Case Law Details

Case Name : M/s Jai Ganesh Processors Vs. CCE (High Court of Punjab and Haryana)
Appeal Number : C.E.A. No. 228 of 2010 (O&M)
Date of Judgement/Order : 11/03/2011
Related Assessment Year :
Courts : All High Courts (3793) Punjab and Haryana HC (203)

M/s Jai Ganesh Processors Vs. CCE, C, Chandigarh (High Court of Punjab and Haryana at Chandigarh) –  Even though the Hon’ble Supreme Court held that the assessee would not get benefit of exemption if duty had not been paid on inputs, the assessee held a bonafide view about interpretation of the notification. Thus, it may not be a case of deliberate evasion of duty. While the Tribunal rightly rejected the claim of the assessee that exemption was applicable, the setting aside of penalty cannot be held to be illegal. Levy of penalty is not automatic merely because an exemption was wrongly availed, even when plea of the assessee is found to be erroneous.

HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

C.E.A. No. 228 of 2010 (O&M) Date of decision: 11.03.2011

Commissioner of Central Excise Commissionerate . Vs. M/s Jai Ganesh Processors.

AND connected cases being CEA Nos.231, 233, 234, 236, 238, 242, 243, 246, 248, 249, 252, 259 to 261, 263, 264, 267, 269, 271, 276, 278, 281, 283 & 290 of 2010

JUDGEMENT

ADARSH KUMAR GOEL. J.

1. This order will dispose of CEA Nos.228, 231, 233, 234, 236, 238, 242, 243, 246, 248, 249, 252, 259 to 261, 263 264, 267, 269, 271, 276, 278, 281, 283 and 290 of 2010 as all the appeals involve a common question.
2. CEA Nos.228 of 2010 has been preferred by the revenue under Section 35G of the Central Excise Act, 1944 (for short, “the Act”) against the order of the Customs, Excise & Service Tax Appellate Tribunal, New Delhi dated 12.11.2009, Annexure A-2, proposing to raise following substantial question of law:-

“Whether Tribunal is justified in setting aside the penalties on the ground of interpretation when the issue already stands elucidated by the Constitution Bench of the Hon’ble Supreme Court of India?”

3. The assessee is registered with the Central Excise Department for manufacture of knitted fabrics. It availed concessional rate of duty during the period from 1.9.2002 to 31.3.2003 as per notification dated 1.3.2002, under which exemption is available on goods manufactured from inputs on which duty has already been paid. Since the inputs used by the assessee had not suffered duty, exemption was not available, as held by the Hon’ble Supreme Court in CCE. Vadodara v. Dhiren Chemical Industries 2002 (139) ELT 3. Accordingly, Show Cause Notice was issued to the assessee for recovery of duty with interest and penalty. Vide Order-in-Original dated 5.1.2004, the Adjudicating Authority confirmed the demand of duty with interest and penalty which was upheld by the Order-in-Appeal dated 31.8.2004. On further appeal of the assessee, the penalty was set aside while demand of duty with interest was upheld. The Tribunal observed:-

49. As regards the point in relation to penalty imposed by the lower authorities in most of the cases, needless to say that matter involved the issue relating to the interpretation of the notification and, therefore, the appellants are justified in contending that there was no case for imposition of penalty. Therefore, in such circumstances, we do not find any justification for upholding the decision regarding imposition of the penalty and the same need to be quashed.”

4. We have heard learned counsel for the appellant.
5. Learned counsel for the appellant submitted that in view of judgment of the Hon’ble Supreme Court in Dhiren Chemical Industries, which is dated 12.12.2001, the assessee had no justification for obtaining concessional rate of duty for the period from 1.9.2002 to 31.3.2003 and thus, the view taken by the Tribunal that there was dispute of interpretation was not legally correct, the dispute having already been settled by the Hon’ble Supreme Court during the period in question.
6. We are unable to accept the submission.
7. The Tribunal has noticed the contention of the assessee that even though question of principle was settled in Dhiren Chemical Industries, applicability of the said judgment to the impugned notification still remained a moot point. Earlier view that inputs exempted from duty were treated as duty paid inputs as per the judgment of the Hon’ble Supreme Court in CCE, Patna v. Usha Martin Industries 1997(94) ELT 460 was reflected in various circulars and circular was issued by the department only on 26.9.2002 withdrawing the earlier circulars, which position was noticed by the Tribunal in its earlier judgment in Morarjee Gokuldas Spg. & Wvg. Co. Ltd. v. CCE, Mumbai 2005(190) ELT 217 and CCE. Ludhiana v. Prem Industries 2009(168) ECR 0133 (Tri. New Delhi). Explanation to the notification created a fiction on treating the exempted inputs to be duty paid inputs. Though in Dhiren Chemical Industries view taken in Usha Martin Industries was disapproved, the assessee continued under erroneous impression that it could avail exemption. The observations of the Tribunal in this regard are:-

“7. As regards the decision of the Apex Court in Dhiren Chemical case, apart from the differentiation between the notification which was under consideration before the Apex Court and the one in the case in hand, it is also sought to be contended that there was no explanation clause, as is found in the present case, available in the notification which was considered by the Apex Court in Dhiren Chemical case. Bearing in mind, this major difference, the observations of the Supreme Court in Dhiren Chemical case according to the Advocates for the appellants cannot be applied to the case in hand, more particularly, taking note of the phraseology of the notification in question. It is further contention on behalf of the appellants that while the judgment in Dhiren Chemical case was delivered on 12.12.2001, the notification in question came to be issued in March 2002. Being so, the Legislature and the Government were fully aware of the said decision of the Apex Court when the said notification was issued and precisely for the same reason, care was taken to clarify in the condition itself that the expression “appropriate duty” would also include the eventuality wherein the yarn and fabric is not subjected to the actual payment of the duty. It is also brought to the notice that since 1980, it has been the consistent stand of the Government that whenever the inputs are exempted from duty liability under a notification, they were always to be treated as duty paid inputs and that is evident from series of circulars issued by Central Board of Excise & Custom from 1980 to 1985 and in that regard attention is sought to be drawn to the decision of the Apex Court in CCE, Patna vs. Usha Martin Industries reported in 1997(94) ELT 460 (SC). Attention is also drawn to the Circular dated 26.09.2002 issued by the Board withdrawing previous circulars and further issuance of the circular dated 10.12.2002 in relation to the clarification on the point of rate of duty. In this regard, attention has also been drawn to the decision of the Tribunal in the matter of Morarjee Gokuldas Spg. & Wvg. Co. Ltd. vs. CCE, Mumbai reported in 2005(190) ELT 217.

8. In view of above, even though the Hon’ble Supreme Court held that the assessee would not get benefit of exemption if duty had not been paid on inputs, the assessee held a bonafide view about interpretation of the notification. Thus, it may not be a case of deliberate evasion of duty. While the Tribunal rightly rejected the claim of the assessee that exemption was applicable, the setting aside of penalty cannot be held to be illegal. Levy of penalty is not automatic merely because an exemption was wrongly availed, even when plea of the assessee is found to be erroneous. According to the assessee, even after the judgment of Dhiren Chemical Industries, it was under a bonafide wrong belief in the light of circulars in force which were finally withdrawn on 26.9.2002 that it could avail of exemption, though the same has been found to be unacceptable.

9. In the circumstances, view taken by the Tribunal that though interpretation of the assessee was erroneous, it did not lack bonafides and in such a situation, levy of penalty was not called for, is a possible view. The question raised cannot, thus, be held to be a substantial question of law.

The appeals are dismissed.

A photocopy of this order be placed on the file of each connected case.

March 11, 2011

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