No. 8/2004-CE mandates that an amount equal to the duties, otherwise payable, on chewing tobacco is deposited and invested.
11.7. The Appellants also contended that 'Compound' is also covered by exemption under Notification No. 8/2004-CE and therefore question of demanding duty on 'Compound' under Notification No. 52/2002-CE does not arise. We agree with the contention of the Appellants. Even if, for argument's sake, duty is demandable under 52/2002-CE, the amount payable is ZERO. Notification No. 8/2004-CE exempts all goods falling under sub-heading 2401.90, 2402.00, 2404.41, 2404.49, 2404.50 or 2404.99 of the Tariff from basic duty, additional duty and NCCD. Since 'Compound' falling under Heading No. 2404.41 during 2003-04 and 2004-05 (up to 28/2/2005) and under heading 24039990 with effect from 28/2/2005, the benefit of exemption Notification 8/2004-CE is applicable to it. The exemption under 8/2004-CE is applicable to compound as well. However, compound is not removed or cleared as such. Its identity gets merged with chewing tobacco. Thus compound gets cleared along with chewing tobacco. The fact that compound is classifiable as chewing tobacco and falls in the category of products specified under notification No. 8/2004-CE, we hold that the goods 'Compound' is eligible for the benefit of the Notification 8/2004-CE. 11.8. We observe that the Appellants manufactured two products--one, compound and the other, chewing tobacco in the same factory and compound was used entirely captively. According to the Department while chewing tobacco is exempt under notification No. 8/2004-CE, compound is not, even though both are products specified under notification No. 8/2004-CE. The substantive condition for exemption under notification No. 8/2004-CE is that an amount equal to the duty payable on the specified product should be invested in the North East for any of the notified purposes through the mechanism of Escrow Account deposit and withdrawal. Other conditions are purely procedural. It is not in dispute that the Appellants used the compound only for captive consumption and nothing was cleared from the factory as such. Once the condition of deposit of an amount equal to the duty payable, 19 Excise Appeal Nos. 76155-76157/2023 but for exemption under notification No. 8/2004-CE stands satisfied for chewing tobacco, the same condition gets automatically satisfied for compound captively consumed as well. This is for the reason that the amount of duty payable on compound, but for the exemption contained in notification No. 8/2004-CE, is nothing but ZERO. When we calculate the amount to be invested for availing of exemption under notification No. 8/2004-CE, the amount is to be calculated as if compound and chewing tobacco are both taxable in a regime where notification No. 8/2004-CE is not in existence. This follows quite clearly from the use of the words, "but for the exemption in this notification" used in notification No. 8/2004-CE. Thus, when we calculate the amount to be deposited/invested for compound keeping this in mind, the amount comes to be ZERO because in a tax regime in which 8/2004-CE is non- existent, the intermediate compound having been used captively in dutiable chewing tobacco gets the benefit of duty exemption under notification No. 52/2002-CE and thus no amount of duty is payable on compound. Thus, the exemption to chewing tobacco under notification No. 8/2004-CE automatically accompanies with it the exemption to captively used compound under the same very notification. In other words, exemption to compound travels along with exemption on chewing tobacco.
11.9. The Appellants drew an anology with the ' exempted goods' condition mentioned in the Cenvat Credit Rules, 2004.In their support they cited the decision of the Tribunal, Kolkata in the Appellant's own case, Dharampal Premchand Ltd., Dharampal Satyapal Ltd. vs Commissioner of Central Excise, Shillong--2018 (8) TMI 469-, while dealing with the use of the word "exempted" in rule 6(3) of the Cenvat Credit Rules, 2004, The Tribunal observed as under:
"It is our considered view that the words "exempted goods"
appearing in Rule 6 of the Cenvat Credit Rules are to be read and interpreted in the relevant context. It is not the correct interpretation that when a product is chargeable to different kinds of excise duties, the words "exempted goods" refer only to exemption from basic excise duty. The words 'exempted goods' 20 Excise Appeal Nos. 76155-76157/2023 refer only to a situation where the goods are exempted from all kinds of excise duties in so far as Rule 6(1) of the Cenvat Credit Rules, 2004 is concerned. If the Cenvat credit is denied in respect of inputs and capital goods merely on the interpretation that basic excise duty on the finished goods is exempted, then it would lead to an anomalous situation.
11.10. The Tribunal's Order has been affirmed by the Tripura High Court in Union of India vs Dharampal Satyapal Ltd.--2021 (377) ELT 523 (Tripura). In this decision, the word 'exempted goods' has been interpreted to mean a situation where all duties are exempted. If some duties are still payable, then, it cannot be considered as 'wholly exempted'.
11.11. In the present case also, the Appellants were liable to pay Additional Duty as per Finance Act, 2005. The word "exempted" used in the proviso to notification No. 52/2002-CE has to be interpreted keeping in view the context and purpose of exemption to chewing tobacco under 8/2004-CE, otherwise it would defeat the very purpose of exemption and cause anomaly.
