29 August, 2015

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Exempted Goods Cleared on Errorneous Payment of Duty would not become Dutiable

Exempted Goods Cleared on Errorneous Payment of Duty would not become Dutiable

Case Law Citation- The Commissioner of Central Excise Vs Integral Coach Factory (Madras High Court) – Civil Miscellaneous Appeal No.1182 of 2008; Date of Decision: 11.06.2015


Brief Facts

The assessee Integral Coach Factory (ICF) belonging to the Central Government is engaged in the business of manufacturing passenger coaches both self-propelled and non-propelled, steel freight containers and parts of passenger coaches for railways under Chapter 86 of CET 1985. 
They are availing exemption under Notification No.62/95 CE dated 16.3.1995. Alleging that ICF had cleared ferrous and non-ferrous scrap without payment of Central Excise duty, show cause notice was issued proposing to demand duty along with interest and penalty. The assessee replied to the said show cause notice stating that they are eligible for exemption under Notification No.89/95 CE dated 18.5.1995. The Adjudicating Authority, after due process of law, passed an order confirming the demand holding that the assessee was not eligible to claim the benefit of exemption under Notification No.89/95 CE dated 18.5.1995. 

Aggrieved by the said order of adjudication, the assessee filed an appeal before the Tribunal. The Tribunal after considering the Notification and the proviso and Explanation to the Notification allowed the claim of the assessee and held that:-


"3. After   giving   careful   consideration   to   the submissions, we have found valid challenge in this appeal.  A decision would rest on the interpretation of the proviso to Notification No.89/95-CE ibid.  

The case of the Revenue is   that,   as   the   assessee   had   cleared   excisable   goods  (coaches, coach components and containers) on payment  of  duty during  the period of  dispute,   their  claim  for   the benefit of the Notification in respect of the waste and scrap which  were   generated   in   the   course   of  manufacture   of such goods is barred by the proviso.  

It is the case of the assessee   that   the   payment   of   duty   on   coaches,   coach components and containers during the said period was by mistake and that the goods would not become "other than exempted goods"  merely by  reason of   the same having been   erroneously   cleared   on   payment   of   duty. Their  argument   is   that   goods   exempted   under   Notification No.62/95-CE (S.No.16(i) of the Table) manufactured by a factory   belonging   to   the   Central  Government   remained "exempted goods" within  the meaning of   this expression given under the Explanation to the Notification.   We have found  force   in  this  argument.    

As  per   the  Explanation,  "exempted goods"   means   excisable   goods   which   are chargeable to 'nil' rate of duty or exempted from the whole of   the   duty   of   excise   leviable   thereon   by   any   other  Notification   issued   under   sub-rule   (1)   of  Rule   8   of   the Central Excise Rules, 1944 or sub-section (1) of Section 5A of the Central Excise Act, 1944.   

It is not in dispute that  coaches,   coach   components   and   containers,   all   falling under  Chapter  86  of   the  Central  Excise   Tariff  Schedule were exempt   from payment  of  duty under  S.No.16(i) of  the Table annexed to Notification No.62/95-CE ibid during the material  period.    Erroneous payment of  duty on any such   goods   would   not   render   the   goods   "other   than exempted goods".   Both in the show-cause notice and in the   impugned   order,   "exemption"   was   misconceived. 
 

Apparently,   the   department   (in   the   show-cause   notice) and the Commissioner (in the impugned order) overlooked the Explanation to Notification No.89/95-CE.   The proviso to Notification No.89/95-CE was not attracted in this case and   the   assessee   was   entitled   to   the   benefit   of   the Notification and consequently  the demand of  duty  is not sustainable.  We need not look into the limitation issue. 
 

4. In the result, the impugned order is set aside and the appeal is allowed."

Aggrieved by the order of the Tribunal, the Department has filed the present appeal.
 
