Custom, Excise & Service Tax Tribunal
M/S Acquamall Water Solutions Ltd vs Cce, Meerut-Ii on 7 June, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No.2, R. K. Puram, New Delhi. Date of hearing: 31.05.2016 Date of decision: 07.06.2016 For Approval and Signature: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Mr. V. Padmanabhan, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Excise Appeal No. 1381 of 2008 (Arising out of the Order in Original No. 5-6/Comm/M-II/2008 dated 31.03.2008 passed by the Commissioner, Customs and Central Excise, Meerut-II). M/s Acquamall Water Solutions Ltd. Appellant Vs. CCE, Meerut-II Respondent
Appearance:
Shri B. L. Narasimhan, Advocate for the appellant.
Shri Sanjay Jain, DR for the respondent.
Coram: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Mr. V. Padmanabhan, Member (Technical) Final Order No. 52071 / 2016 Per: V. Padmanabhan:
The present appeal is directed against the order dated 31.03.2008 passed by the Commissioner in which the demands for duty raised in show cause notices dated 24.05.2006 and 06.12.2006 were finalised.
2. Appellant have a manufacturing unit located in Bhimtal Distt Nainital which is licensed by the Uttaranchal Government. The unit is situated within notified Industrial area and has availed the benefit for substantial expansion under Area Based exemption Notification No.50/2003-CE dated 10.06.2003. Appellant manufactures two main products:
1. Water Filter cum Purifier and (WFCP)
2. Water Cooler Cum Purifier (WCCP) They also manufacture Water Filter Cartridge and EVA Food Grade pipes which are mostly consumed captively in the manufacture of their two main final products. The appellant undertook substantial expansion in the installed capacity for manufacture of WFCP during the period July to October, 2003 in which the production capacity is said to have been increased from 1,44,000 unit per year to 3,00,000 and started availing the exemption under Notification No. 50/2003-CE w.e.f. 03.10.2003. The increase in production capacity was duly supported by a certificate from Professor of IIT Roorkee, IISC, Bangalore besides a Chartered Engineer Shri A.D. Deopujari. The appellant started substantial expansion of their other product, WCCP in September October, 2004 by addition of automated conveyor systems, additional conveyors, heating oven and other plant and machinery. The increase in installed capacity of this product was said to be from 1818 to 4000 (approximately) units per annum which was in turn supported by a certificate from Professor of IIT Roorkee. The appellant started availing the exemption benefit for this product w.e.f. 17.11.2004.
3. In 2006, Revenue issued several show cause notices proposing the denial of exemption under the Notification No. 50/2003 to WFCP and WCCP. For the demands issued upto 30.04.2005, the jurisdictional Commissioner vide her order dated 30.01.2008 allowed the benefit for both WFCP as well as WCCP. Revenue did not challenge this order any further. A fresh round of litigation for denying the benefit was started by issue of show cause notices dated 24.05.2006 and 06.12.2006 which culminated in the impugned order dated 31.03.2008. In the impugned order which is under challenge, the Commissioner allowed the benefit of Notification No. 50/2003 for the main products WFCP as well as WCCP in line with the order of his predecessor. However, he denied the benefit of the exemption on the intermediate products namely water filter cartridges and EVA pipes. The reason cited by the Commissioner is that the substantial expansion processes in respect of these two products were completed only on 15.07.2006 and 15.05.2006 respectively after the period in dispute.
4. The appellant has challenged the impugned order mainly on the following grounds:
(i) The exemption under Notification No. 50/2003-CE is qua industrial unit and not for individual goods. The intermediate products were integral parts of WFCP plant and substantial expansion in respect of this plant has been certified by IIT, Roorkee, IISC, Bangalore and Chartered Engineer and have been accepted by the Revenue.
(ii) The appellant has cited several decisions of this Tribunal which have clearly ruled that to claim the exemption under the Notification No. 50/2003-CE, it is not necessary that each and every part / section of the factory should be expanded. If the substantial expansion of the unit as a whole has taken place, the expansion would be admissible to all the products manufactured therein. They relied on the following judgments:
* CCE, Meerut-II vs. Prakash Straw Board Pvt. Ltd., - 2016 (332) ELT 741 (Tri. Delhi).