11.12. The relevant portion of the said decision of the Hon'ble High Court of Tiripura is reproduced below:
"11.Term exempted goods is defined in Rule 2(d) of the said Rules as under :
"exempted goods" means excisable goods 2.(d) which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to "Nil" rate of duty."
12.As per this definition thus "exempted goods" means excisable goods which are exempt from whole of the duty of excise and includes goods which are chargeable to "Nil" rate of duty. In the context of these statutory provisions, the Tribunal was of the opinion that the exemption from payment of excise duty and other duties under the Notification dated 21-1-2004 as amended by later Notification, was not an unconditional exemption. It was also observed that though the basic duty of excise was exempt on the final product, other duties such as National Calamity Contingent duty and Education Cess were applicable. In the opinion of the Tribunal term exempted goods for the purpose of Rule 6(1) would cover only those goods which are exempt from all kinds of excise duties.
13.Before we refer to certain decisions, we may peruse the exemption Notification dated 21-1-2004 more minutely. In the said exemption 21 Excise Appeal Nos. 76155-76157/2023 Notification, as noted, for units located in North-Eastern States including the State of Tripura, on the specified products subject to certain conditions, payment of basic duty of excise, the additional duty and National Calamity Contingent duties would be exempt. However, this exemption was conditional as can be seen from the following portion of the exemption Notification :
"(A) the exemption under this notification shall be available only in respect of a unit which, -
(i) is located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya , Mizoram , Nagaland or Tripura;
(ii) had commenced commercial production on or after the 24th day of December, 1997, but not later than the 28th day of February, 2001;
(iii) had availed of the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated the 8th July, 1999] or No. 33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated the 8th July, 1999]; and
(iv) has continued its manufacturing activities after the 28th day of February, 2001;
(B) an amount equal to the sum of basic excise duty, special excise duty, additional excise duty and National Calamity Contingent duty, payable, but for the exemption in this notification, shall be utilised by the manufacturer only for investment in, -
(i) plant and machinery in a manufacturing unit which is located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya , Mizoram, Nagaland or Tripura; or
(ii) infrastructure or civil works or social projects in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland or Tripura;
(C) the investment in terms of condition (B) shall be made before the expiry of six months from the end of each quarter;
(D) the manufacturer shall provide all details relating to the investment made in terms of condition (B), within one month after the expiry of the period of six months referred to in condition (C), to a Committee consisting of, the Chief Commissioner of Central Excise, Shillong, the Principal Secretary of the Department of Industry of the State concerned, in which the unit is located and the Principal Secretary of the Department of Industry of the State in which the investment is made, and shall have to prove to the satisfaction of the said Committee that the investment has been made for the purpose specified in condition (B);
(E) if the Committee referred to in condition (D) is satisfied that the investment as specified in condition (B), has been made, it shall issue a certificate to this effect to the manufacturer within a period of three weeks after the expiry of the one month referred to in condition (D), which shall be produced by the manufacturer, within a period of two weeks from the date of issue of such certificate, to the jurisdictional Central Excise Officer;22
Excise Appeal Nos. 76155-76157/2023 (F) the investment made under this notification shall not be allowed to be withdrawn before the expiry of ten years from the date on which the investment is made except in a case where the investment withdrawn is reinvested in the same manner as specified in this notification, in any one of the States mentioned in condition (A) :
Provided that if the investment made under this notification is withdrawn before the expiry of ten years and is not reinvested as mentioned above, the duty which is equal to the amount so withdrawn and not so reinvested, shall be paid by the manufacturer on the date on which the investment is withdrawn."
This Notification was amended under a subsequent Notification dated 9- 7-2004; however, basic terms for claiming exemption remain the same. We would therefore not duplicate the contents of such Notification. An analysis of the above quoted portion of the exemption Notification would show that over and above the basic requirements for the qualification of the product for exemption, the entire scheme of exemption was peculiar. Firstly, the amount equivalent to the sum of the basic excise duty and other duties waived under the said Notification, would be utilized by the manufacturer only for investment in the plant and machinery in a manufacturing unit which is located in those North- Eastern States or for infrastructure or civil works or social projects in such States. Such investment should also be made before expiry of six months from the end of each quarter. The manufacturer would provide all details relating to such investments. Only when the committees specially constituted for such purpose was satisfied that the investment as required have been made, it would issue a certificate to the manufacturer which the manufacturer would produce before the jurisdictional Central Excise Officer. The investment made under the said Notification would not be allowed to be withdrawn before expiry of ten years from the date on which the investment is made. If such condition is breached, the duty which is forgone will be recovered from the manufacturer.