Held by Hon’ble High Court of Madras

The Hon’ble High court of Madras considered the relevant extracts of Notification No.89/95-CE dated 18.5.1995 which is as follows:


“Waste parings and scrap arising in the course of manufacture of exempted goods and falling within the schedule to the Central Excise Tariff Act, 1985, are exempted from the whole of excise duty leviable thereon, which is specified in the said schedule, provided that nothing contained in this Notification shall apply to waste, paring and scrap cleared from a factory in which any other excisable goods other than exempted goods are cleared.”


The assessee availed the benefit of this Notification in respect of clearance of waste scraps arising out of manufacture of exempted goods. Though exemption in respect of manufactured goods is available in S.No.16(i) of the Table annexed to Notification No.62/95-CE dated 16.3.1995 (as amended), the problem arose because the assessee cleared the exempted goods on payment of duty during the period in dispute. 

The erroneous payment of duty caused the Department to hold that the goods are other than exempted goods and therefore demand was made.


The Hon’ble Court stated that the Tribunal rightly held that proviso to this Notification would not apply to the facts of the case and the erroneous payment of duty would not render the goods other than exempted goods. So long as the goods manufactured are exempted goods, waste parings, scrap arising in the course of the manufacture of exempted goods would be entitled for exemption as per Notification No.89 of 1995 CE dated 18.5.1995.


In view of the above, the Hon’ble High Court answered the question of law in favour of the assessee and against the Revenue.

Full Text of Judgement (Highlighted Text) 
 

Case Law Citation- The Commissioner of Central Excise Vs Integral Coach Factory (Madras High Court) – Civil Miscellaneous Appeal No.1182 of 2008; Date of Decision: 11.06.2015
Brief Facts
The assessee Integral Coach Factory (ICF) belonging to the Central Government is engaged in the business of manufacturing passenger coaches both self-propelled and non-propelled, steel freight containers and parts of passenger coaches for railways under Chapter 86 of CET 1985. They are availing exemption under Notification No.62/95 CE dated 16.3.1995. Alleging that ICF had cleared ferrous and non-ferrous scrap without payment of Central Excise duty, show cause notice was issued proposing to demand duty along with interest and penalty. The assessee replied to the said show cause notice stating that they are eligible for exemption under Notification No.89/95 CE dated 18.5.1995. The Adjudicating Authority, after due process of law, passed an order confirming the demand holding that the assessee was not eligible to claim the benefit of exemption under Notification No.89/95 CE dated 18.5.1995. Aggrieved by the said order of adjudication, the assessee filed an appeal before the Tribunal. The Tribunal after considering the Notification and the proviso and Explanation to the Notification allowed the claim of the assessee.
Aggrieved by the order of the Tribunal, the Department has filed the present appeal.
Held by Hon’ble High Court of Madras
The Hon’ble High court of Madras considered the relevant extracts of Notification No.89/95-CE dated 18.5.1995 which is as follows:
“Waste parings and scrap arising in the course of manufacture of exempted goods and falling within the schedule to the Central Excise Tariff Act, 1985, are exempted from the whole of excise duty leviable thereon, which is specified in the said schedule, provided that nothing contained in this Notification shall apply to waste, paring and scrap cleared from a factory in which any other excisable goods other than exempted goods are cleared.”
The assessee availed the benefit of this Notification in respect of clearance of waste scraps arising out of manufacture of exempted goods. Though exemption in respect of manufactured goods is available in S.No.16(i) of the Table annexed to Notification No.62/95-CE dated 16.3.1995 (as amended), the problem arose because the assessee cleared the exempted goods on payment of duty during the period in dispute. The erroneous payment of duty caused the Department to hold that the goods are other than exempted goods and therefore demand was made.
The Hon’ble Court stated that the Tribunal rightly held that proviso to this Notification would not apply to the facts of the case and the erroneous payment of duty would not render the goods other than exempted goods. So long as the goods manufactured are exempted goods, waste parings, scrap arising in the course of the manufacture of exempted goods would be entitled for exemption as per Notification No.89 of 1995 CE dated 18.5.1995.
In view of the above, the Hon’ble High Court answered the question of law in favour of the assessee and against the Revenue.

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