* CCE, Chandigarh vs. Bhandari Deepak Industries Pvt. Ltd. 2015 (318) ELT 677 (Tri. Del.) * CCE, Shillong vs. Monabari Tea Estate 2003 (154) ELT 230 (Tri. Kolkata) * CCE, Shillong vs. Dorria Tea Estate -2005 (156) ELT 999 (Tri Kolkata).
* CCE, Shillong vs. MKB (ASIA) Pvt. Ltd. 2003 (158) ELT 616 (Tri. Kolkata).
* CCE, Shillong vs. Assam Polyester Co-operative Society Ltd. -2003 (162) ELT 350 (Tri. Kolkata).
* CCE, Shillong vs. Hindustan Coca Cola Beverages 2004 (169) ELT 152 (Tri. Kolkata).
* CCE, Dibrugarh vs. Hindustan Coca Cola Beverages (P) Ltd. 2005 (186) ELT 242 (Tri. Kolkata).
(iv) On the question of judicial discipline the appellant contended that the Commissioner vide her order dated 30.01.2006 has allowed exemption to the appellant. This order has been accepted by the Department and hence the department cannot take a contrary stand in subsequent proceeding.
(v) Revenue had already demanded the duty on the intermediate products namely water filter cartridge and EVA food grade pipes, through a series of show cause notices covering the period April 2005 to March 2006, seeking to deny exemption under Notification No. 67/95-CE. All the notices have been dropped by the respectively adjudicating authorities. Under such circumstances, the appellant claimed that it would not be open to the Commissioner to readjudicate the demand of duty on the same products for the same period.
(vi) The appellant has also taken serious objection to the Commissioner relying on two reports by the Assistant Commissioner dated 19.11.2007 and 13.02.2008 which indicate that he had ordered further investigations after receiving the reply of the appellant and after hearing the appellants in September October, 2007. These reports of Assistant Commissioner have not been made available to the appellants, thereby violating the principles of natural justice. The quantification of the duty demand is also claimed to be incorrect.
5. Ld. DR supporting the order of the Commissioner argued that water filter cartridge and EVA food grade pipes are different products for which the substantial expansion has been undertaken by the appellant much later and hence during the period for which show cause notices have been issued, these products will not be eligible for the benefit of Notification No. 50/2003. He further submits that the appellant themselves have admitted that the substantial expansion in respect of these products have been completed only on 15.07.2006 and 15.05.2006 respectively.
6. Heard both sides and perused the records.
7. Appellant has claimed the benefit of Notification No. 50/2003-CE which exempts the goods specified in the First and Second Schedule of the Central Excise Tariff Act, other than the negative list and specified in Annexure-I of the notification, cleared from a unit located in the Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate specified in Annexure-II. The relevant part of para 2 of the notification reads as follows:
The exemption contained in this notification shall apply only to the following kinds of units, namely:-
(i) .... ..... ...... ...... ......
(ii) industrial units existing before the 7th day of January, 2003, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty-five per cent on or after the 7th day of January, 2003, but have commenced commercial production from such expanded capacity, not later than the 31st day of March, 2007.
8. The fact that the appellant has satisfied the condition of substantial expansion for their main product WFCP and WCCP is not in dispute and the benefits have been allowed by the Commissioner in the impugned order. He however has held that substantial expansion has been done only in the period subsequent to the disputed period, for the intermediate products namely Water Filter Cartridge and EVA Food Grade Pipes. What would constitute substantial expansion has been clarified by the CBEC vide Circular dated 21.01.2004 as under:
following guidelines are circulated to explain the scope of substantial expansion so far as it relates to the applicability of above mentioned notifications.
(a) Increase in installed capacity of an existing unit by not less than 25% should be the result of installation of additional plant and machinery. Any increase in the installed capacity by means other than installation of additional plant and machinery would not qualify for the benefit of exemption under substantial expansion.
(b) As substantial expansion is defined in terms of increase in installed capacity by 25% or more, value of investment in plant and machinery is not the criteria to define substantial expansion. So long as additional installation of plant and machinery results into increase in installed capacity by not less than 25% quantum or value of investment in plant and machinery is not very material in deciding the criteria of substantial expansion.
(c) There is no bar on use of second hand machinery for undertaking substantial expansion so long as it enhances the existing installed capacity by not less than 25%. What is relevant is the increase in installed capacity by not less than 25% by way of additional installation of plant and machinery.