14.In plain terms, this Notification cannot be seen as an unconditional exemption Notification in the nature of the Government of India forgoing certain duties. The Notification appears to have a dual purpose in the mind of the authority. First was to encourage investment in manufacturing units of specified products in the North-Eastern States. The second purpose also is equally important namely, that the element of duty waived by the Government of India is also ploughed back into the region by augmenting the manufacturing capability of a unit in the said region or for other purposes such as development of infrastructure or civil works or social projects in the region. The amount of duties saved by the manufacturer thus under this Notification, was to be utilized in a specified manner. The additional condition was that any such investment so made as required under the Notification, would not be withdrawn before completion of a period of 10 years and the breach of the condition would result into the recovery of duties forgone.
15.With this analysis in mind, we may refer the decision cited by the Counsel for the assessee. In case of Commissioner of Sales Tax, J & K and Others v. Pine Chemicals Ltd. and Others, reported in (1995) 1 SCC 58, brief facts were that the Government of Jammu & Kashmir had 23 Excise Appeal Nos. 76155-76157/2023 granted exemption to goods manufactured by large or medium industrial units within 5 years of its commencement of production and sold within the said period. In such context, it was observed that such exemption was a conditional exemption and not a general exemption.
16.The term "exempted goods" as defined in Rule 2(e) of the said Rules therefore shall have to be interpreted in the context of the materials on record and the observations of the Supreme Court in case of Pine Chemicals (supra). As per Rule 2(d), "exempted goods" would mean excisable goods which are exempt from the whole of the duty of excise leviable thereon or the goods which are chargeable to "Nil" rate of duty. In the present case, we have held that the exemption Notification dated 21-1-2004 as amended subsequently cannot be seen as a Notification granting unconditional exemption from payment of duties. Such exemption was conditional on various requirements which limited the scope of the assessee to utilize the duty element so exempted, for any purpose at all. Such exemption, thus, did not directly increase the profitability of the product since the assessee could not retain the sum equivalent to the duty payable and utilized it at will.
17.In the result, we answer the question against the revenue and in favour of the assessee and dismissed both the Appeals. Pending application(s), if any, stands disposed of.
11.13. Hence, relying on the above decision in Appellant's own case, we hold that the finished goods Chewing Tobacco were not wholly exempted. Consequently, the benefit of Notification 52/2002-CE also cannot be denied to demand duty on the intermediate product 'Compound' manufactured and captively consumed in the manufacture of Chewing Tobacco.
12. The Appellants contended that the demands confirmed in the impugned order are barred by limitation. They stated that no evidence of suppression of facts with intention to evade duty has been brought on record either in the SCN or discussed in the findings of the impugned order, except merely stating that suppression of facts involved in this case.
12.1. We observe that the Process of manufacture was declared to the department. The compound emerging as an intermediate product was in the knowledge of the Department. Records were maintained by the 24 Excise Appeal Nos. 76155-76157/2023 Appellants for the manufacture of 'Compound' which were consumed captively.Further, the Appellants stated that Audit was conducted in 2001, 2003, 2004, 2005 and 2007 and the Audit groups have not raised any objection on this point. Accordingly, we observe that when the facts were in the knowledge of the Department, suppression cannot be alleged. Accordingly, we hold that extended period cannot be invoked to demand duty.
12.2. If Audit is conducted in the past, but discrepancy not pointed out, then Tribunal has held that intent to evade can't be alleged, in the following cases:
- CCE vs MTR Foods Ltd.--2012 (282) ELT 196 (Kar.).
- Rajasthan State Warehousing Corporation--
2011 (23) STR 385 (Tri.).
- Trans Engineers India Pvt. Ltd. vs
Commissioner of C.Ex., Pune--2015 (40)
S.T.R. 490 (Tri. - Mumbai).
-
12.3. The Appellant also contended that the entire exercise would be revenue neutral and in that situation the Appellants would not have achieved any purpose to evade duty. They relied upon the ratio of the decision in the case of Commissioner of C. Ex., Chennai-IV vs Tenneco RC India Pvt Ltd.--2015 (323) ELT 299 (Mad.) in support of their contention. We agree with the contention of the Appellants that the entire exercise would be revenue neutral and the Appellants would not have achieved any benefit by not paying duty on the intermediate product namely, 'Compound'.
12.4. In view of the above discussion, we hold that the demand of duty is not sustainable on the ground of limitation also.25
Excise Appeal Nos. 76155-76157/2023 12.5. Since, demand of duty is not sustainable, the demand of interest and penalty also not sustainable. Thus, we hold that the demand confirmed against the Appellants in the impugned order is not sustainable and accordingly, we set aside the same.
13. In view of the above discussion, we set aside the impugned order and allow all the three appeals filed by the Appellants. With consequential relief, if any.
(Pronounced in the open court on...03.08.2023) Sd/-
(Ashok Jindal) Member (Judicial) Sd/-
(K. Anpazhakan) Member (Technical) Tushar Kr.