CESTAT Quashes Excise Demand on Uttarakhand Unit Transfer, Holds Ownership Change & Relocation Do Not Defeat Area-Based Exemption

Conclusion: The entire demand of excise duty, interest, and penalties for alleging that assessee was merely a proxy entity created by Noble Industries to fraudulently extend the exemption period beyond its permissible tenure was set aside as exemption notification and CBEC Circulars expressly permitted manufacture of new products, relocation of eligible units within notified areas, and transfer of ownership without affecting exemption eligibility.

Held: Assessee-company was engaged in manufacture of washing machines and LED televisions, acquired M/s O, an industrial unit situated in a notified area of Uttarakhand and enjoying area-based excise exemption under Notification No. 50/2003-CE. Prior to transfer, O had added new product lines, shifted its manufacturing premises within another eligible notified area, and duly intimated the DIC as well as Central Excise authorities regarding addition of products and relocation of factory premises. Subsequently, assessee acquired O on a going-concern basis and continued availing exemption benefits. DGGI initiated investigation alleging that assessee was merely a proxy entity created by Noble Industries to fraudulently extend the exemption period beyond its permissible tenure. A show cause notice invoking the extended period under section 11A(4)  demanded excise duty with interest and penalties on allegations of forged documents, sham transfer arrangements, and wrongful availment of exemption. Assessee contended that manufacture of new products, relocation of factory premises within notified areas, and transfer of ownership were all permissible under the exemption notification and CBEC Circulars. It argued that all relevant declarations, approvals, and intimations were duly filed before statutory authorities and therefore invocation of extended limitation on grounds of suppression or fraud was legally impermissible. Department, however, alleged that the business transfer agreement and relocation exercise were merely paper transactions orchestrated to unlawfully continue exemption benefits and evade payment of duty. It was held that the extended period of limitation under section 11A(4) was wrongly invoked since all material facts regarding shifting of premises, addition of products, and transfer of ownership were already within the knowledge of the department in 2015 itself. Mere allegations of fraud or suppression, unsupported by deliberate concealment with intent to evade duty, could not justify invocation of the extended period.  Tribunal further held that the exemption notification and CBEC Circulars expressly permitted manufacture of new products, relocation of eligible units within notified areas, and transfer of ownership without affecting exemption eligibility. It was also held that statements recorded under section 14 could not be relied upon in adjudication proceedings in absence of compliance with section 9D, which mandated examination of witnesses before the adjudicating authority prior to admission of such statements in evidence. Consequently, the entire demand of duty, interest, and penalties imposed under rules 25 and 26 of the Central Excise Rules were set aside and all appeals were allowed.