(d) The term substantial expansion is not defined in terms of original or depreciated value of plant and machinery. The only criterion to be satisfied is accretion in installed capacity by atleast 25% with additional plant and machinery.
(e) Additional investment in plant and machinery for modernisation or for improving the quality of existing products, unless it leads to increase in installed capacity by 25% or more, would not tantamount to substantial expansion.
9. The clarification clearly shows that substantial expansion is only by way of increasing installed capacity of the industrial unit. The notification grants exemption to all goods cleared from the unit which has undertaken substantial expansion. It is fairly obvious that the Water Filter Cartridge and EVA Food Grade Pipes are used as intermediate products in the manufacture of the final products namely WFPC and WCCP. A perusal of the reports submitted by the IIT Roorkee, IISC, Bangalore as well as Chartered Engineer clearly show that the manufacturing facilities of these intermediate products are not independent but are integrated with the production lives of the final products. Accordingly, Water Filter Cartridge and EVA Food Grade Pipes are manufactured corresponding to the number of finished products manufactured during a particular period. It is admitted by the appellant that the substantial expansion in respect of the intermediate products have been undertaken only after the period of dispute. This brings us to the more fundamental question whether to increase the installed capacity of the unit, the capacity of each and every products manufactured in the unit needs to be increased. This aspect has been considered by this Tribunal over and over again. It has been held that only the overall increase in the installed capacity is to be taken into consideration while considering the expansion and there is no requirement that the expansion should take place in each and every section of the manufacturing unit. This view has been held by the Tribunal in many cases, some of which are placed below:
* CCE, Meerut-II vs. Prakash Straw Board Pvt. Ltd., - 2016 (332) ELT 741 (Tri. Delhi).
* CCE, Chandigarh vs. Bhandari Deepak Industries Pvt. Ltd. 2015 (318) ELT 677 (Tri. Del.) * CCE, Shillong vs. Monabari Tea Estate 2003 (154) ELT 230 (Tri. Kolkata) * CCE, Shillong vs. Dorria Tea Estate -2005 (156) ELT 999 (Tri Kolkata).
10. The above view has also been taken by the Commissioner in her order dated 30.01.2006 for the prior period. However, in the impugned order, ld. Commissioner has taken a contrary stand and demanded the duty on the intermediate products for the reason that these products are separate and distinct articles for which substantial expansion has taken place only much later. We find this view of the Commissioner is totally erroneous and contrary to the judicial pronouncements on the subject, as outlined above. Both the show cause notices covered in the impugned order seek to demand duty on clearances of the final products WFCP and WCCP. A very small amount has also been demanded on clearances of spare, cartridges and pipes. We find that the demand confirmed in the impugned order to the extent of Rs. 1,12,13,434/- has no relation whatsoever with the amounts in the show cause notice from the impugned order. We find absolutely no clue as to how the demand has been worked out. It appears that the demand has been crystalised as a result of the investigation ordered by the Commissioner whose reports dated 19.11.2007 and 13.02.2008, the Commissioner relies in the order. Inasmuch as copies of these reports have not been furnished to the appellant, the Commissioner has passed this order behind the back of the appellant clearly disregarding principles of natural justice. We also find that the basis of the demand does not emerge from the impugned order itself, making this error sufficient to set-aside the impugned order.
11. We also find considerable force in the argument of the appellant that duty was demanded on the intermediate products through various show cause notices issued by the lower authorities. All these notices had been dropped. Under the circumstances, the Commissioner has no power to reopen the demands in the guise of denying the benefit of Notification No. 50/2003.
12. In the result, we hold that the impugned order of the Commissioner is to be set-aside not only for being violative of the principles of natural justice, but also on the ground that the appellant is eligible for the benefit of Notification No. 50/2003-CE for all products cleared inasmuch as there is no dispute that the installed capacity in respect of the final products namely WFCP and WCCP has satisfied the criteria of substantial expansion required under para (2) of the notification ibid.
13. The appeal succeeds and the impugned order is set-aside.
(Pronounced on 07.06.2016).
(Archana Wadhwa)
Member (Judicial)
(V. Padmanabhan)
Member (Technical)
Pant